Hyder Consulting (Vic) Pty Ltd and Ors v CGU Insurance Ltd and Ors [2001] VSC 449

Supreme Court of Victoria|2001-12-07|Before: Byrne J

Practice and procedure - separate trial of part of proceeding - discretion - whether discrete question - strike out application - claim for declaratory relief as to liability of indemnity insurer - claim for relief by stranger to insurance policy - whether claim plainly hopeless - whether real legal controversy between claimant and parties to insurance contract - discretion.

For the Plaintiffs and First to Fifthnamed Defendants by counterclaim

For the Firstnamed Defendant and Sixthnamed Defendant by counterclaim (CGU) and Eighth and Ninthnamed Defendants by counterclaim

The Secondnamed Defendant and Seventhnamed Defendant by counterclaim (QBE)

The Thirdnamed Defendant and Plaintiff by counterclaim (Heath)

The Tenth to Twenty-Firstnamed Defendants by counterclaim

The Twenty-Second Defendant by counterclaim (Imperium)

Before the Court in this, the Hyder Insurance Proceeding, are two sets of applications. The first is an application by the five plaintiffs, the HyderCMP parties, for directions as to the trial of certain claims in the proceeding before other claims; the second is a set of four applications filed on behalf of most of the defendants by counterclaim to strike out, stay or summarily dispose of the counterclaims against them brought by the third defendant, HLG Australasia Pty Ltd ("Heath").

In order to understand these applications it is necessary to summarise briefly the contentions of the parties to this very complex litigation as they appear in the pleadings.

The Hyder Insurance proceeding is, in a sense, a by-product of another proceeding, no. 6543 of 1998, called the "Hydrogeology Proceeding", which arises out of the construction of tunnels under the Yarra River as part of the CityLink project. In the Hydrogeology Proceeding which was commenced on 17 July 1998, the plaintiffs, Transfield Pty Ltd and Obayashi Corporation, two companies which comprise the Transfield Obayashi joint venture ("TOJV"), and Transfield Holdings Pty Ltd, sue 27 defendants. I shall refer to these plaintiffs collectively as "the TOJV parties".

The first seven defendants comprise the HyderCMP parties and two associated companies against whom it is alleged that they provided defective engineering advice, designs and services in relation to the CityLink project during the period 1992 to 1996. Against these defendants the TOJV parties claim damages. I shall refer to these claims made in this proceeding simply as "the TOJV claims".

The remaining 20 defendants are various insurers of the CityLink project. Thirteen of these insurers, "the PPI Insurers" are syndicates or corporations which provided professional indemnity cover in respect of the project ("PPI Cover"). The PPI Cover was provided in four layers. The first layer, $5M less the relevant deductable, was provided in different several proportions by five companies and three Lloyds syndicates. These are, in the Hydrogeology Proceeding, the eighth, ninth, tenth, eleventh and twelfthnamed defendants, as well as the sixteenthnamed defendant representing the Lloyds syndicates. In the Hyder Insurance Proceeding these same parties are the tenth, eleventh, twelfth, thirteenth, fourteenth and seventeenthnamed defendants by counterclaim respectively. The second layer, from $5M to $20M, was provided by HIH Casualty and General Ltd (in liq) ("HIH"), the thirteenthnamed defendant in the Hydrogeology Proceeding and the twenty-third defendant by counterclaim in the Hyder Insurance Proceeding. The third layer, from $20M to $40M, was provided in different several proportions by six companies and ten Lloyds syndicates. In the Hydrogeology Proceeding these companies are the ninth, fifteenth, twenty-fourth, twenty-fifth and twenty-seventhnamed defendants, as well as the sixteenthnamed defendant again representing the Lloyds syndicates. These defendants are respectively the eleventh, sixteenth, eighteenth, nineteenth, twentieth, twenty-first and seventeenthnamed defendants by counterclaim in the Hyder Insurance Proceeding. The fourth layer, from $40M to $50M, was provided by GIO Insurance Ltd ("GIO") which is the fourteenthnamed defendant in the Hydrogeology Proceeding and the fifteenth defendant by counterclaim in the Hyder Insurance Proceeding.

In the Hydrogeology Proceeding the TOJV parties contend that they are insured under the several PPI policies. The PPI Insurers deny liability.

In the Hydrogeology Proceeding, too, the HyderCMP parties as defendants have brought claims against other defendants, the PPI Insurers, alleging that they are obliged to indemnify the HyderCMP parties in respect of the TOJV claims. In these claims against the PPI Insurers, the HyderCMP parties allege that the PPI Cover was granted to them by policies issued during the period from about 6 March 1996 to about 8 August 1996. This is in effect admitted in the defence. The HyderCMP parties then claim an entitlement to indemnity under these policies against the TOJV claims together with the costs of defending the Hydrogeology Proceeding. They make this claim on the basis that the PPI Cover extends to "claims arising after the date on which the first Professional Duties were performed... in connection with the Project". The HyderCMP parties became aware of the TOJV claims in or about August and September 1998 and they notified the PPI Insurers' broker of this fact on 15 September 1998. So much is, in summary, alleged in the statement of claim delivered by the HyderCMP parties against the PPI Insurers.

The response of the PPI Insurers to these allegations is contained in their defence filed on 25 May 2001. In essence the policies are admitted, as is the fact that the HyderCMP parties became aware of the TOJV claims in or about September 1998 and that they notified the broker on 15 September 1998 of matters which may give rise to claims under those policies.

