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[2007] FCAFC 60
Federal Court of Australia (Full Court)
2007-05-03
Buchanan JJ
Original judgment source is linked above.
Background facts 66 By an Application filed 29 November 2004 the first respondent claimed relief against the second and third respondents to the appeal pursuant to ss 52, 53A, 82 and 87 of the Trade Practices Act 1974 (Cth) ('the Act'). 67 In an Amended Statement of Claim filed 6 July 2006 the first respondent contended that on or about 22 May 2003 the second respondent issued two valuations of properties located at Trinity Beach in Queensland for mortgage purposes. It is said that the third respondent signed the valuations as a registered valuer. 68 The first respondent alleges that in issuing the valuations the second respondent engaged in conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive within the meaning of s 52 of the Act and further constituted a false or misleading representation concerning the nature of an interest in land and/or the characteristics of land in contravention of s 53A of the Act. 69 The first respondent alleges that in reliance upon the valuations it lent $598,000 to one Brett Andrew Robinson. The first respondent claims that Mr Robinson defaulted under the mortgage taken by it to secure repayment of the loan, whereupon it sold the properties in question by contracts dated 27 May 2004 in exercise of its power of sale, thereby suffering a shortfall upon the sale of the properties for which it holds the second and third respondents liable. 70 On or about 8 August 2003 the first appellant issued a professional indemnity policy to the second respondent trading as 'Cairns Regional Valuers'. That policy provided cover in respect of the insurance period from 4.00 pm on 26 July 2003 to 4.00 pm on 26 July 2004 ('the first policy'). 71 On 23 July 2004 the first appellant issued a professional indemnity policy to the second respondent trading as 'Cairns Regional Valuers' in respect of the insurance period from 4:00 pm on 26 July 2004 to 4:00 pm on 26 July 2005 ('the second policy'). 72 The appellants contend that the first policy was constituted by a series of documents recorded on some 33 pages and that the second policy was constituted by certain documents recorded on some 32 pages. At [20] in his reasons for judgment of 29 May 2006, the primary judge observed that the first respondent's case for leave under s 6 of the LR(MP) Act was primarily put on the basis of the second policy. 73 The component documents making up the first policy would appear to be a schedule signed for and on behalf of the first appellant identifying a policy number, the name and address and nature of the business of the insured, the insurance period, the sum insured and the relevant excess and three 'optional provisions' recording 26 July 2001 as the 'Retroactive Date', providing that the premium would be 'As agreed' and providing 'Special Conditions'. The Special Conditions were indicated as: '- Standard PI Endorsement (as attached)
The exercise of the s 6(4) discretion 101 From the above, it may be seen that: (a) The valuations signed by the third respondent, to which the first respondent has taken exception, were given on or about 22 May 2003 i.e. a couple of months before the commencement of the insurance period under the first policy, but well after the retroactive date of 26 July 2001; (b) The happening of the event giving rise to the first respondent's claim for damages or compensation against the second and third respondents would appear to have been the entry by the first respondent into the contracts for sale of the two properties on 27 May 2004, but this was not canvassed in argument before the Court as presently constituted. This happening occurred during the insurance period under the first policy, but before the contract of insurance constituting the second policy was made. (c) The proceedings in which damages or compensation were claimed by the first respondent against the second and third respondents in respect of the May 2003 valuations were commenced on 29 November 2004 during the insurance period under the second policy. The first forewarning of an insurance claim against the appellants in respect of such a claim was said to have been received by the first appellant on or about 27 August 2004 i.e. during the currency of the second policy. 102 Notwithstanding the extended definition of the word "You" in the policies, I, like Allsop and Buchanan JJ, whose reasons for judgment in draft I have had the benefit of reading, cannot see how, on the evidence before the primary judge, it could be said that there was an arguable case of entitlement to indemnity in the second and/or third respondents under the first policy. Under clause 1.8 of the VALUERS - AUSTRALIA endorsement, cover was not provided for any claims arising from valuations undertaken or signed by any person other than Mr Stewart. 103 However, an arguable case of entitlement to indemnity can be made under the second policy. Under clause 1.8 of the VALUERS - AUSTRALIA endorsement in that policy valuations undertaken or signed by the third respondent were not excluded from cover. 104 Given the observations of McHugh and Gummow JJ in Bailey as recorded at [56] - [57] above, it is arguable that, notwithstanding the non-existence of the second policy as at 27 May 2004, nevertheless the statutory charge, for which s 6(1) of the LR(MP) Act provided, operated upon insurance moneys that may become payable under the second policy, as a 'claims made' policy, as and when they did become payable. 105 Like Allsop and Buchanan JJ, I am of the opinion that the appeal should be allowed in part. Subject to the above observations, I agree with their Honours' reasoning, especially at [23] - [46] inclusive and also with the orders which they propose. 106 It was open to the learned primary judge to exercise his discretion as he did in respect of the second policy. Needless to say, a finding, on this appeal from his Honour's interlocutory decision to grant leave under s 6(4) of the LR(MP) Act, that there is an arguable case of entitlement to indemnity under the second policy will not affect the ultimate outcome of the matter following a trial and detailed argument in relation to the whole of the evidence and the impact of the various provisions in the Insurance Contracts Act 1984 (Cth) upon the question of liability in the matter. I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.
