Supreme Court of WA|2011-08-22|Before: Mr J, Beech J

LOIS NOMINEES PTY LTD -v- QBE INSURANCE (AUSTRALIA) LTD [2011] WASC 208 (22 August 2011)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : LOIS NOMINEES PTY LTD -v- QBE INSURANCE (AUSTRALIA) LTD [2011] WASC 208

BETWEEN : LOIS NOMINEES PTY LTD and the persons detailed in the Schedule attached to the writ of summons dated 11 May 2011

QBE CORPORATE LTD T/AS DA CONSTABLE SYNDICATE 386 AT LLOYDS

BETWEEN : LOIS NOMINEES PTY LTD and the persons detailed in the Schedule attached to the writ of summons dated 2 June 2009

Equity - Declarations - Whether plaintiffs have an arguable claim for declaration against insurer that insurer obliged to indemnify insured solicitor against plaintiffs' claim - Where insured solicitor does not join insurer - Whether any declaration would have foreseeable consequences for plaintiffs - Whether declaration in favour of plaintiffs would arguably bind insurer in subsequent proceedings brought by insured - Whether insurer may arguably be precluded from challenging liability by doctrine of abuse of process

Practice and procedure - Summary judgment - Whether plaintiffs have an arguable claim for declaration against solicitor's insurer - Abuse of process - Whether plaintiffs' claim should be summarily dismissed as an abuse of process

Practice and procedure - Consolidation - Relevant considerations - Whether prejudice to a party from consolidation is demonstrated and to what extent - Whether consolidation or hearing the actions one after the other is preferable - Turns on own facts

First Defendant : Mr S M Davies SC & Mr A J Musikanth

Second Defendant : Mr S M Davies SC & Mr A J Musikanth

Third Defendant : Mr S M Davies SC & Mr A J Musikanth

Anderson v Effexseven (1998) 10 ANZ Ins Cas 61-424

Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd [2009] VSC 371

Ashmere Cove Pty Ltd v Beekink (No 2) [2007] FCA 1421, (2007) 244 ALR 534

Batistatos v Roads & Traffic Authority of NSW; Batistatos v Newcastle City Council [2006] HCA 27; (2006) 226 CLR 256

Bazem Pty Ltd v Bureau of Urban Architecture [2010] NSWSC 978

CE Heath Casualty and General Insurance Ltd v Pyramid Building Society (in liq) [1997] 2 VR 256

CGU Insurance Ltd v Bazem Pty Ltd [2011] NSWCA 81

Employers Reinsurance Corporation v Ashmere Cove Pty Ltd [2008] FCAFC 28; (2008) 166 FCR 398

Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87

Hospital Contribution Fund of Australia v Hunt (1983) 44 ALR 365

Interchase Corporation Ltd (in liq) v FAI General Insurance Co Ltd [1998] QCA 180; [2000] 2 Qd R 301

Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75

Kimberly Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986)

Lois Nominees Pty Ltd v Hill [2011] WASC 53

Saker v Creative Land Management Pty Ltd [2000] WASC 44

1 The defendants in CIV 1796 of 2011 apply for summary judgment. The plaintiffs apply for consolidation of that action with CIV 2019 of 2009. It is convenient to set out some background before explaining the two applications.

2 In 2004 and 2005 Mr Hill was a solicitor. Each plaintiff paid money into Mr Hill's trust account. In CIV 2019 of 2009 (the 2009 Action) the plaintiffs sue Mr Hill. The plaintiffs' claim in the 2009 Action may be summarised as follows:

(a) each payment into Mr Hill's trust account was made on the express basis that the money was to be held by Mr Hill on trust for the sole purpose of the acquisition by each plaintiff of a stated number of shares in Firepower Holdings Ltd (FHL);

(d) further, or alternatively, Mr Hill paid the plaintiffs' funds out of his trust account without authority and in breach of trust.

4 On 26 February 2010 Mr Hill was made bankrupt, and trustees in bankruptcy were appointed.

5 The claims the subject of the 2009 Action were made against Mr Hill in the financial year ending 30 June 2009. He was not then a certificated legal practitioner. However, he was entitled to the benefit of professional indemnity insurance cover provided to former practitioners under an insurance policy and certificate of insurance. The defendants (the Insurers) in action CIV 1796 of 2011 (the 2011 Action) are the insurers under that policy.

6 Mr Hill made a claim on the policy. The Insurers have denied liability. Mr Hill and his trustees in bankruptcy have not joined the Insurers as third parties in the 2009 Action. The trustees have said that they have no available funds.

7 By application in the 2009 Action, the plaintiffs sought to join the Insurers as second defendants in that action. They sought to claim a declaration that the Insurers are jointly and severally, alternatively proportionately, liable pursuant to the policy to indemnify Mr Hill against the liabilities incurred by him with respect to the claims of the plaintiffs in the action.