To the allegation of the HyderCMP parties made in paragraph 19 of their statement of claim that the PPI Insurers have, in breach of the terms of the policies, refused, denied or neglected to grant indemnity to the HyderCMP parties, there is only an evasive and general denial. To the allegation that the PPI Insurers have, in breach of the policies refused, denied or neglected to pay the costs and expenses of defending the TOJV claims, the PPI Insurers admit the non-payment; they add, again rather evasively, "they have no present liability under the policies" and they otherwise deny the allegations. In paragraphs 21 to 27 of the defence, the PPI Insurers set out a series of further defences in more specific terms. These are that there is only one claim permitted under the policies and that this claim has been made by the TOJV parties. The PPI insurers also rely upon a cross-liability extension and upon an exclusion to the amount of any indemnity to the contract works policies, upon an excess of $1M, the non-fulfilment of a condition precedent to liability inasmuch as liability under certain preceding policies has not been admitted or satisfied and, finally, that the work in respect of which the TOJV claims are made are not "Professional Duties" so that the work the subject of the TOJV claims is not covered by the policy as alleged. I take all of this to amount to a non-admission, if not a denial of liability to indemnify.

I should add for completeness that in the Hydrogeology Proceeding the HyderCMP parties have counterclaimed against the TOJV parties seeking remuneration for unpaid professional services.

The Hydrogeology Proceeding is a substantial one. The trial is scheduled to commence in February 2003, and is expected to last many months.

In the Hyder Insurance Proceeding, which was commenced on 4 May 2001, the HyderCMP parties sue only three defendants, none of which is a party to the Hydrogeology Proceeding. The first and secondnamed defendants, CGU Insurance Ltd ("CGU") and QBE Insurance Ltd ("QBE") respectively, are two insurance companies which granted professional indemnity insurance to some of the HyderCMP parties. I shall refer to these two insurers collectively as "the PI Insurers". There were in fact two policies, a primary policy entered into on or about 7 November 1995 and an excess policy entered into on or about 16 September 1996. The HyderCMP parties allege that the PI Insurers are obliged to indemnify them under their policies in respect of the TOJV claims. This claim is denied by the PI Insurers upon a construction of the two PI policies.

The HyderCMP parties allege in the alternative that the PI policies do not faithfully record the insurance agreements reached between them and Pacific Indemnity Underwriting Agency Pty Ltd ("Pacific") which acted as agent for the PI Insurers in the negotiation of the PI policies. They seek rectification of the PI policies so that they provide indemnity in respect of the TOJV claims.

In the further alternative, the HyderCMP parties assert against the PI Insurers an entitlement to indemnity in respect of these TOJV claims on the basis that the PI Insurers elected to provide this indemnity by accepting liability to do so after these claims were made and by conducting the defence of the HyderCMP parties in the Hydrogeology Proceeding from August 2000 to December 2000. This claim against the PI Insurers is also put in the alternative in estoppel and as arising from misleading and deceptive conduct by their agent, Pacific. Further alternative claims of the HyderCMP parties against the PI Insurers are based upon unconscionable conduct contrary to s. 51AC of the Trade Practices Act, waiver and breach of good faith.

The thirdnamed defendant in the Hyder Insurance Proceeding is Heath. The HyderCMP parties allege, and Heath admits, that it acted as their broker with respect to the placement of the PI Cover. Heath also admits that the TOJV claims fall within the terms of the PI policies. The HyderCMP parties allege against Heath that, if the PI Insurers are not obliged to indemnify them against the TOJV claims, Heath itself is in breach of its contract with the HyderCMP parties in that it failed to obtain this cover. Alternatively, their claim to the same effect against Heath is put in negligence and misleading and deceptive conduct. Heath denies these allegations.

Heath then brings a counterclaim against the HyderCMP parties and 18 other parties. Twelve of the defendants by counterclaim are the PPI Insurers and two are the PI Insurers. Heath counterclaims, too, against Pacific and against John Jousif who is said to be an employee of Pacific. The remaining defendants by counterclaim are Imperium Insurance Pty Ltd; ("Imperium") and HIH. The counterclaim of Heath is conveniently divided into four parts.

In Part I, Heath makes against the PI Insurers the same allegations made by the HyderCMP parties in their claim against the PI Insurers in the Hyder Insurance Proceeding. It seeks against those parties declarations that the PI policies entitle the HyderCMP parties to indemnity in respect of the TOJV claims in the Hydrogeology Proceeding in terms of the PI policies, alternatively by election or estoppel. It asserts that, if the upon a proper construction of the Special Conditions Other clause in each of the PI policies, these policies do not provide indemnity for HyderCMP parties against the TOJV claims, these clauses should be rectified. It seeks declaratory relief that the HyderCMP parties or various of them are entitled to seek immunity from the PI Insurers but rectification is not sought.

In Part II Heath contends that, if it is liable to the HyderCMP parties, it is entitled to damages from Pacific and Jousif for their misleading and deceptive conduct. Next, Heath contends against the PI Insurers and Pacific and Jousif that the loss of the HyderCMP parties alleged against Heath was caused or contributed to by the misleading and deceptive conduct and the unconscionable conduct of the PI Insurers and Pacific and Jousif. It claims contribution pursuant to s. 23B of the Wrongs Act 1958 or under the general law of contribution.

In Part III of the counterclaim, Heath alleges against the PPI Insurers that the HyderCMP parties are entitled to indemnity under the PPI policies in respect of the TOJV claims. It seeks declarations to this effect. This claim is essentially the same as that made by the HyderCMP parties against the PPI Insurers in their contribution claim in the Hydrogeology Proceeding.

