THE SUBROGATION QUESTION
95The nature of "subrogation" in relation to Contracts of Insurance. The Sixth Defendant's claim to an entitlement to rely upon CLA s. 35(1) in answer to the Plaintiff's claim to damages is said to be grounded upon a "right of subrogation" to the rights of the Third and Fifth defendants (as, it may be assumed, concurrent tortfeasors) viś a viś the Plaintiff.
96That "right of subrogation" is said to arise from policies of insurance made between the Sixth Defendant (as insurer) and the Third and Fifth Defendants (as insured parties) respectively.
97The Plaintiff objects to the assertion of any right of subrogation by the Sixth Defendant in circumstances in which the Sixth Defendant has not only, not discharged any liability the Third and Fifth Defendants might have to the Plaintiff, but also not admitted any liability to indemnify its insured.
98The Plaintiff founds its objection to the Sixth Defendant's claimed right of subrogation, largely, on the basis of the following observation of Mason J in AFG Insurances Limited v City of Brighton (1972) 126 CLR 655 at 663:
"The doctrine [of subrogation] comes into operation when the insurer meets his liability under the policy [of insurance] by making payment to the insured in respect of his loss. The insurer is then subrogated to the relevant rights of the insured. Unless and until the insurer makes good the loss the doctrine has no application."
99I accept that any "right of subrogation" (strictly so called) that the Sixth Defendant has in equity is prospective and contingent upon it making a payment to, or on the account of, the Third or Fifth Defendants in fulfilment of a contractual promise, or otherwise on acceptance of a liability, to indemnify those Defendants against the third-party claim of the Plaintiff.
100Nevertheless, the Sixth Defendant attempts to meet the Plaintiff's objection by relying upon two passages from the judgment of Barwick CJ in State Government Insurance Office (Queensland) v Brisbane Stevedoring Pty Limited (1969) 123 CLR 228.
101The first passage is at 123 CLR 240-241:
"It is settled law that an insurer who has paid the amount of a loss under a policy of indemnity is entitled to the benefit of all the rights of the insured in the subject matter of the loss and by subrogation may enforce them. This right of subrogation is inherent in the contract of indemnity. It has been put that it exists as a contingent right from the inception of the insurance. For my part, with respect, I do not find the description 'contingent right' appropriate and satisfying. The right of subrogation as it seems to me does not depend for its existence as a right upon the occurrence of a loss under the policy. Its exercise is of course dependent upon the payment of the loss but as a right it exists from the moment of the making of the contract of indemnity. There is therefore no reason why a breach or threatened breach of the right could not be restrained by the insurer before the loss has occurred, though an occasion for such a course will probably be rare.
It is also settled law that an insured may not release, diminish, compromise or divert the benefit of any right to which the insurer is or will be entitled to succeed and enjoy under his right of subrogation."
102The second passage is at 123 CLR 242-243:
"... the right of subrogation is no more than a right to enforce and have the benefit of the insured's rights in relation to the subject matter of the loss which the insurer has paid: it includes, of course, a right to have such rights maintained pending the occurrence of a loss within the policy."
103The Sixth Defendant contends that the inchoate, equitable right of subrogation inherent in the policies of insurance it issued to the Third and Fifth Defendants - that is, the contracts that bind those parties as insurer and insured - is sufficient, of itself, to enable it to rely upon CLA s 35(1) without it having first indemnified the Third and Fifth Defendants or even conceded a liability to do so. See also John Edwards & Co v Motor Union Insurance Co Ltd [1922] 2 KB 249 at 254-255; Boag v Standard Marine Insurance Co Ltd [1937] 2 KB 113 at 122; SR Derham, Subrogation in Insurance Law (Law Book Co, Sydney, 1985), pages 49-50 and 126-132.
104That contention stops short of unravelling the elements of contract law and equitable principle that are implicitly interwoven in Barwick CJ's observations.
105There is no conflict between his Honour's judgment and that of Mason J. That is because to speak of "the doctrine of subrogation" coming into "operation" or having no "application" to particular facts is not inconsistent with recognition that a "right of subrogation is inherent in [a] contract of indemnity," and that it "does not depend for its existence as a right upon the occurrence of a loss under [a policy of insurance]", but that "[its] exercise is ... dependent upon payment of the loss ...".
106As is recognised in Meagher, Gummow and Lehane's Equity : Doctrines and Remedies (4th ed, Lexis Nexis, 2002), at para. [9-195], Barwick CJ's observations focussed upon principles, and remedies, protective of an insurer's prospective right of subrogation.