8 The Insurers opposed that application. They opposed the application on two broad grounds. First, they submitted that O 18 r 4, Rules of the Supreme Court 1971 (WA) (SCR), upon which the application was based, does not empower the court to add new defendants to an existing action. Secondly, they contended that the discretion to permit the joinder should not be exercised in favour of the plaintiffs. In that regard, they contended that the plaintiffs did not have an arguable case against the Insurers because:

(a) the plaintiffs are not a party to the contract of insurance;

(b) if a declaration were granted in favour of the plaintiffs, it would have no foreseeable consequences for the plaintiffs. That is because:

(i) a bare declaration in favour of the plaintiffs would not enable the plaintiffs to bring any recovery proceedings;

(ii) the trustees in bankruptcy of the insured defendant would need to bring a new action against the Insurer to claim indemnity under the policy;

(iii) in a new action brought by the trustees in bankruptcy, the Insurer would not be bound by the declaration and would not be precluded from defending that action;

The joinder application in the 2009 Action is dismissed

9 In Lois Nominees Pty Ltd v Hill [2011] WASC 53, I accepted the Insurers' first proposition, and consequently dismissed the application to join the Insurers as second defendants in the 2009 Action. I also expressed my views on the question of discretion, concluding that I would have exercised my discretion in favour of joinder. In the course of doing so, I considered the authorities relied upon by the parties in some detail. I rejected the Insurers' contention that the plaintiffs did not have an arguable case against them on the grounds summarised above. I found that there was a substantial line of authority to the effect that the Insurers would, arguably at least, be bound by a declaration in practical effect, by the prospect that any attempt by the Insurers to defend subsequent proceedings by the trustees in bankruptcy to enforce the insurance policy would be liable to be struck out as an abuse of process. I found that there was sufficient prospect that the Insurers would be precluded from defending subsequent proceedings if a declaration was made in favour of the plaintiffs to mean that the granting of a declaration would, arguably at least, have foreseeable consequences for the plaintiffs: see Lois Nominees Pty Ltd v Hill [86] - [118].

10 On 11 May 2011 the plaintiffs commenced the 2011 Action, against the Insurers. In the 2011 Action the plaintiffs claim a declaration that the Insurers are severally liable to indemnify Mr Hill in respect of the claims made by the plaintiffs in the 2009 Action.

11 By chamber summons dated 1 June 2011 the Insurers apply for:

(b) further or alternatively, an order that the statement of claim be struck out on the basis that it discloses no reasonable cause of action, is frivolous and vexatious, and is an abuse of process;

(c) further or alternatively, an order that the action be dismissed on the grounds that it is vexatious or an abuse of process;

(d) further or alternatively, orders that certain paragraphs of the statement of claim be struck out on pleading grounds.

12 By chamber summons dated 9 June 2011, the plaintiffs apply for orders that the two actions be consolidated.

13 The Insurers' application for summary judgment or for the striking out of the action was heard at the same time as the plaintiffs' application for consolidation.

14 The Insurers submit that their contentions on summary judgment are best understood in the context of their response to the claim by Mr Hill for indemnity under the insurance policy. Consequently, I will outline the Insurers' case in that respect, before turning to their contentions in support of their application for summary judgment.

The general nature of the Insurers' response to Mr Hill's claim for the indemnity

15 The insurance policy indemnifies Mr Hill for liabilities incurred by him, in substance, in connection with his practice as a solicitor, if the claim is first made in a relevant period (cl 2.1(a)). Liabilities of the following kind are among those excluded from being indemnified:

(a) liability directly or indirectly arising out of Mr Hill acting as a company director or other company officer (cl 2.2(d));

(b) liability arising out of a contract other than a contract to provide legal services in connection with Mr Hill's practice (cl 2.2(h));

16 In short, the Insurers say that any liability of Mr Hill to the plaintiffs arising in the 2009 Action is not a liability incurred in connection with Mr Hill's practice. Further, they invoke all three of the exceptions that I have set out.

17 By reference to Mr Hill's defence in the 2009 Action, transcripts of Mr Hill's oral evidence in Federal Court proceedings and in a s 19 Examination before ASIC, and some letters and emails from Mr Hill, senior counsel for the Insurers outlined some of the elements of the defence the Insurers would make to any claim that they were obliged to indemnify Mr Hill. These materials are said to support the following:

(a) in about mid 2004 Mr Hill became a director of FHL;

(b) he was promised 20 million shares in lieu of remuneration as a director;

(c) he was involved in negotiations on behalf of FHL, or its principal, Mr Johnston, with the CEO of FHL, Mr Nairn, for Mr Nairn's shares in FHL to be purchased;

(d) it was contemplated that investors would fund that purchase of Mr Nairn's shares and acquire those shares (see Mr Hill's letter of 11 February 2005);

