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[2012] NSWSC 853
Supreme Court of NSW
2012-05-03
Bellew J
Original judgment source is linked above.
INTRODUCTION 1By an amended notice of motion filed on 3 May 2012, the plaintiff seeks orders for:
THE PLAINTIFF'S CASE 5On 16 March 2005 the plaintiff was appointed as the responsible entity for a bridging finance investment fund known as the Elway Bridging Fund ("the fund"). On 11 June 2005, Huntley Custodians Ltd ("Huntley") was appointed by the plaintiff as custodian of the fund. Pursuant to the terms of its appointment, Huntley was required to act upon the directions of the plaintiff in relation to the business of the fund. 6On 5 July 2005, the fund received an application from Jerusalem Valley Estate Pty Ltd ("Jerusalem Valley") seeking a loan of $1.6 million to assist in the purchase of a property located at 108 Geles Road, Upper Burringbar, New South Wales ("the property"). In support of that application, Jerusalem Valley provided the fund with a valuation of the property dated 25 May 2005. That valuation was addressed to Asset Finance Services Pty Limited and had been prepared by SB. It valued the property, for mortgage security purposes, at $6.8 million. 7On 6 July 2005, at the direction of the plaintiff, Huntley agreed with SB that the valuation of 25 May 2005 would be reissued, so that Huntley and the plaintiff could rely upon it. Subsequently, that valuation was re-issued in the same terms and addressed to Huntley and the plaintiff ("the first valuation"). 8On 12 July 2005, in reliance upon the first valuation, Huntley advanced a sum of $1.6 million, at the plaintiff's direction, to Jerusalem Valley. Security was provided by way of first registered mortgage over the property. 9On 24 August 2005, the fund received a second loan application from Jerusalem Valley. That application was supported by a further valuation of the property prepared by SB, dated 22 August 2005, and addressed to Huntley and the plaintiff ("the second valuation"). The second valuation again valued the property, for mortgage security purposes, at $6.8 million. 10On 26 July 2005, in reliance upon both the first and second valuations, Huntley advanced a further sum of $1.25 million to Jerusalem Valley. Security was provided by way of the existing first registered mortgage over the property, along with a fixed and floating charge over Jerusalem Valley's assets. 11The repayment date for the total advance of $2.85 million was 24 October 2005. Jerusalem Valley did not repay the amount owing, and was wound up on 31 July 2006. 12On 30 March 2006 Huntley was provided with another valuation of the property prepared by Herron Todd White ("the HTW valuation") which valued the property between $675,000.00 and $700,000.00. The property was sold on 8 January 2007 for a sum of $650,000.00. 13SB had a policy of insurance with ACE which, it is agreed, was in force between 14 October 2004 to 14 October 2006. Pursuant to Clause 1.1 of that policy, ACE agreed to indemnify SB "against loss arising from any Claim in respect of civil liability for breach of a duty owed in a professional capacity first made against an Insured during the period of insurance". 14By letter of 30 November 2007, ACE advised SB's then Solicitors that investigations were continuing, and that indemnity had not been granted to SB in respect of the claim it had made on the policy arising out of the provision of the first and second valuations. By a subsequent letter of 10 April 2008, ACE formally declined indemnity to SB. A statement of claim was later filed pleading (inter alia) an action against ACE pursuant to s. 6(4) of the LRMPA.
Proceedings brought by Davron Investments Pty Ltd against the plaintiff 15On or about 14 December 2007, Davron Investments Pty Ltd and two others ("the Davron plaintiffs") commenced proceedings for damages ("the Davron proceedings") against (amongst others) the plaintiff, in its capacity as the responsible entity for the fund. Part of the case brought by the Davron plaintiffs was that the plaintiff had engaged in misleading and deceptive conduct in making a series of representations which the Davron plaintiffs accepted as being true, and upon which they relied in deciding to invest money with the fund. 16The remaining defendants in the Davron proceedings included Tony Sergiacomi ("Sergiacomi"), a director of SB. The cause of action brought against Sergiacomi by the Davron plaintiffs was pleaded in the following terms: 62. At all material times the fifth defendant owed the plaintiffs a duty to exercise the care, diligence and skill of a reasonably competent registered valuer practising his profession in the Upper Burringbar Region. 63. In breach of the fifth defendant's duty of care, the fifth defendant provided the valuation report dated 22 August 2005 that valued the security property at $6,800,000 when the true value of the security property was approximately $650,000.
17The Davron plaintiffs did not plead, as against Sergiacomi, that they relied upon the second valuation in deciding whether to invest money in the fund. 18On or about 14 May 2010 the Davron proceedings were settled. The terms of that settlement required the plaintiff to pay a sum of $880,000.00 to the Davron plaintiffs. That sum was paid on or about 31 May 2010, in addition to which the plaintiff incurred other costs associated with those proceedings ("the Davron loss").
