Tzaidas v Child & Ors

1. The separate questions are answered "No", "Yes" and "Yes" respectively. DECISION : 2. Leave is granted to the first and third defendants to file the amended cross-claims dated 16 July 2008. 3. The notices of motion filed on 14 April 2008 by the fourth defendant are dismissed. I direct the parties to bring in short minutes in each proceeding to reflect those orders. I will hear the parties as to costs.

Corporations Act 2001 (Cth) LEGISLATION CITED : Insurance Contracts Act 1984 (Cth) Law Reform (Miscellaneous Provisions) Act 1946 Uniform Civil Procedure Rules 2005

Almario v Allianz Australia Workers Compensation (NSW) Insurance Ltd [2005] NSWCA 19; (2005) 62 NSWLR 148 ASIC v Marlborough Gold Mines Ltd [1993] HCA 13; (1993) 177 CLR 485 Bitumen and Oil Refineries (Aust) Ltd v Commissioner for Government Transport [1955] HCA 1; (1955) 92 CLR 200 Brambles Constructions Pty Ltd v Helmers [1966] HCA 3; (1966) 114 CLR 213 Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 CLR 1 CASES CITED : Gett v Tabet [2009] NSWCA 76 National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400 Orica v CGU Insurance [2003] NSWCA 331; (2003) 59 NSWLR 14 Suncorp Metway Insurance Ltd v Clonmel Pty Ltd [2000] QSC 135; (2000) 2 Qd R 94 The Owners-Strata Plan 50530 v Walter Construction Group Ltd (In liquidation) [2007] NSWCA 124 Tzaidas v Child & Ors [2004] NSWCA 252; (2004) 61 NSWLR 18

Con Tzaidas (Plaintiff (20445/01)) Vickie Tzaidas (Plaintiff (20448/01)) George Tzaidas BHT Vickie Tzaidas (Plaintiff (20444/01)) PARTIES : Robert Peter Child (1st Defendant/3rd Cross-Claimant to 3rd Cross-Claim/1st Cross-Defendant to 4th Cross-Claim) Hurstville Community Co-operative Hospital Limited (2nd Defendant) Charles M Scarf (3rd Defendant; Cross-Claimant to 1st & 2nd Cross-Claims/2nd Cross-Defendant to 4th Cross-Claim) CGU Insurance Limited (4th Defendant; Cross-Defendant to 1st & 2nd Cross-Claims/Cross-Defendant to 3rd & 4th Cross-Claims)

FILE NUMBER(S) : SC 20444/01; 20448/01; 20445/01

COUNSEL : Mr P H Greenwood SC / Ms K Burke (CGU Insurance Limited) Mr J E Marshall SC / Mr M J O'Meara (Charles M Scarf/Robert Peter Child)

SOLICITORS : Colin Biggers & Paisley (CGU Insurance Limited) Blake Dawson (Charles M Scarf/Robert Peter Child)

• 15 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION McCALLUM J

20445/01 GEORGE TZAIDAS BHT VICKIE TZAIDAS v CHILD & ORS 20448/01 VICKIE TZAIDAS v CHILD & ORS 20444/01 CON TZAIDAS v CHILD & ORS JUDGMENT

1 HER HONOUR: These proceedings raise a number of issues as to the proper construction of s 601AG of the Corporations Act 2001 (Cth), which allows a person to recover an amount from the insurer of a company that has been deregistered, as if the insurer were the deregistered company, provided certain requirements are met. The particular issues raised concern the application of that section to a claim for contribution made between joint tortfeasors before the establishment of any primary liability to the plaintiff.