(e) the plaintiffs' funds were paid into Mr Hill's trust account on terms that they would be used to acquire shares in FHL;

(f) Mr Hill knew that that was the basis on which the funds had been paid, and that he was not otherwise entitled to deal with those funds (see the email of 2 March 2005, affidavit of Mr Sudweeks sworn 7 July 2011, pages 4 and 5);

(g) notwithstanding that, Mr Hill caused all but about $400,000 of the several millions of dollars of the plaintiffs' money in his trust account to be paid out of the trust account;

(h) Mr Hill says in his defence that that was paid for the purpose of facilitating and funding the acquisition by the plaintiffs of shares in a different company, Firepower Group Holdings Ltd (FGHL);

(i) however, most of the plaintiffs' moneys were paid out of Mr Hill's trust account before FGHL was even incorporated.

18 Naturally, what I have set out above does not involve any findings of fact. Rather, it is a summary of the general nature of the Insurers' response to a claim for indemnity, and of some of the material which is said to support that.

19 The Insurers emphasise that these defences involve detailed consideration and proof of factual matters, not simply a question of construction of the policy.

20 The Insurers contend that summary judgment should be granted in their favour on three bases:

(1) a court would inevitably decline, as a matter of discretion, to make a declaration because it is clear that any declaration would have no utility. That is because any such declaration would not be binding between the Insurers and Mr Hill (I will explain this contention further below);

(2) the court does not have jurisdiction to grant the declaration because it is not directed to the determination of any legal controversy, but rather involves answering an abstract or hypothetical question; and

(3) the plaintiffs have no standing to seek a declaration about a contract to which they are not a party and which does not confer any benefits on them.

21 As I observed in Lois Nominees Pty Ltd v Hill, the second and third of these contentions are also founded on the absence of practical consequences for the plaintiffs. They sustain the grant of summary judgment only if it is sufficiently clear that the declaration would have no practical consequences for the plaintiffs to justify summary judgment. Thus they do not need to be considered separately.

22 I start by explaining the uncontroversial framework in which the issues arise. The Insurers point out, correctly, that:

(a) the plaintiffs do not have a statutory right to sue the Insurers directly, such as arises under Insurance Contracts Act 1984 (Cth) s 51 when an insured has died;

(b) the effect of s 117 of the Bankruptcy Act 1966 (Cth) is for any amount received by the trustees in bankruptcy under the policy in respect of Mr Hill's liability to the plaintiffs, to be payable to the plaintiffs;

(c) consequently that provision assists the plaintiffs only if and when the trustees make a claim against the Insurers; and

(d) thus the grant of the declaration sought by the plaintiffs would not engage s 117 in favour of the plaintiffs.

23 Subject to one matter, I accept these propositions. The qualification relates to the effect, if any, of the grant of the declaration sought by the plaintiffs in the 2011 Action upon any future action between Mr Hill (or his trustees) and the Insurers. If the declaration was binding in the subsequent action between Mr Hill's trustees and the Insurers, the grant of the declaration would have foreseeable consequences for the plaintiffs. The Insurers contend, and the plaintiffs deny, that a declaration in the 2011 Action in favour of the plaintiffs could not be binding in any subsequent action between the trustees and the Insurers, and so would have no foreseeable consequence for the plaintiffs. There are two elements of that contention.

24 First, the Insurers submit that the declaration could not give rise to a res judicata or an Anshun estoppel because both those doctrines require that the subsequent proceedings are between the same parties or their privies. Because there is no claim for a declaration between the Insurers and Mr Hill, they contend that that requirement would not be satisfied in any subsequent action between Mr Hill and the Insurers.

25 Secondly, they submit that there is no appreciable prospect that, in a subsequent claim by Mr Hill (or his trustee) for an indemnity, a defence by the Insurers denying liability to indemnify Mr Hill would be held to be an abuse, taking into account the following:

(a) In the later proceedings, the [Insurers] would not be resisting an obligation to indemnify for an ulterior or collateral purpose, and in deciding whether a pleading that raises a fairly arguable ground of claim or defence constitutes an abuse of process the propriety of the litigant's motives is commonly a significant factor.

(b) The plaintiff in the later case (Mr Hill or his trustee in bankruptcy) will have elected not to have brought third party proceedings in the case in which they were sued by the plaintiffs and it would not sit comfortably in their mouth to complain about abuse of process arising from subsequent proceedings, they not having joined the [Insurers] in the first proceedings and they being the initiators of the second proceedings.

(c) What would be challenged as an abuse of process is not the prosecution of the claim but a defence of one.

(d) The subsequent proceedings would afford the [Insurers] procedural and evidentiary advantages that are not available to them in defending the plaintiffs' action. The bases on which the [Insurers] rely to justify the refusal to indemnify (which largely involve factual matters rather than matters of contractual construction) indicates that those procedural and evidentiary advantages are likely [to] affect the result in the second contest.