Proceedings brought by Huntley against SB 19On 1 September 2006 Huntley, as custodian of the fund and agent for the plaintiff, brought proceedings against SB seeking damages for negligence, and for misleading and deceptive conduct, arising out of the provision of the first and second valuations. Those proceedings sought to recover the loss to the fund which was said to have arisen from the provision of the first and second valuations. 20On 18 May 2007, Macready AsJ assessed damages of $2,781,951.51 plus interest and costs against SB and entered judgment for that amount ("the fund loss").
THE PRESENT NOTICES OF MOTION 21As discussed in more detail below, the bringing of an action pursuant to s. 6(4) of the LRMPA requires the leave of the Court. The present statement of claim pleads an action against ACE under s. 6(4). However, the statement of claim was filed without the Court's leave being obtained. Accordingly, the plaintiff filed a notice of motion seeking: (i) an order that it be granted leave to proceed against ACE pursuant to s. 6(4); or alternatively (ii)an order that it be granted leave to commence proceedings against ACE pursuant to s. 6(4) of the LRMPA. 22In response, ACE filed a notice of motion seeking: (i)an order that the statement of claim be dismissed; (ii)alternatively, an order that the plaintiff's claim pursuant to s. 6(4) be struck out. 23The primary issue arising from these motions was whether or not the plaintiff's failure to obtain leave to commence the proceedings against ACE pursuant to s. 6(4) rendered the proceedings a nullity, or whether leave could be granted retrospectively. 24However, in written submissions an argument was advanced on behalf of the plaintiff that irrespective of what view might be reached regarding the question of leave under s. 6(4), it was appropriate, in circumstances where ACE had declined indemnity to SB, for ACE to be joined as a defendant in the proceedings pursuant to r 6.19 of the rules so as to allow the plaintiff to proceed against ACE pursuant to s. 562 of the Corporations Act ("the CA"). When the two notices of motion initially came before the court for hearing, Counsel for the plaintiff, Mr Cheshire, acknowledged that despite having advanced such an argument in his written submissions, the notice of motion which had been filed on behalf of the plaintiff did not seek any order for joinder pursuant to r 6.19. Mr Lloyd of Counsel, who appeared on behalf of ACE, submitted that he was not in a position to properly address this issue unless and until such an order was formally sought. 25In these circumstances, the hearing date was vacated and an amended notice of motion filed. That motion, along with the motion filed by ACE, then came before the court for hearing, at which time I was provided with a copy of the ASOC. Leaving aside the action against ACE pursuant to s. 6(4) of the LRMPA, that document pleads the following causes of action against SB: (i) contribution or indemnity pursuant to s. 5(1)(c) of the LRMPA in respect of the Davron loss; (ii) contribution or indemnity pursuant to the Trade Practices Act (TPA) for misleading and deceptive conduct in respect of the Davron loss; (iii) a claim based upon co-ordinate liability to the Davron plaintiffs in respect of the Davron loss; (iv) breach of contract in respect of the fund loss; (v) breach of duty of care in respect of the fund loss; and (vi) misleading and deceptive conduct in respect of the fund loss.
THE ISSUES 26The issues between the parties are as follows: 1. Can the plaintiff's action against ACE pursuant to s. 6(4) of the LRMPA be maintained in the current proceedings, in circumstances where the leave of the court was not obtained prior to the commencement of such proceedings? 2. If not, should the court grant leave to the plaintiff to bring an action against ACE pursuant to s. 6(4)? 3. Should the court grant leave pursuant to r 6.19 to join ACE so as to allow the plaintiff to rely upon the provisions of s. 562 of the CA?
THE RELEVANT STATUTORY PROVISIONS 27Section 6 of the LRMPA is in the following terms:
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) ... (6) ... (7) ... (8) ... (9) ... 28Rule 6.19 of the Uniform Civil Procedure Rules ("the rules") is in the following terms:
6.19 Proceedings involving common questions of law or fact (1) Two or more persons may be joined as plaintiffs or defendants in any originating process if: (a) separate proceedings by or against each of them would give rise to a common question of law or fact, and (b) all rights of relief claimed in the originating process are in respect of, or arise out of, the same transaction or series of transactions, or if the court gives leave for them to be joined. (2) Leave under subrule (1) may be granted before or after the originating process is filed. 29Section 562 of the CA is in the following terms: Application of proceeds of contracts of insurance (1) Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556. (2) If the liability of the insurer to the company is less than the liability of the company to the third party, subsection (1) does not limit the rights of the third party in respect of the balance. (3) This section has effect notwithstanding any agreement to the contrary.
