Registrar-General of New South Wales v LawCover Insurance Pty Ltd

Court of Appeal (NSW)|2014-06-24|Before: Bathurst CJ, Basten JA, Meagher JA, Young J

HCA 36; 148 CLR 562 Registrar-General v Gill [1994] NSWCA 261 Simpson & Co v Thomson (1877) 3 App Cas 279 Sydney Turf Club v Crowley [1971] 1 NSWLR 724 The Owners - Strata Plan 50530 v Walter Construction Group Ltd (in liq) [2007] NSWCA 124; 14 ANZ Ins Cas 61-734 Theresa Nadia Pedulla v Fernando Rene Panetta & Ors [2011] NSWSC 1386 Texts Cited: Mitchell and Watterson, Subrogation Law and Practice (Oxford University Press 2007) Category: Principal judgment Parties: Registrar-General of New South Wales (Appellant) LawCover Insurance Pty Ltd (Respondent) Representation: Counsel: GA Sirtes SC, H Altan (Appellant) SR Donaldson SC, PA Horvath (Respondent) Solicitors: Land & Property Information Legal Services (Appellant) DLA Piper Australia (Respondent) File Number(s): 2013/335136 Decision under appeal Jurisdiction: 9111 Citation: Registrar-General of New South Wales v LawCover [2013] NSWSC 1471 Date of Decision: 2013-10-09 00:00:00 Before: Harrison J File Number(s): 2012/384918