(Insurers' Submissions, 8 July 2011 [7])

26 Those matters reflect the reasoning of Byrne J in Interchase Corporation Ltd (in liq) v FAI General Insurance Co Ltd [1998] QCA 180; [2000] 2 Qd R 301, 320.

27 These contentions echo the submissions made by the Insurers in Lois Nominees Pty Ltd v Hill, but they are put in the context of more substantial evidentiary material about the procedural and forensic disadvantages complained of.

28 The Insurers submit that four kinds of procedural and evidentiary disadvantages to them would arise if the plaintiffs are permitted to pursue an action against the Insurers for the declaration claimed.

29 First, the Insurers submit that Mr Hill has or may have made a number of admissions from a number of different sources. These include his oral evidence in an examination under s 19 of the Australian Securities and Investments Commission Act 2001 (Cth), oral evidence under cross-examination in Federal Court proceedings, a lengthy affidavit in the Federal Court proceedings (the contents of which are not presently known by the Insurers) and letters, emails and other communications of Mr Hill. The Insurers submit that admissions from those sources would be admissible against Mr Hill if he (or his trustees in bankruptcy) sued the Insurers for an indemnity under the policy. By contrast, the submission continues, such statements by Mr Hill would be inadmissible hearsay in the action brought by the plaintiffs against the Insurers for a declaration.

30 Secondly, the Insurers make a similar point in respect of answers to interrogatories by Mr Hill. They say that even if leave is granted to the Insurers to administer interrogatories to Mr Hill, as a co-defendant in an action, Mr Hill's answers to interrogatories would not be admissible against the plaintiffs.

31 Thirdly, in the event that Mr Hill (or his trustee in bankruptcy) sued the Insurers for an indemnity under the policy, the Insurers contend they would have a reasonable expectation that Mr Hill would give evidence in support of that claim. That would give the Insurers the opportunity to cross-examine Mr Hill and thereby adduce evidence of various matters. The Insurers submit they cannot have a similar expectation in relation to the plaintiffs' claim for a declaration. Further, they point out that they have unsuccessfully sought from the plaintiffs' solicitors an undertaking that Mr Hill would be called by the plaintiffs to give evidence.

32 Fourthly, the Insurers contend that if Mr Hill failed to give evidence in support of his claim for an indemnity, the Insurers would be likely to be able to invoke the rule in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, whereas they would be much less likely to be able to do so in the present action by the plaintiffs.

33 The Insurers submit that these disadvantages must be viewed in the context of their proposed defence to the claim for an indemnity. The defence involves proof of many detailed facts; it is not based simply on a question of construction of a clause in the insurance policy.

34 The caution with which the power to grant summary judgment is to be exercised is well known. In an application by a defendant, the defendant bears the onus of showing that there is no serious question to be tried on any cause of action raised by the plaintiff: Anderson v Effexseven (1998) 10 ANZ Ins Cas 61-424, 74, 757. The power to order summary judgment should never be exercised unless it is clear there is no real question to be tried: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99. It is only in the clearest of cases, when there is a high degree of certainty about the ultimate outcome of the proceeding if it went to trial, that summary judgment ought be given: Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads & Traffic Authority of NSW; Batistatos v Newcastle City Council [2006] HCA 27; (2006) 226 CLR 256 [46].

35 A court should be careful not to risk stifling the development of the law by summarily disposing of actions where there was a reasonable possibility that, as the law develops, it will be found that a cause of action and remedy lies: Hospital Contribution Fund of Australia v Hunt (1983) 44 ALR 365, 373 - 374; Kimberly Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986) [7] (Master Staples). As will appear, I think this note of caution is relevant to the proper disposition of this application.

36 I will deal with a preliminary question before turning to the disposition of the application.

37 In the course of argument, I raised with counsel a question that had not been raised in the submissions of either party. In the 2011 Action, as it is constituted, the Insurers are the only defendants. In determining whether to grant summary judgment in that action, must the plaintiffs' claim stand or fall on its sustainability as presently constituted, with the Insurers as the only defendants? If so, that may well affect whether the plaintiffs have an arguable case for declaration. Or can account be taken of the existence of the consolidation application, and the result of that application?

38 Senior counsel for the Insurers did not embrace the line of argument suggested by this question with any enthusiasm. For the most part at least, his submissions appeared to accept that the question of whether the plaintiffs had a viable claim for a declaration was to be considered in the context that '[f]or all practical purposes' the plaintiffs were pursuing consolidation of the 2011 Action with the 2009 Action (see, for example, ts 236 and 254 - 258).