Circumstances in which the issues arise 2 George Tzaidas was born at the Hurstville Community Co-operative Hospital on 16 November 1996. During the first week after his birth, he exhibited symptoms of becoming pale and inactive, vomiting and fitting. Medical evidence suggests that he had suffered an intra-cranial haemorrhage during childbirth. That condition is not always problematic in itself, but was complicated in his case by the fact that he was also born with haemophilia. It is claimed that he suffered severe brain damage and impaired vision as a result of negligence on the part of the hospital and two doctors in failing to diagnose his condition and to provide appropriate treatment during that time. 3 The three proceedings before the Court are the claims of George Tzaidas and his mother and father in respect of those events. Each proceeding was commenced in May 2001, initially against the two doctors and the hospital. In July 2002, the plaintiffs sought to join the hospital's insurer, CGU Insurance Limited, as a defendant by seeking leave to commence proceedings against it pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946. That provision enables a person to enforce a charge on insurance moneys arising under s 6(1) of the Act in respect of a relevant contract of insurance. 4 The plaintiffs' applications against CGU were based on the existence of a contract of insurance for professional indemnity between the hospital and CGU that incepted on 30 June 1999. The policy was a "claims made" policy. No claim had in fact been made on the hospital during the period of insurance. The plaintiffs relied on a deeming clause in the policy that enlarged its cover. The success of that argument turned on the application of s 54 of the Insurance Contracts Act 1984 (Cth). Grove J considered himself bound by appellate authority to hold against the plaintiffs on that issue and refused the applications. That decision was overturned on appeal and leave was granted to the plaintiffs to commence proceedings against CGU: Tzaidas v Child & Ors [2004] NSWCA 252; (2004) 61 NSWLR 18. 5 The decision of the Court of Appeal was given on 27 July 2004. On 24 May 2005, the hospital was deregistered. That raised the potential application of s 601AG of the Corporations Act. At that time, however, the plaintiffs had been granted leave to pursue a remedy under s 6 of the Law Reform (Miscellaneous Provisions) Act that appeared to be good in law and there was accordingly no occasion to consider the application of s 601AG. 6 On 27 May 2005, which was after the deregistration of the hospital, one of the doctors filed a cross-claim against the hospital (but not against CGU) as a joint tortfeasor seeking contribution or indemnity pursuant to s 5 of the Law Reform (Miscellaneous Provisions) Act. On 19 May 2006, both doctors filed cross-claims against the hospital and against CGU as joint tortfeasors seeking contribution under that section. 7 On 4 June 2007 the Court of Appeal gave its decision in The Owners-Strata Plan 50530 v Walter Construction Group Ltd (In liquidation) [2007] NSWCA 124 which held, in effect, that no charge arises under s 6(1) of the Act where the policy in question was not in existence at the time of the events giving rise to the claim. That principle appears to apply in the present case. Any negligence in relation to the events following the birth of George Tzaidas was in 1996, while the contract of insurance with CGU relied on by the plaintiffs incepted in 1999. There had been no earlier contract of insurance between the hospital and CGU. Accordingly, although CGU expressly disavowed reliance on those matters when the Court of Appeal granted leave to the plaintiffs under s 6(4) to commence proceedings against CGU (noted at [14] per Giles JA), it is doubtful whether leave would have been granted had the appeal been heard after the decision in The Owners-Strata Plan 50530. 8 On 14 April 2008 CGU filed motions seeking declaratory relief directed to the principle in The Owners-Strata Plan 50530 and orders striking out the doctors' cross-claims. The doctors then sought leave to amend their cross-claims against CGU to include a claim under s 601AG of the Corporations Act. The doctors contend that they are entitled, under that section, to recover directly from CGU insurance moneys payable by it to the hospital in respect of the doctors' claims for contribution under s 5 of the Law Reform (Miscellaneous Provisions) Act. The amended cross-claims have been filed without prejudice to the rights of CGU to contend that leave to amend should not be granted.