Background 23In 1986, on the death of her husband, Ms Pedulla became the sole registered proprietor of a property at North Curl Curl. In around 2004 she moved to Sicily and later to Italy where she lived until at least 2009. Between July 2006 and February 2007 Mr Yee, purporting at times to act as Ms Pedulla's solicitor, assisted Ms Pedulla's brother, Fernando Panetta, and his partner or wife, Anna Lam, to obtain the fraudulent transfer of title to the property to Mr Panetta. He later caused Ms Lam to become a joint owner of the property. In March 2011, Mr Panetta and Ms Lam sold the property for $3.8m. That sale was completed on 27 or 29 April 2011. 24Mr Yee was insured by LawCover under a contract of insurance issued for the period from 1 July 2011 to 30 June 2012. By cl 4, that policy insured Mr Yee against "civil liability for a claim that: (a) arises from the provision of legal services by the law practice in Australia or elsewhere; and (b) is first made against the insured during the period of insurance". The policy defined "claim" to mean a "demand for, or an assertion of a right to, compensation or damages" and "legal services" as "work done, or business transacted, in the ordinary course of carrying on the business of a lawyer in private practice in Australia": see cl 41(a), (j). The policy did not contain any provision excluding claims in respect of legal services provided, or arising out of acts or omissions occurring, before 1 July 2011. 25On 1 July 2011, Ms Pedulla commenced proceedings against Mr Panetta and Ms Lam and against the Registrar-General. She sought damages for fraud from Mr Panetta and Ms Lam and compensation from the Fund. The following provisions in Part 14 of the Real Property Act were relevant to that claim to recover compensation: "128 (1) In this Part: ... compensable loss means loss or damage of the kind referred to in s 129(1), other than loss or damage of the kind referred to in s 129(2). ... compensation means compensation from the Torrens Assurance Fund to which a person is entitled under s 129 ... professional indemnity insurer means an insurer, scheme or fund (whether or not established by or under any Act or law) by or from which claims are payable, being claims made by persons sustaining loss or damage owing to any fraudulent, wilful or negligent act or omission by a person carrying on business in a particular profession, trade or calling. ... 129 (1) Any person who suffers loss or damage as a result of the operation of this Act in respect of any land, where the loss or damage arises from: ... (e) the person having been deprived of the land, or of any estate or interest in the land, as a consequence of fraud, ... is entitled to payment of compensation from the Torrens Assurance Fund. (2) Compensation is not payable in relation to any loss or damage suffered by any person: (a) to the extent to which the loss or damage is a consequence of any act or omission by that person, or (b) to the extent to which the loss or damage: (i) is a consequence of any fraudulent, wilful or negligent act or omission by any solicitor, licensed conveyancer, real estate agent or information broker, and (ii) is compensable under an indemnity given by a professional indemnity insurer, ..." 26Section 129A imposes limits on the amount of compensation recoverable from the Fund "in relation to loss or damage suffered by a person as a result of the person being deprived of land or any estate or interest in land". That limit is "the market value of the land at the date on which compensation is awarded to that person plus any legal, valuation or other professional costs reasonably incurred by the person in making the claim". 27On 12 August 2011 the Registrar-General, by cross-claim, joined Mr Yee as a party to the proceedings. Section 133(4) of the Real Property Act provides: "The Registrar-General may join any person in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate." 28By that cross-claim the Registrar-General sought a declaration that Ms Pedulla's loss or damage was suffered in consequence of the fraudulent or negligent act or omission of Mr Yee and was compensable under an indemnity given by LawCover to Mr Yee. If such a declaration was made, Ms Pedulla was not entitled to compensation from the Fund because of the terms of s 129(2)(b) of the Real Property Act. In the alternative, the Registrar-General sought damages from Mr Yee, on the basis that it was subrogated to Ms Pedulla's cause of action against Mr Yee for negligence. The cross-claim did not make clear, as it should have, that judgment on that claim was sought in favour of Ms Pedulla. 29In September 2011, Ms Pedulla amended her statement of claim to join Mr Yee as fourth defendant. The claim against him was for damages for negligence whilst purporting to act as her solicitor. LawCover was not sought to be joined as a party to the proceedings. However, it engaged solicitors and counsel to defend the claims made against Mr Yee by Ms Pedulla and by the Registrar-General. 30The proceedings were heard by Pembroke J and judgment was given on 25 November 2011: Pedulla v Panetta [2011] NSWSC 1386. Mr Panetta and Ms Lam were ordered to account to Ms Pedulla for the moneys received by them on the sale of the property and to pay compensation, which was later agreed at $3.8m plus consequential losses, being a liability for stamp duty which Ms Pedulla would not otherwise have incurred and the cost of rental accommodation. As against the Registrar-General, Ms Pedulla was held to be entitled to compensation from the Fund in the amount of $3.8m plus legal, valuation and other professional costs as agreed or assessed: [2011] NSWSC 1386 at [44], [46], [68]. 31His Honour rejected the Registrar-General's argument that it was not liable to pay compensation to Ms Pedulla because Mr Yee was entitled to an indemnity under the LawCover policy. Clause 27 of that policy excluded any liability to indemnify if the claims against the insured arose "whether directly or indirectly, from any dishonest or fraudulent act or omission" of the insured. The Registrar-General did not establish that the dishonesty exclusion did not apply: [2011] NSWSC 1386 at [26], [30]; and did not appeal from the decision that Ms Pedulla was entitled to compensation from the Fund. 32His Honour then addressed the claims made against Mr Yee. He held that Mr Yee was negligent and that his negligence was a necessary condition of the occurrence of Ms Pedulla's loss: [2011] NSWSC 1386 at [54]-[58]. He apportioned responsibility for that loss as between Mr Yee on the one hand and Mr Panetta and Ms Lam on the other on the basis that Ms Pedulla's claim was an apportionable claim and that they were concurrent wrongdoers within the meaning of Part 4 of the Civil Liability Act 2002 (NSW). Pembroke J concluded that Mr Yee's liability as a concurrent wrongdoer was limited to 30 per cent of the loss or damage suffered by Ms Pedulla. Those conclusions were also applied to the Registrar-General's claim made by way of subrogation. 33His Honour directed the entry of separate judgments against Mr Yee, one in favour of Ms Pedulla equal to 30 per cent of her claim, which was only for the consequential losses, and the other in favour of the Registrar-General for 30 per cent of the amount of the compensable loss recoverable from the Fund, as limited by s 129A. The total amount of those judgments was then said to be subject to the limitation on liability imposed by the Professional Standards Act 1994 (NSW): [2011] NSWSC 1386 at [46], [68]. In directing the entry of separate judgments, his Honour must be taken to have proceeded on the basis that by s 133(2) and (4) the Registrar-General acquired an independent cause of action against Mr Yee which it could enforce in its own name. For the reasons which appear below, these provisions do not have that effect or consequence. There was only one cause of action in negligence against Mr Yee and that was the action of Ms Pedulla. The fact that the Registrar-General was subrogated to that right of action did not enable it to bring an independent action against Mr Yee or obtain judgment against him in its own name. Judgment should have been entered in Ms Pedulla's favour for the full amount of her loss, including any "compensable loss", recoverable by way of damages from Mr Yee.