39 For the reasons that follow, I do not consider that the court is required to assess the viability of the plaintiffs' claim for a declaration on the basis that the Insurers are and, in effect, will be, the only defendants to the action.

40 The Insurers' application for summary judgment preceded the plaintiffs' application for consolidation by about a week. I do not think that the order in which the applications were filed is of controlling significance. The applications were heard together. Both applications fall to be considered in the context of the known presence of the other application.

41 The consolidation application must be dealt with on its merits. Any effect that consolidation might have on the viability of the plaintiffs' claim is not relevant to the merits of the consolidation application.

42 As I explain later in these reasons, I consider that the two actions should be consolidated. The question is whether the presence and result of the consolidation application must be excluded from consideration in assessing whether summary judgment should be granted.

43 In my view, the language of O 16 r 1 SCR does not require that the summary judgment application be determined on the basis that the Insurers are and will be the only defendants to the action. Order 16 r 1(1) SCR permits the grant of summary judgment when the court reaches any of three conclusions: that the action is frivolous or vexatious; that the defendant has a good defence on the merits; or that the action should be disposed of summarily. None of these seem to me to compel the court to assess the viability of the claim on the basis of the present constitution of the action. The principles I have stated earlier require attention to the ultimate outcome of the proceeding if it goes to trial. That suggests that so long as it may be expected that the claim is a viable one at trial, it should be permitted to go forward. By its nature, summary judgment is final. In my view the finality of summary judgment favours the approach I adopt.

44 In my opinion, it would be a very strange result if summary judgment were granted notwithstanding that there is an application for consolidation, consolidation were thought appropriate, and after consolidation the claim was sufficiently viable to make summary judgment inappropriate. As the plaintiffs submit, that would seem to be an outcome by which procedure and form triumphed over the substance. I would interpret O 16 as requiring that outcome only if the language of the rule required that construction, or if it was compelled by authority. For the reasons already given, I do not think that the language of O 16 requires that construction. I am not aware of authority on the point.

Summary judgment: the disposition of the application

45 The Insurers invite application of the approach taken by Byrne J in Interchase and contend that the position is sufficiently free of doubt to sustain the grant of summary judgment.

46 In Lois Nominees Pty Ltd v Hill, I considered a number of authorities decided after Interchase: Ashmere Cove Pty Ltd v Beekink (No 2) [2007] FCA 1421, (2007) 244 ALR 534 (French J); Employers Reinsurance Corporation v Ashmere Cove Pty Ltd [2008] FCAFC 28; (2008) 166 FCR 398 (Full Court of the Federal Court, dismissing an appeal from the decision of French J); Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd [2009] VSC 371 (Vickery J); Bazem Pty Ltd v Bureau of Urban Architecture [2010] NSWSC 978 (Gzell J).

47 For the sake of completeness I mention that an appeal from the decision of Gzell J to grant leave to join the insurer was dismissed: CGU Insurance Ltd v Bazem Pty Ltd [2011] NSWCA 81. The appeal was concerned with whether there was power to permit joinder, not with the exercise of discretion if the power existed. Thus the Court of Appeal did not need to deal with the question I am considering; see [17].

48 All of these authorities gave consideration to Interchase and, notwithstanding it, determined that there was sufficient prospect that the insurer would be precluded from defending subsequent proceedings if a declaration were made in favour of the plaintiffs to mean that the granting of a declaration would, arguably at least, have foreseeable consequences for the plaintiffs. I would follow that stream of authority. I adhere to what I said in Lois Nominees Pty Ltd v Hill [86] - [118].

49 Further and in any event, the essence of the Insurers' submission is that there were flaws in the reasoning in the cases subsequent to Interchase and that, consequently, I should prefer the reasoning of Byrne J in Interchase to the reasoning in the subsequent cases. Applying the principles about the grant of summary judgment that I have stated, in the face of the line of authority after Interchase a preference for the reasoning in Interchase would be an insecure foundation for a judge at first instance to grant summary judgment.

50 The Insurers also submit that, even if Ashmere Cove and the subsequent cases were to be followed, the present case is distinguishable from those cases because of the factual nature of the Insurers' proposed defence and the substantial forensic disadvantages to them which, the Insurers contend, would arise from the continuation of the plaintiffs' action for a declaration.

51 I am not persuaded that there is a sufficiently high degree of certainty about the outcome at trial to sustain the grant of summary judgment. Whether a declaration in favour of the plaintiffs would have practical consequences is a matter to be assessed by the trial judge in the light of all the facts and circumstances. Whether there is then a sufficient prospect that the Insurers would be precluded by the doctrine of abuse of process from defending subsequent proceedings by Mr Hill (or his trustees) will be assessed by taking into account all the circumstances, including whatever procedural and evidentiary disadvantages were found to have arisen in the course of plaintiffs' declaration claim.

