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.