Was there a charge under s 6(1) which the Registrar-General was entitled to enforce?

The statutory "charge" created by s 6 34The nature of the statutory "charge" created by s 6 is discussed at some length in the joint judgment of McHugh and Gummow JJ (with whom Brennan CJ, Deane and Dawson JJ agreed) in Bailey v NSW Medical Defence Union Ltd [1995] HCA 28; 184 CLR 399 at 445-450. In The Owners - Strata Plan 50530, at [24], Hodgson JA summarised the propositions supported by that discussion as follows: "(1) Although s 6 uses the term 'charge', what it creates is a statutory right which does not fall neatly into existing legal or equitable categories. (2) The charge arises (or descends) on the happening of the 'event' referred to in s 6(1) (and it is clear, and common ground, that this event is whatever completes the relevant cause of action). (3) The relevant contract of insurance is that as it stood when the charge descended, unaffected by subsequent mutual or unilateral action otherwise than pursuant to that contract or the general law as it operates on that contract. (4) 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 payable by the insurer to the insured." 35In The Owners - Strata Plan 50530, this Court held that a charge under s 6 does not arise where the relevant contract of insurance is not in existence at the time of the happening of the "event giving rise to the claim for damages or compensation". In the language of s 6(1), that contract is the one under which the proposed defendant is insured against its liability to pay damages or compensation to the party seeking to enforce the charge. That decision was followed in Chubb v Moore. Although the Court expressed doubts as to whether the conclusion on that issue was the preferable view, it was not satisfied that it was plainly wrong. 36In The Owners - Strata Plan 50530, Hodgson JA also observed, at [30], that the relevant "event" was "whatever completes the cause of action against the insured". The same construction was adopted by Emmett JA and Ball J in Chubb v Moore at [57]: "The reference in s 6(1) to 'the happening of the event giving rise to the claim for damages or compensation' should be construed as a reference to the moment when the liability arises, rather than to a later time when the claim based on that liability is made. That is to say, it should be construed as referring to 'the happening of the event giving rise to the liability to pay damages or compensation'. The charge comes into existence on the happening of the event that gives rise to the liability to pay damages or compensation, not when the claim for damages or compensation that that liability may prompt is made. The claim for damages or compensation will ordinarily be made some time after the liability arises." 37There may be a difference between the event on the happening of which a cause of action arises and the event which gives rise to that liability, particularly in relation to a claimed tortious liability. The decisions referred to above hold that the event referred to in s 6(1) is of the former kind. That is so notwithstanding the language of subsection 6(3) which, when addressing the question of priority as between competing charges and claims for damages or compensation, does so by reference to the "dates of the events out of which the liability arose". The difference between these two kinds of event is not relevant in this case because the Registrar-General concedes that the event giving rise to Mr Yee's liability in negligence to Ms Pedulla, and the event which completed the relevant cause of action, occurred before 1 July 2011 when the contract of insurance was taken to have been made.