52 The Insurers point to the alleged loss of what may be important admissions by Mr Hill if the plaintiffs' declaration claim goes forward. In my view, the significance of those admissions cannot be predicted with certainty at this stage. For example, it is not known what facts alleged by the Insurers will be admitted or denied by the plaintiffs. Nor is it known what other evidence will be available to the Insurers and the plaintiffs. The significance of any alleged admissions is properly assessed in the context of the action and the trial as a whole.

53 Further and in any event, it is, as Davies JA observed in Interchase, open to the Insurers to counterclaim against Mr Hill for a declaration that he is not entitled to an indemnity. If that occurred, any admissions by Mr Hill would be admissible. So would his answers to interrogatories be admissible. The plaintiffs accept that, in those circumstances, any admissions and answers to interrogatories would be admissible against them in their claim against the Insurers for a declaration, and undertake not to contend to the contrary.

54 The Insurers contend that they should not be obliged to counterclaim against Mr Hill, particularly in circumstances in which he is bankrupt. Apart from anything else, they point out that they would be at risk of succeeding in the action, but being unable to satisfy a costs order in their favour against the bankrupt defendant. In my view, it is not a matter of the Insurers being obliged to counterclaim against Mr Hill. The force of their contended forensic disadvantages is properly assessed taking into account that a counterclaim is an option available to them. In that regard, any grounds for not counterclaiming, or disadvantages of counterclaiming, can also be taken into account. In my view, the trial judge would take into account all of these matters in weighing any argument that the procedural disadvantages to the Insurers in the plaintiffs' declaration action meant that there was no realistic prospect of a defence by the Insurers in the subsequent action being struck out as an abuse of process.

55 In their written submissions [10] - [11] the Insurers point to matters which, they contend, make it 'unlikely' that the court would exercise its discretion to grant a declaration. In my view those are matters for trial, not summary judgment. Whether to exercise the discretion to grant a declaration is an evaluative judgment that is sensitive to the detailed facts and circumstances of the case.

56 For these reasons I would not grant summary judgment in favour of the Insurers.

57 There is a further reason why I would not grant summary judgment in favour of the Insurers. That reason is the potential application of the doctrine of res judicata. I explained the relevant cases in Lois Nominees Pty Ltd v Hill. In JN Taylor Holdings Ltd (In Liq) v Bond (1993) 59 SASR 432, the Full Court of the Supreme Court of South Australia held that the insurer, once joined as a defendant, would be bound in subsequent proceedings by the insured directors or their trustee in bankruptcy by the declaration of liability and findings of fact made in the primary action (441). That holding was not followed by the Queensland Court of Appeal in Interchase.

58 Since those cases, judges have observed the divergence between these authorities, but have not resolved it. In Employers Reinsurance Corporation v Ashmere Cove Pty Ltd a Full Court of the Federal Court stated that the approach in JN Taylor Holdings Ltd 'may be correct' [67], but said that it was not necessary to decide between the two competing views.

59 In my respectful view, the reasoning of the Queensland Court of Appeal in Interchase on this point is compelling. Nevertheless, as a judge of first instance I must be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that it may lie. Bearing in mind the observation of the Full Federal Court that the approach in JN Taylor Holdings Ltd may be right, I think that prospect is an additional obstacle to the grant of summary judgment in favour of the Insurers.

Abuse of process: the Insurers' contentions

60 The Insurers also contend, in the alternative, that the action should be summarily dismissed or struck out on the ground that it is oppressive and an abuse of process because of the procedural and evidentiary disabilities that will be suffered by the Insurers (outlined above) as a consequence of being sued by the plaintiffs, who are not parties to the contract of insurance, for the declaration sought.

61 The Insurers contend that the procedural and evidentiary disadvantages to them must be seen in the context that it is open to the plaintiffs to fund Mr Hill's trustee in bankruptcy to issue a third party claim against the Insurers and thereby to avoid those disadvantages.

62 The Insurers contend that to permit the plaintiffs claim for declaration to proceed would be unjustifiably oppressive and manifestly unfair to the Insurers and would bring the administration of justice into disrepute.

63 The courts have long had both statutory and inherent powers to control abuse of the processes of the court. Abuse of process is not restricted to defined and closed categories: Batistatos [14]; Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75 [28].

64 One species of abuse of process is where proceedings are 'seriously and unfairly burdensome, prejudicial or damaging': Batistatos [14]; Jeffery & Katauskas Pty Ltd [28]. There will be an abuse of process if the conduct of a case is 'manifestly unfair to a party to litigation...or would otherwise bring the administration of justice into disrepute among right-thinking people': Jeffery & Katauskas Pty Ltd [28]; Batistatos [6].

65 The fact that conduct can be characterised as being in some sense unfair to a party does not make the conduct of the other party an abuse of process: Jeffery & Katauskas Pty Ltd [28].

