[No 3]; NEW SOUTH WALES MEDICAL DEFENCE UNION LTD v BAILEY

PRACTICE & PROCEDURE - Court of Appeal - inconsistent orders of judges - deriving order of the Court - practice of the Court of Appeal to reflect opinion of the majority Judges - necessity to bring orders into line with majority opinion - error in discerning majority in relation to appeal in respect of orders against judgment on a cross-claim - motion, before orders entered, to review proposed orders and to correct them to reflect the opinions of the Court - held: (1) The orders of the Court should reflect the majority opinion of the Judges of the Court of Appeal upon the issue to be determined by such orders. Woolworths Ltd v Kelly (1991) 22 NSWLR 189 (CA) applied; (2) Upon that basis, the orders earlier announced did not reflect the majority opinion in respect of the judgment on the cross-claim; (3) Accordingly, no orders having been entered, it was competent to the Court, and it should, withdraw the earlier orders as pronounced and substitute orders which reflected its majority opinion.

EQUITY - subrogation - quia timet injunction - whether available to sustain claim by insured, denied indemnity by insurer to enforce in its own name claim against insurer pursuant to s6 of the Law Reform (Miscellaneous Provisions) Act 1946 - held (1) (per Kirby P; Mahoney finding it unnecessary to decide; Sheller JA agreeing in the course proposed): The claim for relief should be rejected upon the footing (a) that it was not litigated at trial and to permit it on appeal to be litigated would involve procedural unfairness. Coulton and Ors v Holcombe and Ors (1986) 162 CLR 1 applied; (b) it would involve extending beyond the enactment of Parliament and its purpose, the entitlements afforded to a plaintiff by s6 of the Law Reform (Miscellaneous Provisions) Act 1946; and (c) the equitable principles relied upon did not sustain the claim made; (2) (per Mahoney JA) The appeal against the judgment on the cross-claim should be allowed, as the estate of the insured had no claim against the insurer either under the insurance contract or under the Act; (3) Accordingly (by majority) appeal against judgment on the cross-claim upheld and orders earlier pronounced altered to give effect to such holding.

Law Reform (Miscellaneous Provisions) Act 1946, s6.

Kirby P The saga of this aspect of the Chelmsford litigation continues. In this case I am afraid I must confess that I have contributed to it.

For the background to this judgment see New South Wales Medical Defence Union Ltd v Crawford (1993) 31 NSWLR 469; 11 ACSR 406 (NSWCA) and New South Wales Medical Defence Union Ltd v Crawford [No 2], Court of Appeal (NSW), unreported, 30 June 1994; (1994) NSWJB 68.

In the first of the foregoing cases, Mahoney JA concluded (see ibid NSWLR, 511) that Mr Crawford was entitled to bring his proceedings against Dr Bailey and to maintain them against his estate and was not barred by the Limitation Act 1969. He also held that the judgment given in favour of Mr Crawford against the New South Wales Medical Defence Union (NSWMDU) was erroneous and should be set aside. In his judgment in Crawford [No 2], Mahoney JA affirmed "the opinion expressed" in Crawford [No 1]. Whilst stating his conclusion, Mahoney JA did not expressly list the orders which he favoured. He accepted that his views were in the minority.

Sheller JA in Crawford [No 1] concluded (ibid NSWLR, 536) that neither Dr Bailey nor his estate's right to indemnity by NSWMDU, nor Mr Crawford's own right to enforce his charge under s6 of the Law Reform (Miscellaneous Provisions) Act 1946 against NSWMDU, was affected by the purported amendment of the articles of association of NSWMDU in 1982 or 1990. Sheller JA held that Mr Crawford's right to enforce the charge against NSWMDU had not been extinguished by the Limitation Act 1969. He favoured relisting the proceedings for further hearing.

I reached a similar conclusion to Sheller JA in Crawford [No 1] (see ibid NSWLR, 495) but for reasons different from those which recommended themselves to his Honour. Specifically, I concluded that the judgments entered by the primary judge (Enderby J) in favour of Mr Crawford, both against the executrix of the estate of Dr Bailey and NSWMDU, should be confirmed. I committed to further argument the remaining issues which therefore came before the Court in the proceedings in November 1993 which ended in the judgment in Crawford [No 2].

Unfortunately, the differences of opinion which had evidenced themselves in Crawford [No 1] persisted into the reasons, and proposed orders of the Judges, in Crawford [No 2].