Can the plaintiff's action against ACE pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) be maintained in the current proceedings in circumstances where the leave of the court was not obtained prior to the commencement of such proceedings? 30The decision of the Court of Appeal in National Mutual Fire Insurance Company Limited v Commonwealth of Australia [1981] 1 NSWLR 400 is authority for the proposition that the failure to obtain leave pursuant to s. 6(4) of the LRMPA in advance of the commencement of proceedings to enforce a charge under s. 6(1) invalidates any action taken, and renders such action incapable of being revived by a grant of leave retrospectively. However, Mr Cheshire submitted: (i)that the decision in National Mutual had not been followed by the Northern Territory Court of Appeal in Ceric v CE Heath Underwriting and Insurance (Australia) Pty Limited (1994) 99 NTR 1 and that the reasoning in the latter decision ought be preferred; (ii)that the High Court in Emanuele v Australian Securities Commission (1997) 188 CLR 114 had expressed disapproval of the decision in National Mutual and had concluded that it should not be followed; and (iii)the circumstances of the present case rendered it distinguishable from those considered in National Mutual in any event. 31As to the submission in (iii) above, Mr Cheshire submitted that the present case was distinguishable from the facts considered in National Mutual on the basis that the plaintiff had brought proceedings against SB as well as ACE, and had done so on grounds additional to s. 6(4). He submitted that the application of the decision in National Mutual should be limited to those cases where the relevant proceedings were brought only against the insurer, and only pursuant to s. 6(4). 32In National Mutual the respondent had commenced proceedings, without leave, against the appellant insurer, claiming that a charge on monies payable under a policy of insurance had been created by operation of the provisions of the LRMPA. By notice of motion, the appellant insurer sought an order striking out the statement of claim, on the basis that leave had not been obtained prior to the commencement of proceedings. The primary judge dismissed the appellant's notice of motion, and concluded that it was open to him to grant the leave after the action had been commenced. 33The Court of Appeal allowed the insurer's appeal and ordered that the statement of claim be dismissed. Glass JA (with whom the other members of the court agreed) made the following observations (at 408): "In the plethora of reported decisions, it will be found that directory has been used in two contradictory senses, viz, to describe a statute which renders the act invalid in the absence of substantial compliance as well as one which preserves the validity of the act notwithstanding total non-observance of the condition. The inquiry to be properly made eschews the tripartite classification of mandatory and directory in both senses, disregards other statutes and concentrates on the terms of the statute in question. By having regard to the nature of the precondition, its place in the legislative scheme and the extent of the failure to observe the requirement, the question is posed as a matter of construction whether there was a legislative intention that such a failure should nullify the act in question. When the requirement of sub-s(4) is examined from this stand point, unencumbered by reference to other and different procedural requirements, the question is not difficult to answer. There is no question of strict or substantial compliance. The action is commenced with leave or it is not. If it is commenced without leave, the proceeding is either a complete nullity or else it remains valid irrespective of whether or not leave is subsequently granted or else it continues in a state of suspended validity which will come to an end if leave is not obtained within an unspecified time. I can see nothing to support the attribution of a legislative intention of the two last - mentioned kinds. In my view the legislative intention properly to be garnered from the terms of sub-s(4) and its place in the framework of s 6 is that a failure to obtain the leave of the court in advance invalidates the action and renders it incapable of being revived by leave retrospectively given. It follows that the order granting leave to the Commonwealth to commence its proceeding against the insurer cannot be supported". 34In Spautz v Kirby (1988) 21 NSWLR 27, Hunt J (at 30) followed the decision in National Mutual when considering the provisions of s 9(3) of the Defamation Act 1974. 35In Ceric v CE Heath Underwriting and Insurance (Australia) Pty Limited (1994) 99 NTR 1, the Northern Territory Court of Appeal considered provisions of s. 27(3) of the Law Reform (Miscellaneous Provisions) Act 1956 (NT) which were in identical terms to that part of s. 6(4) of the LRMPA which governs the issue of leave. At first instance, the respondent had moved to strike out the relevant action on the basis (inter alia) that leave had not been granted prior to the commencement of proceedings. The appellant had sought an order for leave to commence fresh proceedings against the respondent or, in the alternative, an order for leave to proceed. Both of the appellant's applications were dismissed by the primary judge. 36Gallop ACJ and Morling AJ, having cited the passage of the judgment of Glass JA in National Mutual to which I referred earlier, observed (at 9): "The reasoning which led the Court of Appeal in National Mutual to conclude that an order nunc pro tunc could not be made on the facts of that case was that an action commenced without leave was expressed to be "a complete nullity". With respect, we are unable to agree with that reasoning. We find it difficult to describe a proceeding commenced in a court which has jurisdiction to entertain the proceeding has a nullity. If the defendant in the National Mutual case had failed to plead that the requisite leave to commence the proceedings had not be obtained by the plaintiff and the matter had proceeded to judgment without the point ever having been taken, we cannot think that the judgement would have been a nullity." 