107The following extract from R.P. Meagher JA's judgment in Sola Basic Australia Limited v Morganite Ceramic Fibres Pty Limited (Court of Appeal, 11 May 1989, unrep, BC 8902186), comprising part of a larger extract published in Meagher, Gummow and Lehane, provides an elaboration of that point:
"It is undoubtedly true, as Sir Garfield Barwick pointed out, that in every contract of insurance there is an obligation, implied if not expressed, as between the insurer and his insured that the latter will not do anything to diminish the former's right to subrogation. It does not emerge clearly from the cases what is the source or the nature of that obligation. It may be, and I think it is, a term of the contract of insurance which is implied by law. It could also conceivably be, although I doubt if this be the case, an equitable obligation arising independently of contract. If it be the former, it is a negative stipulation, which has the same consequence as any other negative stipulation; that is to say, the insurer may enjoin any apprehended breach of the stipulation, may subsequently sue for any actual breach in damages, may plead the breach as a defence if the insured claims under the relevant policy of insurance, and may sue for an injunction or damages any Third person who induces a breach of the stipulation.... Likewise, if the obligation in question is not a consequence of an implied term but is the consequence of some independent equity, the doctrine of De Mattos v Gibson (1858) 4 De G and J 276; 45 ER 108, produces the same result."
108The relationship between an insurer and an insured that gives rise to a right of subrogation is generally grounded upon a contract of insurance, even if accompanied by statutory rights and obligations in particular cases. That is not inconsistent with an acceptance of the proposition that subrogation is a creature of equity and that it does not depend upon principles of contract: Insurance Commission of WA v Kightly (2005) 30 WAR 380 at 387 [26]; Meagher, Gummow and Lehane, para. [9.015]. Cf Sutton, paras [16.14]-[16.18]; Derham, chapter 1; K Mason, JW Carter and GJ Tolhurst, Restitution Law in Australia (Lexis Nexis Butterworths, Australia, 2nd ed, 2008), para [639]; GE Dal Pont, Equity and Trusts in Australia (Law Book Co, Sydney, 5th ed, 2011), paras [14.05]-[14.60]; M Evans, Equity and Trusts (Lexis Nexis Butterworths, Australia, 3rd ed, 2012), paras [20.1], [20.6]-[20.7] and [20.10]-[20.12].
109The nature and scope for operation of any right of subrogation depends, ultimately, upon context.
110Equitable principles do not operate in a vacuum. In an insurance context they generally rest upon a contract, and the terms of the particular contract must be consulted in order to determine whether, and how, they operate.
111In the present proceedings, the particular policies of insurance under consideration have several features in common with professional indemnity policies generally.
112First, they are contracts of indemnity. Secondly, they are predicated upon the existence of an equitable "right of subrogation" which Barwick CJ described as "inherent" in a contract of indemnity. Thirdly, they contain a term (one type of "litigation clause") that requires the insured to lend their names to the insurer in defence of Third party claims against the insured: clause 5.2.1. Fourthly, they also contain a term (another type of "litigation clause") that limits any entitlement of the insured to defend or settle Third party claims without the consent of the insurer: clause 5.2.2. Fifthly, they are contracts in respect of which the parties owe obligations of good faith to one another, in performance of the contract as well in formation of the contract: K Sutton, paras. [3.7]-[3.10] and [16.69].
113Each policy is expressed in terms consistent with the implication of two terms not uncommonly found in commercial contracts. Both might be thought to be reflections of an obligation of good faith. Both find expression, in one form or another, in expositions of insurance law (whether attributed to law or equity): eg, Derham, pages 126-128, 130-132. The first is a term that each contracting party will cooperate with each other party in the doing of acts which are necessary for the performance of the contract: Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Limited (1979) 144 CLR 596 at 610 and 615. The second (reminiscent of the obligation of an insured not to diminish an insurer's right of subrogation, identified by Barwick CJ and elaborated by R.P. Meagher JA) is a term that an insured will not hinder or prevent the fulfilment of its promise to allow the insurer to take over and conduct the defence or settlement of a claim and to refrain from settling or defending a claim without the insurer's consent: Service Station Association v Berg Bennett (1993) 45 FCR 84 at 92-94, citing Dixon J in Shepherd v Felt and Textiles of Australia Limited (1931) 45 CLR 359 at 378. The latter term is, in substance, a covenant not to derogate from the right of subrogation conferred upon an insurer in return for the insurer's promise of an indemnity.
114For an elaboration of the prospective right of subrogation it seeks to protect by participation in the principal proceedings, and by reliance on CLA s. 35(1), the Sixth Defendant points to the classic formulation of Brett LJ in Castellain v Preston (1883) 11 QBD 380 at 388-389:
"In order to apply the doctrine of subrogation, it seems to me that the full and absolute meaning of the word must be used, that is to say, the insurer must be placed in the position of the assured. Now it seems to me that in order to carry out the fundamental rule of insurance law, this doctrine of subrogation must be carried to the extent which I am now about to endeavour to express, namely, that as between the underwriter and the assured the underwriter is entitled to the advantage of every right of the assured, 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 rights, whether by way of condition or otherwise, legal or equitable, which can be, or has been exercised or has accrued, and whether such right could or could not be enforced by the insurer in the name of the assured by the exercise or acquiring of which right or condition the loss against which the assured is insured, can be, or has been diminished. That seems to me to put this doctrine of subrogation in the largest possible form, and if in that form, large as it is, it is short of fulfilling that which is the fundamental condition, I must have omitted to state something which ought to have been stated. But it will be observed that I used the words 'of every right of the assured'. I think that the rule does require that limit."
