Akron Roads Pty Ltd (in liq) v Crewe Sharp
[2015] VSC 34
•13 February 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2013 1736
| ROSS BLAKELEY as joint and several liquidators of AKRON ROADS PTY LTD (in liquidation) & ORS | Plaintiffs |
| v | |
| CREWE SHARP PTY LTD & ORS | Defendants |
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JUDGE: | JUDD J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 December 2014 |
DATE OF JUDGMENT: | 13 February 2015 |
CASE MAY BE CITED AS: | Akron Roads Pty Ltd (in liq) v Crewe Sharp & Ors |
MEDIUM NEUTRAL CITATION: | [2015] VSC 34 |
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PRACTICE AND PROCEDURE — Application by plaintiff for joinder of third party insurer — Supreme Court (General Civil Procedure) Rules 2005, r 9.06 — Whether true legal controversy.
CORPORATIONS — Proceeds of insurance — Corporations Act 2001 (Cth), s 562 — Application by liquidators to join insurer as defendant.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P D Crutchfield, one of Her Majesty’s Counsel with Dr O Bigos | King & Wood Mallesons |
| For the Defendants | Mr D J O’Callaghan, one of Her Majesty’s Counsel with Ms R L Enbom and Ms H A Tiplady | Norton Rose Fulbright |
HIS HONOUR:
This is an application by the liquidators of Akron Roads Pty Ltd, made by interlocutory process filed on 20 August 2014, that CGU Insurance Limited be joined as a defendant. Ross Blakeley, Michael Ryan and Quentin Olde were appointed as joint and several liquidators of Akron Roads on 1 March 2010. The liquidators are the first plaintiffs in this proceeding, commenced on 9 April 2013 against former directors, Trevor Paul Crewe, Robert Mark Sill, and John Martin Sill. They claim compensation for loss resulting from insolvent trading by Akron Roads. The claim is based on debts incurred in the sum of $14,657,189.05. Akron Roads is the second plaintiff. The plaintiffs also claim that the fourth defendant, Crewe Sharp Pty Ltd, a related corporation, was a shadow director of Akron Roads and failed to prevent it from trading whilst insolvent. The claims against the individual directors and shadow director allege contravention of s 588G of the Corporations Act 2001 (Cth).
On 20 June 2014, Crewe Sharp entered into a creditors voluntary liquidation. Gess Rambaldi and Andrew Yeo, of Pitcher Partners, were appointed liquidators. Consequently, the liquidators of Akron Roads seek leave pursuant to s 500(2) of the Act to proceed against Crewe Sharp in liquidation. That application is unopposed.
As a consequence of public examinations conducted by them, the liquidators became aware of policies of insurance, issued by CGU, under which Crewe Sharp and Trevor Crewe are insured. While there was some initial confusion about the identification of the precise policy, it was common ground that the terms of a professional indemnity policy exhibited to an affidavit of Mr Blakeley, sworn 19 August 2014, applied to both insured. Under the policy CGU agreed to:
indemnify the Insured up to the policy limit for any Civil Liability to any third party which is incurred by the Insured in the conduct of the Professional Services …[1]
[1]Emphasis added.
Under cl 12.2 of the policy, Civil Liability means:
Liability for the compensatory damages, costs and expenses which a civil court orders the Insured to pay on a Claim (as opposed to criminal liability or penalties). It includes the legal costs of the person making the Claim, for which the Insured becomes liable.
Under cl 12.13, Professional Services means:
The business of provision by the Insured of the Professional Services stated in the Schedule.
Item 3 in the Schedule provides that one such service is Management Consultancy.
In the proposed amended points of claim, for which the plaintiffs seek leave to serve on CGU if joined as a defendant, the plaintiffs allege that the liability of each of Trevor Crewe and Crewe Sharp to compensate the plaintiffs under s 588M of the Act, constitutes a Civil Liability to a third party which was incurred by the Insured in the conduct of the Professional Services, within the terms of the policy. They further allege that CGU has denied liability. The plaintiffs seek a declaration that CGU is liable to indemnify the Insured, up to the policy limit of $5 million, in respect of any judgment obtained against them in this proceeding.
In compliance with Practice Note No 10 of 2011, notice of the application was served on CGU, who initially advised, through its solicitors, that it consented to joinder. It now vigorously opposes the application.
Rule 9.06 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) provides:
At any stage of a proceeding the Court may order that—
(a)any person who is not a proper or necessary party, whether or not that person was one originally, cease to be a party;
(b)any of the following persons be added as a party, namely—
(i)a person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all questions in the proceeding are effectually and completely determined and adjudicated upon; or
(ii)a person between whom and any party to the proceeding there may exist a question arising out of, or relating to, or connected with, any claim in the proceeding which it is just and convenient to determine as between that person and that party as well as between the parties to the proceeding;
(c)a person to whom paragraph (b) applies be substituted for one to whom paragraph (a) applies.[2]
[2]Emphasis added.