37In a separate judgment, Angel J (at 11) came to the same conclusion and disagreed with the decision in National Mutual. 38In Emanuele v Australian Securities Commission (1997) 188 CLR 114 the High Court considered the provisions of s 459P(2) of the Corporations Law which required that an application for a company to be wound up in insolvency be made only with leave. By majority, the court concluded that a failure to obtain the leave of the court required by s 459P(2) before applying for the winding up order was a defect or irregularity which could be cured by a grant of leave nunc pro tunc. 39In an earlier decision in Re Testro Brothers Consolidated Limited [1965] VR 18, Sholl J had considered s. 199 of the Companies Act 1961 (Vic) which provided that except with the leave of the court, no action or proceeding could be proceeded with, or commenced, against a company under the control of an official manager. His Honour had concluded that authorities in Australia uniformly supported the view that leave under legislative provisions of that nature could be granted nunc pro tunc. Having referred to the decision of Sholl J, Toohey J in Emanuele observed (at 129): "I respectfully adopt what is said by Sholl J as to the approach to be taken to the legislation now under consideration. To the extent that National Mutual Fire Insurance Company Limited v Commonwealth takes a different view, it should not be followed. But that decision is any event distinguishable, having regard to the statutory provision in question. Section 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) created a charge upon certain insurance monies and authorised recovery against the insurer, "[p]rovided that...no such action shall be commenced in any court except with the leave of that court". The Court of Appeal held that "a failure to obtain the leave of the court in advance invalidates the action and renders it incapable of being revived by leave retrospectively given". Arguably, the Court's jurisdiction was dependent upon on advance leave; that is not the case here". 40Kirby J, having set out part of the judgment of Glass JA in National Mutual to which I have already referred, observed (at 148): "This approach has been followed several times (see for example Spautz v Kirby (1989) 21 NSWLR 27 at 30). However, it was rejected by a single judge of the Supreme Court of the Australian Capital Territory (Dixon v Royal Insurance Australia Limited (1991) 105 ACTR 1). It was unanimously disavowed by the Court of Appeal of the Northern Territory Ceric v C E Heath Underwriting and Insurance (Australia) Pty Ltd (1994) 4 NTLR 43 at 47-48. Care must therefore be exercised in the use of analogies drawn from different legislation, having different purposes. The most that a study of these cases will show is that minds can differ in deriving the legislative purpose where Parliament has omitted expressly to provide for a consequence of default in obtaining leave. Even historical patterns must be studied with care. The focus should remain, from first to last, upon the statutory language containing the leave requirement, understood in its context and having regard to is apparent purposes". 41It is to be noted that in Emanuele, the High Court was not dealing with the provisions of s. 6(4), a fact to which Toohey J made express reference. His Honour also recognized that in the case of proceedings under s. 6(4), it was arguable that the jurisdiction of the court was dependent upon advance leave, a circumstance which did not apply to the statutory provision then under consideration. 42In GIO General Limited v Malathounis [1997] NSWCA 124 Brownie AJA observed: "In National Mutual Fire Insurance Company Limited v Commonwealth of Australia [1981] 1 NSWLR 400 this Court held unanimously that it was (necessary to obtain leave to sue in separate proceedings). It is true that the correctness of this decision had not been universally accepted: see Dixon v Royal Insurance Australia Limited (1991) 105 FLR 129, Ceric v CE Heath Underwriting and Insurance (Australia) Pty Limited (1993) 91 NTR 26, on appeal 99 NTR 1 and Emanuele v Australian Securities Commission (1995) 141 ALR 506; but it was plainly a decision binding upon (the primary judge) and he should have applied it: see, for example, Proctor v Jetway Aviation Pty Limited [1984] 1 NSWLR 166 at 176-180. Since the hearing of this appeal the High Court has delivered judgment on the appeal from the decision in Emanuele. ...I consider that if National Mutual is to be re-argued it should be done by reference to what the High Court said in Emanuele. Since a decision on the point would not make any difference to the outcome of this case I propose that leave to re-argue National Mutual be refused." 43In the same case Priestley JA also observed: "I do not think the court should grant leave in the present case for National Mutual Fire Insurance Company Limited v Commonwealth of Australia [1981] 1 NSWLR 400 to be reconsidered. It has stood for 16 years. Toohey J's remarks about it in Emanuele v Australian Securities Commission (1997) 71 ALR 717 at 725 were not made until after the present appeal had been argued and were not expressed as being definitive. The question whether this court should consider the correctness of National Mutual or leave it to the High Court to do so should be left until a more appropriate occasion arise before this court." 44In Jol v State of New South Wales (1998) 45 NSWLR 283 the Court of Appeal considered the provisions of s 4 of the Felons (Civil Proceedings) Act 1981 which provided that a person who was in custody as a result of having been convicted of, or found to have committed, a felony, may not institute any civil proceedings in any court except by leave. The appellant, whilst serving a sentence of imprisonment, had commenced proceedings, without leave, for damages as a result of injuries suffered as the result of an assault whilst in custody. A motion seeking a grant of leave was dismissed by the primary judge. 