American Home Assurance Company v JN Taylor Holdings Limited (In Liquidation)

[1993] HCATrans 251

•

.

'4'

•

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A4 of 1993

B e t w e e n -

AMERICAN HOME ASSURANCE COMPANY

Applicant

and

J.N. TAYLOR HOLDINGS LIMITED

(IN LIQUIDATION) and J.N.

TAYLOR FINANCE PTY LTD (IN

LIQUIDATION)

Respondents

Office of the Registry

Adelaide ~o All of 1993

B e t w e e n -

AMERICAN HOME ASSURANCE COMPANY

Applicant

and

J.N. TAYLOR HOLDINGS LIMITED

(IN LIQUIDATION) and J.N.

TAYLOR FINANCE PTY LTD (IN

LIQUIDATION)

Respondents

Applications for special leave

to appeal

American 1 26/8/93

DAWSON J TOOHEY J McHUGH J

TRANSCRIPT OF PROCEEDINGS

FROM ADELAIDE BY VIDEO LINK TO CANBERRA

ON THURSDAY, 26 AUGUST 1993, AT 10.25 AM

Copyright in the High Court of Australia

MR D.J. BLEBY, QC:  May it please the Court, I appear with

my learned friend, MR S.G. CONNELL, in both

matters, for the applicant. (instructed by

Thomsons)

MR T.A. GRAY, OC:  I appear with my learned friend,

MR M.C.J. HOFFMAN, for the respondents.

(instructed by Fisher Jeffries)

MR BLEBY:  Your Honours, the issue in this case is

relatively simple but, in our submission,

potentially far reaching. What the plaintiffs in

the action seek is not a declaration of their

rights against anyone else, nor a declaration as to

someone else's rights against them, but a

declaration of rights - - -

DAWSON J:  May I stop you for a minute, Mr Bleby, there are

actually two matters here, are there not?

MR BLEBY:  There are, Your Honour. The issues are the same

in both - - -

DAWSON J:  And, there is no reason why they should not be

heard together?

MR BLEBY: Certainly not.

DAWSON J: Very well, Mr Bleby.

MR BLEBY:  What the plaintiffs in the action, in our

submission, are seeking is a declaration of the

rights of two other parties, where those two

parties do not seek to have their rights

determined or ascertained and may never wish to do

American 26/8/93

so. Do Your Honours have a copy of the outline

which was submitted by us in this case?

DAWSON J: Yes, we do.

MR BLEBYAm:  The case concerns, in our submission, whether a

stranger to a contract can require other people to

litigate their problems, and we have stated the

question in paragraph 1 of the outline with an

alternative formulation in paragraph 2. The

formulation in paragraph 2 really goes to a

question of standing and we stress, in this case,

the apparent commercial interest only of the

plaintiffs in that the insurance fund is the most

likely source of funds to satisfy any judgment they

may obtain, we concede that, but we also stress

that the, not the certainty, but the possibility

only of the litigation, and that there may never be

a claim, of course, pressed by the directors under

this policy. Indeed, it is significant here that

none of the defendants - none of the three

defendants - have sought to join the insurer as a

third party to the action. In which case, of

course, the issue would be quite different.

We submit that the matter is of importance to

the insurance industry generally. It removes the

right of the insured to choose whether he will, or

will not, seek indemnity. He may deliberately

refrain from doing so because he is aware of some

clear policy breaches, for example. Instead, the

stranger to the policy makes that decision as to

whether those issues should be litigated, and the

question really arises as to whether that stranger

should be allowed to do so. If the judgment

stands, in our submission, it means that the

insurer can be joined in any case, and in that

matter the insurer must either then make a decision

to submit to a declaration so he can conduct the insured's defence, or will require separate, and

perhaps costly, representation separately from the

insured where there is any risk that the

proceedings may reveal a policy breach on which the

insurer could rely, and where the insurer would not

wish to submit to a premature declaration on the

question of the insurer's liability.

TOOHEY J:  Mr Bleby, you appear to put the matter in terms

of jurisdiction; I am not sure that I understand

how the question of the Court's jurisdiction as a

..... to its powers or the exercise of its

discretion arises here.

MR BLEBY:  Your Honour, we do not necessarily put it as a

question of jurisdiction. Indeed, we address that

in paragraph 7 of the outline.

American 3 26/8/93

TOOHEY J: Well, except that paragraph 1 of the outline says

that the question is whether the Court has

jurisdiction.

MR BLEBY:	Or may properly exercise its discretion -
TOOHEY J:	Or may, yes.  Now, are we to take it that you are

not pressing an argument that there is no

jurisdiction in the court to make the sort of order

that was made here?

