Sciacca v Ace Insurance Ltd

Judgment 1The proceedings were commenced by summons filed in June 2011. Leave is sought under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 ('the Act') to commence proceedings against the defendant, as an insurer, with respect to enforcement of a charge arising under s 6(1) of the Act, over insurance monies payable by the defendant to Primrose Financial Group Pty Ltd ACN 094 338 459 ('Primrose'). 2The section provides: "6 Amount of liability to be charge on insurance moneys payable against that liability (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) 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. (3) Every charge created by this section shall have priority over all other charges affecting the said insurance moneys, and where the same insurance moneys are subject to two or more charges by virtue of this Part those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves. (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. (6) Any payment made by the insurer under the contract of insurance without actual notice of the existence of any such charge shall to the extent of that payment be a valid discharge to the insurer, notwithstanding anything in this Part contained. (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. (8) Nothing in this section shall affect the operation of any of the provisions of the Workers Compensation Act 1987 or the Motor Vehicles (Third Party Insurance) Act 1942. (9) Despite subsection (8), this section applies in relation to a policy of workers compensation insurance entered into by an employer (whether entered into before or after the commencement of this subsection), where the employer: (a) being a natural person, has died, or is permanently resident outside the Commonwealth and its Territories, or cannot after due inquiry and search be found, or (b) being a corporation (other than a company that has commenced to be wound up), has ceased to exist, or (c) being a company, corporation, society, association or other body (other than a company that has commenced to be wound up), was at the time when it commenced to employ workers to which the policy relates incorporated outside the Commonwealth and its Territories and registered as a foreign company under the laws of any State or Territory and is not so registered under any such law, or (d) being a company, is in the course of being wound up. 3The purpose of the provision is to enable a person to pursue a claim against an insured person, where the insured has a valid claim on a policy, but does not, or cannot pursue the claim. It was common ground that there were valid insurance policies in existence at the relevant times and that Primrose and Integrity Mortgage Professionals Pty Limited, are both in liquidation. It was not in issue that the plaintiffs had an arguable claim against the insured. 4It was also not in issue that the plaintiffs had invested money through Primrose, a Mr La Rocca and Mr Piras being involved in that company's operations. The loan in question was a short term loan for $490,000 made in 2005 to a Mr and Mrs Waldron, to which the three plaintiffs had each contributed. The loan was secured over a property at Wahroonga, by way of second registered mortgage. 5There was a default and in 2006 steps were taken by the first mortgagee, Angas Securities Ltd, to obtain possession of the property, which was to be auctioned. Steps were taken to restructure the finance. The property was then valued at some $3.6 million. With the plaintiffs' consent, their security was transformed into a third unregistered mortgage and they were also given a share mortgage over a company known as Arnap Pty Ltd, a company Mr Waldron was utilising in order to conduct property developments. The first mortgagee then cancelled the auction and took no steps to further execute its security. There was a further default under the share mortgage. Discussions ensued. 7In October 2007, at a meeting which the plaintiffs attended with Mr La Rocca at their solicitor's office, the plaintiffs informed Mr La Rocca that they proposed to sue Primrose. The threat was acknowledged in writing on 29 October. There were further attempts to recoup the outstanding loan and in early December, at another meeting with Mr La Rocca and Mr Piras, the plaintiffs again advised of their intention to pursue claims in negligence. The plaintiffs' threat was then acknowledged in writing on 19 December. 6In April 2008, Mr Waldron transferred his shares in Arnap to another of its directors, in breach of the security arrangement. The plaintiffs became aware of this in May. The property was auctioned in June and was passed in, with a vendors bid made for only $1.8 million. Further marketing failed to secure a buyer and in October, Angas Securities issued a notice of intention to foreclose. On foreclosure, the plaintiffs' security over the property was extinguished. 8Finally, there were only two issues lying between the parties. The first, going to the construction of the insurance policy in question and the second, the time at which the relevant event occurred. 9What the plaintiffs have to establish is that they have an arguable case. In Tzaidas v Child [2004] NSWCA 252; (2004) 61 NSWLR 18 it was observed at [140] per Santow JA, that this is 'a relatively modest hurdle '.