Counsel for the Appellant: Mr J N West QC and Mr N J Kidd
Solicitor for the Appellant: Colin Biggers & Paisley
Counsel for the First Respondent: Mr J C Kelly SC and Mr I Griscti
Date of Hearing: 20 February 2007
Macquarie Underwriting Pty Ltd
Permanent Custodians Limited
REASONS FOR JUDGMENT ALLSOP AND BUCHANAN JJ: 1 Macquarie Underwriting Pty Ltd (Macquarie) and SVB Syndicates Limited (SVB) (collectively the appellants) are, respectively, an underwriting agent and a corporate vehicle for combining the underwriting members of two syndicates of Lloyds. 2 Their appeal seeks to overturn the exercise of a discretion by a Judge of this Court who granted leave to join them as additional respondents to proceedings commenced against a valuation company and one of its valuers (who are the second and third respondents to this appeal). The orders and judgment under appeal were made and was delivered on 4 July 2006 (Permanent Custodians Limited v ARMA Pty Limited (No 2) [2006] FCA 847). The judgment of 4 July 2006, in large part, reflected reasons in an earlier judgment of 29 May 2006 (Permanent Custodians Limited v ARMA Pty Limited [2006] FCA 640). Both judgments, read together, provide the reasons for the orders for joinder, made on 4 July 2006. Leave to appeal was given by a Judge exercising the appellate jurisdiction of the Court on 28 September 2006 (Macquarie Underwriting Pty Ltd v Permanent Custodians Limited [2006] FCA 1291). 3 For reasons which will appear, we have concluded that the appeal should be allowed in part. 4 The proceeding was commenced by the first respondent to the appeal, Permanent Custodians Limited (PCL). PCL provided finance, secured by mortgage, for the purchase of two lots in a development located at Oyster Court, Trinity Beach in Queensland. The purchaser of the properties defaulted and they were sold by PCL under a power of sale, but for less than the amount of the loan which had been advanced. The amount of the shortfall pleaded is $155,000 to which interest and other, as yet unquantified, costs would need to be added should PCL succeed in its action. 5 The proceedings were commenced by application filed in this Court on 29 November 2004 against the valuation company, ARMA Pty Limited (ARMA), which traded as Cairns Regional Valuers, and Mr Neil Teves who signed the two valuations in his capacity as a registered valuer. PCL, alleging causes of action under the Trade Practices Act 1975 (Cth), pleaded against them that PCL had, as the respondents should have known it would, relied upon the valuations for the purpose of providing loans and had suffered loss as a result. About 12 months later, PCL filed a notice of motion seeking to add Macquarie and SVB as respondents to the proceedings. 6 No issue was agitated before the primary judge or on appeal that the case against the insureds, ARMA and Mr Teves was not arguable. 7 The motion relied upon s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the LR(MP) Act), picked up and made applicable as surrogate federal law by the Judiciary Act 1903 (Cth), s 79. Section 6 of the LR(MP) Act provides relevantly as follows: (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability. (2) … (3) … (4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken. 8 It was alleged by PCL that ARMA and Mr Teves are entitled to the protection of one or both of two professional indemnity policies (the first policy and the second policy) which were in effect, according to their terms, from 26 July 2003 to 26 July 2004 and from 26 July 2004 to 26 July 2005, respectively. 9 The effect of s 6 of the LR(MP) Act (if the necessary conditions are satisfied) is to create a charge on the insurance moneys that may become payable under one or both of the policies as a result of the shortfall and other losses alleged by PCL and to permit PCL to commence proceedings against the insurer as if the proceedings were against the insured, subject to the leave of the Court being obtained. 10 The principles upon which the grant of leave should be approached were set out by the Full Court of this Court in AFG Insurances Ltd v Andjelkovic (1981) 54 FLR 398 at 400 in dealing with a relevantly identical Ordinance of the Australian Capital Territory. The Court there said as follows: Section 26(3) commands the court not to grant leave in certain circumstances. It is not easy to decide precisely what is embraced in the words which describe the circumstances where the court is not to grant leave. In our opinion the court has a general power to grant leave in all cases which do not fall within the provision that it shall not grant leave and in which it is made to appear by evidence available in the application that there is an arguable case of liability against the insured, being a liability against which the insured is indemnified by a contract of insurance in force at the time of the happening of the event said to give rise to the claim. We accept the relevant test proposed by the respondent which is really the test formulated by the primary judge, namely, has the respondent presented a case which is at least arguable? 