MR BLEBY:  No, we do not wish to raise that question

although we observe in paragraph 7.1, Your Honours,

that it may be a matter in which the Court does

express a view if the appeal is eventually heard. of jurisdiction, or a question of power. We do not

wish to air that issue, necessarily.

TOOHEY J: Well, it is a fairly important distinction, is it

not. If you are talking of jurisdiction and there

is no jurisdiction, that would be the end of the

matter; if you are speaking of power, then
questions arise as to the Court's discretion in the

matter; the sort of procedural questions that were

canvassed in the judgment of the Full Court.	You
are in another area of discourse, are you not?

MR BLEBY: Well, on the one hand, if it is tackled as a

question of jurisdiction, obviously that is a

matter of some importance. It can also be

approached though on the basis that although it

might be a question of discretion, this is one of

the areas where it would in no circumstances amount
to a proper exercise of discretion to allow that

issue to be litigated at the instance of a third

party. Now, we do not mind in which ever way it is

put, and I concede the possibility of putting both

those in the alternative if the appeal were to be

heard.

TOOHEY J: I am sorry; I do not really follow that. If

there is no jurisdiction to do what the court did,

that is the end of the matter. There is no

question of discretion or exercise of power arises.

It is only if there is jurisdiction that the

question of power, the procedural implications of

what was done fall for consideration.

MR BLEBY: That is so. If there is no jurisdiction,

Your Honour is perfectly correct. If there is

jurisdiction, let us say in a general sense, to

grant a declaration in the terms sought, the

question then arises whether it could ever be a

proper exercise of the discretion to allow that

question to be litigated at the instance of a third

party. I suppose one is getting involved in

American 26/8/93

questions of definition of jurisdiction in a way.

We are not suggesting that the Court does not have

jurisdiction to make a declaration. Indeed, in the

terms that are sought in the prayer for relief the

question is whether it has jurisdiction to do so at

the instance of a third party, or whether if it

does have that jurisdiction to do so, whether it is

ever a proper exercise of the discretion.

If I can just return to where I was, and the question of importance to the insurance industry.

I have already mentioned, I think, the forcing of

the issue, as it were, to the insurer to have to

decide whether he is going to submit to a

declaration, perhaps prematurely. There is also

the question of whether such a procedure can be used for tactical purposes for the plaintiff to

obtain discovery of a policy, for example, which

might not otherwise be discoverable in the

principal litigation.

Indeed, the decision of the Full Court, I am

instructed, has been recently used for that very

purpose in a decision handed down a few days ago by a single judge of the court in a non-insurance case

where there was a question arising as to the

indemnity of the defendant by a third party, and

discovery was sought of those indemnity documents,

based on the decision in this case, without even

the parties having been joined.

It goes further though, in our submission, and

it is of some importance to litigation generally,

especially where the plaintiff perceives that his

only chance of recovery is dependent upon the success of other litigation between two other

parties. One can give, for example, the case of a

subcontractor who sues a shipbuilder, for example,

for damages for breach of contract or for money due

under the contract. The builder says, "I cannot

pay because the owner has not paid me". The owner

will not pay because he alleges that there is

defective work by the subcontractor. Can the
subcontractor, independently or in the proceedings

against the builder, join the owner for the

declaration as to the builder's liability or the

owner's liability to the builder?

One can vary the example slightly by saying

that the owner will not pay because of some factor

not connected with the subcontractor or his work.

McHUGH J: But this case tends to be a rather special case,

does it not? The matters which seem to have

influenced the Full Court to exercise discretion

was that any subsequent litigation would be

lengthy, costly and complex; that issues would have

American 26/8/93

to be relitigated because there would be no

res judicata and, taking avoidance of multiplicity of actions as the touchstone, it was a proper case

to exercise the discretion.

MR BLEBY: That, with respect, Your Honour, was a question

of the joinder. What we are tackling on this

application for leave is whether it is proper, or

whether the Court has jurisdiction to grant the

commenced separate proceedings against the insurer,

remedy at all on the application of some other

person. It may be in quite separate proceedings.

perhaps arranged to have had them joined with the
principal litigation at some stage, or he could

have sued the insurer at first instance when the

application was first issued, or the writ was first

issued.

McHUGH J: Well, I would the judgment as going to cover

cases like that.

MR BLEBY:  In that case, in our respectful submission, what

Your Honour was addressing there was the question

surrounding the application perhaps of rule 27, and

we do not suggest that that is a matter of

significance in this case. What we would seek to

concentrate on is the ability of the Court to make

the declaration on the application, in effect, of a

stranger.