The involvement of the putative defendant CGU has, at this stage of the proceedings, complicated the application. That is not to say that the Court was not assisted by submissions made on behalf of CGU. But a pre‑emptive strike by CGU may lack utility, and add to cost and delay, unless CGU is precluded from making a subsequent challenge to its participation in the proceeding on the same grounds. By choosing to mount its challenge on the hearing of the plaintiffs’ application to join it as a defendant, CGU may well have waived any forensic advantages otherwise available to it as a party served with an amended originating process and statement of claim, to apply to strike out the claim or for summary judgment.
The proposed claim to be brought by the plaintiffs against CGU is for a declaration that CGU must indemnify the insured for their liability to compensate Akron Roads for its claimed loss. A claim for indemnity by each insured had been made but was declined by letter dated 6 March 2014. The grounds upon which CGU denied liability are set out in some detail in the letter. In summary, CGU contended that the plaintiffs’ claim against the insured did not relate to the provision of the Professional Services contemplated by the policy, namely the provision of Management Consultancy services, and was expressly excluded under cl 6, which relevantly provides:
We do not provide Cover for any of the following Claims, (or losses or liabilities) or any associated costs:
…
6.5Refund of Professional Fees and Trading Debts Claims:
…
(d)arising from a liability to pay trade debts, or the repayment of any loan.
…
6.9Employers Liability, Directors & Officers Liability, Occupiers Liability, Motor, Marine, et cetera Claims:
…
(c)(If an Insured is either an incorporated body or a director or officer of an incorporated body), arising from any act, error or omission of a director or officer of that incorporated body while acting in that capacity; …
No insured has applied to join CGU as a party in the proceeding, or indicated any intention to challenge its denial of liability, although solicitors acting for Mr Crewe informed the plaintiffs:
We are instructed that our client, Mr Crewe, consents to the joinder of CGU as a party to the proceeding to the extent that he has an interest in the joinder. Our client disagrees with the denial of indemnity which was given by CGU in respect of the professional indemnity policy obtained by Crewe Sharp Pty Ltd prior to its liquidation. Our client considers that CGU’s denial of indemnity is incorrect and is agreeable to your clients’ joining and pursuing the claim against CGU.[3]
[3]Emphasis added.
The position of the liquidators of Crewe Sharp was unhelpful. They say that they are not aware of the action Crewe Sharp took in response to CGU’s denial of indemnity. In the absence of funding, they are not in a position to undertake investigations. Those liquidators informed the plaintiffs that they take no position in relation to their application to join CGU.
The plaintiffs contended that they have a sufficient interest in the determination of CGU’s liability to support their claim for a declaration, and thus joinder of CGU as a party, notwithstanding the fact that neither insured is an applicant for joinder, or presently intends to actively pursue a determination of that question. They contended that the liquidators’ right to the proceeds of insurance under s 562 of the Act provided a sufficient basis for joinder. Section 562 of the Act provides:
(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.
The plaintiffs contended that the courts have demonstrated a willingness to permit the litigation of similar claims by a third party against an insurer.[4]
[4]J N Taylor Holdings Ltd (in liquidation) v Bond (1993) 59 SASR 432; Ashmere Co Pty Ltd v Beekink (No 2) (2007) 244 ALR 534; Employers Reinsurance Corp v Ashmere Cove Pty Ltd (2008) 166 FCR 398; QBE Insurance (Aust) Ltd v Lois Nominees Pty Ltd [2012] WASCA 187; Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd (2009) 26 VR 148.
In Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd,[5] Vickery J undertook a helpful review of the authorities. In that case the plaintiff had brought a claim in negligence for damages against two firms of architects, neither of which was still in business. One of the firms was in the process of being wound up, and there was at least the prospect of the other being wound up. The plaintiff alleged that the insurer of the firms was at least potentially liable to indemnify them with respect to the plaintiff’s claim. The insurer had denied liability. The plaintiff applied for an order under r 9.06(b) that the insurer be added as a defendant.
[5](2009) 26 VR 148.
In Anjin, the status of the corporate insured was uncertain, although company searches indicated that the companies remained registered, although inactive. While the insured were parties to the proceeding, there was every indication that they would no longer defend the action. Their solicitors had also ceased to act. While a liquidator had not been appointed, winding up was all but inevitable. Vickery J held:[6]
… although s 562 of the Corporations Act confers no legal right on the applicant Anjin as against the insurer Allianz, it does create a priority right in the proceeds of any successful claim against the insurer in the event of a winding up where a liquidator is appointed. In my view, this avenue, although it does not confer a cause of action on Anjin as against the insurer, does give Anjin a very real interest in having the indemnity obligations of Allianz to the architect companies determined. For the purposes of seeking the declaratory relief sought by the plaintiff in this case, the existence of a cause of action is not strictly necessary, but a bona fide legal controversy is. An interest in achieving resolution of a s 562 priority claim may give rise to such a controversy.