Issues raised by the present applications 9 The present applications initially came before me framed as CGU's applications to have the doctors' cross claims struck out and the doctors' applications for leave to amend those claims to include the claim under s 601AG. 10 Section 601AG provides: "A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if: (a) the company had a liability to the person; and (b) the insurance contract covered that liability immediately before deregistration." 11 The section creates a new cause of action against an insurer to recover an amount that was payable to the deregistered company under the relevant insurance contract: Almario v Allianz Australia Workers Compensation (NSW) Insurance Ltd [2005] NSWCA 19; (2005) 62 NSWLR 148 at [19]. As noted in Almario, a claim in terms of the section is subject to two conditions, namely, proof of the matters set out in subsections (a) and (b). CGU contends that neither condition is met in the present case and, accordingly, that leave to amend should not be granted. CGU further contends that, following the decision in The Owners-Strata Plan 50530, the doctors' existing cross-claims against CGU should be struck out. 12 The first condition under s 601AG requires the doctors to establish that the hospital "had a liability" to them within the meaning of s 601AG(a). The doctors' application for leave to amend their cross-claims required them to establish only that there was an arguable case on that issue. However, during the hearing of the applications before me, the parties agreed that the questions raised in respect of that issue should more appropriately be determined on a final basis as separate questions pursuant to rule 28.2 of the Uniform Civil Procedure Rules 2005. 13 Accordingly, at the conclusion of the hearing, I made an order by consent in each of the proceedings that the following questions (formulated by the parties) be determined separately from any other question before further trial of the proceedings: "(1) Noting that the plaintiff commenced these proceedings against, inter alia, the doctors before the hospital was deregistered, does the fact that the plaintiff had not obtained judgment against the doctors prior to the deregistration of the hospital mean that the doctors cannot recover on their cross claims against CGU pursuant to s601AG of the Corporations Act 2001? (2) In order for the doctors to recover pursuant to s601AG of the Corporations Act, must they, when seeking to satisfy the requirement in s601AG(a), establish that the hospital had a liability to them immediately before deregistration of the hospital? (3) If at a final hearing it is established that the hospital and the doctors are tortfeasors each liable to the plaintiff and are entitled to recover contribution from each other, then will those findings establish that the hospital "had a liability" to the doctors immediately before deregistration within the meaning of s601AG(a) of the Corporations Act 2001?" 14 The second condition under s 601AG requires the doctors to establish that, if there was a liability within the meaning of s 601AG(a), the insurance policy covered that liability immediately before deregistration of the hospital: s 601AG(b). CGU contends that the relevant insurance contract did not cover any liability of the hospital to the doctors immediately before deregistration because, according to the terms of the policy, CGU undertook to indemnify the hospital only in respect of claims in respect of which the hospital became "legally liable". CGU contends that the hospital cannot be legally liable to the doctors within the meaning of that clause until any such liability is determined in these proceedings and, accordingly, that the insurance policy did not cover any relevant liability immediately before deregistration of the hospital. 15 Alternatively, CGU contends that the claims against the hospital fall within an exclusion clause in the policy and were accordingly not covered by the policy immediately before deregistration. 16 The two issues raised in respect of the second condition specified under s 601AG(b) have not been ordered to be determined separately on a final basis but are relied on only as grounds on which leave to amend to include the claim under s 601AG should be refused. Accordingly, the test to be applied in determining those issues is whether the doctors have an arguable case.

Consideration of the separate questions: whether the doctors can establish that the hospital "had a liability" 17 CGU's argument begins with the undisputed proposition that the cause of action relied upon by the doctors against the hospital for contribution pursuant to s 5 of the Law Reform (Miscellaneous Provisions) Act does not accrue until judgment has been obtained against the doctors by the plaintiffs: Bitumen and Oil Refineries (Aust) Ltd v Commissioner for Government Transport [1955] HCA 1; (1955) 92 CLR 200 at 212; Brambles Constructions Pty Ltd v Helmers [1966] HCA 3; (1966) 114 CLR 213 at 221. 18 CGU contends that, since no primary liability has yet been established by the plaintiffs against either the doctors or the hospital, it follows that the hospital cannot have "had a liability" to the doctors (within the meaning of s 601AG(a)) immediately before its deregistration. The argument makes two implicit assumptions. First, it assumes that exposure to a legal claim cannot fall within the meaning of the term "liability" as used in this context unless the relevant cause of action has accrued. Mr Marshall, who appeared with Mr O'Meara for the doctors observed, however, that the notion of a liability is not coextensive with a cause of action. "Liability" is a more ambiguous term: Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 CLR 1 per McHugh J at [147]. 19 Secondly, CGU's argument assumes that a liability does not exist until it is determined. It was acknowledged that the term "liability" is not universally construed in that sense, and takes its precise meaning from its context: see generally Crimmins at [134] - [147]. CGU submitted, however, that in the context of s 601AG, "liability" means a liability that was determinate or crystallised before deregistration of the company in question. 20 That contention is supported by the decision of the Queensland Supreme Court in Suncorp Metway Insurance Ltd v Clonmel Pty Ltd [2000] QSC 135; (2000) 2 Qd R 94. The facts in that case were not relevantly distinguishable from those in the present case. Muir J held at [21] that any liability of the insured company arising under the equivalent of s 5 of the Law Reform (Miscellaneous Provisions) Act had not come into existence at the time of the company's deregistration and, accordingly, that the joint tortfeasor's claim against the insurer under s 601AG could not succeed. His Honour refused leave to deliver a proposed third party notice on that basis.