115It may be accepted that Castellain v Preston is good law in Australia. It was approved by Mason J in AFG Insurances Limited v City of Brighton, at 126 CLR 663-664, for example.
116In my opinion, however, it is not necessary, or even productive, to dwell on whether, as a mere question of textual comparison, a claimed entitlement to rely upon CLA s. 35(1) can be characterised as falling within Brett LJ's formulation of an insurer's right of subrogation. That approach (advocated by the Sixth Defendant) is an invitation to pass over distinctions that can have operative significance. It is, in my opinion, an invitation to error.
117In the realm of insurance, law and equity have a symbiotic relationship mediated by the agreement between insured and insurer in the particular case. Equity may provide a jurisprudential foundation for a subrogation of rights upon indemnification of another; and contracts of insurance may be predicated upon the prospect of a right of a subrogation crystallising at the time of provision of an indemnify; but what equity can, and may in its discretion, do depends on the terms of the particular contract, express or implied.
118An Examination of the Rights of the Parties. It is necessary, therefore, to focus attention on the contractual rights and obligations of the parties to the policies of insurance issued by the Sixth Defendant and, in these proceedings, on the nature of such, if any, rights there may be in a stranger to those contracts (the Plaintiff) who seeks, in reliance upon them, to stake a claim to a declaration that the insurer is liable to indemnify the insured.
119The problem at hand can best be dealt with, in my opinion, by breaking it down into its constituent parts, then reassembling it in the form of the single set of proceedings in which it presently presents itself for analysis.
120This involves a consideration of three different perspectives of interlocking sets of entitlements. It requires consideration of the rights and remedies available to the Plaintiff, the Third and Fifth Defendants, and the Sixth Defendant respectively. It also requires, ultimately, a consideration of the independent perspective of the Court in the administration of justice.
121This must occur in circumstances in which the Plaintiff and the Sixth Defendant are the active contradictors in the proceedings, notwithstanding the absence of any privity of contract between them. The question upon which they are at issue is whether the Sixth Defendant (as insurer) is liable to indemnify the Third and Fifth Defendants (as insured parties) in respect of the claims to damages made by the Plaintiff (as a Third party claimant) against the Third and Fifth Defendants (as, it must be assumed, "concurrent wrongdoers" within the meaning of CLA Part 4).
122First, the Plaintiff's perspective. It pleads a cause of action, at law, in contract and tort, against each of the Third and Fifth Defendants. It has no cause of action, no equity and no statutory right against the Sixth Defendant directly.
123There is no contention in these proceedings that the policies of insurance issued by the Sixth Defendant to the Third and Fifth Defendants respectively were, at law or in equity, made for the benefit of the Plaintiff. None of the issues that occupied attention in Trident General Insurance Co Limited v McNiece Bros Pty Limited (1988) 165 CLR 107 has scope for operation here. This case calls for no deliberation or debate about the role or utility of concepts of privity of contract, consideration or contracts for the benefit of third parties.
124On the reasoning in the Anjin line of cases, such rights as the Plaintiff may have "against" the Sixth Defendant derive from the width of the Court's jurisdiction to grant declaratory relief, and its preparedness to adapt its procedural norms.
125The reasoning in the Anjin cases is, however, founded upon the Court being satisfied that, in the event that either the Third Defendant or the Fifth Defendant has a contractual right against the Sixth Defendant to be indemnified against the Plaintiff's claims to damages against it, and the Sixth Defendant satisfies its obligation of indemnity by a payment to the liquidator of the Third or Fifth Defendants (as the case may be), the Plaintiff, by virtue of s. 562 of the Corporations Act, has a statutory right to receive the benefit of that payment as a priority payment in the winding up of the recipient company. It was to secure that right of priority that the Plaintiff applied to the Court for, and obtained, orders, pursuant to s. 601AH(2) of the Corporations Act, that the Third and Fifth Defendants respectively be restored to the register and immediately wound up.
126Secondly, the perspective of the Third and Fifth Defendants. There is a serious question to be tried as to whether, upon the proper construction and operation of the policies of insurance between the Sixth Defendant (as insurer) and the Third and Fifth Defendants (as insured parties) respectively, each of the Third and Fifth Defendants has a contractual right, against the Sixth Defendant, to be indemnified by the Sixth Defendant against the Plaintiff's claims. The Sixth Defendant does not deny the existence of a contract in either case. In each case, it relies upon an express term of the policy (clause 3.9.2(c)) to assert that the insurance cover for which the policy provided operates to exclude (in the sense of not answering for) any liability for the Plaintiff's claims.