The result of the proceedings was that, in respect of the claim commenced in 1980 by Mr Crawford against Dr Bailey (later the estate of Dr Bailey) in which the estate cross-claimed against the NSWMDU, asserting indemnity, Sheller JA and I were of the view that Mr Crawford was entitled to hold his judgment. Mahoney JA's reasoning in Crawford [No 2] suggests that his Honour too would have upheld Mr Crawford's judgment against the estate in the 1980 proceedings.

In the 1988 claim, there was a majority view (Sheller JA and myself) that Mr Crawford was entitled to recover directly against NSWMDU although each of us arrived at this conclusion by a different route. I relied upon the construction which I favoured of s6 of the Law Reform (Miscellaneous Provisions) Act 1946. Sheller JA based his reasoning on the holding that a "special contract" had been established between Dr Bailey and NSWMDU which prevented the latter from altering the basis of its liability to the former. In this approach, Sheller JA substantially followed the opinion earlier expressed by Priestley JA, for the purposes there required, in Oswald and Anor v Bailey and Ors (1987) 11 NSWLR 715 (CA), 737f.

WHEW SOUTH WALES MEDICAL DEFENCE UNION LTD v CRAWFORD [No 3]; NEW SOUTH WALES MEDICAL DEFENCE UNION LTD v BAILEY [No 3]; BAILEY v CRAWFORD [No 3] (Kirby P)

A problem was then presented to the Court for the purpose of securing orders which would reflect the opinion of the majority (Sheller JA and myself) that Mr Crawford should hold (with certain minor adjustments) the judgment entered in his favour by the primary judge against both the estate of Dr Bailey and NSWMDU. It was at this point of my reasons in Crawford [No 2] that I indicated my agreement in the orders proposed by Sheller JA. I said (ibid 17):

"To secure orders of the Court, I agree in the orders proposed by Sheller JA. Although arrived at in a different way, we both agree that Enderby J's substantive judgment against the Estate of Dr Bailey should not be interfered with. We both agree that Mr Crawford has access to NSWMDU (either directly under the Act as I would hold - or indirectly through the Estate's entitlement to indemnity as Sheller JA concludes). Neither of us believes that Mr Crawford is limited to the empty entitlement of a large verdict against the Estate. Its coffers were probably empty when this litigation began. If not they must surely now be so as a result of these prolonged and multitudinous proceedings.

I therefore agree that the Court should make the orders which Sheller JA has proposed."

Those orders are set out at the close of Sheller JA's reasons. Most of them are not in controversy. However, those which concern the cross-claim brought by the estate of Dr Bailey against NSWMDU are controversial.

The difficulty arises in this way. In the course of my reasons in Oswald v Bailey, affirmed in Crawford [No 1] and reaffirmed in Crawford [No 2], I rejected the argument that a "special contract" existed, within the meaning of that body of jurisprudence, which would restrain NSWMDU from altering its articles of association so as to deny, after the alteration, a claim against it by Dr Bailey or the executrix of his estate. In my view (to which I adhere) the only basis for such a claim is by way of the enforcement of Mr Crawford's entitlement under the Law Reform (Miscellaneous Provisions) Act 1946, s6. In the view which I have taken, the entitlement of Dr Bailey, and his estate, to claim indemnity under the contract of insurance was effectively destroyed by the amendment of the articles of association of NSWMDU. It was not kept alive by any "special contract". But for the statute, therefore, Mr Crawford would still have his empty claim against Dr Bailey's estate. But Dr Bailey's estate would have no claim to indemnity against NSWMDU because the basis of indemnity had changed with the ex post change of that company's memorandum and articles.

It was upon this footing that NSWMDU asserted that the logic of my reasoning required that the cross-claim against NSWMDU should be dismissed with costs. In support of such an order, it was pointed out that a majority of the Court favouring that course, being Mahoney JA (who also rejected the "special contract" argument) and myself.

Mr Crawford expressed no real interest in this debate. His counsel affirmed that, if he could not recover against NSWMDU directly, in one or other of the ways which Sheller JA and I had favoured, his empty entitlement to a judgment against the estate of Dr Bailey was not worth worrying about. Accordingly, he professed a benign indifference to the alteration of the orders sought by NSWMDU. The alteration of the orders was, however, resisted by the executrix of Dr Bailey's estate.