In Part IV of the counterclaim, Heath asserts that one or more of the HyderCMP parties is entitled to indemnity in respect of the TOJV claims under two series of policies which are called annual PI policies. The first series was taken out by the firstnamed plaintiff, Hyder Consulting (Victoria) Pty Ltd ("Hyder"), with QBE and CGU or with QBE alone in different periods from 30 June 1995. The second series was taken out by the secondnamed plaintiff, Egis Consulting Australia Pty Ltd ("Egis"), with Imperium, Pacific and HIH, in different periods from 27 October 1994. Declarations are sought as to the obligations of these annual PI Insurers to indemnify Hyder and Egis respectively in respect of their liability for the TOJV claims.

This application made by the HyderCMP parties by summons filed on 7 November 2001 seeks in effect to have their claims against the PI Insurers determined before the other claims and counterclaim in the Hyder Insurance Proceeding and before the trial of the Hydrogeology Proceeding. In essence, this was put on the basis that the resolution of these insurance claims would, if successful, mean that their interests in the trial of the Hydrogeology Proceeding would be taken over and their defence funded by the PI Insurers. It was said that, without the support of these insurers, the HyderCMP parties would have difficulty in funding the preparation and conduct of the substantial Hydrogeology Proceeding. Furthermore, it was put that, in any event, the determination of these insurance claims would remove an uncertainty which might impede settlement of their disputes with the TOJV parties. In answer to my enquiry, counsel for the HyderCMP parties and counsel for Heath both said that it would not be practicable to try the whole of the Hyder Insurance Proceeding before the Hydrogeology Proceeding. Counsel for the HyderCMP parties submitted that an added advantage of the suggested mode of trial for the conduct of the Hyder Insurance Proceeding would be that it would leave to one side their claims against Heath and Heath's substantial counterclaim against the 23 defendants by counterclaim. These claims and counterclaim arise only in the event that the claims of the HyderCMP parties against the PI Insurers are unsuccessful. It was hoped by the HyderCMP parties, therefore, that they would never have to be pursued.

The application was supported by counsel for Heath subject to certain conditions, but opposed by counsel for the two PI Insurers. The remaining parties adopted a neutral position.

Counsel for the HyderCMP parties submitted that the orders which they sought might be made under Rules 34.01, and 1.14 of Chapter I of the Rules and under Rule 3.04(3) of Chapter II[1]. It may be that there is in the Rules of Court[2] power to divide the trial as is sought, but I would prefer not to rely upon this as a source of power. Notwithstanding that they disavowed reliance upon Rule 47.04, it seems to me that what was sought here on behalf of the HCMP parties was in effect an order that certain questions in this proceeding be heard and determined before other questions. It follows from this that, in considering the application, I should bear in mind the warnings of appellate courts with respect to these procedures.

The form of order which was proffered in the course of argument on behalf of the HyderCMP parties was this:

1. That the proceeding be set down for trial on... 2002 limited in the first instance to: (a) the hearing of the plaintiffs' claims against the first and the second defendants; and (b) the hearing of Part I (paragraphs 87 - 111) of the third defendant's counterclaim, only, and not including until further order the hearing of the plaintiffs' claims against the third defendant or the balance of the third defendant's counterclaim. 2. That the third defendant have liberty to appear at and participate in the hearing of the plaintiffs' claims against the first and second defendants set down in accordance with paragraph 1(a) above, and that the third defendant be bound by any findings or determinations made by the Court in that proceeding. 3. Any witnesses called by the plaintiffs or the first and second defendants in the hearing of the plaintiffs' claims against the first and second defendants be available for cross-examination by the third defendant at any subsequent hearing of the plaintiffs' claims against the third defendant."

It is said in the cases dealing with Rule 47.04 that a question should not be ordered to be tried before other questions unless it can be formulated with sufficient particularity[3]. A further consideration is whether the question can, in justice to the interests of all parties, be determined without the determination of the other questions in the proceedings. In a conventional trial of all issues, each of the parties has the opportunity of bolstering its case from the evidence of any witness called by any party, including those who may be called on issues which, in chief, do not bear upon that case. A party may in this way be unfairly disadvantaged if it is denied the opportunity to elicit this evidence. Furthermore, the credit of a witness called on one issue may be affected by the evidence of that witness or of other witnesses on other issues. The advantage, in terms of saving court time and expense, of trying certain questions or parts of a case before others may be eroded, if not destroyed, where a party at the first trial cross-examines a witness on the deferred questions on the basis that this ordinarily goes to the credit of that witness. Where this course is adopted, the cross-examiner is bound by the rule that answers given cannot be contradicted. The position is otherwise if the cross-examination can be justified as going to an issue. These considerations lead to the conclusion that the advantages of the severance of questions for trial before other questions or the division of a trial into parts, as a technique of efficient trial management, may lead to unfair advantage or disadvantage to a party or may prove to be illusory. There is a further difficulty recently adverted to by Kirby and Callinan JJ in Tepko Pty Ltd v Water Board[4] that the procedure has the indirect disadvantage of prolonging the litigation where the determination of the preliminary issue is subject to appeal, so that the remainder of the trial must await the conclusion of a lengthy appeal process. This, together with other considerations, caused their Honours to observe that "the attraction of trials of issues rather than of cases in their totality, are often more chimerical than real"[5] and to counsel the profession that the trial of issues should "only be embarked upon when their utility, economy, and fairness to the parties are beyond question"[6]. From the perspective of a trial judge, it must be acknowledged, too, that the full implications of severance cannot be appreciated without a detailed familiarity with the evidence which might be led on the question or part of proceeding to be tried first and on those which are to await the subsequent trial. The trial judge, even a judge who has had dealings with the case as the judge managing the litigation, will not normally have such a familiarity. It will be therefore necessary for that judge to rely upon counsel who are more likely to have this familiarity. This is but another aspect of the particular relationship and confidence which must exist between the bench and the bar in the efficient management and disposition of litigation. But it also demonstrates the perils of adopting the course against the opposition of any party.