127If (contrary to the Sixth Defendant's contentions), it is contractually liable to indemnify the Third and Fifth Defendants against the Plaintiff's claims, and the Plaintiff establishes one or other of the causes of action it has pleaded against the Third and Fifth Defendants, the Sixth Defendant will have an established liability (under clause 1.1 of the subject policies), viś a viś the Third and Fifth Defendants, to indemnify them against the Plaintiff's claims by payment of any judgment obtained by the Plaintiff against them, without requiring them, first, to pay the judgment debt and claim reimbursement.
128The right of indemnity for which the policies of insurance respectively provide is one which could be enforced, by the insured against the insurer, in a suit for specific performance: Meagher, Gummow and Lehane, at para. [20-050], citing Re Richardson; ex-parte The Governors of St Thomas Hospital [1911] 2 KB 705 at 709-710; McIntosh v Dalwood (No. 3) (1930) 30 SR (NSW) 332; McIntosh v Dalwood (No. 4) (1930) 30 SR (NSW) 415; and Commissioner of Taxation v Unilever Australia Securities Limited (1995) 56 FCR 152 at 170C.
129In separate proceedings between an insured and insurer the Court might also grant an insured a declaration that it is entitled to an indemnity (and, in some circumstances, it might order that a fund be set aside) so that the insured can be indemnified without the necessity of its having to pay the Third party claimant and then sue for that money paid: In Re Richardson at 712-713.
130Although these authorities relate to contracts of indemnity other than insurance contracts, there is no reason why the principles they identify can not be applied in an insurance context in general or to the facts of this case in particular.
131On the authority of the Anjin line of cases (based, in part, on Guaranty Trust Company of New York v Hannay & Company [1915] 2 KB 536, Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation [1977] 1 NSWLR 43 and Ainsworth v Criminal Justice Commission (1992) 125 CLR 564 at 581-582, as appears in JN Taylor (1993) 59 SASR 432 at 435-437),the breadth of the Court's jurisdiction to grant declaratory relief (at the suit of the Plaintiff and despite the absence of any course of action vested in the Plaintiff against the Sixth Defendant) is sufficient to sustain the Plaintiff's claim for relief against the Sixth Defendant in circumstances in which the Third and Fifth Defendants are inactive parties to the proceedings.
132In an ordinary case, where an insured defendant is solvent, willing and able to sue its insurer to resolve a contest between them as to the availability of indemnity cover, proceedings between the insured and the insurer might be conducted by way of a cross claim (filed by the insured against the insurer) ancillary to principal proceedings in which a Third party Plaintiff makes its claim against the insured.
133The practical problem in the current proceedings is that neither of the Third and Fifth defendants is solvent, willing or able from its own resources to sue the Sixth Defendant so as to establish such right of indemnity as it might have.
134Thirdly, the Sixth Defendant's perspective. As their insurer, it has contractual rights against each of the Third and Fifth Defendants as insured parties. There is no need for it to have indemnified the insured before taking over conduct of the proceedings, in exercise of those rights: Halliday v High Performance Personnel Pty Ltd (In Liq) (1993) 67 ALJR 678 at 680; 11 ALR 637 at 640.
135As Barwick CJ recognised in State Government Insurance Office (Queensland) v Brisbane Stevedoring Pty Ltd, it has contractual rights protective of a prospective entitlement to subrogation, and those rights can be enforced by resort to equity. Consistently with that prospective entitlement, the Sixth Defendant has (by virtue of clause 5.2.1) a contractual right to take over and conduct, in the name of the Third and Fifth Defendants respectively, the defence or settlement of the Plaintiff's claim. Likewise, it has the benefit of a negative covenant on the part of the Third and Fifth Defendants that they will not settle any claim, incur any defence costs, make any admission, offer or payment, or assume any contractual obligation in relation to the Plaintiff's claim without the Sixth Defendant's prior written consent. In the circumstances of this case, the implied terms identified in paragraph 113 add nothing significant to the parties' express terms.
136On the express terms of the subject policies, it would be open to the Sixth Defendant to file, in the names of the Third and Fifth Defendants respectively, a Response to the Plaintiff's claims against those defendants, relying upon its contractual right to do so. If there were any objection on the part of the Third and Fifth Defendants to its doing so, it could obtain an order for specific performance to compel the Third and Fifth Defendants to give effect to that right or to restrain them from interfering with the Sixth Defendant's exercise of it: State GIO (Qld) at 123 CLR 240-241; Sutton, para. [16.31]. Cf, Morris v Ford Motor Co Limited [1973] QB 792 at 800B-801C, 804E-806A and 812B-C.
137There is nothing in the policies of insurance under consideration in the present proceedings which, in terms, confines the Sixth Defendant's contractual rights to defend the Plaintiff's claims against the Third and Fifth defendants to circumstances in which the Sixth Defendant has admitted a liability to indemnify those defendants.
138The definition of "claim" in the policies hinges, in the present proceedings, on the existence of a demand. There is no requirement (or, at least, no express requirement), as there may have been in CE Heath Underwriting & Insurance (Australia) Pty Limited v Campbell Wallis Moule & Co Pty Limited [1992] 1 VR 386 at 393-395, that the demand be of a kind in respect of which the insured is entitled under the policies to be indemnified or which the insurer chooses to treat as if the insured were so entitled.