Departure from the decision in Suncorp Metway 21 The doctors contend that the decision in Suncorp Metway is wrong and should not be followed. They acknowledge the principle that a single judge should not depart from the considered judgment of another single judge as to the proper interpretation to be placed on uniform national legislation (such as s 601AG) unless he or she forms the view that the previous decision is "plainly wrong": ASIC v Marlborough Gold Mines Ltd [1993] HCA 13; (1993) 177 CLR 485 at 492.8. 22 The Court of Appeal has recently considered what is required to engage that principle: Gett v Tabet [2009] NSWCA 76 from [274]. The Court stated at [283] that the term "plainly wrong" does not limit departure from earlier decisions to cases in which error is "patent or obvious or easily perceived. Rather they bespeak the quality of the error or the level of conviction of error that must be perceived." 23 A threshold question, however, is to determine the proposition for which the earlier judgment stands as authority in the relevant sense. 24 In Suncorp Metway, the Court's brief analysis of s 601AG focussed only on the fact that its provisions are couched in the past tense. There is no discussion in the judgment as to the meaning of the term "liability" in that section and, in particular, whether it includes a potential, contingent or inchoate liability. Further, there is no discussion of the notion that the liability of a tortfeasor includes his liability to make contribution to a joint tortfeasor. The judgment assumes, without developing the proposition, that what is required to be established is a liability that had been determined before deregistration. There is nothing in the Court's reasons to suggest that any submissions were directed to that issue and the proposition appears to have been assumed, without the benefit of argument. Further, the Court does not appear to have been taken to the decision of the High Court in Crimmins, which had been published 6 months earlier. Accordingly, I do not think that the principle stated in Marlborough requires me to adhere to the outcome in Suncorp Metway in those circumstances. 25 If Suncorp Metway does stand as authority for the proposition that the term "liability" in s 601AG is confined to a liability that was ascertained, crystallised or determinate immediately before deregistration, I am of the view, with great respect to Muir J, that the decision is wrong so as to warrant my declining to follow it.

26 The critical issue in the present case is the resolution of the conceptual difficulty that arises due to the fact that the statutory cause of action under s 601AG requires proof of the existence of a liability at a particular point in time (that is, "immediately before deregistration"). 27 CGU's submissions hold that what is required in a claim under s 601AG is proof of a liability the existence of which had been determined immediately before deregistration. The doctors contend that it is sufficient if the determination that a liability existed immediately before deregistration is made at the hearing of the claim under s 601AG. 28 Mr Marshall submitted that support for the analysis contended for on behalf of the doctors may be found in the decision of the Court of Appeal in National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400. In that case, the Court rejected the proposition that the term "liability" within the meaning of s 6 of the Law Reform (Miscellaneous Provisions) Act does not include a claim for contribution or indemnity under s 5 of that Act: at 405-408A per Glass JA, Moffitt P and Samuels JA agreeing. 29 Glass JA acknowledged (at 406D) that early decisions in respect of the liability of one tortfeasor to contribute to the damages payable by another emphasised the difference between a proceeding for contribution and an action for damages. His Honour noted, however, that later decisions tended to treat the liability to contribute as an aspect of the tortfeasor's overall liability for damages. His Honour referred with approval (at 407B) to the doctrinal conception: "that the liability of the wrongdoer should be treated as a comprehensive term which includes not only his primary liability to the injured party but also his secondary liability to other tortfeasors."