McHUGH J: They were all bound up together in this case,

were they not?

MR BLEBY:	I am sorry, who is bound up?
McHUGH J:	To questions of joinder and the exercise of the declaratory jurisdiction were closely tied up
together.

MR BLEBY:  Our submission is that they should be considered separately. Once the Court takes the step of

deciding that it can make the declaration on such
an application by a third party, then a question

may arise as to whether it should be dealt with in the same proceedings or whether it should be dealt

with in other proceedings. We do not want to

complicate this appeal with that sort of issue.

But the sort of situation we are dealing with is an

application - whether it be in the principal

proceedings or in separate proceedings does not matter - of one person saying, "I would like to have those issues litigated because for some

commercial reason it would suit me to do so, even

though I have no interests in a legal sense in

having those issues determined. I have no rights

to be determined under that contract", or, "I'm not

American 6 26/8/93

a party to the commission of any tort between the

defendant on the one hand and a third party on the

other, but I have certainly a commercial interest

in ensuring that the defendant recover - - -"

McHUGH J:  You seek to divide it up. I must say it is the

first time it has occurred to me, in reading the

materials, that this case had anything to do with

that sort of situation. I would have thought that

the whole case was very much concerned with its own

facts. You have got a case where the plaintiff has

sued the former directors of the plaintiff for

breach of duties. One director is bankrupt, the

other directors apparently have not been served.

MR BLEBY:	They have been served; they have been actively participating in the litigations.
McHUGH J:	Have they? But the trustee of the bankrupt's

estate is prepared to assign the bankrupt's rights

against the insurer if the insurer would consent,
but the insurer will not. The Court takes the view
that there is very little prospect of the plaintiff

recovering damages from the directors if the

plaintiff gets a verdict and that the trustee or

the creditor might in certain events be entitled to

bring action against your client. In that

situation the court thought that your liability

under the policy should be determined in these one

set of proceedings.

MR BLEBY:  It is open, of course, to the trustee or the

directors to claim or bring proceedings under the

policy at any time.

McHUGH J:	Of course it is.
MR BLEBY:	They may have very good reasons for not doing so.

McHUGH J: They are probably financial.

MR BLEBY:  There may be other reasons too. They may well be

aware of breaches of policy which, on their view at

least, think it is not worthwhile to claim.

McHUGH J: But supposing at the end of the day the plaintiff

gets a verdict against the directors and cannot enforce it. Then they have got to go along the

long road of attempting to enforce your liability

to the bankrupt directors.

DAWSON J:  ..... the same matters over again.

MCHUGH J: So, in that situation, why can the Court not say

a proper exercise in discretion requires that these

matters be all heard together in the one action,

American 7 26/8/93

and that all findings bind the insurer as well as

the plaintiff and defendants - directors?

MR BLEBY:  In an action which the parties to that action may

wish never to have litigated, in which there will

be, quite clearly, other issues as well - the
issues are not identical - some of the factual
issues may determine some issues that might arise
if the litigation were pressed between the insured
and the insurer. Looking at the matter as a matter

of broader principle, there could well be

situations where the same principle can be applied

to determine quite different litigation where there

may or may ~ot be factual connections.

TOOHEY J: But what is being challenged, Mr Bleby, is the

order of the Full Court authorizing the joinder of

your client. That is the order that is being

challenged on the application for special leave to

appeal. Is that not right?

MR BLEBY: That is in the first application, Your Honour.

The second application was an application to strike

out the statement of claim that was filed against

the insurer having been joined.

TOOHEY J: Yes, but that is, as it were, consequent upon the

first order, is it not?

MR BLEBY:  Yes, but the question of joinder need not arise in that matter. The question - that second matter

raises the issue as to whether there can be pleaded

against the insurer the remedy for the declaration

that is sought.

McHUGH J: But joinder is necessary in this case, is it not,

so that you can get findings of fact that would be

binding on all parties. If the actions are merely

heard together the findings would not be binding,

there would be no res judicata, they would be

separate actions.

MR BLEBY: That is so in this case as the Full Court

perceived it, Your Honour, in some issues. But of
course, the matter may never - as between the

insured and the insurer - even reach those issues.

McHUGH J:  But that is what Mr Justice Toohey was putting to

you.

TOOHEY J:  And the Full Court foresaw this possibility

because they said, in effect, "Well, if the insurer

claims not to be bound to indemnify under the

policy, that can be tried as a preliminary issue

and if it is found in favour of the insurer, well

then, the insurer is discharged from the suit."