The primary judge's reasoning as to the relevant "event" 38The primary judge (Harrison J) held that s 133(2) did not create an independent entitlement on the part of the Registrar-General to recover losses from a wrongdoer that are sustained by having to pay compensation from the Fund. He continued: [2013] NSWSC 1471 at [32]: "The Real Property Act does not alter the general law principles that the rights and remedies acquired by or granted to the Registrar-General pursuant to s 133 are Ms Pedulla's rights to which the Registrar-General is subrogated. They are not the Registrar-General's rights. It is accordingly inaccurate and misleading to refer to the Registrar-General's "right" to sue Mr Yee or the Registrar-General's 'cause of action' against him accruing at any particular time." 39His Honour then addressed when it was that the "event" giving rise to Ms Pedulla's claim for damages or compensation against Mr Yee occurred and concluded that event occurred no later than April or May 2011 when the property was transferred to an innocent third party for value: [36], [40].

The nature of the Registrar-General's right of subrogation 40The expressions "cannot be subrogated" and "is subrogated" are used in ss 133(1) and (2) in relation to subsisting rights. In subsection (1) the right is the claimant's right to seek compensation from the Fund. In subsection (2) the rights are those of the party claiming compensation as against any other person in relation to the loss or damage which is the subject of that claim. This context makes plain that "subrogated" is used in each subsection in its well understood legal sense and describes the process "by which one party is deemed to have been substituted for another, so that he can acquire and enforce the other's rights against a third party for his own benefit. It is often said that a subrogated claimant 'stands in the shoes' of the party whose rights he is deemed to have acquired": Mitchell and Watterson, Subrogation Law and Practice (Oxford University Press 2007) at [1.01]. 41Section133(1) prevents an insurer from being "subrogated" to its insured claimant's rights against the Fund. The nature of the subrogation there referred to was described by Mason JA (as the later Chief Justice then was) in Sydney Turf Club v Crowley [1971] 1 NSWLR 724 at 734: "Where an insurer is subrogated to the rights of the insured against a third party, the insurer does not acquire an independent cause of action in his own right. He succeeds to the insured's cause of action against the third party, in this case a right of action on the policy issued by the Jockey Club. That right of action remains in all respects unaltered; it is brought in the name of the insured and it is subject to all the defences which would be available if the action had been brought by the insured for his own benefit." 42A fairly comprehensive statement to the same effect is that of Lord Goff of Chieveley in Esso Petroleum Ltd v Hall Russell & Co [1989] 1 AC 643 at 663: "In normal cases, as for example under contracts of insurance, the insurer will on payment request the assured to sign a letter of subrogation, authorising the insurer to proceed in the name of the assured against any wrongdoer who has caused the relevant damage to the assured. If the assured refuses to give any such authority, in theory the insurer can bring proceedings to compel him to do so. But nowadays the insurer can short-circuit this cumbrous process by bringing an action against both the assured and the third party in which (1) he claims an order that the assured shall authorise him to proceed against the third party in the name of the assured and (2) he seeks to proceed (so authorised) against the third party. But it must not be thought that, because this convenient method of proceeding now exists, the insurer can without more proceed in his own name against the third party. He has no right to do so, so long as the right of action he is seeking to enforce is the right of action of the assured. Only if that right of action is assigned to him by the assured can he proceed directly against the third party in his own name." 43The right of action to which the indemnifier is subrogated must be asserted in the name of the person indemnified. It follows that if that person is also the person who caused the damage, there is no right which may be asserted by way of subrogation: Simpson & Co v Thomson (1877) 3 App Cas 279 at 284. It is not uncommon for statutory schemes, which establish funds from which applicants can be paid compensation for loss, to confer rights of subrogation on the fund or its administrator. See, for example, s 448 of the Legal Profession Act 2004 (NSW); s 177 of the Property, Stock and Business Agents Act 2002 (NSW); and s 40 of the Travel Agents Act 1986 (NSW). Examples of similar English statutory provisions are given in Subrogation Law and Practice at [10.197]-[10.206]. 44Some of these statutes (for example s 448(4) of the Legal Profession Act and s 177(4) of the Property, Stock and Business Agents Act) contain express provisions enabling a party to exercise the rights to which it is subrogated "in its own name or in the name of the claimant". In the absence of such a provision the party having the benefit of the right of subrogation cannot exercise or enforce the relevant rights in its own name in an action to which the claimant has not also been made a party. 45Section 133(4) (see [27] above) is not a provision enabling the subrogated party to bring an action against the third party in its own name, without also joining the claimant on the Fund as a party. That subsection is concerned only with the circumstance that existing court proceedings have been brought against the Registrar-General in accordance with s 132. If the Registrar-General forms the "opinion" that the claimant has an action against any other person in respect of the compensable loss which is the subject of those proceedings, it may "join" that person as a party to them. That provision enables the Registrar-General to exercise the right of subrogation in that way before there has been a judgment awarding compensation or a payment made from the Fund. It does not at that or any other time enable the Registrar-General to enforce the right of action in its own name in separate proceedings and without the claimant also being joined as a party in the manner described by Lord Goff in Esso Petroleum. 