139There is nothing discernable in the facts of this case, unlike those in CE Heath, which suggests that it would be a breach of good faith on the part of the insurer to conduct the defence of its insured while at the same time contesting an assertion (here advanced by the Plaintiff, not an insured) that the contract of insurance answers a third party claim to damages against the insured.
140The Sixth Defendant has consistently denied that it has any liability, under the policies, to provide an indemnity. Unless constrained by "the doctrine of election" or principles of estoppel, it could, without prejudice to its denial, file Responses in the names of the Third and Fifth defendants so as better to protect its rights in the event that it is held liable to indemnify the Third and Fifth defendants and they, in turn, are held liable to the Plaintiff. In doing so, it could, and presumably would, expressly maintain its denial of any liability to provide an indemnity.
141The Sixth Defendant does not require the leave of the Court under s 471B of the Corporations Act in order to exercise its contractual rights to defend the Plaintiff's claims in the names of the Third and Fifth Defendants. Section 471B provides that "[while] a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with (a) a proceeding in a court against the company or in relation to property of the company; or (b) enforcement process in relation to such property, except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
142The Sixth Defendant is not proceeding "against" those parties or in relation to their property. If leave were required to be granted to the Sixth Defendant under the section (eg, if the Sixth Defendant were in need of an order for specific performance against the Third and Fifth Defendants) it could be given on such terms, if any, as might then be appropriate. A grant of leave would be unlikely to be withheld in circumstances in which the Court has already ordered that the Third and Fifth Defendants be restored to the register, and wound up, and the Plaintiff has an entitlement to leave to proceed against them for the declared purpose of permitting a determination as to the Sixth Defendant's liability to indemnify them.
143The Doctrine of Election. Is the Sixth Defendant's ability to file Responses in the names of the Third and Fifth Defendants constrained by the doctrine of election? In my opinion, it is not; at least, not in the proceedings as presently constituted.
144The "doctrine of election" under consideration is that governed by the common law, not a distinct equitable doctrine: Agricultural and Rural Finance Limited v Gardiner (2008) 238 CLR 570 at 588-589 [56]-[58].
145Expositions of the common law doctrine generally focus on the existence, or otherwise, of inconsistent (alternative) rights or remedies between which a party must choose, or be taken to have chosen, once appraised of all facts material to the choice.
146The parameters of the doctrine are generally explained by reference to Sir Frederick Jordan's judgment in O'Connor v SP Bray Limited (1936) 36 SR (NSW) 248 at 257-264; the judgments of Stephen and Mason JJ in Sargent v ASL Developments Limited (1974) 131 CLR 634 at 641-649 and 655-658 respectively; and the judgment of the plurality in Immer (No 145) Pty Limited v The Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 39 and 41-43.
147The doctrine is of general application. It is not limited in its operation to inconsistent rights or remedies arising under, or in respect of, contracts or leases; but, as Jordan CJ remarked in O'Connor v SP Bray Limited at 259, leases and contracts have often provided the context in which it has been considered.
148Contracts of insurance, in particular, are well represented in the field of jurisprudence in which the doctrine has been considered. Cases in this category need to be read with an understanding that, unlike many other contracts, a contract of insurance is overlaid with obligations of good faith owed by each party to the other. The leading case of CE Heath Underwriting and Insurance (Australia) Pty Limited v Campbell Wallis Moule & Co Pty Limited [1992] 1 VR 386 at 393-395 - to which both the Plaintiff and the Sixth Defendant have referred - is an exemplar of that. The Court there sidestepped a finding of election because it was able to identify an agreement between the parties about the conduct of litigation that was independent of their insurance contract. Nevertheless, upon a consideration of whether exercise of a right under a litigation clause may have constituted an election to abandon a right to deny indemnity, the Court was influenced by considerations of good faith.
149Heath is not uncommonly cited as authority for the proposition that, once appraised of all facts material to the making of a choice bearing upon whether to admit liability under a contract of insurance, an insurer can only exercise a contractual right to defend a third party claim against its insured, in the name of the insured, if it concedes that it is liable to indemnify the insured against that claim or, more accurately, if it abandons any contractual right it might have to deny liability.
150What are the elements of an "election"? Generally, for a party to be held to an "election" on an application of the doctrine of election at common law:
(a) there must be evidence of conduct by that party (assessed on an objective standard) manifesting a choice, by it, between inconsistent (alternative) rights or remedies;
(b) there must be evidence of an express or implied communication of that choice to a party against whom the rights or remedies lie; and
(c) the interests of justice must require that the choice, once made, be held to have been irrevocable.
151Inherent in the concept of "choice" is the idea of conduct that is voluntary. Conduct under compulsion may be denied the character of an operative "choice". Where an elector has made, and communicated, a "choice" under the influence of a mistake it is, semble, conceptually possible, but not readily to be found, that no operative choice has been made: Immer (No. 145) Pty Limited v The Uniting Church in Australia Property Trust (NSW) at 43-44.