30 Mr Greenwood, who appeared with Ms Burke for CGU, submitted that the decision in National Mutual does not assist. He submitted that the question of construction with which Glass JA was concerned in that case was the extent of the contractual liability of the insurer to indemnify the insured. In my view, however, it is clear that his Honour's remarks set out above embrace the question whether the statutory description "liability to pay any damages" in s 6(1) of the Law Reform (Miscellaneous Provisions) Act extends to include a tortfeasor's liability to pay a contribution to another tortfeasor: 407G-408A. Accordingly I accept, as submitted by Mr Marshall, that there is a strong analogy between the proposition rejected by the Court of Appeal in National Mutual and the proposition now contended for on behalf of CGU. The clear words of the section 31 It was further submitted on behalf of CGU that a potential liability to be determined in the future does not fall within the ordinary meaning of the words in s 601AG. CGU contended that the use of the past tense throughout the section indicates that Parliament intended to provide for a limited application of the section, namely, where a liability existed that was determinate or "crystallised". 32 Mr Greenwood submitted, with some force, that alternative words could easily have been used if a more expansive approach was intended. He provided a form of words which he submitted would have been used if the legislature had intended the result contended for by the doctors, as follows (including his emphasis): "A person may recover from the insurer of a company that is deregistered an amount that was or would have been payable to the company under the insurance contract, if: (a) the company had a liability to the person or if a liability to the person by the company is established at some time in the future ; and (b) the insurance contract covered or would have covered that liability immediately before deregistration." 33 In my view, the suggested alternative wording merely serves to highlight the conceptual difficulty that sometimes arises when Parliament creates a statutory cause of action for recovery of an amount from an insurer by a stranger to the contract of insurance. I accept that clearer words might have been used in s 601AG, which might have obviated the present dispute. I do not, however, accept that the section clearly refers only to a liability that was determinate or crystallised immediately before deregistration of the company in question. 34 In my view, the apparent complexity of s 601AG is resolved in the recognition of the following matters. The section is remedial. It creates a new cause of action to recover an amount that was payable to the deregistered company under the relevant insurance contract: Almario at [19]. There is no requirement for leave to bring an action under the section: cf s 6(4) of the Law Reform (Miscellaneous Provisions) Act. In particular, the conditions set out in s 601AG(a) and s 601AG(b) 601AG are not expressed as pre-conditions to the commencement of proceedings to recover an amount under that section. Rather, proof of those matters is expressed as a condition of recovery in accordance with the section. 35 Accepting that a claim for recovery under the section is a discrete statutory cause of action (not a claim for damages), the central inquiry is to understand the content of the elements of such a claim. The first element required to be proved is that the (now deregistered) company "had a liability" to the claimant. Once it is accepted, as recognised by the Court of Appeal in National Mutual, that the liability of one tortfeasor includes his "secondary liability" to contribute to the damages payable by another, it is clear in my view that what is required under s 601AG(a) is to prove, at the time of the hearing, that the deregistered company was a joint tortfeasor immediately before deregistration. Conclusions as to the separate questions 36 It follows, in my view, that the fact that the plaintiffs had not obtained judgment against the doctors prior to the deregistration of the hospital does not preclude the doctors from recovering on their cross claims against CGU pursuant to s 601AG of the Corporations Act. 37 The second separate question raises the issue whether, in order to satisfy the requirement in s 601AG(a), the doctors must establish that the hospital had a liability to them immediately before deregistration of the hospital. That issue arises because the words "immediately before deregistration" appear only at the conclusion of s 601AG(b), raising an issue as to whether those words also qualify the condition set out in s 601AG(a). Mr Marshall accepted that the decision of the Court of Appeal in Almario determines that question, requiring me to hold that, in order for the doctors to recover pursuant to s 601AG, they must establish that the hospital had a liability to them immediately before deregistration of the hospital. 38 As to the third question, I accept, as submitted by Mr Marshall, that if it is established at a final hearing that the hospital and the doctors are tortfeasors each liable to the plaintiff and are entitled to recover contribution from each other, those findings will establish that the hospital "had a liability" to the doctors immediately before deregistration within the meaning of s 601AG(a). 39 It follows that the separate questions must be answered "No", "Yes" and "Yes" respectively.