By operation of that section, if a liquidator appointed to the architect companies were to obtain payment of moneys from the insurer following a judgment against them in the liability proceedings, those moneys would not be divisible among the creditors but would be payable to the plaintiffs. If this was to occur, it might be necessary for the plaintiff Anjin to make application to wind up the companies and appoint a liquidator. Upon provision of an appropriate indemnity as to costs, it may then institute and prosecute in the liquidator’s name an action against the insurer.
[6][2009] VSC 371, [74]–[75].
The basis upon which the claim against Mr Crewe was not assisted by reference to s 562 of the Act. The plaintiffs contended, however, that if successful in their claim against him, Mr Crewe would become bankrupt. In that case his trustee in bankruptcy would have similar rights.[7]
[7]Bankruptcy Act 1966 (Cth), s 117.
The case advanced by CGU, to resist the plaintiffs’ application, may be summarised as follows:
(1)Leave to join CGU as a party ought to be refused, because the proposed declaratory relief would not be granted. Courts may only make a final and binding adjudication with respect to justiciable controversies when private rights are involved. A court will only grant a declaration at the suit of a person entitled to assert that their right was infringed. As no claim is made by an insured against CGU under a policy of insurance, there is no justiciable controversy.
(2)The right of a liquidator to proceeds of insurance under s 562 of the Act did not have the effect of conferring on the liquidator a right of action against an insurer to enforce insurance policies. The interest of the liquidator in any proceeds of insurance is hypothetical and contingent upon an insured successfully enforcing its right.
(3)The possible bankruptcy of Mr Crewe, should the plaintiffs be successful in their claims against him, is also hypothetical and contingent.
(4)There is a clear conflict of relevant authorities, at an intermediate appellate court level, concerning the question of jurisdiction to grant declaratory relief in a case such as this.
(5)The Court had no jurisdiction under s 36 of the Supreme Court Act to grant the declaratory relief sought, or should decline to do so in the exercise of discretion.
(6)In any event, the terms of the policy of insurance exclude liability to each insured.
CGU approached the application for joinder as an opportunity to advance substantive defences, including discretionary considerations, as if at trial, or the trial of a separate question. One consequence of that approach was to create uncertainty about the test to be applied by the Court on the plaintiffs’ application. Ordinarily, an application for joinder under r 9.06 would require the Court to consider a range of discretionary considerations informing the justice and convenience of determining the related issue in the main proceeding. The approach taken by CGU would have the Court assess the merits of the various defences, but for what purpose? Is the Court to decide whether the proposed case against CGU is hopeless, beyond argument or bound to fail? Is the Court required to apply the test for summary judgment under the Civil Procedure Act 2010 — no real prospect of success?
The approach taken by CGU had the tendency to divert attention from discretionary considerations, which inform the application of r 9.06, in favour of an analysis of the merits. That is not to say that the legal and factual merits play no part in the exercise of discretion under r 9.06. The viability of the plaintiffs’ proposed claim may be an important consideration, when, for example, a threshold issue is readily amenable to assessment. Questions such as standing, identity and matters of statutory or contractual construction come to mind.
CGU relied on a paragraph from the judgment of Gaudron J in Truth About Motorways Pty Limited v Macquarie Infrastructure Investment Management Limited, in which her Honour said:[8]
There may be cases where, absent standing, there is no justiciable controversy. That may be because the court is not able to make a final and binding adjudication. To take a simple example, a court could not make a final and binding adjudication with respect to private rights other than at the suit of a person who claimed that his or her right was infringed. Or there may be no justiciable controversy because there is no relief that the court can give to enforce the right, duty or obligation in question.
[8](2000) HCA 11, [46]; 200 CLR 591, 611 [46]. Endnote omitted.
