Plaintiffs v Defendants

Supreme Court of Victoria|2016-04-29|Before: ROBSON J

PRACTICE AND PROCEDURE - Whether challenge to standing must be determined at the commencement of the proceeding - Whether challenge to standing can be determined at the conclusion of the proceeding - Relevance of Civil Procedure Act 2010 (Vic) - Resolution of objection to standing deferred to the conclusion of the proceeding.

1 This is a proceeding by the first and second plaintiffs (Akron Roads Pty Ltd (in liquidation) (Akron) and its liquidators) for claims:

(a) against the first defendant (Mr Crewe), the second defendant and third defendant (together, the Sills) and the fourth defendant (Crewe Sharp), for liability, as directors, for insolvent trading under s 588M of the Corporations Act 2001 (Cth); and

(b) against the fifth defendant (CGU), for liability, under a professional indemnity insurance policy, to indemnify Mr Crewe and Crewe Sharp in respect of their insolvent trading liability.

2 Judgment, by consent, has been given against Mr Crewe. Akron and its liquidators have settled their claims against the Sills. That leaves for determination only the claims against Crewe Sharp and CGU.

3 CGU is defending the claims. Crewe Sharp, having itself gone into liquidation in 2014, is not defending the claims against it, and Akron and its liquidators wish to proceed to judgment against it as an undefended trial.

4 On Monday 18 April 2016, the trial of this proceeding commenced before me. I heard opening submissions from both parties.

5 The insurer, CGU, submitted in their opening that they assumed that the plaintiffs relied on s 117 of the Bankruptcy Act 1966, as the basis of the plaintiffs' claims to be entitled to the moneys that CGU was obliged to indemnify Mr Crewe for under his policy with CGU. CGU submitted that s 117 was no longer apposite by reason of the deed of settlement that the plaintiffs and Mr Crewe had entered into.

6 On or around 23 March 2016, the plaintiffs and Mr Crewe entered into a deed of settlement resolving their claim against Mr Crewe. The deed of settlement provided in paragraph 2.1 under the heading, 'Consent to judgment':

(a) Trevor Crewe and Crewe Sharp consent to judgment being entered against them in the proceeding in the amount equal to the amount of the debts without any orders as to interest or costs.

(b) Without limitation of clause 2.1(a), Trevor Crewe and Crewe Sharp consent to liquidators providing orders set out in the schedule to this deed to the court within five days of this deed taking effect pursuant to clause 4.8 below.

2.2. Enforcement of judgment

In consideration of the deposit of the security sum by Trevor Crewe in accordance with clause 2.2(c) below,

(a) effective from the time of the provision the security sum is required by clause 2.2(c) below, the liquidators agree to enforce the judgment in the proceeding only as follows,

(i) first against any proceeds of the policy, and

(ii) as against Trevor Crewe once the claim and the policy has been exhausted only against the security sum of 125,000.

(b) Trevor Crewe hereby assigns the liquidators any and all amounts recovered under the policy in relation to the claims and he will take all steps reasonably requested by the liquidators and order recover such amounts. To the extent that further proceedings are required in order to recover under the policy , Trevor Crewe will conduct such proceedings with assistance from solicitors nominated by liquidators and the liquidators will indemnify Trevor Crewe in respect of liability to those services for legal costs and in respect of any disbursements and expenses reasonably incurred by him and in respect of any and all costs, orders made against him in such proceedings, including costs and expenses that he is ordered to pay to any party in such proceedings.

(c) Security is liable under clause 2.2(a)(ii) above. Trevor Crewe will deposit by 23 March 2016 the security sum in the liquidator's solicitor's trust account ...

7 The deed then provided details of how the moneys are to be paid.

8 CGU submitted in its opening that by reason of the deed of settlement, s 117 was not available as a basis for the plaintiffs seeking a declaration against CGU. CGU said that s 117 might only be relevant if Mr Crewe was bankrupt or was likely to go bankrupt. CGU said that as Mr Crewe was only now obliged to pay $125,000 (which he had now done) there was no suggestion that Mr Crewe would be bankrupted and that s 117 would be enlivened. The plaintiffs did not dispute that Mr Crewe was not at risk of being bankrupted.