66 The usual caution about summary disposal of actions applies to an application that an action be summarily dismissed on grounds that it is vexatious or an abuse of process: Batistatos [46].

67 In Batistatos the 29 year delay between the car accident in which the plaintiff was injured and the commencement of the action was found to mean that substantially no evidence was available and, taking into account the pleaded claim against the defendants, that there could not be a fair trial [54] - [57], [69]. In that context, there was no need to show that continuation of the action would involve moral delinquency on the plaintiffs' part. What was decisive was the objective effect of the continuation of the action [70].

Abuse of process: the disposition of the application

68 In Batistatos the court was satisfied that any trial would be so unfair that continuation of the action would be oppressive and an abuse of process. The permanent character of the consequences of the delay in commencement of the action meant that there was nothing the court could have done, in interlocutory processes or at trial, to adequately reduce or eliminate the unfairness to the defendants. In my view, the position is very different in this case.

69 I am not satisfied that a trial of the plaintiffs' claim for a declaration will inevitably give rise to such unfairness to the Insurers to amount to vexation, oppression or abuse of process. I refer to what I have said in [51] - [54]. As already explained, in my view, the significance of the alleged evidentiary and forensic disadvantages depends upon the course of the action. It cannot be said that they are inevitably of a magnitude and character to support summary dismissal on the ground of abuse of process. Further, when all the circumstances are known the trial judge can assess the significance of the alleged evidentiary and forensic disadvantages in determining whether to grant a declaration.

70 In my opinion, in the circumstances I have just outlined, the fact that the plaintiffs could have taken a different approach, by funding Mr Hill's trustee to sue the Insurers, and thereby avoid the alleged forensic and evidentiary disadvantages to the Insurers does not make the plaintiffs' declaration claim an abuse of process.

71 For these reasons I would not strike out the plaintiffs' declaration claim as an abuse of process.

72 The Insurers contend that par 13 and par 22 of the statement of claim fail to disclose a cause of action or are embarrassing. Paragraph 9.3 of the statement of claim pleads that the policy indemnified Mr Hill for liabilities incurred by Mr Hill in connection with his practice as a solicitor. The Insurers complain that par 13 fails to plead that the liability incurred to the plaintiffs was incurred by Mr Hill in connection with his practice as a solicitor, and fails to plead material facts in support of that conclusion.

73 One might have expected a plea, in the statement of claim, that the liability was incurred by Mr Hill in connection with his practice as a solicitor. Nevertheless, I do not consider that the absence of that plea should animate the exercise of the power to strike out the pleading. In my view the plaintiffs' case is sufficiently clear. In essence, the plaintiffs say that because the monies in question were paid into and out of the trust account of Mr Hill's practice as a solicitor, the proper conclusion is that liability in respect of the failure of consideration of those monies, or the payment in breach of trust of those monies, arises in connection with his practice as a solicitor. I am satisfied that that is an arguable case.

74 The Insurers also complain that par 16 of the statement of claim is embarrassing because the nature of the claim made by the plaintiffs against Mr Hill is not clear from that paragraph. I do not accept that contention. Paragraph 16 pleads that '[i]n the premises' there has been a total failure of consideration and Mr Hill is obliged to make restitution to each of the plaintiffs in the amount paid by that plaintiff to Mr Hill. In my view, the nature of that claim is clear enough. So too is its basis, in the preceding paragraphs of the statement of claim: see pars 1 - 3 and 11 - 15.

75 For these reasons I would not strike out any paragraphs of the statement of claim.

The plaintiffs' application for consolidation

Whenever any issues between the same parties can be conveniently tried together, or whenever it appears desirable notwithstanding that the parties are not identical and that the evidence necessary to prove the issues is not identical, the Court may consolidate any number of causes or matters in order to quiet all claims relating to one subject matter, transaction or event, or to substantially similar subject matters, transactions or events.

77 There is no presumption against consolidation: A Goninan & Co Ltd v Atlas Steels (Aust) Pty Ltd [2003] NSWSC 956 [22]. Although made in the context of the differently worded NSW rule about consolidation, Austin J's observation applies equally to the WA rules.

78 Each case depends on its own facts and circumstances, Cameron v McBain [1948] VicLawRp 41; [1948] VLR 245, 247; A Goninan & Co Ltd v Atlas Steels (Aust) Pty Ltd [22]; Saker v Creative Land Management Pty Ltd [2000] WASC 44 [2].

79 Austin J said of the NSW rule that it is to be construed as a flexible rule of convenience in the administration or justice, suggesting that the court has the power to do what is necessary and appropriate to permit effective consolidation with a view to final determination of the real issues between the parties, with justice to all concerned: A Goninan & Co Ltd v Atlas Steels (Aust) Pty Ltd [42].