That case concerned the question whether there was a justiciable controversy between the applicant, who claimed no special interest in the construction of a toll road. The applicant contended that statements made in a prospectus issued by the respondent about anticipated traffic volumes were misleading and deceptive. In its defence, the respondent pleaded that the applicant had no standing to bring the proceeding. The respondent contended that insofar as ss 80 and 163A of the Trade Practices Act 1974 (Cth) conferred standing on the applicant, they were invalid. It contended that in the absence of a direct or special interest, there was no justiciable controversy with respect to which jurisdiction could be conferred or invested in a court under Ch III of the Constitution. In the preceding paragraph, her Honour said:[9]
Once it is accepted that neither the concept of “judicial power” nor the constitutional meaning of "matter" dictates that a person who institutes proceedings must have a direct or special interest in the subject‑matter of those proceedings, it follows as was pointed out in Bateman's Bay Local Aboriginal Land Council v Aboriginal Community Benefit Fund Pty Ltd that, for the purposes of Ch III of the Constitution, “questions of ‘standing’, when they arise, are subsumed within the constitutional requirement of a ‘matter’.” This does not mean that, for the purposes of Ch III, questions of standing are wholly irrelevant.
[9](2000) HCA 11, [45]; 200 CLR 591, 611 [45]. Endnote omitted.
In my opinion the passage from the judgment of Gaudron J, upon which CGU relied, does not stand for the proposition that the only person who may claim a right to adjudication of an obligation under a contract of insurance is the insured or insurer.[10] Her Honour did not purport to define the scope of rights that may give rise to a justiciable controversy, or jurisdiction to make a declaration.
[10]Such a proposition would seem inconsistent with Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107.
CGU also relied on a passage from the judgment of Ormiston JA in CE Heath Casualty & General Insurance Limited v Pyramid Building Society (in liquidation),[11] in which the Court of Appeal allowed an appeal against the orders of a trial judge granting leave to the respondent to join the insurers of defendant auditors in order to seek declarations as to the application of policies of insurance. The insurers had neither admitted nor denied liability to indemnify the auditors and declined to commit themselves to an interpretation of the policies. Tadgell and Ormiston JJA held that the insurers’ non‑committal response to an enquiry made on behalf of the building society did not give rise to real legal controversy, and the proceeding sought declarations by way of answers to questions which were hypothetical. Having so found, they also held that the liquidator of a possible creditor of an insured person was entitled to raise and seek declaratory relief in respect of the issue of the insurers’ liability to indemnify. But in the course of his Honour’s judgment, Ormiston JA said the following:[12]
Before dealing with that question I should state that I do not think that the mere fact that the disputant is the liquidator of a possible creditor of the insured can prevent that liquidator from raising the issue and seeking declaratory relief. I say that largely because that question has been raised and resolved in the J. N. Taylor case, from which leave to appeal to the High Court was refused. If the matter were not free from authority I confess I would have had the gravest doubt whether it was ordinarily appropriate to permit an outsider to seek from the court declaratory relief as to the meaning and effect of a contract between two parties who had not themselves raised any issue as to its meaning and effect and at least one of whom objected to the court's interfering in its private affairs. In substance I believe that was the conclusion reached by the English Court of Appeal in Meadows Indemnity Co. Ltd. v Insurance Corp. of Ireland Plc. [1989] 2 Lloyd's Rep. 298, albeit that that case depended in part on some observations of members of the House of Lords in Gouriet v Union of Post Office Workers [1978] A.C. 435. Perhaps the dicta in that case go too far and it may be conceded that it has been the subject of considerable criticism in Zamir and Woolf, The Declaratory Judgment, 2nd ed., (1986), esp. paras 3.012–6.
[11][1997] 2 VR 256.
[12][1997] 2 VR 256, 270. Emphasis added.
As Ormiston JA observed, the matter is not free from authority. It will also be observed from the reasons for judgment in CE Heath that a paramount consideration was the non‑existent dispute between insured and insurer. Ormiston JA was also of the opinion that joinder of the insurer might interfere with the orderly conduct of the proceeding, insofar as it required amended pleadings, pleadings from the added defendants and in all probability discovery. His Honour concluded:[13]
Despite the respondent’s arguments to the contrary there is a real risk that, by reason of the insurers’ having to defend an action in which the insured is a party, and in which the insured is to be added as a defendant to the claims for declaratory relief relating to the construction of the insurance policies, one could not expect joint representation to continue for the insured and insurers who would have conflicting interests at least in respect of the resolution of the claims for declaratory relief. That will cause great inconvenience at the present stage and it will also cause the defendants (including the appellants) considerable added expense in circumstances where the respondent is in liquidation and may be unable to bear the cost of two sets of representation throughout what is undoubtedly said to be a long and complex trial. More importantly it will have the effect of denying the appellant insurers their right under the policies to take over and defend a claim in circumstances where control of the defence of that claim may be of the greatest practical importance.
[13][1997] 2 VR 256, 270–1.
The ‘risk’ identified by Ormiston JA in CE Heath informs the exercise of the discretion to add a defendant under r 9.06. For reasons given below, the potential for prejudice to the insurers of the kind identified by Ormiston JA does not exist with the same force, if at all, in this case. If joined, the insurer will decide whether it is in its best interests to take over the conduct of the defences of Mr Crewe and Crewe Sharp.