9 CGU submitted that therefore Akron had no standing to seek the declaration from CGU in respect of moneys payable to Mr Crewe, if any, under the policy.

10 On the following day, the 19 April 2016, the plaintiffs sought to amend their statement of claim by an inclusion of paragraph 26A as follows:

By reason of: (a) the operation of s 117 of the Bankruptcy Act 1966 (Cth) in any bankruptcy of Trevor Crewe; and further or alternatively (b) the Settlement Deed dated 23 March 2016 (the full terms of which are relied on, including clauses 2.2(b) pursuant to which Trevor Crewe assigned to the Liquidators any and all amounts recovered under the policy in relation to the claims in paragraphs 6 to 17), any amount payable to Trevor Crewe pursuant to the policy from CGU in respect of the plaintiffs ' claims must be paid to the plaintiffs .

11 Upon tendering the proposed amendment, the plaintiffs said that they no longer relied on point (a) in the amendment and merely relied on point (b).

12 The plaintiffs submitted that point (b) of the proposed amendment arose because the settlement deed assigned to the liquidators any and all amounts recovered under the policy and that that gave the liquidators standing to seek the declaration that they do against CGU as to CGU's liability under the policy to Trevor Crewe.

13 CGU opposed the amendment. CGU submitted that the proposed amendment, first of all, accepted that the plaintiffs did not have standing under s 117 of the Bankruptcy Act 1966 to found its claims against CGU.

14 CGU secondly submitted that the plaintiffs' standing to bring the claim against CGU was based on the assignment in the deed of settlement. CGU submitted that the assignment only sought to assign amounts recovered under the policy and the assignment went on to set out the mechanism by which those moneys would be recovered. That is, that Trevor Crewe would take proceedings with the assistance of solicitors nominated by the liquidators, having his costs and so forth indemnified by the liquidators. CGU submitted that the assignment did not give the plaintiffs standing to sue CGU.

15 CGU further submitted that the amendment should not be allowed at this stage of litigation when there had been one day's hearing and when the plaintiffs and their legal advisors were aware, at least from 23 March 2016, that it would be necessary for them to amend their claim.

16 The plaintiffs said that they had several authorities to support their contention that the deed of settlement did give them standing (although they were not to hand in court).

17 In the circumstances, I considered that it was appropriate for the parties to make considered submissions and adjourned the application to amend the points of claim to be heard after written submissions were filed.

18 The application to amend the points of claim has now come back on before me. I have had the benefit of written submissions filed by each party.

19 Initially in oral submissions, the plaintiffs submitted that the appropriate course was to adjourn the resolution of the standing issue to the conclusion of the trial and that leave to amend the points of claim should be granted as the plea was arguable.

20 CGU resisted that course. CGU submitted that the application to amend coupled with the concession by the plaintiffs that they were no longer relying on s 117 of the Bankruptcy Act 1966 to found their right to a declaration as to CGU's liability to indemnify Mr Crewe, disclosed that the plaintiffs no longer maintained a justiciable controversy between the plaintiffs and CGU and thus the plaintiffs had no standing to seek the declaration that they do, against CGU.

21 As a consequence, CGU sought an order that the plaintiffs' application to amend their points of claim should be refused, the proceeding against CGU seeking a declaration that it indemnify Mr Crewe be dismissed and that the trial of the plaintiffs' proceeding against CGU for a declaration in respect of Crewe Sharp recommence on Monday 2 May 2016.

22 The plaintiffs submitted that the question of standing is not a matter that necessarily needs to be pleaded. Nevertheless, the plaintiffs considered it prudent to formally bring to the attention of CGU Akron's contention of how the plaintiffs' standing arises in view of the fact that the plaintiffs no longer rely on s 117 of the Bankruptcy Act 1966. Accordingly, the plaintiffs said that at the beginning of day two of the trial on 19 April 2016, the plaintiffs sought to clarify the position as regards standing by providing the Court and CGU with a proposed amended pleading.

23 As indicated above, the plaintiffs submitted that the resolution of the issue of standing should be left to the conclusion of the trial although they conceded that it should be the first issue resolved.