That is said at the foot of page 39 and top of

American 26/8/93

page 40. So it is not an inevitable consequence of

the order made by the court that your client is

hoisted with a long and expensive trial.

MR BLEBY:  It may, or may not be, Your Honour, we do not

know.

TOOHEY J: Well, exactly. It is because we do not know that

it is much in the realm of the exercise of the

discretion of the Court.

MR BLEBY:  I concede the question of joinder is very much in the discretion of the Court. The question as to

whether there is power to make the declaration at

the instance of that party is not, in our

submission, and is a discrete question.

It raises the question as to the extent to

which, in our submission - where there have been

parliamentary incursions into the area, and section 51 of the Insurance Contracts Act, the

circumstances under which a stranger may sue on the

policy - that it would be for Parliament to say, in

those circumstances, that a stranger can apply for

a declaration to the same effect. In effect, it is

judicial legislation where Parliament has plainly

intervened. The New South Wales Parliament has

done much the same in different circumstances by

virtue of section 6 of its Law Reform and

Miscellaneous Provisions Act, where there was a

statutory charge created.

It is our submission that if there is to be

that sort of intervention allowed at the instance

of third parties, that should be a matter for
Parliament rather than the courts.

There are also, in our submission, questions of the wider interests of the administration of

justice. There is a general principle raised of

the intermeddling in other people's litigation or

potential litigation. On the one hand there is the

question of the principle of the convenience of

resolving factual disputes in a manner binding on

all parties, as Your Honours have pointed out, who

might have an interest in proceedings, against, on

the other hand, the proliferation, in our

submission, of litigation just in case the pot of

gold may become become inaccessible, and the

complication of that same litigation by extraneous

questions as between the two parties concerned,

such as in this case, breach of policy conditions,

and also the forcing of reluctant third parties to

participate in long and complex litigation whose

liability to one of the parties may turn on issues

remote from the main proceedings.

American 26/8/93

It is our submission that the use of such

procedure is there as a possible means of
accidentally obtaining discovery of documents to
aid the principal litigation which otherwise would
not have been available. There is a question of

the use of the declaration as an indirect means of

achieving what cannot be achieved directly because

of motions of privity and so on, and its ultimate

use, in our submission, as a stepping stone to

perhaps direct recovery in favour of a third party

against an insurer.

We cannot point to any case, and I doubt whether my learned friend can point to any case,

where the declaration in these circumstances has

been used, where the rights of the applicant for
the declaration, or the enjoyment of his property,

have not been affected in some way by the granting,

or the refusal to grant, the declaration, and there

are no such rights affected here.

We do deal with what might be seen to be

complicating factors in paragraph 7 of the outline,

Your Honours. We do not see those as being any

barriers to the grant of special leave. My friend may well rely on section 117 of the Bankruptcy Act

in the case of a bankrupt director. Our submission

is that that is immaterial, because it can only

operate after the liability against the insured has been incurred, or in respect of any moneys received

by the trustee, and if there is an.issue between

the trustee and the creditors as to whether the

trustee should join the insurer in proceedings as

the third party, there are other means of resolving

those issues. And, of course, section 117 cannot

be relevant to the non-bankrupt directors who are

just ordinary individuals and who are participating

in the litigation.

As I say, the question of joinder, the

discretion under rule 27, does not really arise as

a point of issue. That comes second as to whether

the two should be heard together once the principal issue of whether or not the declaration can be made

at all has been resolved. Those are our

submissions, if the Court pleases, in favour of the

application.

DAWSON J: Thank you, Mr Bleby. The Court need not trouble

you, Mr Gray.

The Court is reluctant to grant special leave

in proceedings which are at an interlocutory stage,

but in this case it is not, in any event, persuaded

that there is sufficient doubt about the

correctness of the Full Court's decision in the

American 10 26/8/93

first matter to warrant granting special leave to
appeal. It follows that special leave to appeal in

the second matter should be refused.

Accordingly, special leave to appeal from the

judgment of the Full Court in the first matter and
from the judgment of Mr Justice Debelle in the

second matter is refused.

MR GRAY:	May it please the Court, an application is made
for costs in regard to both matters.
DAWSON J:	Yes. Mr Bleby, do you say anything as to that?
MR BLEBY:	I cannot resist that, if Your Honours please.
DAWSON J:	The applications are refused in each matter with

costs.

AT 10.48 THE MATTER WAS ADJOURNED SINE DIE

American 11 26/8/93