CGU contended that any controversy with the insured, in respect of which the plaintiffs sought a declaration, was entirely hypothetical, and that the plaintiffs did not have a sufficient interest in the question of its liability to indemnify the insured under the contract of insurance to support a declaration. They relied on the following passage from the joint judgment of Mason CJ and Dawson, Toohey and Gaudron JJ in Ainsworth v Criminal Justice Commission:[14]
It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which “[i]t is neither possible nor desirable to fetter … by laying down rules as to the manner of its exercise.” However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have “a real interest” and relief will not be granted if the question “is purely hypothetical”, if relief is “claimed in relation to circumstances that [have] not occurred and might never happen” or if “the Court's declaration will produce no foreseeable consequences for the parties”.
[14](1992) 175 CLR 564, 581–2. Endnotes omitted.
CGU contended that the only justiciable controversy, under a private contract, is between the parties to the contract. In my view it would inhibit the discretion to import such a universal constraint on an application to join a party to a proceeding. It would be a rare case where circumstances relevant to the existence of jurisdiction and the exercise of discretion to make a declaration were all before the court on a joinder application. I would adopt, with respect, the useful summary of principles formulated by Lindsay J in The Owners‑Strata Plan 62658 v Mestrez Pty Ltd: [15]
[15][2012] NSWSC 1259, [54].
The reasoning underlying Anjin, and its antecedents, can be summarised as follows in an NSW context:
(a)When an insurer has denied indemnity, the insured can, uncontroversially, file a cross claim against it for the purpose of enforcing their contract.
(b)It would be an abuse of the processes of the court if a third-party Plaintiff, without a cause of action against the insurer, simply sought to join the insurer as a co-defendant with an insured defendant against which the Plaintiff had a cause of action.
(c)However, the interests of justice, and the convenient administration of justice, may authorise an order that an insurer be joined as a co-defendant with its insured, whether on the application of the third-party Plaintiff or otherwise, if:
(i)the insurer has denied liability to indemnify the insured against the Plaintiff’s claim.
(ii)there is a bona fide dispute as to the entitlement of the insurer to deny liability.
(iii)there is a substantial impediment (including insolvency on the part of the insured) standing in the way of the proceedings being conducted simply by the Plaintiff against the insured defendant, with a cross claim filed by the defendant against the insurer.
(vi)the dispute as to the liability or otherwise of the insurer to indemnify the insured defendant can properly be made the subject of a grant of declaratory relief pursuant to the Supreme Court Act 1970 (NSW), s 75.
(v)there is, in particular, a true legal controversy between the Plaintiff and the insurer such as would ensure that each of those parties might reasonably be relied upon by the court to serve as a contradictor for the other.
(vi)joinder of the insurer as a co-defendant with its insured might reasonably be relied upon to avoid a multiplicity of proceedings, and to enable all matters in controversy between the parties (namely, the Plaintiff, the insured and the insurer) to be completely and finally determined.
(d)A true legal controversy between the Plaintiff and the insurer may be taken to exist where, on the facts of the particular case, there is a realistic prospect of s 562 of the Corporations Act having scope for operation.
(e)A decision to allow joinder of the insurer as a co-defendant is one which is discretionary and fact-based, not available as of right.
These principles have been applied by Campbell J in the New South Wales Supreme Court[16] and Jacobson J in the Federal Court.[17]
[16]Belcastro v Gabriel Nakhl [2014] NSWSC 1305, [28].
[17]Austcorp Project No 20 Pty Ltd v LM Investment Management Ltd, in the matter of Bellpac Pty Ltd (recs and mgrs apptd) (in liq) [2013] FCA 883, [25].
CGU relied upon the decision of the Queensland Court of Appeal in Interchase Corporation Limited (in liq) v FAI General Insurance Company Limited.[18] The appellant, Interchase, had commenced a proceeding against an estate agent and employee in relation to a valuation of a commercial premises in Brisbane. Interchase claimed to have lost $60 million by reason of the employee’s negligent valuation. FAI was insurer of the estate agent. FAI had conducted the defence of the insured for some time, but after about two years declined indemnity. The insured did not object to the decision, and did not foreshadow a possibility of contesting it. Interchase sought to join FAI as an additional defendant to obtain a declaration that it was liable to indemnify the insured in respect of their liability to Interchase.
[18][1998] QCA 180; [2000] 2 Qd R 301.
McPherson JA explained the decision of the Full Court of the Supreme Court of South Australia in JN Taylor Holdings Limited (in liq) v Bond[19] by reference to the more expansive provisions of the Rules of Court in South Australia. His Honour said:[20]
[19](1993) 59 SASR 432.
[20][1998] QCA 180; [2000] 2 Qd R 301 at 315.