11 This was applied by the Full Court in Travel Compensation Fund v FAI General Insurance Co Ltd [1999] FCA 1214 at [2] dealing with s 6 of the LR(MP) Act. 12 This approach has been followed by the New South Wales Court of Appeal in Oswald v Bailey (1987) 11 NSWLR 715 at 734; State of New South Wales v AXA Insurance Australia Ltd (2002) 54 NSWLR 409 at 412; Fishwives Pty Ltd v FAI General Insurance Co Ltd (2002) 12 ANZ Ins Cas 61-515 at p 75,998; and Tzaidas v Child (2004) 61 NSWLR 18 at 25 [21]. 13 The primary judge referred to the reasons of Blackburn CJ in Andjelkovic v AFG Insurances Ltd (1980) 47 FLR 348, who was the primary judge reversed by the Full Court. Nevertheless, as can be seen from the last passage quoted above from the Full Court, Blackburn CJ's expression of principle was assimilated within the Full Court's expression of principle. At [5] of his judgment of 29 May 2006, the primary judge stated the following: …If the claim is reasonably arguable in the sense that it 'could be seriously put' (Andjelkovic v AFG Insurances Ltd (1980) 47 FLR 348 at 356 per Blackburn CJ, the context whereof involved an issue as to statutory or alternatively contractual interpretation), then leave should be granted to join the Insurers, or at least that Insurer resident in Australia being of course Macquarie, notwithstanding its purported agency status, so that the issue as to availability of the statutory remedy referrable to the prevailing circumstances may be subsequently resolved at a final hearing of the proceedings. The parties further agreed that for the purposes of the present interlocutory application of PCL, the following general principles apply: (i) an action pursuant to section 6 of the LR Act cannot be commenced of course without the leave of the Court, and whilst some specific circumstances may be identified as operative against the grant of leave, any grant of leave or otherwise falls ultimately within the statutory discretion thereby vested in the Court; and (ii) the Court will not grant leave to commence proceedings in circumstances where on the basis of the material placed before the Court, the claim of an applicant for the statutory indemnity sought is not reasonably arguable. 14 For present purposes that statement of principle (to which the primary judge was directed by the parties) can be seen to be conformable with the principle laid down by the Full Court in AFG Insurances Ltd v Andjelkovic 54 FLR at 400. 15 The relevant question on appeal was, therefore, whether the primary judge erred in answering the question whether, by reference to evidence available in the application, it was arguable that the insured had a claim under the relevant policies.
Graham J 50 This is an appeal from an interlocutory judgment of the Court constituted by a single Judge brought pursuant to leave granted on 29 September 2006. 51 On 4 July 2006 an order was made by the primary judge granting leave to the first respondent to join the appellants as additional respondents to the proceedings. That relief had been sought pursuant to an Amended Notice of Motion filed in Court on 15 December 2005. Following a hearing of the Amended Motion on 22 December 2005 and 24 February 2006, the primary judge handed down reasons on 29 May 2006 which resulted in an order being made that the making of final orders on the Amended Notice of Motion be stood over for 21 days with liberty to apply in the meantime on two days' notice. Directions were given for certain matters to be attended to by the parties following which the primary judge delivered further short reasons for judgment on 4 July 2006 on the basis of which the order granting leave to the first respondent to join the appellants as additional respondents to the proceedings was made. 52 The order in question was made pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ('the LR(MP) Act'). 53 Section 6 of the LR(MP) Act fell within Part 4 of that Act, which dealt with 'Attachment of insurance moneys'. The section relevantly provided: '6(1) If any person (hereinafter in this Part referred to as the insured) has … entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability. (2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding-up. … (4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken. (5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter. … (7) No insurer shall be liable under this Part for any greater sum than that fixed by the contract of insurance between the insurer and the insured. …' 54 Section 6 of the LR(MP) Act was the subject of detailed consideration by McHugh and Gummow JJ in Bailey v New South Wales Medical Defence Union Limited ('Bailey') (1995) 184 CLR 399 at 445 - 450. 55 In relation to the proper construction of s 6, Brennan CJ, Deane and Dawson JJ said at 415: '… it is appropriate that we express our agreement with McHugh and Gummow JJ upon the effect of that provision.' 56 At 446 McHugh and Gummow JJ said: '… what s 6 achieves is the creation of a new right with an associated remedy to enforce it …. The section does so by sweeping up distinctions in the general law between legal and equitable assignments of whole or part of presently existing or future choses in action and between cases where value is required or inessential. By its own force, the statute, in circumstances where it applies, creates, on the happening of the event giving rise to the claim for damages or compensation, a charge on all insurance moneys which are then payable in respect of the liability against which the insured is indemnified and on all such insurance moneys that may become payable in respect of that liability.' 