The event 19The relevant event under s 6 is whatever completes the claimant's cause of action against the insured (see The Owners - Strata Plan No 50530 v Walter Construction Group Ltd (In Liquidation) & Ors [2007] NSWCA 124; (2007) 14 ANZ Insurance Cases 61-734 at [24].) 20On the plaintiffs' approach, a claim in negligence for economic loss requires that there be both a breach of duty and relevant actual loss flowing from the breach (see Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514). The time that the cause of action accrues, depends on an identification the defendant's negligent acts or omissions and of when the resulting damage occurred. 21On the facts there was an initial loan, subsequent transactions, a refinance with different security and attempts to recover the investment. The time at which recoupment of the investment became impossible on the plaintiffs' approach, occurred in 2008. The shares were sold in April 2008. The property was auctioned in June 2008, but was passed in. Subsequent attempts to sell failed, with the result that in October 2008 the first mortgagee issued a notice of intention to foreclose. That notice, beyond argument, extinguished the plaintiffs' security over the property, thereafter being no prospect of them recovering the loan. 22Reliance was placed on what was observed by Gaudron J in Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539 at 601: "If the interest infringed is the value of property, it may be appropriate to speak of a cause of action in negligence for economic loss sustained by reason of latent defect as accruing when the resultant physical damage is known or manifest, for as was explained by Deane J. in Heyman56 it is only then the actual diminution in market value occurs. If, on the other hand, the interest infringed is the physical integrity of property then there is a certain logic in looking at the time when physical damage occurs, as was done in Pirelli. So too, if the interest infringed is an interest in recouping moneys advanced it may be appropriate to fix the time of accrual of the cause of action when recoupment becomes impossible rather than at the time when the antecedent right to recoup should have come into existence, for the actual loss is sustained only when recoupment becomes impossible." 23It was also argued that in determining the question of when the relevant event occurred, the operation of market forces had to be taken into account, as Wood CJ at CL discussed in New South Wales Aboriginal Land Council v Ace Global Markets Ltd [2005] NSWSC 39; (2005) 14 ANZ Insurance Cases 61-703 at [105]: "In any event, in the case of a loan transaction, the borrowers' ability to repay, is not solely determined by the value of any security given. In the instant case, there was the added factor that additional security was taken over the borrower's assets by way of the fixed and floating charge, and by way of the guarantees from the Moore Corporation and from Mr and Mrs Moore. Recourse to those securities could potentially have made good any short fall arising from the sale of the mortgaged property." 24There was security over the shares, the value of which was fluid, but which was lost in April 2008. In June 2008, the property which had earlier been valued at some $3.6 million was passed in, with the result that it became apparent, by October 2008 at the latest, that recoupment of the plaintiffs' loan had become impossible. That was the relevant event. 25For the defendant it was argued that it was necessary to consider when the damage resulting from the negligence was first suffered, that being what s 14 of the Limitation Act 1969 is concerned with. In pure economic loss cases, time could run even if the plaintiffs were not aware of either the breach, or resulting damage (see Scarcella v Lettice [2000] NSWCA 289; (2000) 51 NSWLR 302). 26In this case, the loan was made in 2005 for a period of one month. On the evidence there was a breach in June 2006. The first mortgagee's debt then stood at some $2.78 million, with the debt increasing at some $39,000 per month. A distinct possibility then arose that if the property was sold, the first mortgagee would not be paid out. 27The auction did not proceed. The plaintiffs' second mortgage was discharged in June 2006 and another second mortgage in respect of a further loan for some $532,000 obtained from another lender was registered. The plaintiffs then obtained an unregistered third mortgage, a share mortgage and lodged a caveat over the property, claiming an equitable interest in the property. The borrowings then stood at some $3.4 million, with the property having been valued at some $3.6 million. 28On the defendant's case, the plaintiffs suffered an actual loss in June 2006. While it was accepted that a pragmatic approach had to be adopted, there was no evidence as to the value of the shares over which security was given in 2006. The question of when the relevant event occurred could not be determined on the hypothetical basis that they had some value. 29The plaintiffs pointed to evidence which it was argued established that the shares had ascertainable value. It followed that no loss or damage materialised in 2006, given the steps then taken by the plaintiffs, which permitted the refinance and gave them further valuable security. 30As discussed in Wardley (at [14] - [16] for example), at common law a plaintiff can only recover compensation for actual loss or damage incurred, not potential or likely damage. Loss and damage is not the inevitable result of every act of negligence. When a cause of action for negligence causing economic loss accrues, thus requires consideration of both the negligent act or omission in question and when the resulting loss or damage actually materialised. 31It follows, in my assessment of the evidence, that the plaintiffs have an arguable case that the cause of action did not accrue until 2008. In 2006, the steps taken averted damage materialising. The evidence does not permit the conclusion that the shares over which security was obtained had no value, or that the property provided no security in respect of the loan. The plaintiffs' submissions that it was only in 2008 that the relevant event occurred, resulting in the loan having no prospect of being recovered, must be accepted as being arguable.

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