Plainly, a rule enabling a court to determine a question because it is ‘related to or connected with’ any relief claimed in the existing cause or matter may be capable of justifying the joinder like that sought in this instance.
The applicable Rules of this court adopt similar, expansive and distinguishing language. But his Honour continued:[21]
It is, however, difficult to see how it would effectively solve the problem discussed by Byrne J. in his reasons on this appeal of the binding effect (or lack of it) of the declaration which the plaintiff now wishes to claim against FAI, which is a question that was not explored in J.N. Taylor Holdings Ltd. v. Bond. The only justification for bringing a person before the court as a co-defendant is to ensure that that person is bound by the result of the action and adjudication: see Warner v. Twining (1876) 24 W.R. 536; Amon v. Raphael Tuck & Sons Ltd [1956] 1 Q.B. 357, 380; The Result [1958] P. 174, 182; and Watkins Limited v. Plancorp No. 6 Pty. Ltd [1983] 2 Qd. R. 501, 504. But joining FAI as a defendant will not create between it and the other defendants any issue with respect to which, it if is determined on the plaintiff’s proposed claim for a declaration, the defendants will all be bound. To achieve that, a counterclaim between defendants or a notice under O.17, r.9 would be needed: see The Normar [1968] P. 362, 372. There is no reason to suppose that any of them have it in mind to take such a step. Since under the O.3, r.11 that binding effect will, as the reasons of Byrne J. demonstrate, not be something that flows from adding FAI as co-defendant to the plaintiff’s proposed claim, I am not persuaded that the order made by the primary judge in this instance was correct.
I would only add that experience suggests that, far from serving the demands of convenience, the old Chancery practice of insisting on the joinder of all parties having any conceivable present, future or contingent interest in the outcome of litigation is not one that should be encouraged: cf. The Normar [1968] P. 362, 371, 373. Any lingering doubts on the topic may be removed by reading Stephen N. Subrin’s paper, “How Equity Conquered the Common Law”, in (1987) 135 U. Pennsylvania L. Rev 909, 979-1002. The question here is, however, not one of convenience, but of law; and, as to that, the application by the respondent plaintiff ought in my opinion not to have succeeded below.
I agree with the orders of Byrne J.
[21][1998] QCA 180; [2000] 2 Qd R 301 at 315. Emphasis added.
Byrne J delivered the leading judgment of the Court of Appeal in Interchase. His Honour concluded that the judge was influenced by matters of convenience, especially the prospect of savings in public and private resources.[22] Byrne J said:[23]
Interchase's object in joining FAI is to obtain a declaration concerning FAI's obligations to parties other than Interchase. What utility could attend such an adjudication? Interchase is not a party to the policy. The policy was procured for the protection of the insured, not for claimants against them like Interchase. Although Colliers and Tidbold may sue on the policy, Interchase has no entitlement under the general law or statute to enforce it. Of course, like every prospective judgment creditor, Interchase has a commercial interest in the capacity of judgment debtors to satisfy a money judgment. But the declaration sought - relief that relates exclusively to FAI's liability to Colliers and Tidbold - could not directly affect any property, legal right or obligation of Interchase. Nor could it effectively determine FAI's rights or duties. A judicial determination of the issues pertaining to Interchase's claim for declaratory relief cannot shut out FAI from litigating about them again, as, for example, should Interchase's damages claims succeed, in proceedings instigated by the liquidator or by Tidbold's trustee claiming indemnity. The order for joinder does proceed on a contrary assumption: viz. that a question as to the rights and duties of insurer and insured is concluded by a judgment on such issues between Interchase and one or other of the insured. This, however, is not the law.
As a result of the joinder, FAI, Colliers and Tidbold are co-defendants. But they are not adversaries. The insurer asserts, and both insured appear content to accept, that FAI was entitled to decline indemnity. Among them, there is no controversy. No procedural manoeuvre by Interchase can alter that state of affairs. Interchase's different claims against FAI and the insured - one for declaratory relief concerning the policy; the other for monetary compensation - do not involve competition for a fund or other property. And it has not been suggested that the prosecution of the action against insurer and insured could provoke one to try to prove a matter of fact or law adverse to the other in relation to Interchase's claims. So even if FAI remains, the litigation is destined to conclude without making adversaries of the defendants among themselves. In short, the rights of the co-defendants inter se will not be determined in Interchase's action.
[22][1998] QCA 180; [2000] 2 Qd R 301, 316 (Byrne J).
[23][1998] QCA 180; [2000] 2 Qd R 301, 317–18 (Byrne J).
CGU relied on Interchase to demonstrate a conflict of authority on the point. But how will that assist CGU on this application? If there is a conflict, it can be analysed in the usual way at trial and, if necessary, resolved on appeal.