I return to the claims against the PI Insurers which the application would have heard before the claims against Heath. I have carefully examined the pleadings to identify the issues between the parties and have considered the particulars to determine what evidence is likely to bear upon those issues.

The substantial debate before me was directed to the contention of the PI Insurers that the issues and evidence in the first suggested trial were not sufficiently distinct from the remaining issues and evidence which might bear upon them. As senior counsel for CGU so graphically put it, they are "redolent with commonality". They submitted, too, that the proposed manner of trial will be of little benefit in terms of trial time saved. They expressed the opinion that the first trial would be likely to occupy some ten sitting days and the total trial not much longer. Counsel for Heath thought that the total trial might take 50 days so that there was the prospect of a considerable saving. It is difficult for me at this stage of the proceeding to choose between these contending assertions from the bar table. If it be common ground that the first trial would occupy some ten sitting days, my impression from the pleadings is that the whole trial might take at least double this period.

The primary issue in the claim of the HyderCMP parties against the PI Insurers is the interpretation of the PI policies first entered into in November 1995 and September 1996. I understand that the parties wish to call evidence of the circumstances in which the insurance contracts were made in aid of this construction exercise. The alternative claims for rectification appear to be based on communications with and the knowledge in 1995 of Pacific, which was retained by the PI Insurers to negotiate and complete the PI Cover. Likewise, the misleading and deceptive conduct claim against the PI Insurers depends upon representations said to have been made by Pacific as their agent in late 1995.

The claims against Heath arise out of its alleged acts and omissions as broker for the HyderCMP parties in the negotiation of the same policies in the months leading to the issue of the policies. The allegations are of breach of retainer, common law negligence and misleading and deceptive conduct. This misleading and deceptive conduct is said to be implied from the course of dealings between the parties and from Heath's professed expertise as a broker. My examination of the brief particulars in the pleadings does not disclose any commonality between the statements in the claims against the PI Insurers and those in the claims against Heath. I suspect, however, that when the evidence is called, it will be difficult for the witnesses to give evidence with respect to the former without dealing with the events involving the latter. This is particularly the case since Pacific is much mentioned in both claims. In these circumstances, there is little advantage and much disadvantage in attempting to sever these two aspects of the negotiations leading to the issue of the policies. To this should be added the fact that Heath in its counterclaim makes allegations directly against Pacific which very much resemble those made by the HyderCMP parties against it as agent for the PI Insurers. It would, to my mind, be very undesirable to exclude Pacific from participating as a party in the proposed trial of the HyderCMP issues against the PI Insurers.

This is sufficient to cause me to refuse the trial application. Further considerations pointing in the same direction include the probability that the credit of the witnesses to the negotiations in the total trial is likely to be in issue. Further, Heath also relies on the annual PI policies as affording indemnity to Hyder and CMP respectively against the TOJV claims. The existence and nature of these annual PI policies lies in the background of some of the claims which the HyderCMP parties make against the PI Insurers. Finally, the claims for contribution made by Heath in its counterclaim against the PI Insurers and Pacific mirror the claims against those parties for misleading and deceptive conduct in the proposed first trial. It would be unthinkable to try these same issues twice.

I conclude therefore that, notwithstanding that there may be commercial advantages to the HyderCMP parties in dividing the proceeding as they propose, the way the case is pleaded by them and by Heath renders this course impractical. The trial application will therefore be refused.

I have already summarised the principal contentions of Heath in its counterclaim against the HyderCMP parties, the PI Insurers, the PPI Insurers and against Pacific, Jousif and Imperium. Applications for the summary disposal of parts of this counterclaim have been brought by each of the PI Insurers, the PPI Insurers and Imperium. While there was much overlap in the arguments of these applicants, they attacked different parts of the pleading in different ways and it is convenient to deal with each of them in turn. I should add that I address these strike out applications on the basis that the Hyder Insurance Proceeding will be tried as one proceeding and that this trial will take place after the trial of the Hydrogeology Proceeding.

I have approached this application with the caution which must attend any application summarily to dispose of a claim. This will not be done under Rule 23.01 or Rule 23.02 unless the claim is on any view of the facts or, as a matter of law, plainly hopeless[7]. Likewise, an application by a defendant for summary judgment pursuant to Rule 23.03 will succeed only where the claim is absolutely hopeless in the sense that there is no real question of fact or law to be determined[8]. In a case such as the present, where much of the argument was directed to the discretionary power of the court to grant declaratory relief, this test presents particular problems. Nevertheless, as was pointed out in C.E. Heath Casualty & General Insurance Ltd v Pyramid Building Society (in liq)[9], there is no reason why a claim for this relief should be permitted to go to trial where there is no prospect that the relief will be granted. Indeed, in Glenmont Invest Pty Ltd v Lend Lease Ins Ltd[10] a claim similar to the present was struck out. As a matter of discretion, however, even such a claim may be permitted to go to trial where there is no practical utility in summarily disposing of it[11].