57 At 449 their Honours said: 'The phrase in s 6(1), "insurance moneys that … may become payable", is apt to deal with the situation where, whilst the charge has descended, there is as yet no sum which could be identified as presently payable by the insurer to the insured. In such a case, the statutory charge operates, by loose analogy to an agreement for a charge on after-acquired property, upon such moneys as and when they do become payable. …' 58 Dealing specifically with the last sentence of the proviso to s 6(4) of the LR(MP) Act, McHugh and Gummow JJ said at 448: 'This provision is not directing the court that leave be denied only in a case where it is satisfied both of entitlement to disclaim liability and that necessary steps have been taken to establish entitlement to do so. Leave may be refused in other cases but must be refused in these cases. What the sentence does suggest is that, if there is an entitlement to disclaim, there may be no moneys which are or may become payable in respect of the liability of the insurer to the insured and thus nothing upon which the charge specified in s 6(1) can operate.' (emphasis added) 59 The general discretion conferred on the court to grant or refuse leave to commence an action under s 6(4) of the LR(MP) Act is not diminished by the mandatory requirement that leave should not be granted in the circumstances identified in the last sentence of the proviso. As McHugh and Gummow JJ observed at 447: '[i]n most circumstances, the action cannot be commenced save with leave of the court.' Their Honours proceeded to identify four protections afforded to an insurer. At 447 they said: '… the position of the insurer is guarded in several ways against the consequences of exposure to the direct action by the claimant created by s 6. First, there is the leave requirement. …' 60 In considering whether leave should be granted under s 6(4) of the LR(MP) Act it is important to note that leave to commence an action against an insurer is not required if, generally speaking, the insured, being a corporation, is being wound up at the time of the happening of the event giving rise to the claim for damages or compensation against the insured. This suggests that one relevant consideration on an application for leave will be the likely capacity of any insured to meet a claim for damages or compensation brought against it without the necessity of recourse to its insurer. 61 The principles enunciated by McHugh and Gummow JJ in Bailey were applied by Mason P, with whom Meagher and Handley JJA agreed, in Fishwives Pty Ltd v FAI General Insurance Co Ltd (2002) 12 ANZ Insurance Cases 75,991 at [44]-[46]. 62 When the Amended Notice of Motion was before the primary judge the parties were in agreement that an action could not be brought against the insurer without the leave of the court, any grant of leave or otherwise falling ultimately within the statutory discretion vested in the court by s 6 of the LR(MP) Act. The parties were further in agreement that a Court would not grant leave where, on the basis of the material before the Court, the claim for the statutory indemnity sought was not reasonably arguable (Permanent Custodians Limited v ARMA Pty Limited [2006] FCA 640 at [5]). 63 The parties' agreement in relation to these matters is consistent with the relevant authorities. In A.F.G. Insurances Ltd. v Andjelkovic (1981) 54 FLR 398 a Full Court, comprising Franki, McGregor and Kelly JJ had to consider the Australian Capital Territory's comparable provision to s 6 of the LR(MP) Act, being s 26 of the Law Reform (Miscellaneous Provisions) Ordinance 1955 (ACT). 64 In that case, counsel for the respondent argued that the respondent was entitled to leave if she could show a prima facie case of liability which equated to a 'seriously arguable case'. Counsel conceded that, if the incident took place outside the terms of the policy, the respondent was not entitled to leave. In that context the Full Court accepted that the relevant test was whether the respondent had presented a case which was at least arguable. Their Honours said at 400: 'In our opinion the court has a general power to grant leave in all cases … in which it is made to appear by evidence available in the application that there is an arguable case of liability against the insured, being a liability against which the insured is indemnified by a contract of insurance in force at the time of the happening of the event said to give rise to the claim.' 65 It is clear that the court considered that it was necessary for there to be an arguable case of liability against the insured and also an arguable case of entitlement to indemnity under the relevant contract of insurance. (See also Tzaidas v Child (2004) 61 NSWLR 18 at [21]).
(1981) 54 FLR 398
(1980) 47 FLR 348
(1997) 188 CLR 652
(1995) 184 CLR 399
(1991) 25 NSWLR 400
(2001) 204 CLR 641
(1993) 30 NSWLR 89
(1987) 11 NSWLR 715
(1998) 153 ALR 529
(2002) 54 NSWLR 409
(2004) 61 NSWLR 18