152Irrespective of the elector's subjective intention, the fact of "choice" may be inferred, objectively, from evidence of conduct that is consistent only with an exercise of one of the available rights and inconsistent with an exercise of the other.
153Caution is required upon an assessment of evidence bearing upon the making, or otherwise, of a choice between competing rights or remedies because:
(a) for a choice to be found to have been made, the elector must have been possessed, at least, of knowledge of facts giving rise to the existence of the inconsistent rights or remedies.
(b) the nature of a choice between inconsistent rights or remedies is such that one of them must be taken, by non-exercise, to have been abandoned.
(c) if the time within which a choice must be made has not expired, communication of a settled intention to make a particular choice may need to be distinguished from a forewarning to an opponent that a choice is available and might, in the future, be made.
154The interests of justice may require that a choice, once made, be held to have been irrevocable because a party affected by the elector's conduct is so prejudiced by it that to permit the elector to resile from it would be unfair.
155Cases in which the doctrine has scope for application may be regarded, strictly, as limited to those in which, but for the election, it would be possible to resile from the choice made. Cases in which the making of an election extinguishes the subject matter of the competing rights because one of the rights is satisfied (eg, where an election to treat a contract as discharged upon repudiation brings the contract to an end) may be distinguished from cases in which the doctrine operates in full force.
156Exposition of the doctrine in the context of contract cases typically involves a dispute between parties to a contract; in the insurance context, a dispute between an insurer and an insured as to the liability of the insurer to indemnify the insured against a third party claim.
157That context is very different from the one under consideration in these proceedings. Here, there is no dispute between insured and insurer. The Third and Fifth Defendants have made no claim, and filed no pleading, against the Sixth Defendant. Nor have they objected to the Sixth Defendant both denying a liability to indemnify them and, in their names, denying that the Plaintiff has any entitlements against them. There is nothing in the proceedings of benefit to them, their shareholders or their general creditors. Both companies had been deregistered. They were reinstated, with a winding up order, for the sole purpose of enabling the Plaintiff to pursue the Sixth Defendant in these proceedings.
158By virtue of the Corporations Act, s 562, any moneys paid out by the Sixth Defendant as a result of these proceedings must be paid (net of expenses) to the Plaintiff. If the Sixth Defendant were, in these proceedings as presently constituted, to file a Response in the names of the Third and Fifth Defendants (articulating reliance on CLA s 35(1)) and, at the same time, to maintain, in its own Response, a denial of any liability to indemnify its insured, no prejudice would be suffered by the Third or Fifth Defendants.
159Assessed in the context of these proceedings - where the contradictors are the Plaintiff and the Sixth Defendant - it is not correct to say, simply, that the Sixth Defendant is confronted by a choice between inconsistent rights.
160The Plaintiff has no cause of action against the Sixth Defendant entitling it to confront the Sixth Defendant with such a choice.
161The Sixth Defendant is seeking to uphold the terms of its contracts with the Third and Fifth Defendants against the Plaintiff as a stranger to those contracts. It seeks to uphold the terms of the contracts between itself and its insured by denying that the policies answer the Plaintiff's claims against the insured. In my opinion, it is entitled to do so in the names of the Third and Fifth Defendants, as well as itself, in the proceedings as presently constituted.
162The Plaintiff cannot complain. Were it to fund the liquidators of the Third and Fifth Defendants to do so, the Third and Fifth Defendants could pursue the Sixth Defendant by filing Responses in their own names (prudently denying the Plaintiff's claims to damages and relying upon CLA s 35(1)) and cross claiming against the Sixth Defendant (to establish its liability to indemnify the insured companies), permitting the Sixth Defendant to be dismissed from the principal proceedings.
163The Plaintiff cannot constrain the Sixth Defendant's freedom of choice, in vindication of its contractual entitlements, by circumventing usual procedures of the Court, It cannot, in fairness, appropriate to itself a forensic entitlement to pursue the Sixth Defendant as the insurer of the Third and Fifth Defendants and, at the same time, deny to the Sixth Defendant its forensic entitlement to stand aloof from the principal proceedings so as to preserve its rights.
164In my opinion, were the Sixth Defendant to file Responses in the names of the Third and Fifth Defendants (invoking CLA s 35(1)) and to conduct a defence on behalf of those Defendants, as well as maintaining its own Response (denying liability to indemnify the insured Defendants) in the context of the proceedings as presently constituted, it could not be said to have elected to abandon such entitlement it might otherwise have to deny an indemnity.
165It has not been put to any election by the Third and Fifth Defendants, and it cannot be put to such an election without a change in the constitution of the proceedings. Any choice it might make about the filing of a Response on behalf of the Third and the Fifth Defendants in the present setting lacks the character of an unqualified choice because it was joined in the proceedings, as a defendant, without its consent.