24 CGU, on the other hand, resisted that course and maintained that the issue of whether or not the plaintiffs now raises a justiciable controversy, and thus have standing, should be resolved before the trial proceeded any further.

The arguments for and against deciding standing before proceeding further

25 Before I decide whether or not to defer the issue of standing, it is useful to briefly address CGU's arguments on standing and the plaintiffs' responses.

Trevor Crewe hereby assigns to the Liquidators any and all amounts recovered under the policy in relation to the Claims and he will take all steps reasonably requested by the Liquidators in order to recover such amounts. To the extent that further proceedings are required in order to recover under the policy, Trevor Crewe will conduct such proceedings with assistance from solicitors nominated by the Liquidators and the Liquidators will indemnify Trevor Crewe in respect of liability to those solicitors for legal costs and in respect of any disbursements and expenses reasonably incurred by him and in respect of any and all costs orders made against him in such proceedings, including costs and expenses that he is ordered to pay to any party in such proceedings.

27 As noted above, CGU contends that this clause does not assign any rights or interests under the policy to the plaintiffs. CGU says that nor does it assign a right to recover under the policy. CGU submits that it does not operate to vest in the liquidators any entitlement to the benefit of the insurance policy or any right to recover under it.

28 CGU submits that the general rule that a person not a party to a contract has no standing to obtain a declaration in respect of the rights of other parties to that contract therefore governs.

29 On the other hand, the plaintiffs contend that clause 2.1 provides that Mr Crewe consents to judgment being entered against him in the proceeding in the sum of $12,992,880.05. Judgment was accordingly entered against Mr Crewe on 4 April 2016.

30 They said that clause 2.2(a) relevantly provides that in consideration of the deposit of a Security Sum of $125,000 by Mr Crewe, the plaintiffs agree to enforce judgement in the proceeding first only against any proceeds of the policy, and as against Mr Crewe, once the claim on the policy has been exhausted, only against the Security Sum of $125,000.

31 The plaintiffs say that the responsiveness of the policy to the judgment against Mr Crewe is to be determined in the proceeding.

32 The plaintiffs say that on their case it will be found to respond up to the policy limit of $5 million, and the plaintiffs will therefore be limited to the amount of $5,125,000 by way of enforcement of the judgment against Mr Crewe.

33 The plaintiffs say that the settlement deed provides for the plaintiffs to obtain that amount in two ways:

(i) Clause 2.2(b) relevantly provides that Mr Crewe assigns to the plaintiffs any and all amounts recovered under the policy. Therefore the amounts recovered under the policy - up to the policy limit of $5,000,000 - are assigned to the plaintiffs.

(ii) Clause 2.2(c) relevantly provides for Mr Crewe to make a Security Deposit of $125,000, which is held on trust. That amount is to be paid to the plaintiffs after the proceeds of the policy are recovered.

34 The plaintiffs submit that the amounts recovered (ie the proceeds of a claim) under the policy are a debt which is assignable at law or in equity. The plaintiffs submit that it is the right to be paid amounts under the policy. Even though the assignment of the debt does not carry with it the right to make a claim under the policy, it is sufficient to give the plaintiffs as assignees standing to seek a declaration that the policy responds to the insured's claim.

35 The plaintiffs submit that clause 2.2(b) replicates by contract the effect of s 117 of the Bankruptcy Act 1966. They say that the assignment by Mr Crewe to the plaintiffs under clause 2.2(b), of any and all amounts recovered under the policy, carries the legal consequence - by analogy with s 117 - of the bringing into existence, in favour of the plaintiffs, of a right to the proceeds of the policy payable to Mr Crewe in respect of his liability to the plaintiffs. Mr Crewe's obligation to pass on any proceeds of the policy is absolute and immediately operative.

36 The plaintiffs submit that they have a real interest in establishing that the insurer is liable to indemnify Mr Crewe. They say that as with s 117, the interest upon which the claim for declaratory relief is based and CGU's denial of liability under the policy are sufficient to constitute a justiciable controversy between the plaintiffs and CGU. The plaintiffs submit that because of the assignment, it is the plaintiffs who stand to benefit (to the exclusion of Mr Crewe) from the making of the declaration sought. Just as with s 117, there is no need for Mr Crewe to sue the insurer first, as the assignment enables the plaintiffs, as the injured party, to sue the insurer directly.