46Reference to the history of these provisions confirms that they bear the ordinary meaning conveyed by the text. The right of subrogation of the Registrar-General was first conferred by s 128 of the Real Property Act: see s 3 of the Real Property (Compensation) Amendment Act 1992 (NSW). At that time, ss 126 and 127 created statutory rights of action in persons who had been deprived of land in consequence of fraud, error, omission or misdescription or through any omission, mistake or misfeasance of the Registrar-General: Registrar-General (NSW) v Behn [1981] HCA 36; 148 CLR 562. Those rights of action lay against an individual whose activities led to a deprivation of land or against the Registrar-General. The damages recoverable against the Registrar-General were to be paid from the Fund: s 129. Section 128(1) provided that a "professional indemnity insurer" could not be subrogated to the rights or remedies of a person having a claim against the Fund or the Registrar-General. 47That section was enacted following the decision in Gill v The Registrar-General (Supreme Court of New South Wales, Young J, 4 December 1991, unrep) which held that the Fidelity Fund of the Law Society of New South Wales was subrogated by s 61 of the Legal Practitioner's Act 1898 (NSW) to Mrs Gill's claim against the Registrar-General for compensation under s 127 of the Real Property Act. A professional indemnity insurer as defined by s 128(4) included an insurer as well as a "scheme or fund (whether or not established by or under any Act or law) by or from which claims are payable". Section 128(2) provided that on the payment of damages in accordance with a judgment in an action brought under s 126 or s 127, the Registrar-General was subrogated to the rights and remedies of the plaintiff against persons including "any professional indemnity insurer". There was at that time no provision conferring any right of subrogation on the Registrar-General before payment from the Fund or which enabled it to join other parties to the proceedings for compensation brought against it. 48The Real Property Amendment (Compensation) Act 2000 (NSW) by s 3, Schedule 1, Item [12], introduced the current forms of Parts 13 and 14 of the Real Property Act. Section 133, as first enacted, adopted much of the language of the earlier s 128 and provided: "(1) A professional indemnity insurer cannot be subrogated to any other person in respect of that other person's right to claim compensation from the Torrens Assurance Fund in relation to compensable loss. (2) If administrative proceedings or court proceedings are commenced in relation to a claimant's compensable loss, the Registrar-General is subrogated to the claimant in respect of the claimant's rights and remedies in relation to that loss: (a) against any person against whom the claimant has a cause of action in respect of that loss and (b) against any relevant professional indemnity insurer. ... (4) The Registrar-General may join any person as co-defendant in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate." 49The definition of "professional indemnity insurer" remained the same. The principal amendment made was to bring forward the time at which the Registrar-General was subrogated, so as to enable that right to be exercised in the court proceedings brought for compensation. The language of subsection 133(4) made clear that the right conferred by that provision was not a right to exercise and enforce, in the Registrar-General's name, the rights and remedies to which it was subrogated. 50Subsection 133(4) was amended by s 3, Schedule 1, Item 24[5] of the Statute Law (Miscellaneous Provisions) Act 2002 (NSW) by omitting the words "as co-defendant". The Explanatory note to that amendment said: "Joining of parties Court proceedings for compensation in respect of a compensable loss under Part 14 of the Act are taken against the Registrar-General as nominal defendant. The Registrar-General is subrogated to the claimant in respect of the claimant's rights against any person against whom the claimant has a cause of action in respect of the loss. Section 133(4) of the Act provides that the Registrar-General 'may join any person as co-defendant in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate'. However, it may be more appropriate for the Registrar-General (standing in the shoes of the claimant) to file a cross-claim against the party to be joined. To permit this, Item [5] of the proposed amendments removes the words 'as defendant' from s 133(4)." 51When interpreting s 133(4), reference may be made to that note to confirm that its meaning is the ordinary meaning conveyed by the text: see ss 34, 35 of the Interpretation Act 1987 (NSW). The description of the Registrar-General as "standing in the shoes of the claimant" confirms that in joining a third party to proceedings the Registrar-General is not exercising some independent right of action or proceeding in its own name against the third party. The notion of standing in the shoes of the claimant conveys, adopting the language of Brett LJ in Castellain v Preston (1883) 11 QBD 380 at 388, that the Registrar-General "is entitled to the advantage of every right of the [claimant], whether such right consists in contract, fulfilled or unfulfilled, or in remedy for tort capable of being insisted on or already insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable" against any person in relation to the claimant's compensable loss. 52Subsequently, by the Real Property and Conveyancing Legislation Amendment Act 2009 (NSW), s 129A was introduced: see Schedule 1, Item [16]. Other amendments were also made at that time. Section 133(1) was amended by deleting the words "professional indemnity" so that it applied to all insurers: Schedule 1, Item [24]; and s 133(2) was amended, as was explained in the Second Reading Speech by