This application is brought on behalf of CGU, Pacific and Jousif by summons filed on 1 November 2001. The applicants seek that the counterclaim against them be stayed pursuant to Rule 23.01, that it be struck out pursuant to Rule 23.02 or that judgment be entered for the applicants pursuant to Rule 23.03. In argument, the impugned part of the counterclaim was identified as that part direct to CGU which is contained in paragraphs 88 - 111, that is Part I of the counter claim in which Heath claims declarations that the PI Insurers are liable to indemnify the HyderCMP parties against the TOJV claims.

The argument presented on behalf of these applicants had a beguiling simplicity. If the HyderCMP parties are successful against CGU so that it is required to indemnify them against liability in respect of the TOJV claims, the claim against Heath will not be pursued and the declaratory orders sought are unnecessary. If, on the other hand, the HyderCMP parties are not successful, nothing is achieved by the counterclaim against them, whether Heath is found liable or not. Either way, the declarations sought will not be made. It was submitted that, since the power to award declaratory relief is discretionary, the court should not permit a declaratory claim to go forward where it is clear that the relief will not be granted[12].

This argument proceeds on the basis that, in either event, no declaratory relief will, as a matter of discretion, be granted. As will appear from my consideration of the judgment in Heath's case in the context of the QBE strike out application, this is but one of many factors which must be weighed in determining whether this counterclaim should go forward.

In any event, the argument does not deal with the claims against CGU under the annual PI policies issued by CGU and QBE in favour of Hyder and Egis. Nor does it deal with the Heath claims against Pacific and Jousif for damages for misleading and deceptive conduct or those against them for contribution. It was not suggested that these should not go to trial. This has the consequence that CGU must participate in the trial of the Hyder Insurance Proceeding so that there is little utility in summarily disposing of one of the claims which may involve it and which will, in any event, be litigated at that trial[13]. I will not therefore stay, strike out or dismiss the claims brought by Heath against CGU in paragraphs 88 - 11 of the counterclaim.

This application is brought on behalf of QBE by summons filed on 25 October 2001. It seeks, pursuant to Rule 23.02, that paragraphs 87-111, 113-138, 150 and 155 of the counterclaim, insofar as these paragraphs refer to QBE, be struck out on the ground that they disclose no cause of action, alternatively that they are embarrassing or are otherwise an abuse of process. The gist of the argument put on behalf of QBE was that the allegations of fact in these paragraphs, if true, do not disclose an arguable cause of action against it.

Paragraphs 87 to 111 of the counterclaim comprise the whole of Part I of that pleading which deals with the entitlement of the HyderCMP parties to be indemnified under the PI Cover. In paragraph 87 Heath refers to and repeats the admissions and positive averments made by it in paragraphs 11-28 of its defence. These include admissions that the PI policies were entered into and that the PI insurers have wrongfully refused to indemnify the HyderCMP parties against the TOJV claims. Paragraph 91 repeats and refers to the admissions and positive averments made in paragraphs 30 - 39 of the defence. These include an alternative assertion that the Special Conditions Other clause in the PI policies should be rectified, a claim made by the HyderCMP parties themselves in paragraph 39 of the statement of claim. Paragraphs 93 to 111 assert that the PI Insurers are precluded from denying liability to the HyderCMP parties by the doctrines of election and estoppel. Declarations are sought to the effect that the PI Insurers are liable to indemnify the HyderCMP parties against the TOJV claims.

The submission put on behalf of QBE was that there is no real legal controversy between Heath and the HyderCMP parties as to the liability of QBE to provide this indemnity to the HyderCMP parties. This submission must be considered in the light of the facts that the HyderCMP parties have in this proceeding sued the two PI Insurers and that they deny liability under the policies which they have issued. There is, therefore, a legal controversy between those parties which will be determined at the trial of this proceeding unless the claim of the HyderCMP parties be previously compromised or abandoned. The question raised by Heath's pleading is whether this controversy concerns it.

This question was considered by the Court of Appeal in C.E. Heath Casualty & General Insurance Ltd v Pyramid Building Society (In liq)[14]. This concerned litigation which arose from the collapse in 1990 of the Pyramid Building Society and associated companies within the Farrow Group. The liquidator of Pyramid Building Society sued the auditors of the Society alleging various breaches of duty. The matter before the Court of Appeal was an appeal by the professional indemnity insurer against an order that it be added by Pyramid Building Society as a defendant to the proceeding against the auditor, its insured, seeking against the insurer declarations in respect of the meaning and operation of the policies. It should be noted that, in this case, the insurer had accepted liability to indemnify the auditor and was defending on its behalf the claims made against it by the liquidator[15]; the concern of the liquidator was as to the ambit and effect of the cover.

The majority of the court was of opinion that there are limits to the power of the court to grant declaratory relief:

"As I would understand these judgments, whether or not the test should be expressed in terms of jurisdiction in the strict sense, there are claims for relief by way of declaration which the court should not permit to proceed further if certain fundamental characteristics cannot be satisfied. Thus if there is `no legal controversy to be determined', i.e. if it can be demonstrated that there is no real legal controversy between the parties or that the controversy can be characterised as abstract or hypothetical in the sense that characterisation should automatically lead to the dismissal of the action, then there would seem good reason why the court at an interlocutory stage should not allow the action to proceed further, whether by dismissing the claim summarily or by refusing to permit the joinder of a claim of that kind. Likewise, if the plaintiff has no proper interest in the resolution of the dispute or if there is no defendant who has a true interest to oppose the declaration sought, the action should not be allowed to proceed further.[16]"

Phillips JA preferred to see such considerations as bearing upon the exercise of the court's discretion to grant declaratory relief. In the Heath case, all members of the Court of Appeal were of opinion that the insurer of the auditor should not be joined as a defendant in the action brought by the liquidator. This was, to a large extent, because there was no real controversy between the auditor and the insurer or between either of them and the liquidator. The insurer had accepted liability under the policy; the question as to the extent of that liability which neither it nor the auditor sought to agitate, might arise only if all of a number of events occurred. Indeed, the consequence of the joinder would be to create a conflict between the insurer and the insured where none before existed. It may have the consequence that this conflict may cause the insurer to withdraw from its representation of the insured in the defence of the building society's claim.