The first basis of resistance was that the course which I had followed was merely the adoption of the expedient designed to secure an order of the Court of Appeal, given the difference of opinion in the judgments of the majority (Sheller JA and myself). The procedures of this Court in resolving judicial differences to secure an order of the Court are described in a number of cases collected in Woolworths Limited v Kelly (1991) 22 NSWLR 189 (CA), 200. Put generally, the Court strives to find the highest common denominator of agreement in the opinions of the majority of the Judges so as to reflect, in its orders, the highest measure of agreement amongst the Judges. If necessary, to secure orders, a Judge will withdraw those which he initially favours and supports those favoured by a colleague. In the conventions of this Court, that procedure has replaced the earlier convention whereby the Judge junior in appointment will withdraw his orders in deference to the opinion of the Judge senior in appointment. See O'Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601 (CA), 641. Rationality has replaced the accident of appointments.

However, this procedure does not sustain my joining in that part of the orders of Sheller JA which was based upon his Honour's approach to the "special contract" argument, which I rejected. The cross-claim of the estate of Dr Bailey against NSWMDU depended upon establishing, in some way, that the contract of insurance subsisted notwithstanding the alteration of the articles of NSWMDU. As, by my reasons, I had rejected that notion, adhering to an order which favoured it seemed puzzling to NSWMDU. And understandably so. As Mahoney JA had also rejected that notion there was clearly a majority in the Court against the proposition.

A question arose as to whether Mahoney JA's opinion should be disregarded for this purpose, his Honour being in the minority as to the general outcome of the appeal and the orders thus made for its disposal. In retrospect, I do not believe that this would be a correct approach. The cross-claim was a separate proceeding. It had to be determined according to the application of the correct legal principles. Upon those principles, Mahoney JA and I were firmly of the view that no basis existed in contract, or in the doctrines of company law, to sustain the claim. Accordingly, by application of the conventions of this Court, I should, upon this matter, have agreed to NSWMDU's submission that the cross-claim should be dismissed with costs.

The executrix of Dr Bailey raised, however, a second argument. This was that, by the doctrines of equity and of subrogation, an alternative basis could be established by which - direct liability to Mr Crawford being found by me under the Act - NSWMDU was therefore obliged to indemnify the estate of Dr Bailey. It was put that only this result would avoid the absurdity of Mr Crawford's having a statutory claim against NSWMDU which the estate could not enforce.

However, the absurdity, as it was put, rests upon the provisions of the Act. The Act provided benefits and protection to Mr Crawford and not to Dr Bailey or his estate. It would be stretching too far the protection of the Act to extend its provisions so as to afford the estate of Dr Bailey the right of subrogation from the insurer. The estate's entitlements (like Dr Bailey's) rested upon the contract of insurance. Mr Crawford's, on the other hand, rested on the statute. The foundations of their respective rights were quite different.

WHEW SOUTH WALES MEDICAL DEFENCE UNION LTD v CRAWFORD [No 3]; NEW SOUTH WALES MEDICAL DEFENCE UNION LTD v BAILEY [No 3]; BAILEY v CRAWFORD [No 3] (Kirby P)

However, in an ingenious argument, counsel for the executrix then urged that the estate was entitled to enforce the statutory charge belonging to Mr Crawford under the Act by virtue of general equitable principles. This submission was refined to indicate a reliance upon the combined principles of subrogation and the right of a court of equity to grant quia timet relief. My principal reason for rejecting that argument was that it was not pleaded. It does not appear to have been the subject of submission, still less of evidence, before Enderby J. Indeed, it does not appear to have entered anyone's mind until the matter (and the

problem) emerged in the Court of Appeal. In such circumstances, I consider that it would involve an impermissible procedural unfairness to permit the submission to be advanced for the first time in the appeal. See Coulton and Ors v Holcombe and Ors (1986) 162 CLR 1, 7ff.

Assuming, against this submission, that it would be permissible (over the objection of NSWMDU) to allow the argument of subrogation to be advanced for the first time in the appeal, I am by no means convinced that it would avail the estate of Dr Bailey in the cross-claim. There are a number of reasons. Kearney J expressed one of them in Cochrane v Cochrane (1985) 3 NSWLR 403 (SC), 405:

"[T]here is no occasion for equity to intervene by way of subrogation where there is available to a third party a remedy at law or in equity sufficient to avoid an unconscionable result. "

In the present case there is such a remedy, namely, the direct entitlement by Mr Crawford to enforce his rights (in the view I hold) under the Act and in the view Sheller JA holds against the estate indemnified under its "special contract" with the insurer. It is an entitlement Mr Crawford can be trusted to pursue. In such circumstances, there would be no occasion for equity to intervene by way of subrogation to provide a remedy to the estate.