the Parliamentary Secretary, Mr Collier (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 25 March 2009 at 13772), to make clear: "... that the Registrar-General may also claim against any person against whom the compensated person would have a claim in relation to the loss and not just persons who caused or contributed to the fraud. This includes, for example, claims in negligence, claims pursuant to any contractual indemnity and claims on insurance. The Bill will amend the Act to allow the Registrar-General to recover any payment of compensation from a claimant who has received a further payment on account of the compensable loss from another source. This provision ensures that a person who has suffered loss does not double-dip and receives only what he or she is entitled to." 53The provision allowing the Registrar-General to recover compensation paid to a claimant is s 133A. It was introduced by Schedule 1, Item [28]. That section provides: "133A (1) If a claimant: (a) receives a payment from the Torrens Assurance Fund in respect of the claim, and (b) receives or recovers from another source or sources a payment on account of the compensable loss, and (c) there is a surplus after deducting the amount of the compensable loss from the total amount received or recovered by the claimant from both or all sources, the amount of the surplus is a debt payable by the claimant to the Torrens Assurance Fund. (2) However, the amount payable by the claimant cannot exceed the amount the claimant received from the Torrens Assurance Fund in respect of the claim." 54As Giles CJ CommD (as his Honour then was) observed in Law Society of New South Wales v Bruce (1996) 40 NSWLR 77 at 85, in relation to equivalent provisions in the Legal Profession Act 1987, it is desirable that provisions such as these be construed to achieve the same end as the equitable principles relating to subrogation, so as to avoid the unconscionable result of double recovery (or double-dipping to use the expression adopted in the Second Reading Speech) by the person who has claimed on the Fund. 55The Registrar-General submits that the right it acquired by subrogation under s 133(2) is "a statutory right of action entitling [it] to pursue a party for negligence so as to recover the 'compensable loss' paid to a claimant". It contends that its cause of action against Mr Yee pursuant to that subsection "is not Mrs Pedulla's cause of action against Mr Yee, but rather the Registrar-General's own cause of action for Mrs Pedulla's compensable loss". 56These submissions must be rejected. The rights and remedies which the Registrar-General is entitled to enforce by subrogation include Ms Pedulla's cause of action against Mr Yee which is subject to all of the defences available to him. The loss or damage which may be recovered by the enforcement of that right is the loss or damage suffered by Ms Pedulla. The right of subrogation is "in relation to" the claimant's "compensable loss" (s 133(2)). It passes to the Registrar-General the benefit of the exercise of the claimant's rights against third parties that are available to diminish that loss and the right to have them exercised for that purpose. If their exercise results in the claimant receiving or recovering amounts on account of the compensable loss (including in that calculation the amount received from the Fund) which exceed the amount of that loss, the Registrar-General is entitled, as against the claimant, to retain or recover (under s 133A) the excess up to the amount received from the Fund. 57Except in circumstances where the Registrar-General enforces those rights in the compensation proceedings brought by the claimant, it must do so in separate proceedings brought in the claimant's name or in which the claimant has been joined as a party. The two propositions upon which the Registrar-General's arguments proceed - that it acquired an independent cause of action against Mr Yee in its own right and that its subrogated action is to recover the amount for which it is liable to Ms Pedulla - find no support in the language of the statute and do not accord with what is meant by being "subrogated" to another person's rights and remedies. 58In Registrar-General v Gill [1994] NSWCA 261, this Court considered the meaning of the subrogation provisions in s 61 of the Legal Practitioners Act (the later equivalent provisions being s 90A of the Legal Profession Act 1987 and s 448 of the Legal Profession Act 2004). That section provided that the Law Society "shall be subrogated, to the extent of the payment, to all the rights and remedies of the claimant against the solicitor" and that the Society should be "at liberty to exercise those rights and remedies in its own name or in the name of the claimant". One question that arose on appeal was whether the claimant's receipt of the payment from the Fidelity Fund meant that she had not suffered any damage which might be recoverable against the solicitor. In relation to the operation of s 61, the Court (Gleeson CJ and Priestley JA, Mahoney JA agreeing) observed at p 5: "... the section provides that, when monies are paid out of the fund in settlement of the client's claim, the Law Society shall be subrogated to all such rights and remedies. The statute does not treat the payment as destroying the rights and remedies, or discharging the obligation of the person against whom they might have existed. On the contrary, s 61(2) spells out the consequences of the subrogation which is effected by s 61(1). The Law Society is then able to exercise those rights and remedies in its own name, or the name of the claimant, and monies recovered in the exercise of those rights and remedies are to be used to replenish the Fidelity Fund. What is effected is, in substance, a statutory assignment to the Law Society of the rights and remedies which the client had at the time of payment out of the fund." This passage makes clear that the subject matter of the right of subrogation is the rights and remedies of the claimant against the third party and not some independent or "hybrid" right as contended for by the Registrar-General in this case.