Whether the insurance contract covered the liability immediately before deregistration 40 The second condition under s 601AG requires the doctors to establish that, if there was a liability within the meaning of s 601AG(a), the insurance policy covered that liability immediately before deregistration of the hospital: s 601AG(b). 41 CGU submits that the doctors are unable to meet that condition and relies on that submission as an additional basis for opposing the doctors' application for leave to amend their cross-claims. Mr Greenwood acknowledged that the test to be applied in determining that issue is whether the doctors have an arguable case. 42 The policy of insurance held by the hospital provided indemnity (in clause 1.1) against: "any Claims including all legal costs and expenses for which the Insured shall become legally liable to the Claimant [sic] up to but not exceeding in the aggregate for all Claims under this Policy, the Total Sum Insured being a Claim: (1) made against the Insured during the Period of Insurance; and (2) as soon as reasonably practicable, notified in writing to Pacific Indemnity by the Insured during the Period of Insurance; and (3) arising from any actual or alleged act , error, omission or conduct wherever the same occurred subsequent to the Retroactive Date specified in Item 6.4 of the Schedule." 43 CGU submits that the phrase "which the insured shall become legally liable" refers to amounts for which the hospital's liability has been established by judgment, award or settlement. It relied on the decision of Orica v CGU Insurance where Spigelman CJ found that the words "shall become" in that context suggest a process of establishing liability: [2003] NSWCA 331; (2003) 59 NSWLR 14 at [67]. CGU contended, accordingly, that the insurance policy did not cover any liability of the hospital immediately before deregistration. 44 The doctors submit that to construe s 601AG(b) in that way would leave the section little or no work to do. It was contended on their behalf that the requirement of s 601AG(b) is not that "the insurer was obliged to pay that liability immediately before deregistration". Rather, the question is whether the insurance policy "covered" the liability. The doctors submitted that the phrase "covered the liability" requires them to establish no more than that the scope of the policy extended to the risk that had manifested in the particular case. 45 In my view, that accords with the ordinary meaning of that phrase. The doctors cited the example of an insurance policy which insures against loss caused by fire, which may be said to have "covered" the insured against that risk whether or not any fire in fact occurred during the relevant period. Similarly, the owner of a motor vehicle is "covered" by his compulsory third party policy before and after any accident and even if there is no accident. 46 For present purposes, it is sufficient to indicate that, in my view, it is reasonably arguable that, if the hospital is found to have had a liability to the doctors and the doctors establish that the policy, properly interpreted, responds to that liability, the doctors will have shown that the policy "covered that liability" immediately before deregistration of the hospital. 47 CGU submitted, alternatively, that the doctors are unable to meet the condition in s 601AG(b) because the plaintiffs' claims against the hospital fall within an exclusion clause in the insurance contract. During the hearing of the applications, however, Mr Greenwood acknowledged that the issues surrounding the exclusion clause raise questions of fact that will have to be determined at the trial. Accordingly, I am not satisfied that it is appropriate to refuse leave to amend the cross-claims on that basis.

Orders 48 For those reasons, I am satisfied that it is appropriate to grant leave to the doctors to amend the cross claims. I make the following orders:

1. The separate questions are answered "No", "Yes" and "Yes" respectively.

2. Leave is granted to the first and third defendants to file the amended cross-claims dated 16 July 2008.

3. The notices of motion filed on 14 April 2008 by the fourth defendant are dismissed. 49 I direct the parties to bring in short minutes in each proceeding to reflect those orders. I will hear the parties as to costs. **********

02/06/2009 - Incorrect spelling of plaintiff's name recorded on coversheet - Paragraph(s) coversheet

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.