45In setting aside the orders of the primary judge Sheller JA (with whom the other members of the court agreed) concluded (at 290) that there was no reason why the legislature should have intended that a civil action instituted without the leave of the court by a person in custody should be treated as a nullity, rather than an irregularity. In the course of reaching that conclusion, and in reference to the decision in Emanuele, his Honour observed (at p 288): "Although dealing with a different legislative scheme, the reasoning in Emanuele suggests that s 4 of the Act should not be read as preventing a court from granting leave after the proceedings have been instituted and making an order nunc pro tunc". 46In reference to the decision in National Mutual his Honour said (at 289): "This decision should, perhaps, be regarded as one upholding the statutory imposition of a condition precedent to be satisfied before proceedings could be commenced". 47His Honour also made reference to the decision of the High Court in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355. In that case McHugh, Gummow, Kirby and Hayne JJ (at 391) approved of the approach taken by the Court of Appeal in National Mutual in relation to determining the validity of an act done in breach of the statutory provision. 48Finally, in Mealing v P Chand trading as Fastfix (2003) 57 NSWLR 305 the Court of Appeal considered the provisions of s. 151D(2) of the Workers Compensation Act 1987 which provided that a person was not entitled to commence proceedings under that Act more than three years after the date of the relevant injury, except with the leave of the court in which the proceedings were to be taken. The Court of Appeal concluded that an extension of the limitation period under s. 151D(2) could be granted after the commencement of such proceedings, in order to validate them retrospectively. In reference to the decision in National Mutual Handley JA said (at 308): "The decision has not been followed in the Australian Capital Territory and the Northern Territory, and was disapproved or limited to its own statute in Emanuele v Australian Securities Commission (1997) 188 CLR 114 (see Toohey J (at 129) and Kirby J (at 148).) 49In National Mutual the Court of Appeal considered the same statutory provisions as those which arise in the present case. Those provisions have not been amended in the intervening period and there has not been any subsequent decision of the Court of Appeal of this State which has concluded that National Mutual was incorrectly decided. Notwithstanding the view reached by the members of the Northern Territory Court of Appeal in Ceric, the decision in National Mutual remains a decision which is binding upon me (as to which see Proctor v Jetway Aviation Pty Limited [1984] 1 NSWLR 166 esp. at 177 cited by Brownie AJA in Malathounis (supra)). 50I am unable to accept Mr Cheshire's submission that the judgment of Toohey J in Emanuele amount to a disapproval of the decision in National Mutual. As Priestley JA observed in Malathounis, Toohey J's observations were not expressed as being definitive. Moreover, and as I have already noted, those observations were made in the context of considering a completely different statutory provision. His Honour also expressly acknowledged that, unlike the position which arose in respect of that statutory provision, it was arguable that in the case of proceedings pursuant to s. 6(4) of the LRMPA the court's jurisdiction was dependent upon advance leave being obtained. 51Further in my view, the fact that in the present proceedings plaintiff seeks to proceed against a party other than an insurer, and seeks to plead causes of action which do not rely upon the LRMPA, does not give rise to any relevant distinction. If the cause of action based upon the LRMPA is a nullity because of the absence of leave, that is not a circumstance that is capable of being cured by the fact that the statement of claim pleads additional causes of action which do not require leave, and which are regular on their face. 52For these reasons, to the extent that the present statement of claim pleads a cause of action under s. 6(4) of the LRMPA against ACE, that cause of action is a nullity. The position cannot be remedied by a grant of leave retrospectively.
Should the court grant leave to the plaintiff to bring an action against ACE pursuant to s. 6(4)? 53In Bede Polding College v Limit (No 3) Limited and anor [2008] NSWSC 887 Grove J at [6] made the following observations as to those matters relevant to a grant of leave: "I approach the question of leave on the basis that the plaintiff must show three things. First, that there is an arguable case against WDS; second, that there is an arguable case that the policy responds, and, third, that there is a real possibility that, if judgment is obtained, WDS would not be able to meet it: Oswald v Bailey (1987) 11 NSWLR 715; Zhang v Minox Securities [2008] NSWSC 689." 54Recently, in Energize Fitness Pty Ltd v Vero Insurance Ltd [2012] NSWCA 213 Campbell JA (with whom the other members of the Court agreed) concluded (at [56]) that in determining an application for leave under s. 6(4), a court should consider directly whether the applicant has shown that there is an arguable case, and should not be distracted by the test set out in General Steel Industries v Commissioner for Railways (1962) 112 CLR 125. His Honour concluded that to such extent, the decision in Bede Polding College (supra) should not be followed. His Honour also observed (at [58]) that both authority and principle supported a judge being able to consider evidence, as opposed to simply considering the pleadings, in determining an application for leave pursuant to s. 6(4). 55Because of the manner in which the submissions were made in the present proceedings, and because different considerations arise, it is necessary for me to consider this second issue separately in respect of: (i)the plaintiff's case against SB in respect of the Davron loss; and (ii)the plaintiff's case against SB in respect of the fund loss.