The Registrar-General's right to enforce by subrogation a statutory charge arising under s 6(1) 59The rights to which the Registrar-General was subrogated on the commencement of the claim against it for compensation were, by s 133(2), Ms Pedulla's rights and remedies "against any person" in relation to her compensable loss. Those rights and remedies would include any right she had to enforce a statutory charge arising under s 6(1) of the Law Reform (Miscellaneous Provisions) Act in respect of any insurance moneys payable in relation to Mr Yee's liability to pay damages for "compensable loss". That right, like any other to which the Registrar-General was subrogated, would have to be enforced in the proceedings in which the claim for compensable loss was made or in other proceedings commenced in Ms Pedulla's name or in which she was joined as a party. 60Whether Ms Pedulla had a right to enforce a statutory charge in respect of her claim for damages or compensation against Mr Yee depended upon s 6(1) being satisfied in relation to Mr Yee's claimed liability to pay any damages or compensation to her. That claim was one for damages or compensation as a result of a negligent breach of duty. The "event" within s 6(1) giving rise to that claim occurred before 1 July 2011. It follows that there was no statutory charge in favour of Ms Pedulla which might have been enforced by proceedings against LawCover brought by the Registrar-General by way of subrogation. 61The primary judge was correct to refuse leave to the Registrar-General to commence an action directly against LawCover. His Honour also would have been justified in refusing the Registrar-General leave to bring that action because it was not properly constituted. Ms Pedulla should have been joined as a party or the proceedings brought in her name. Had that occurred there could have been no sensible debate as to whether the "event" in s 6(1) had occurred before the contract of insurance was made.