CGU also relied upon the dissenting judgment of McLure P in the West Australian Court of Appeal in QBE Insurance (Aust) Ltd v Lois Nominees Pty Ltd.[24] The President referred to the following passage from the reasons for judgment of the Full Court of the Federal Court in Ashmere Cove:[25]
The reality is that the joinder of the Insurers, as directed by the primary Judge, will prove to be of practical utility. There are good reasons, explained by his Honour, for all the issues to be litigated in the one proceeding. The directions that have been made will facilitate the orderly, expeditious and just resolution of the justiciable controversy.
In substance, the effect of the joinder orders made by the primary Judge is no different to the situation involved in the everyday case of an insured joining its insurer as a third party (by whatever procedural means may be appropriate in the particular court). This enables issues of liability and assessment of damages or compensation, both as between claimant and insured and as between insured and insurer, to be heard and determined in the one proceeding. There are obvious benefits in terms of efficiency and economy. There is no reason in modern times why form should trump substance, where the interests of justice suggest that all related issues should be resolved in a single proceeding.
and continued: [26]
With the greatest respect, it is difficult to see how that is correct. There was no “lis” (in the sense of proceedings) between the insured and the insurers nor was there anything to indicate that the indemnity issues would be actively litigated between the co-defendants so as to bind them.
[24][2012] WASCA 186, [19]–[40].
[25](2008) 166 FCR 398, [73]–[74].
[26][2012] WASCA 186, [34].
Her Honour distinguished Ashmere Cove on the facts, but conceded there may be circumstances which justify declaratory relief in favour of a third party. The President said:[27]
Accepting that a third party can in appropriate circumstances obtain declaratory relief in respect of the private rights and duties of others, such occasions are likely to be very rare.
The obiter of McLure P does not assist CGU on this application.
[27][2012] WASCA 186, [40].
I am not persuaded that there was a clear conflict of relevant authorities about the jurisdiction to grant interlocutory relief in a case such as this. But even so, that is no reason to refuse the application provided the fact circumstances justify the exercise of discretion under the Rules.
A substantial part of CGU’s case to resist joinder was devoted to supporting its denial of liability under the policy. CGU contended that the claim against the insured did not relate to the provision of Professional Services and thus was not covered under the policy. The plaintiffs characterised the conduct of the defendants as involving the provision of Management Consultancy services, because the services of Mr Crewe were provided by Crewe Sharp, which charged fees for those services. In my opinion the characterisation of the conduct is plainly a matter for trial.
Next, CGU contended that the claim against the insured was excluded under cl 6.9(c) of the policy, which provides:
(c)(if an Insured is either an incorporated body/or a director or officer of an incorporated body) arising from any act, error or omission of a director or officer of that incorporated body while acting in that capacity; …[28]
[28]Emphasis added.
CGU contended that the exclusion clause invited the following questions:
(a) Is Crewe Sharp an incorporated body or a director of an incorporated body?
(b) Is Mr Crewe an incorporated body or a director of an incorporated body?
If the answer to both questions is yes, CGU contended that the exclusion applied because the plaintiffs’ case against the insured arose from an act, error or omission of a director of Akron Roads.
The plaintiffs contended that their claim against Mr Crewe arose from his conduct as a director of Akron Roads, not in his capacity as a director of Crewe Sharp. They argued that on its proper construction, cl 6.9(c) only excluded conduct of Mr Crewe as a director of Crewe Sharp while acting in that capacity. The plaintiffs contended that the relevant ‘incorporated body’ for the purpose of cl 6.9(c) was Crewe Sharp, not Akron Roads. Clause 6.9(c) will, at trial, invite some debate about the identity of that incorporated body. If the purpose of cl 6.9(c) is to exclude liability for any conduct by an insured, such as Mr Crewe, in his capacity as a director or officer of any corporation, a claim by him may not be covered under cl 6 of the policy. But insofar as the position of Crewe Sharp is concerned, it is arguable that, while its liability as an employer may be excluded, the conduct complained of by the plaintiffs does not arise from any act, error or omission of a director or officer of Crewe Sharp, but of Crewe Sharp’s role as a director of Akron Roads. Once again, this is a matter for trial.
CGU further contended that its liability is excluded under cl 6.5(d) of the policy which provides:
Refund of Professional Fees and Trading Debts claims:
…
(d)arising from a liability to pay trading debts, trade debts or the repayment of any loan.
The simple point advanced by CGU was that the plaintiffs’ claim is to recover trading or trade debts that were wrongfully incurred. The plaintiffs contended that the trading debts or trade debts mentioned in cl 6.5(d), on a proper construction, were those of an insured. Furthermore, an insolvent trading claim under s 588N(2) of the Act is a claim for compensation to benefit the creditors of the insolvent company, and does not involve or relate to the discharge of trade debts. The application of cl 6.5(d), to exclude liability, is a matter for trial.