The plaintiff's case against SB in respect of the Davron loss 56I have already noted the terms of the policy which is in evidence before me. There is no issue between the parties that the policy was in force during the period 14 October 2004 and 14 October 2006. There is also evidence (and there is no issue between the parties) that: (i)the HTW valuation was received by the plaintiff on 30 March 2006; (ii)the Davron proceedings were commenced on 14 December 2007; and (iii)the Davron proceedings were settled on 14 May 2010. 57In The Owners-Strata Plan No 50530 v Walter Construction Group Limited (in liq) [2007] NSWCA 124 Hodgson JA, having discussed the relevant authorities, made the following observations (at [24] and [25]) concerning the operation of s. 6 of the LRMPA: "(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 monies 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. [25] These propositions weigh against the following propositions bearing on the present case:
The Plaintiff's case against SB in respect of the fund loss 66Different issues arise in relation whether leave should be granted to the plaintiff pursuant to s. 6(4) to bring an action against ACE in respect of the fund loss. 67The plaintiff's causes of action against SB in respect of the fund loss are as follows: (i)breach of contract; (ii)breach of duty of care; and (iii)misleading and deceptive conduct.
Breach of contract by SB 68The plaintiff alleges that in preparing the first and second valuations SB breached an implied term of its contract which required it to use reasonable care and skill. 69The evidence before me establishes that the first valuation was dated 25 May 2005, and the second was dated 22 August 2005. 70Section 14(1) of the Limitation Act is in the following terms:
14 General (1) An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims: (a) a cause of action founded on contract (including quasi contract) not being a cause of action founded on a deed, (b) a cause of action founded on tort, including a cause of action for damages for breach of statutory duty, (c) a cause of action to enforce a recognizance, (d) a cause of action to recover money recoverable by virtue of an enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture. 71The plaintiff's cause of action against SB for breach of contract leading to the fund loss is alleged to have arisen out of the provision of the first and second valuations. That cause of action accrued at the date of the alleged breach. In the circumstances of the present case, any breach arising from the provision of the first valuation could not have occurred subsequent to 25 May 2005. Any breach arising from the provision of the second valuation could not have occurred subsequent to 22 August 2005. 72The present proceedings brought by the plaintiff against SB were commenced on 27 February 2012, a period of more than six years after the date on which any cause of action for breach of contract accrued to the plaintiff. In these circumstances it is my view that the plaintiff's action against SB for breach of contract in respect of the fund loss is statute barred. As such, the plaintiff has no arguable case against SB in that regard. 73I was referred in the course of argument to the decision of the Court of Appeal in Kinzett v McCourt (1999) 46 NSWLR 32. In my view, that does not assist the plaintiff in respect of this issue. In that case Spigelman CJ (with whom Priestley JA agreed) concluded (at [90]) that the statutory remedy under s. 6(4) is assimilated to a cause of action against an insured, so that: (i)ss. 14(1)(a) and 14(1)(b) of the Limitation Act apply to the proceedings; (ii)time commences to run at the same time as the cause of action in tort or contract accrues to the claimant against the insured; and (ii)time ceases to run under s. 14(1)(a) or s. 14(1)(b) of the Limitation Act when proceedings are brought against the insured or the insurer, whichever comes first. 74In reaching those conclusions his Honour observed (at [86]): "In circumstances where proceedings have in fact been commenced against the insured within time (either within the original period or as extended) then to permit the insurer to set up a limitation defence not in fact available to the insured is to fail to permit the charge to be enforced 'in the same way .... as if the action were an action to recover damages or compensation from the insured". 75The present is not a case in which ACE, as the insurer, is attempting to set up a limitation defence which is not available to SB as the insured. Moreover, this is not a case in which proceedings have been commenced against the insured within time. I should also note that although he found that it was not necessary to strictly decide the point, Spigelman CJ (at [112]) rejected a submission that it would have been open to the appellant in that case to proceed against the insurer even if its proceedings against the insured had been statute barred. 76For these reasons, leave should not be granted to the plaintiff pursuant to s. 6(4) to bring an action against ACE arising out of the plaintiff's cause of action for breach of contract against SB for the fund loss. 77Mr Lloyd made an alternative submission that the plaintiff's cause of action against SB for breach of contract in respect of the fund loss constituted an abuse of process. The basis of this submission was that this cause of action was the same as that previously brought by Huntley against SB, in respect of which Macready AsJ had assessed damages and entered judgment. 78The ASOC pleads that Huntley was the plaintiff's agent for all relevant purposes. The loss claimed by the plaintiff against SB for breach of contract is the fund loss, i.e. the very same loss for which judgment was entered in favour of Huntley in the proceedings it brought against SB. 79In my view, in these circumstances, there has been a final determination of the matter, such that the plaintiff's proposed cause of action against SB for breach of contract, even had the proceedings been commenced within time, would not have been not maintainable. Any cause of action the plaintiff might otherwise have had against SB for breach of contract in respect of the fund loss merged in the earlier judgment of Macready AsJ in the proceedings brought by Huntley (see Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502. 80These matters in my view provide a further basis upon which leave should be refused.