166In the absence of any active participation in the proceedings by the Third and Fifth Defendants, and in circumstances in which its only contradictor is the Plaintiff (a stranger to the contracts of insurance), it is at least doubtful whether there is any material inconsistency between the rights the Sixth Defendant would seek to pursue by defending the principal proceedings in the common interest of itself and the Third and Fifth Defendants.
167If the Sixth Defendant is correct in its contention that, upon the proper construction of the policies it issued to the Third and Fifth Defendants, the policies do not answer the Plaintiff's claims against those defendants, then it will not have been confronted with a choice between alternative and inconsistent rights at all: Freshmark Ltd v Mercantile Mutual Insurance (Australia) Ltd [1994] 2 Qd R 390 at 395-396 and 403-404.
168The interests of justice, far from dictating that the Sixth Defendant be bound by an election to provide an indemnity, operate in the other direction. The Plaintiff, having prevailed upon the Court to join the Sixth Defendant in the principal proceedings for its own benefit, cannot fairly deny to the Sixth Defendant an opportunity to defend itself as it could if ordinary procedural norms were adhered to.
169The Sixth Defendant should be no worse off, procedurally, by its joinder in the principal proceedings than it would have been if, having denied liability to indemnify the Third and Fifth Defendants, it had been sued by them on a cross claim in the ordinary course.
170While ever the proceedings are constituted as they are (with the insurer coupled with its insured as a co defendant, and without any cross claim filed by the insured against it claiming a right to indemnification, so that there is no issue between insured or insurer on the pleadings), the time for the insurer to be put to an election has not, in my opinion, arrived.
171For these reasons, in my opinion, there is no foundation for a finding that, were the Sixth Defendant to file Responses in the names of the Third and Fifth Defendants in the proceedings as presently constituted, it would irrevocably lose, or prejudice, its entitlement to deny them an indemnity.
172That said, I am delivering judgment on an interlocutory application (looking forward), not a trial (looking back at established facts). Against the possibility that my opinion as to the operation of the doctrine of election is wrong, the Sixth Defendant should be protected by imposition on the Plaintiff of a term designed to ensure that, as the price of maintaining an Anjin claim against the Sixth Defendant, it must disclaim such, if any, entitlement it might otherwise have to contend that, by the filing of a Response on behalf of the Third and Fifth Defendants or by conducting a defence in their names, it has lost, or prejudiced, its entitlement to deny those parties an indemnity against the Plaintiff's claims for damages.
173If the Sixth Defendant were to file Responses in the names of the Third and Fifth Defendants, and in their names to defend the Plaintiff's claims against them, pursuant to directions made by the Court to give effect to these Reasons for Judgment, could the Third Defendant or the Fifth Defendant subsequently advance against the Sixth Defendant a contention that it was bound by an election to indemnify them? I think not. The Third and Fifth Defendants have both defaulted in the filing of a Response. They have both acquiesced in the joinder of the Sixth Defendant upon the footing that they cannot, and will not, themselves participate in the proceedings. They have both stood by while the Sixth Defendant's Motion has been determined. The makings of an estoppel are there to preclude them from rounding on the Sixth Defendant in the future without allowing to the Sixth Defendant an opportunity to revert to its preferred position of being dismissed from the proceedings in the absence of a cross claim instituted against it by the Third and Fifth Defendants.
174If the Third and Fifth Defendants were, in the future, to seek to conduct their own defence in these proceedings, they might be permitted to do so; but the interests of justice would require them to be put to terms; the order for joinder of the Sixth Defendant as their co-defendant would have to be reviewed; and they could be left to any cross claim that they may have against the Sixth Defendant. If the foundations for the Plaintiff to conduct an Anjin case against the Sixth Defendant were to be removed, the Sixth Defendant would be entitled, in my opinion, to expect that it would be afforded an opportunity to return to the position that appertained immediately before its joinder in the proceedings as a defendant.
175The Independent Perspective of the Court. Having viewed the problem at hand from the three different perspectives of the Plaintiff, the Third and Fifth Defendants, and the Sixth Defendants, it remains to consider the independent perspective of the Court.
176If there was ever any doubt that the Court has an institutional interest in the proper constitution, and orderly conduct, of civil proceedings, that doubt has been laid to rest by the development of "case management" approaches to judicial administration of proceedings and the embodiment of case management principles in the Civil Procedure Act 2005 (NSW), Part 6 (particularly ss 56 - 61).
177That interest is magnified, not diminished, in proceedings in which the reasoning in Anjin line of cases is relied upon by a plaintiff seeking to join as a defendant a party against which it has no cause of action.
178The Court cannot lightly use the flexibility of its jurisdiction to grant declarations (to permit a plaintiff to join an insurer as a defendant in proceedings in which the plaintiff has no cause of action against the insurer) without due reflection on whether, and how, the insurer might be afforded no less procedural fairness than that to which it would be entitled had it been sued in the ordinary course, on a cross claim, by an insured defendant against which the plaintiff may have a cause of action.