37 CGU submits that the plaintiffs' assertion that "the assignment of the debt ... is sufficient to give the plaintiffs as assignees standing to seek a declaration that the policy responds to the insured's claim" is unsupported by any explanation, let alone authority.

38 CGU says that nor do the plaintiffs "stand to benefit from the making of the declaration sought" that CGU indemnify Mr Crewe.

39 CGU says that we now know that Mr Crewe has paid $125,000 to the plaintiffs in settlement of the claim against him. CGU says that if Mr Crewe's insurance policy with CGU (being a professional indemnity policy) responds, then CGU's only obligation under the policy is to indemnify Mr Crewe in respect of his liability to the plaintiffs, being $125,000. Therefore, whilst Mr Crewe might stand to benefit (by being indemnified for the $125,000 paid), the plaintiffs do not stand to benefit.

40 CGU submits that the plaintiffs seek a declaration that will not result in any payment of money to them. It has no utility. CGU says that it follows that the plaintiffs' submission that they "stand to benefit (to the exclusion of Mr Crewe) from the making of the declaration sought" cannot possibly be right.

41 CGU submits that further, and in any event, the express terms of the deed of settlement make it clear that if any "further proceedings" are necessary to recover any amount in excess of $125,000, it is Mr Crewe who has to bring them, not the liquidators.

42 CGU says for that reason, and because the liquidators have already been paid the maximum amount that CGU could ever be liable to pay Mr Crewe, the liquidators have no interest (for standing or any other purpose) in the policy or any amount that may be paid to Mr Crewe.

43 In my opinion, the proposed amendments are arguable and as such the usual practice is to allow the amendment to ensure that all issues are resolved in the proceeding. No prejudice has been claimed by CGU if the amendment is permitted. In those circumstances, the validity of the plea in the amendment normally would be decided at the conclusion of the trial.

44 As discussed, CGU seeks an order that the claim by the plaintiffs against CGU in respect of the alleged obligation of CGU to indemnify Mr Crewe be dismissed as the plaintiffs have no standing to make the claim. The authorities that I was referred to indicate that there is no hard and fast rule as to when during the proceedings the issue of standing should be resolved.[1] If it is not resolved until the conclusion of the trial, there is no issue that it should be the first issue resolved.

45 In my opinion, the issues raised by the parties would require careful consideration and, in my opinion, are not readily open to a speedy resolution.

46 In my view, as the issue whether the amendment raises a justiciable controversy is to be deferred to the conclusion of the trial, it would be convenient also for the submission that the changed circumstances arising from the deed of settlement mean the proceedings as against CGU in respect of Mr Crewe's policy should be dismissed, to be deferred until the conclusion of the trial.

47 Another relevant factor to take into account is that irrespective of the plaintiffs' claim with respect to Mr Crewe, the claim with respect to Crewe Sharp continues with the same witnesses, other evidence and counsel.

48 Under the Civil Procedure Act 2010 (Vic) I must seek to give effect to the overarching purpose of that Act which is to facilitate the just, efficient, timely and costeffective resolution of the real issues in dispute. In my view that purpose would be advanced by continuing the trial on Monday 2 May rather that enduring a further delay to resolve the issue of standing at this stage.

49 Accordingly, I propose to allow the amendment and give leave to the parties to make such submissions as they wish on standing at the conclusion of the trial.

[1] Bray v F Hoffman - La Roche Ltd (2002) 130 FCT 317 at 370, per Finkelstein; CGU v Blakeley [2016] HCA 2; (2016) 90 ALJR 272, at [31]; Mirvac Homes NSW Pty Ltd v Air Services Australia No 1 [2004] FCA 109; Khatri v Price [1999] FCA 1289; Deputy Commissioner of Taxation v Haritos (2014) 287 FLR 136, per Sloss J; Asmar v Fair Work Commission [2014] SCA 1156 per Beach J; Allsop J, Possible Issues in Admiralty Reform, 2003 MLAANZ.

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