The same result followed in a similar case decided by the Court of Appeal in Queensland some two years later.[17] Interchase Corporation sued a firm of valuers alleging their negligent valuation of a retail and commercial complex in Brisbane. FAI General Insurance Company Ltd, the indemnity insurer of the valuer, conducted the defence of the valuer for some time but later declined indemnity. Interchase's application to add the insurer as a defendant seeking against it a declaration that it was liable to indemnify the valuer, was refused by the majority of the Court of Appeal. This refusal depended upon a construction of the Queensland Rules of Court which permitted joinder of a party "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 course or matter". In a judgment with which McPherson JA concurred, Byrne J[18] explained that the adjudication of the claim for declaration brought by Interchase against FAI was of no legal utility. Interchase had no right to enforce any declared right to indemnity and FAI would not be bound by such a declaration in its dealings with its insured. It is of interest for present purposes that, although the Heath case was referred to[19] the Queensland decision did not turn upon the matters which formed the principal area of concern in that case. Nor did the Queensland Court refer to the discussion of the similar procedural point by Phillips JA in the Heath case[20]. There, his Honour concluded that the wording of the Victorian equivalent rule of court, Rule 9.06(b)(i), "necessary to ensure that all questions in the proceeding are effectively and completely determined and adjudicated upon", did not provide a basis for the joinder of the insurer because the proceeding between the insured and the auditor did not include a question as to the liability or the extent of the liability of the insurer.

The judges of appeal in these two cases made reference to the earlier decision of the Full Court of the Supreme Court of South Australia in J.N. Taylor Holdings Ltd (in liq.) v Bond[21]. In this case, the liquidator of Taylor Holdings sued its directors alleging breach of duty. It appeared that the directors were of no substance but that they held insurance which would indemnify them in their capacity as directors. In response to an inquiry from the liquidator, the insurer denied liability to indemnify them. Accordingly, the company sought to join the insurer as a defendant, seeking against it a declaration that it was liable to indemnify the directors against liability in consequence of a judgment being entered against them in the proceeding. The court concluded that the company in liquidation had a sufficient interest in the declarations sought to warrant the granting of that relief[22] and that the joinder was desirable so that the insurer should be bound as against the directors by the findings[23]. In Beneficial Finance Corporation Ltd v Price Waterhouse[24], however, the Full Court of the Supreme Court of South Australia declined to permit the joinder of indemnity insurers at the behest of a plaintiff. The majority observed that the Taylor Holdings' case was unusual inasmuch as it concerned an event based policy. The facts of this event which were relevant to the insurers' liability were more or less co-extensive with those upon which the plaintiff's claim against the existing defendant depended[25]. Lander J[26] observed that a point of difference between the Taylor Holdings' case and the Heath case was that, in the former, the insurer had denied liability to indemnify the insured. Where no such denial of liability exists, a plaintiff seeking to join a defendant's insurer must create an issue between insurer and insured as to liability to indemnify where no such issue in fact exists[27].

The Queensland Court of Appeal in the FAI case took a different view on the question considered in the Taylor Holdings' case as to whether the insurer would be bound[28] by the findings between the plaintiff and the insured. This question did not arise in the Heath case because the insurer had accepted a liability to indemnify.

I return now to the present case. Here there is no question of a joinder of a new party, but rather the striking out of a claim against an existing party. No party contended before me that the nature of the present application should cause me to adopt an approach to these issues of real controversy or standing in any way different from that in the FAI case or the Taylor Holdings' case. To my mind, the following factors bear upon the contention of the PI Insurers. I remind myself, too, that a claim should not be disposed of in this way without trial unless it is absolutely hopeless.

There is already on foot in this proceeding a real controversy between the HyderCMP parties and the PI Insurers, CGU and QBE. The HyderCMP parties assert, and the PI Insurers deny, that they are liable to indemnify those parties against their liability to the TOJV parties in the Hydrogeology Proceeding.

Second, unlike the three cases to which I have referred, Heath in the Hyder Insurance Proceeding is not seeking to enforce, indirectly, a claim under a policy of insurance to which it is not a party. Heath's interest in the liability of the PI Insurers towards the HyderCMP parties is that, if this liability is established, the HyderCMP parties will have suffered no loss by reason of the alleged breaches of duty and misleading and deceptive conduct of Heath. Counsel for the PI Insurers argued that the presentation of this defence did not warrant the bringing of a counterclaim against their clients, for the issue will be decided in the claim. Counsel for Heath responded that it was desirable, not only that its denial of loss and damage on this ground be determined as between itself and the HyderCMP parties, but that the PI Insurers, too, be bound by that finding. I must confess that I do not see this argument as persuasive. It is of no legal or practical concern to Heath that the PI Insurers should be bound to indemnify their insured; it is sufficient that it establish as against the insured the existence of a sufficient prospect of this to defeat the allegation of loss and damage put against it.