Nor do I believe that the right to quia timet relief sustains the cause of action belatedly urged for the estate. Even if there were more to this argument than I presently think, it is indisputable that discretionary considerations would arise. They would necessitate the signalling of this argument before and at the trial, so that the other parties to the proceedings would have the opportunity to call evidence and ask questions pertinent to the suggested basis of the claim for such relief. As this was not done, the barrier of the rule of procedural fairness applies with even greater force in the case of the quia timet argument than that based on the suggested rules of subrogation. Upon one view, each of these arguments fails in this case simply because each seeks to expand the ambit of statutory entitlements beyond those which Parliament saw fit to enact. Upon another view, each fails on the rule of procedural fairness. Upon a third view, each fails because, in substance, each lacks merit when the doctrines invoked are carefully examined. I pay tribute to the ingenuity of the arguments. But they must be rejected.

The result is that I would uphold the assertion by NSWMDU that the orders to which I agreed, reflecting the opinion of Sheller JA, do not accurately state either my own opinions or those of the majority of the Court in respect of the appeal against Enderby J's judgment on the cross-claim. No impediment arises as to the correction of the orders. The parties, by a sensible agreement amongst themselves, have refrained from taking out the orders of the Court in order to permit this matter to be cleared up.

The result is that I withdraw the agreement expressed by me in my reasons of 30 June 1994 in the orders proposed by Sheller JA, so far as those orders affected the challenge by NSWMDU to the judgment on the cross-claim by the estate of the late Dr Bailey against NSWMDU. In lieu thereof, in respect of the judgment on the cross-claim, I favour the orders which are also inherent in the reasons of Mahoney JA.

I therefore agree in the orders of Sheller JA with the following variations:

(a) Delete order 6. Substitute the following order 6:

6. In lieu thereof, judgment and orders as follows:

2. That the cross-claim of the second cross-claimant against the second cross-defendant be dismissed; and

4. That the second cross-claimant pay the costs of the second cross-defendant in the second cross-claim.

As these are the majority opinions of the Court, the statement of the orders of the Court should be those of Sheller JA, subject to the foregoing amendment. The parties should promptly bring in short minutes to reflect this variation in the orders of the Court. The costs of the motion should be costs in the appeal.

Mahoney JA On 30 June 1994 Kirby P and Sheller JA concurred in deciding that the orders to be made in this appeal were those set forth in the judgment of Sheller JA. I was of a different view.

The point now made by Mr Sullivan QC for New South Wales Medical Defence Union Ltd (NSWMDU) relates to a cross claim made by the estate of the late Dr Bailey against that company. It is that the orders so made do not deal with the cross claim and should have done so; or (if they deal with the cross claim) deal with them wrongly. That point is one to be dealt with by Kirby P and Sheller JA.

In view of the conclusions to which I came as to the liability of NSWMDU, viz, that Mr Crawford had no claim against it under the Law Reform legislation and that the Bailey estate had no claim against it under the terms of the articles of association, it was not necessary for me to deal in terms with the claim of the estate (made in the cross claim) that it was, as it was suggested, subrogated to the rights of Mr Crawford or otherwise against NSWMDU. Because as I have held, no such rights existed, the issue did not arise for determination by me.

Had I felt it necessary to pursue the order to be made, I would have felt it appropriate, having arrived at the conclusion to which I have referred, to leave it to the appropriate officer of the Court to formulate the orders which follow from those conclusions. However, I see no reason to propose any further orders.

Sheller JA For the reasons given by the President I agree with the course that he proposes.

The parties to bring in short minutes to reflect the variation in the orders of the Court.

Counsel for appellant (NSWMDU): A J Sullivan QC Counsel for appellant (Mrs Bailey, Estate of the late Dr H Bailey): M K Meek

Counsel for respondent/cross-appellant (Mr Crawford): R W R Parker QC/P W Bates

WAEWV SOUTH WALES MEDICAL DEFENCE UNION LTD v CRAWFORD [No 3]; NEW SOUTH WALES MEDICAL DEFENCE UNION LTD v BAILEY [No 3]; BAILEY v CRAWFORD [No 3] (Sheller JA)

Solicitors for appellant (NSWMDU): Blake Dawson Waldron

Solicitors for appellant (Mrs Bailey, Estate of the late Dr H Bailey): Stewart Cuddy & Mockler

5 Solicitors for respondent/cross-appellant (Mr Crawford): Teakle Ormsby &