179Having permitted the Plaintiff an indulgence because of the insolvency of the Third and Fifth Defendants, the Court should be mindful of a need to protect the Sixth Defendant against the Plaintiff seeking more forensic advantage than the disability under which the Third and Fifth Defendants operate warrants in the circumstances of the particular case.
180It may be that the Plaintiff's claim for declaratory relief implicitly imposes on the interested parties, and the Court, an obligation to consider all the defences (including defences arising out of CLA s 35(1)) that the Third and Fifth Defendants could reasonably be expected to have raised had they been active in the proceedings.
181Having ordered that the Sixth Defendant be joined in the proceedings, the Court is required to give such judgment, or make such order, as the nature of the case may require. Both s 90(1) of the Civil Procedure Act and UCPR rule 36.1 provide legislative backing. Section 90(1) is expressed in terms more emphatic, and less discretionary, than rule 36.1; but they stand together. Rule 36.1 is in the following terms: "At any stage of proceedings, the court may give such judgment, or make such order, as the nature of the case requires, whether or not a claim for relief extending to that judgment or order is included in any originating process or notice of motion." The words here given emphasis confirm that the Court is not necessarily constrained, in all respects, by the parties' pleadings (or lack thereof) and, independently of the parties' pleadings but with due regard for procedural fairness, it may be obliged to give effect to CLA s 35(1) so far as it is able to do so.
182It is not necessary in this judgment to form a conclusion about whether, and (if so) to what extent, s 35(1) imposes constraints on judicial decision-making independently of the pleadings, and contentions, of litigants. Accordingly, I do no more than notice such questions as a qualification upon the plaintiff's assumption that, if no party expressly pleads s 35(1) in the interests of the Third, Fifth or Sixth Defendants, it can proceed against those parties without reference to the provisions of the section.
183Having secured the joinder of the Sixth Defendant on a claim for declaratory relief, without a cause of action against the Sixth Defendant, because the Third and Fifth Defendants were insolvent, the Plaintiff may, independently of any pleading of other parties, bear at least a forensic burden of addressing the operation of CLA s 35(1) vis á vis the Third and Fifth Defendants and, incidentally, the Sixth Defendant), and the Court may be compelled to address that same topic, whether or not the Sixth Defendant, in one form or another, expressly pleads s 35(1).
184However, the Court, and all parties in the proceedings, have an entitlement to have all questions in dispute in the proceedings expressly articulated so far as may be reasonably practicable. Proceedings should normally be determined "on the pleadings". If, as in the case of a defence based on CLA s 35(1), a particular defence is only available to the Third and Fifth Defendants, but may be relied upon one way or another by the Sixth Defendant as their insurer, the pleadings should reflect that truth.
185I have given consideration to whether the case management powers of the Court extend to the giving of a direction that the Sixth Defendant file a Response on behalf of the Third and Fifth Defendants independently of any contractual entitlement that the Sixth Defendant may have. Such a direction might be justified on the basis that considerations of fairness, and the efficient administration of justice, require the Plaintiff to have a contradictor representing the Third and Fifth Defendants on the proportionate liability issue.
186The Court's powers are extensive. They may extend as far as the giving of such a direction. However, it is not necessary for me to enter that territory in this case, at this stage of the proceedings.
187That is because I have concluded that: the Sixth Defendant has contractual rights to defend the proceedings in the names of the Third and Fifth Defendants; in the context of the proceedings as presently constituted, neither the doctrine of election nor principles governing estoppels constrain on the Sixth Defendant in the exercise of those rights; at this stage of the proceedings, the Sixth Defendant should be left to its contractual rights; and, having regard to the case management criteria set out in CPA ss 56-58, the orderly conduct of the proceedings would best be promoted by a grant of leave to the Sixth Defendant to file Responses in the names of the Third and Fifth Defendants as well as itself.
188The principle of indemnity which governs the policies, the doctrine of subrogation which is associated with that principle, the policy imperatives of the Civil Liability Act, and considerations of practical convenience that justified the joinder of the Sixth Defendant as a co-defendant in the principal proceedings all point in the same direction. That is, that the Sixth Defendant is entitled to rely upon CLA s. 35(1) via Responses it is entitled, contractually, to file in the names of the Third and Fifth Defendants respectively.
189For these reasons, in my opinion, the Sixth Defendant is in principle entitled (albeit through the Third and Fifth Defendants) to rely upon CLA s. 35(1) against the Plaintiff. In substance, the "subrogation question" should be answered in the affirmative, though through closer consideration of the policies of insurance issued by the Sixth Defendant, and principles governing the conduct of proceedings in the Court, than upon an abstract review of the concept of subrogation or the particular terms of CLA s. 35(1).
190The Sixth Defendant's entitlement to rely on CLA s. 35(1) is subject to a qualification. There is need of pleadings in proper form, Responses that comply with UCPR Parts 14 and 15 (which, respectively, govern "pleadings" and "particulars").