The difficulty in the present case is that, in its defence, Heath seeks also to contend in the alternative that HyderCMP parties have suffered no loss because they are entitled to have the policies rectified or otherwise to hold the PI Insurers bound to indemnify them by election or by estoppel. These are matters which will fall to be determined as part of the HyderCMP parties' claim in this proceeding for they, too, advance these same contentions. There is, of course, no reason why Heath might not by its denial of loss and damage seek to obtain a benefit from these alternative contentions in its defence of the claim. If the claim had stood alone, the court would have to form some impression of the chances of success of these alternative contentions as part of its task of assessing the quantum of loss of the HyderCMP parties. Doubtless it could do so, and the making of positive assertions to the same effect in a counterclaim does not take the matter further. Notwithstanding this, the fact remains that the PI Insurers are parties to the claim and the issues presently under consideration are before the court as part of this claim. These last matters cause me to conclude that, as a matter of discretion, there is no utility in striking out paragraphs 87-111 of the counterclaim and the prayers for relief which depend upon those paragraphs.

Paragraphs 113 - 124 of the counterclaim contain allegations of misleading and deceptive conduct on the part of CGU, QBE and Pacific. This conduct is a representation made by Pacific to Heath as to the extent of the primary PI policy. It is said that, in making this representation, Pacific acted as agent for the PI Insurers. This representation is that alleged in the HyderCMP parties' statement of claim as having been made by Pacific to the HyderCMP parties. In the counterclaim, Heath says that it relied upon the representation made to it and, as a consequence, it has suffered and will suffer loss and damage in that it has incurred the risk of liability to the HyderCMP parties as alleged in the claim. It could not be contended that this claim is absolutely hopeless and I do not think argument was addressed to this end.

The remainder of Part II of the counterclaim, paragraphs 125 - 138, contains allegations that the PI Insurers, Pacific and Jousif are liable to HyderCMP parties for the same loss which they allege against Heath. Heath seeks contribution pursuant to s. 53B of the Wrongs Act 1958 and under the general law of contribution. No challenge was made to the claim for statutory contribution. It was submitted, however, that no right of contribution in these circumstances could arise under the general law. Counsel for Heath referred to a number of cases in which a general law of contribution is acknowledged to exist.[29] In the circumstances, I cannot conclude that this contribution claim is plainly hopeless.

The two remaining paragraphs the subject of this application are paragraphs 150 and 155, which assert that QBE as an annual PI Insurer is liable to indemnify the HyderCMP parties against its liability to the TOJV parties in respect of the Hydrogeology claims. These allegations first appear in paragraph 76 of the defence as a challenge to the assertion of the HyderCMP parties that they have suffered loss and damage. As with the claims made in paragraphs 87 - 111 of the counterclaim, I am not prepared to strike out these paragraphs of the counterclaim.

The application of QBE therefore will be dismissed.

This application is brought on behalf of the PPI Insurers by summons filed on 27 October 2001. Relief is sought pursuant to rules 23.01, 23.02 and 23.03 in respect of Heath's allegations against them in its counterclaim. These allegations are contained in paragraphs 139 to 145 of the counterclaim. In these paragraphs, Heath alleges that the PPI Insurers are obliged under the PPI policies to indemnify the HyderCMP parties against their liability to the TOJV parties in the Hydrogeology proceedings. To this extent it resembles Heath's allegations against the PI Insurers in paragraphs 88 to 111 of the counterclaim.

There are, however, two differences. First, the PPI Insurers are not parties to the Hyder Insurance proceeding otherwise than as defendants to this counterclaim. Second, it is not alleged in the counterclaim that the PPI Insurers have denied indemnity. Absent such an allegation, there is, on the pleading, no real controversy between the HyderCMP parties and the PPI Insurers. As with Part I of the counterclaim against the PI Insurers, Heath asserts this indemnity in its defence in diminution or extinction of the HyderCMP parties' loss and damage claim. In paragraph 5 of their reply, the HyderCMP parties deny this allegation of Heath that they are entitled to be indemnified by the PPI Insurers so that there is in the Hyder insurance proceeding an issue between those parties as to this matter.

For reasons which I have set out in my consideration of the QBE strike out application, I am of opinion that, in order to make good this defence, there is no need for Heath to repeat the allegation in the counterclaim. Moreover, Heath has no other interest in advancing this counterclaim. There is no need for the PPI Insurers to be bound by any conclusion on this matter in a claim to which they are not otherwise a party.

A further consideration is that the issue as to indemnity has been raised by the HyderCMP parties against the PPI Insurers in the Hydrogeology Proceeding. The trial of this issue, if it be still alive, will take place before the Hyder Insurance Proceeding, so that when this proceeding commences, the issue as between the HyderCMP parties and the PPI Insurers will have been resolved. This would be a good reason for staying that part of the Hyder Insurance Proceeding which raises this issue.

Finally, insofar as it is proper to have regard to evidence in this application, the affidavit of Peter Lawrence Black, the solicitor for the PPI Insurers, sworn 2 November 2001, suggests that the PPI Insurers have admitted that the PPI policies apply to "the claims in respect of" the HyderCMP parties. I say "suggests" because Mr Black nowhere asserts this fact; he merely exhibits without comment a letter from the solicitors for the HyderCMP parties which contains this statement. He likewise exhibits a letter dated 25 October 2001 from the same solicitors addressed to the solicitors to the TOJV parties in which the following statement appears:

"without prejudice this position and solely with a view to avoiding the costly exercise your clients are adamant on proceeding with, we advise that the HyderCMP parties resolved with Mr Black the rights and obligations of the insurers and the insured under the PPI policy, including the manner in which the defence of the claims by TOJV against the HyderCMP parties is to be conducted".