80 In Cameron v McBain, 247 Herring CJ said that broadly the question on a consolidation application is whether in all the circumstances it is convenient, having regard to avoiding multiplicity of actions and to saving time and expense.

81 Among the matters that may be relevant to the exercise of discretion regarding consolidation are:

(1) whether it is convenient to consolidate the actions, including whether it will prevent multiplicity of actions and ensure savings of time and cost;

(2) whether there are common questions of law or fact or a common transaction or series of transactions;

(3) whether consolidation will cause prejudice or unfairness to any parties;

(4) Whether consolidation will be conducive to a just resolution of the issues; and

(5) whether there are any practical matters which may make it inexpedient to consolidate:

82 Saker v Creative Land Management Pty Ltd [2], [3].

83 On one reading of O 83 r 1 SCR the power to consolidate may be exercised only in order to quiet all claims relating to one subject matter, transaction or event or to substantially similar subject matters, transactions or events.

84 The Insurers submit that the plaintiffs' claims against them in the 2011 Action and the plaintiffs' claims against Mr Hill in the 2009 Action do not relate to one subject matter, transaction or event or to substantially similar subject matters, transactions or events. They rely in that respect on what was said by Phillips JA in CE Heath Casualty and General Insurance Ltd v Pyramid Building Society (in liq) [1997] 2 VR 256, 292. That case concerned the Victorian rules about joinder. In that context, his Honour said that the insurance questions between the insured and the insurer do not arise out of the same transaction or series of transactions as to the issues of the primary liability of the auditor insured to the plaintiff.

85 However, in CGU Insurance Ltd v Bazem Pty Ltd Macfarlan JA held (Beazley and Hodgson JJA agreeing [1] - [2]) that the plaintiff client's claims against the insured architect and the insurers alleged liability arose out of the same transaction or series of transactions, in that they both arose out of the retainer of the architect by the client and the architect's alleged breach of it [24] - [26]. I would apply a similar approach in this case. I think that for the purposes of O 83 r 1 SCR the claims in the two actions relate to the same subject matter, namely Mr Hill's conduct and possible liabilities in relation to the receipt and payment of the monies in his trust account.

86 In my view, considerations of preventing multiplicity of actions and ensuring savings of time firmly favour the consolidation of these actions. While, obviously, different questions will arise in the two actions, there is a substantial common substratum of fact for the two actions. Apart from anything else, the facts relevant to whether Mr Hill has incurred liabilities to the plaintiffs', as claimed, will arise in both actions. Further, there is likely to be significant overlap between the evidence on the questions of Mr Hill's liability to the plaintiffs and the factual defences that the Insurers have foreshadowed. Consolidation will avoid inconvenience to the parties and witnesses, the potential for inconsistent findings, and the inefficient use of the court's and the parties' resources.

87 The primary claim between claimant and insured, and the secondary claim between insured and insurer are often heard in one action. That is generally a convenient approach: see Employers Reinsurance Corporation v Ashmere Cove Pty Ltd [74]. In my view that is so in this case.

88 The Insurers submit that consolidation should not be ordered because it would result in unfairness and prejudice to the defendants. That unfairness, the submission continues, arises from the unlikelihood in the consolidated action of the Insurers being able to rely on a Jones v Dunkel inference if Mr Hill is not called by the plaintiffs, as against the position in the 2011 Action if the actions remain separate. To that end, the Insurers invite an alternative approach, that the 2011 Action be heard immediately after the 2009 Action, with the evidence in the 2009 Action being evidence in the 2011 Action and the Insurers being at liberty to appear in the first action and take such part as the trial judge directs.

89 Whether a Jones v Dunkel inference would arise in favour of the Insurers from a failure by the plaintiffs to call Mr Hill at the trial of the 2011 Action, and what weight it might be given are, at this early stage of the proceedings, highly uncertain and speculative.

90 In my view, consolidation has practical benefits of simplicity and efficiency over the course advocated by the Insurers. I am not persuaded that the alleged unfairness to the Insurers based on the adverse effect on their prospects of a Jones v Dunkel inference justifies the course they advocate in preference to consolidation.

91 For these reasons I would order consolidation of the actions.

(1) I would dismiss the Insurers application in the 2009 Action for summary judgment or to strike out the whole or parts of the statement of claim; and

(2) I would order consolidation of the 2009 Action and the 2011 Action, and make orders to the effect sought in the plaintiffs' chamber summons.

Securities and Investments Commission Act 2001

LOIS NOMINEES PTY LTD -v- QBE INSURANCE (AUSTRALIA) LTD [2011] WASC 208 (22 August 2011)

At a glance

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Judgment (164 paragraphs)

LOIS NOMINEES PTY LTD -v- QBE INSURANCE (AUSTRALIA) LTD [2011] WASC 208 (22 August 2011)

Legislation Cited (1)

Cases Cited (9)