Breach of duty of care/misleading and deceptive conduct by SB 81The plaintiff also sues SB for breach of duty of care, and for misleading and deceptive conduct, in respect of the fund loss. 82I have already noted that it has been pleaded in the ASOC that Huntley was the plaintiff's agent for all relevant purposes. The proceedings brought by Huntley against SB were brought in Huntley's capacity as custodian of the fund and agent of the plaintiff. The loss sought to be claimed by the plaintiff in each of these two causes of action is precisely the same loss for which Macready AsJ has already found SB liable, and for which he entered judgment, namely the fund loss. It follows that in my view, the plaintiff's actions against SB for breach of duty of care and misleading and deceptive conduct are not arguable. 83For the same reasons as those previously expressed, leave should not be granted to the plaintiff pursuant to s. 6(4) to pursue an action against ACE in respect of these causes of action arising out of the fund loss.
Should ACE be joined pursuant to r 6.19? 84The remaining issue is whether or not the plaintiff should be permitted to join ACE pursuant to r 6.19 of the Rules so as to enable it to rely upon the provisions of s. 562 of the CA. There is no doubt that the court has power to grant leave to join ACE as a defendant under r 6.19 (see CGU Insurance Limited v Bazem Pty Limited [2011] NSWCA 81). In the exercise of the discretion to grant leave, it is relevant to consider whether the proposed joinder would serve any useful purpose or whether it would be futile (as to which see Interchase Corporation Ltd (in liq) v FAA Insurance Co Ltd [2000] 2 Qd R 301). 85I have already come to the conclusion that the three causes of action which the plaintiff seeks to bring against SB in respect of the fund loss are not arguable and that accordingly, leave under s. 6(4) should not be granted in respect of those matters. Accepting that such cases are not arguable there would, in my view, be no utility joining ACE pursuant to r 6.19 so as to allow the plaintiff to press a claim against ACE pursuant to s. 562 of the CA. 86It remains to consider whether or not the plaintiff's remaining causes of action against SB is respect of the Davron loss fall into the same category. Those causes of action are: i.a claim for contribution or indemnity pursuant to s. 5(1)(c) of the LRMPA; a claim for misleading and deceptive conduct pursuant to s. 52 of the Trade Practices Act; and a claim on the basis that the plaintiff and SB were under a coordinate liability.
The claim against SB pursuant to s. 5(1)(c) of the LRMPA in respect of the Davron loss 87Section 5(1)(c) of the LRMPA is in the following terms: Proceedings against and contribution between joint and several tortfeasors (1) Where damage is suffered by any person as a result of a tort (whether a crime or not): (a) ... (b) ... (c) any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tortfeasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by that person in respect of the liability in respect of which the contribution is sought. 88In order to succeed on this cause of action, the plaintiff must establish: (i)that it is a tortfeasor liable to the Davron plaintiffs; (ii)that SB is a joint or concurrent tortfeasor also liable to the Davron plaintiffs; and (iii)that both the plaintiff and SB were liable for the same loss and damage. 89The statement of claim filed by the Davron plaintiffs did not allege that in deciding to invest in the fund, those plaintiffs had relied upon anything said or done by SB, or by Sergiacomi in particular. 90Whilst a duty of care can be owed to a third party by a valuer, the class of persons to whom that duty of care is owed will normally be confined to those persons whose reliance on the information or advice was reasonable according to the circumstances as they become known (see Ta Ho Ma Pty Limited v Allen (1999) 47 NSWLR 1 at 5 per Giles JA). 91In Kestrel Holdings Pty Limited & Anor v APF Properties Pty Limited & Anor (2009) 260 ALR 418 the Full Court of the Federal Court of Australia made the following relevant observations at 439: "To determine whether a duty of care is owed by a valuer to a person that is not the valuer's direct client there may be conflicting tests propounded. ... In light of the approach of the High Court in Tepko Pty Limited v Waterboard (2001) 206 CLR 1 however, the statement of the law in Halsbury's Laws of Australia [340-1025] is probably more accurate: "A valuer may be liable in negligence to third parties who have suffered financial loss where the valuer knew or ought to have known [that those third parties] would rely on his or her valuation. Where a valuer knows or reasonably ought to have known that a third party would rely on his or her valuation, the valuer assumes responsibility for the valuation, sufficient to give rise to a duty of care in tort. Whether a valuer owes a duty of care to a third party will depend on whether it was reasonable in all the circumstances for the third party to rely on the valuation." 