I must say this is a curious way for a party to place before the court the fact of an agreement to which it is a party. This is even more so where the deponent, it would seem, negotiated this agreement on behalf of his client.

In all the circumstances I am unable to conclude that there is a real controversy between Heath and the PPI Insurers as to their liability to indemnify the HyderCMP parties. Moreover, there is no legal or other utility in bringing this claim in the Hyder Insurance Proceeding and an evident disadvantage in doing so, because it will oblige the PPI Insurers to participate in a trial in which they have no real interest.

Paragraphs 139 to 145 of the counterclaim and the prayer for relief dependent upon them will therefore be struck out.

The interest of Imperium in the Hyder Insurance Proceeding is as insurer of Egis under annual PI policies in respect of the period from 27 October 1994 to 27 October 1996. The policies are claims based. Imperium has applied by summons filed on 26 October 2001 for orders pursuant to rules 23.01 and 23.02, that the allegations against it in paragraphs 151 to 155 and in the defendant prayer for relief be struck out.

Much the same arguments were presented for and against this application as were offered in the PPI Insurers' strike out application and the PI Insurers' strike out applications, namely that there is no real controversy between Heath and Imperium as to Imperium's liability to indemnify the HyderCMP parties. Like the PPI Insurers, Imperium has no involvement in the Hyder Insurance Proceeding otherwise than as a defendant to this counterclaim. Like the PPI Insurers, the counterclaim does not allege that Imperium denies indemnity. Unlike the situation of the PI Insurers and the PPI Insurers, the HyderCMP parties make no claim in this proceeding or in the Hydrogeology Proceeding against Imperium. In these circumstances, there is no issue between Egis and Imperium and Heath cannot, by bringing this counterclaim, force an issue upon them[30]. Heath may raise the entitlement of the HyderCMP parties to indemnity as a defence to their claim for loss and damage; there is no legal or other utility in its bringing a counterclaim to the same end.

Accordingly, for the reasons set out above, paragraphs 151 - 155 against Imperium will be struck out.

I mention for completeness a further contention put on behalf of Imperium that it should have summary judgment on the basis that no claim was made to the TOJV parties during the periods of insurance between October 1994 and October 1996. The TOJV parties commenced the Hydrogeology proceeding on 17 July 1998. In answer to this, counsel for Heath relied upon a clause in the policies which provided that notice given to the insurer of circumstances which may subsequently give rise to a claim is itself deemed to be a claim. Where the insured fails to give such notice this omission may not defeat its entitlement to cover by reason of s.4 of the Insurance Contracts Act 1984 [31]. This, to my mind, raises an arguable answer to the claim for summary judgment so that the application of Imperium pursuant to rule 23.02 would have failed, had I not struck out the counterclaim against it.

In conclusion, therefore, I propose the following orders:

Application by the HyderCMP parties as to Trial Directions

Strike out paragraphs 139 - 145 of the counterclaim and the prayer for relief dependent upon those paragraphs.

Strike out paragraphs 151 - 155 of the counterclaim against Imperium and the prayer for relief dependent upon those paragraphs.

I will hear counsel further as to the terms of the orders to give effect to my conclusions and as to costs.

[1] Mention might also have been made of Rules 10.05 and 10.06.

[2] Compare Burns Philp & Co Ltd v Bhagat [1993] VicRp 13; [1993] 1 VR 203 at 209, per Brooking J.

[3] Jacobson v Ross [1995] VicRp 24; [1995] 1 VR 337 at 340, per Brooking J.

[7] General Steel Industries Inc. v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129-30, per Barwick CJ.

[8] Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 at 91, per Dixon J.

[9] [1997] 2 VR 256 (not a strike out application).

[11] Wickstead and Browne (1992) 30 NSWLR 1 at 5, per Kirby P.

[12] C.E. Heath Casualty & General Insurance Ltd v Pyramid Building Society (in liq) [1997] 2 VR 256 at 285, per Phillips JA.

[13] Wickstead v Browne (1992) 30 NSWLR 1 at 5, per Kirby P.

[16] [1997] 2 VR 256 at 259-260, per Ormiston JA, Tadgell JA concurring, relying on dicta in Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 at 581-2, per Mason CJ, Dawson, Toohey and Gaudron JJ and at 596, per Brennan J.

[17] FAI General Insurance Company Ltd v Interchase Corporation Ltd (1999) 10 ANZ Insurance Cases 74,815.

[18] (1999) 10 ANZ Insurances Cases 74,815 at 74,823.

[20] [1997] 2 VR 256 at 293 (Tadgell JA concurring).

[22] (1993) 59 SASR 432 at 438, per King CJ. In Heath's case, Phillips JA took the same view [1997] 2 VR 256 at 289.

[25] (1996) 68 SASR 19 at 37, per Perry J.

[27] (1996) 68 SASR 19 at 38, per Perry J, at 56 per Lander J. See also Glenmont Invest Pty Ltd v Lend Lease Ins Ltd. [1999] SASC 171; (1999) 74 SASR 152 at 156, per Perry J (Duggan J concurring) and at 162, per Debelle J.

[29] Bialkower v Acohs Pty Ltd (1998) 83 FCR 1; Burke v LFOT Pty Ltd [2000] FCA 1155; QBE Insurance Ltd v AMP Workers' Compensation Services (NSW) Pty Ltd [2000] NSWSC 1070 at [23].

[30] Glenmont Invest Pty Ltd v Lend Lease Ins Ltd [1999] SASC 171; (1999) 74 SASR 152.

[31] FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 180 ALR 374.

At a glance

Court

Decision date

Before

Source

Judgment (111 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (10)