CGU also challenged the proposed pleading insofar as the plaintiffs sought to rely upon an extended definition of director in s 9 of the Act to include Crewe Sharp. CGU argued that the particular matters pleaded in support of the claim were misconceived or insufficient. Furthermore, the plaintiffs had not pleaded that Crewe Sharp had the power to manage the company. CGU also complained that the plaintiffs had not pleaded, as they were required, a pattern of behaviour in which the board did not exercise any discretion or judgement of its own, but acted in accordance with the directions of Crewe Sharp. While conceding that the status of Crewe Sharp as a shadow director was a question of fact, CGU contended that on the facts alleged in the proposed amended points of claim, it must fail.
In response, the plaintiffs contended that the facts pleaded were sufficient to support the claim, and resolution of the issue was a matter for trial. In oral submissions, the plaintiffs offered further particulars, stating that they would contend that ‘Crewe Sharp was running the show’. CGU’s complaint about the pleading, while understandable in context, was premature. It seems likely that the pleading will undergo some modification before it is served. I am not persuaded that the application for joinder should be refused on the basis of the complaint concerning the adequacy of the pleading or particularisation of the allegation that Crewe Sharp was a director of Akron Roads.
I am persuaded that there is a proper basis under r 9.06(b)(ii) to join CGU as a defendant. The proposed case to be advanced by the plaintiffs is not hopeless, or bound to fail. Nor is it fanciful, without any reasonable prospect of success.
Claims have been made by the insured under the policy. Liability has been denied. Mr Crewe consents to the joinder of CGU as a party to a proceeding in which he is defendant. There will be a contest between CGU and the liquidator concerning CGU’s liability to indemnify the insured. Mr Crewe is a central participant in the proceeding. In contrast to the assumption made by the Court of Appeal in Interchase, CGU accepted that it would not be open to CGU and Mr Crewe to re‑litigate the question of liability under the policy in different proceedings.
The liquidators of Crewe Sharp have no funds. That company is a defendant and central participant in the proceeding. If CGU is joined as a defendant, the liquidators must decide whether they will actively participate in the controversy between CGU and the plaintiffs. They, too, may be bound by the outcome, unable to re‑litigate any issue concerning CGU’s liability in another proceeding.
It is unlikely that the joinder of CGU as a defendant will be prejudicial to the efficient and cost‑effective management of the trial, or extend the duration of the proceeding by any disproportionate amount of time. It is possible that as a defendant, CGU may choose to shoulder some or all of the burden of Crewe Sharp and Mr Crewe in defending the allegations against them. That is for CGU to decide. As presently framed, the live issues at trial are likely to be confined to whether the directors failed to prevent the relevant debts being incurred. The trial is expected to last days, not weeks. Were it otherwise, it might have been appropriate to consider an earlier determination of the insurer’s liability to indemnify, although such a course would fragment the proceeding.
The claim by the plaintiffs, that CGU is bound to indemnify the insured, arises out of, or relates to, or is connected with their claim against the insured as defendants. The plaintiffs have a sufficient interest in the proceeds of insurance to provide them with standing to apply for declaratory relief. Furthermore, by reason of s 562 of the Act, and the duty of liquidators to creditors of Akron Roads, there is a justiciable dispute consequent upon CGU’s denial of liability under the policy. The limited scope of the issues at trial, the likely duration and the important role that CGU may play as a party in the resolution of issues between the plaintiffs and the insured, makes it just and convenient that the dispute between the plaintiffs and CGU be resolved at the same time, and in the same proceeding, as the dispute between the plaintiffs and the insured. Such an approach is also consistent with the overarching purpose under the Civil Procedure Act 2010.
The application for leave to proceed against Crewe Sharp in liquidation is unopposed. It is appropriate that leave be granted on the usual condition that no order or judgment against Crewe Sharp be enforced without having first obtained the leave of the Court.
I will make the following orders:
(1)Pursuant to s 500(2) of the Corporations Act 2001 (Cth) the plaintiffs have leave to continue this proceeding against Crewe Sharp Pty Ltd (in liquidation) on condition that no order or judgment against be enforced without having first obtained the leave of the Court.
(2)CGU Insurance Limited (ACN 004 478 371) be joined as the fifth defendant pursuant to r 9.06(b) of the Supreme Court (General Civil Procedure) Rules 2005, and the title of the proceeding be amended accordingly.
(3)The plaintiffs have leave to file and serve an amended statement of claim substantially in the form exhibited to the affidavit of Ross Andrew Blakely sworn 19 August 2014.
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