Whether the Registrar-General had an arguable case against Mr Yee and LawCover 62The decision of this Court in Energize Fitness Pty Ltd v Vero Insurance Ltd [2012] NSWCA 213 at [48], [49], [52]-[56] (Campbell JA, Allsop P and Meagher JA agreeing) confirms that on an application for leave to bring proceedings under s 6(4) it is for the applicant to demonstrate an arguable case as against the insured and an arguable case that the policy responds. These questions can only arise on an application for leave if it is also fairly arguable that there is a statutory charge under s 6(1) which can be enforced under s 6(4). It is not sufficient that there be an arguable case that the policy responds if, as is the position in this case, the policy was not in existence at the time of the happening of the event giving rise to the claim for damages within s 6(1). 63Here Ms Pedulla had established that Mr Yee was liable in negligence and had an arguable case that the policy responded. But because the contract of insurance was made after that liability arose, Ms Pedulla had no right to bring an action under s 6(4) because there was no "charge as aforesaid". It followed that the Registrar-General, which was subrogated to her rights in relation to the loss for which Mr Yee was liable, could not bring such an action by way of subrogation. 64In response to an argument made on behalf of LawCover, the primary judge nevertheless considered whether the Registrar-General had an arguable case against LawCover. He did so on the basis that the Registrar-General asserted an independent right of action against Mr Yee which entitled it to recover the amount of the "compensable loss". The primary judge concluded that the Registrar-General did not have a fairly arguable case against LawCover on that basis. The statutory right of action claimed by the Registrar-General only arose under s 133(2) if LawCover was not liable to indemnify Mr Yee in respect of Ms Pedulla's claim: see s 129(2)(b). If LawCover was liable, Ms Pedulla's loss or damage was not "compensable loss": see s 128(1), definition "compensable loss". Accordingly, the only circumstance in which the Registrar-General could succeed against LawCover was one in which there was no right of subrogation: [2013] NSWSC 1471 at [54]-[57]. 65It is not necessary or useful to consider any further this alternative argument of LawCover. Its premise, that the Registrar-General has an independent statutory right of action entitling it to recover loss or damage direct from Mr Yee, is untenable.

Conclusion 66The orders I propose are: (1)Grant leave to appeal. (2)Direct that the Notice of Appeal filed and served on 6 November 2013 stand as the notice of appeal and dispense with any requirement that the applicant/appellant file and serve a further notice of appeal. (3)Appeal dismissed. (4)Applicant/appellant pay the respondent's costs of the application for leave to appeal and of the appeal.

Amendments 20 November 2014 - Energise should read Energize Amended paragraphs: 62 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 November 2014

Legal Practitioners Act 1898(NSW)

Legal Profession Act 1987(NSW)

Legal Profession Act 2004(NSW)

Property, Stock and Business Agents Act 2002(NSW)

Real Property (Compensation) Amendment Act 1992(NSW)

Real Property Amendment (Compensation) Act 2000(NSW)

Real Property and Conveyancing Legislation Amendment Act 2009(NSW)

Statute Law (Miscellaneous Provisions) Act 2002(NSW)

Travel Agents Act 1986(NSW)

Legal Practitioner's Act 1898(NSW)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (11 paragraphs)

Parties

Legislation Cited (16)

Cases Cited (9)

Cited By (3)