92The court went on to say (at 439): "Even where such reliance can be proved there is the further requirement that it be reasonable in all the circumstances for the claimant to so rely upon the valuation. For instance, as noted by Sheppard AJA in Ta Ho Ma Pty Limited v Allen (1999) 47 NSWLR 1 at [104]-[109] it would be unreasonable to hold a valuer liable for reliance upon a stale valuation." 93The court then observed (at 441): "Each case must be decided on its own facts. The lack of specific knowledge of the identity of APF does not of itself mean that no duty of care was owed to APF. The proposition to that effect inverts the appropriate inquiry. A duty of care arises where the valuer knew or ought to have known that the valuation would be acted upon in connection with some matter of business or serious consequence...". 94The plaintiff is required, for the purposes of the cause of action against SB pursuant to s. 5(1)(c) of the LRMPA, to establish that SB is a joint or concurrent tortfeasor liable to the Davron plaintiffs. In my view, in the absence of reliance by the Davron plaintiffs upon either or both of the first and second valuations, the plaintiff is not able to do so. In circumstances where the Davron plaintiffs did not plead that that they relied, or acted upon, either the first or the second valuation, I do not regard the cause of action pleaded by the plaintiff against SB under s. 5(1)(c) of the LRMPA in respect of the Davron loss as being one which is arguable.
The claim against SB under s 52 of the Trade Practices Act in respect of the Davron loss 95The plaintiff also pleads a cause of action against SB seeking contribution or indemnity in respect of the Davron loss, for misleading and deceptive conduct pursuant to s. 52 of the TPA. In the Davron proceedings, the Davron plaintiffs also sued the current plaintiff pursuant to s. 52. 96In Bourke v LFOT Pty Limited (2002) 209 CLR 282 McHugh JA at [43] ff concluded that where contribution or indemnity is sought under the TPA, a plaintiff must establish that the respective levels of liability are the same as between the plaintiff and the person from whom the contribution or indemnity is sought (in this case SB). In other words, in the context of the present case, the plaintiff must show that it and SB were on the same level of liability to the Davron plaintiffs. 97Having concluded that contribution will not lie simply because the respective liabilities of the parties might arise out of similar relationships or related transactions, his Honour observed (at [44]): "Similarly the doctrine will not apply if the obligations ..... are merely owed to the same party or are "otherwise connected in time or circumstance". Nor will it apply merely because the claimant's payment has benefited or relieved the other party financially...In examining the cases in which contribution had been permitted, Lord Halsbury LC described the common feature as being that "the liability of each of the persons held to be bound to contribute is assumed to exist either by contract or by some obligation binding them all to equality of payment or sacrifice in respect of that common obligation" (emphasis in original). 98It is not suggested that SB was aware that the plaintiff was making representations to potential investors (such as the Davron plaintiffs) to have them invest money in the fund. It was not pleaded by the Davron plaintiffs that SB made any representation to them at all. In these circumstances, it could not, in my view, be said that SB and the plaintiff are on the same level of liability. 99In these circumstances, it is my view that the plaintiff's cause of action against SB pursuant to s. 52 in respect of the Davron loss is not arguable.
The claim against SB based upon co-ordinate liability in respect of the Davron loss 100In my view, the observations I have made in relation to the claim under s. 52 of the TPA are equally applicable in this regard. It follows that in my view, there is no arguable cause of action which can be brought by the plaintiff against SB on the basis of any coordinate liability. 101In my view, the plaintiff's various causes of action against SB are, for the reasons I have outlined, not arguable. Accordingly, leave to join ACE pursuant to r 6.19 should be refused.
CONCLUSION 102For the forgoing reasons, I make the following orders: 1.The statement of claim is dismissed. 2.The plaintiff is to pay the second defendant's costs.
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: 06 February 2013
TPFL Limited (in liq)
SB Group Property Valuers and Consultants Pty Ltd
(2002) 209 CLR 282
(1997) 188 CLR 114
(1998) 45 NSWLR 283
(2009) 260 ALR 418
(1999) 46 NSWLR 32
(2003) 57 NSWLR 306
(1998) 194 CLR 355
(1988) 21 NSWLR 27
(1999) 47 NSWLR 1
(1992) 175 CLR 514
(1989) 21 NSWLR 27
(1994) 4 NTLR 43
(1991) 105 FLR 129
(1995) 141 ALR 506
(1997) 71 ALR 717
(2003) 57 NSWLR 305
(1987) 11 NSWLR 715
(1962) 112 CLR 125
(1988) 164 CLR 502
(2001) 206 CLR 1