Cadoroll Pty Ltd v Allegra Corp Ltd

[1999] FCA 1063

FEDERAL COURT OF AUSTRALIA

Cadoroll Pty Ltd v Allegra Corp Ltd [1999] FCA 1063

PRACTICE AND PROCEDURE – motion seeking leave to join insurers – limitation and liability issues in respect of substantive case – also coverage of insurance policy – arguable case on all issues – whether complex matters are capable of final decision in a summary interlocutory proceeding

Law Reform (Miscellaneous Provisions) Act 1946 (NSW)
Trade Practices Act 1974 (Cth)
Fair Trading Act 1987 (NSW)

Halford v Price [1960] 105 CLR 23
Darlington Futures Ltd v Delco Australia Pty Ltd [1986] 161 CLR 500
Wardley Australia & Anor v Western Australia [1992] 175 CLR 514
Kinzett v McCourt [1999] ANZ InsCas 61-427
Grimson v Aviation & General (Underwriting) Agents Pty Ltd [1991] 25 NSWLR 422
NSW Medical Defence Union Limited v Crawford [1993] 31 NSWLR 469
Gilmore v AMP General Insurance Co Ltd [1996] 67 SASR 387

CADOROLL PTY LIMITED & ORS V ALLEGRA CORPORATION LTD & ORS
AG 29 OF 1992

THE HON JUSTICE MARCUS EINFELD AO
SYDNEY
5 AUGUST 1999

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	AG 29 OF 1992

BETWEEN:	CADOROLL PTY LIMITED & ORS Applicants
AND:	ALLEGRA CORPORATION LIMITED & ORS Respondents
JUDGE:	THE HON JUSTICE MARCUS EINFELD AO
DATE OF ORDER:	5 AUGUST 1999
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.the applicants have leave to commence proceedings against C.E. Heath Casualty & General Insurance Limited and AMP Fire & General Insurance Co Ltd

2.costs of the amended application for leave be reserved

3.there be liberty to apply on 3 days notice

THE COURT DIRECTS THAT:

4.the parties bring in short minutes of directions for the incorporation of the two new respondents into the pre-trial preparation by not later than 4 pm on Tuesday 10 August 1999

Note:    Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	AG 29 OF 1992

BETWEEN:	CADOROLL PTY LIMITED & ORS Applicants
AND:	ALLEGRA CORPORATION LIMITED & ORS Respondents

JUDGE:	THE HON JUSTICE MARCUS EINFELD AO
DATE:	5 AUGUST 1999
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introduction

1. On 2 September 1998, I delivered judgment on motions filed by the applicants in this matter and two others with almost identical facts.  One motion sought leave to file a ‘new’ statement of claim.  Leave was granted with reservations permitting the respondents to argue at trial that any or all claims are statute barred.  A second motion which sought leave to proceed against two bankruptcies was adjourned until a later time.  That dispute has since been resolved.  A third motion which sought leave to join certain professional indemnity insurers was also adjourned to await the insurers’ decision as to whether the relevant indemnity was in issue.  The decision was not to indemnify in this particular action.

2. The earlier judgment set out the extraordinary history of these matters, which were commenced in May, June and July 1992, and I shall not repeat it now. All that needs to be said, for the present is that instead of resuming the previous motion for leave to join the insurers, the applicants filed a new motion to do so in October 1998, pursuant to section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). For a variety of reasons, the hearing of the motion took the parties some time to complete and has only recently been concluded. A judgment is now required as a matter of some urgency because the hearing of the action itself is due to commence on 6 September 1999. I shall therefore have to content myself with a brief statement of my reasons for allowing the motion and granting the leave sought. If necessary, further reasons will be given in the judgment on the action itself.

   Criteria for leave to join

3. A party seeking leave to join insurers is required to demonstrate an arguable case against the insured and doubt that a judgment against the insured party will, for reasons of impecuniosity, be recoverable.  It is common ground or not disputed in this matter that the fourth respondent, Mr Sinclair, is, on the evidence thus far, unlikely to be able to satisfy a judgment in favour of the applicants.  As to the case in substance, the insurers say that the applicants’ claims are all statute barred and that Mr Sinclair is not indemnified under the insurance policy.  They formally submitted also that the claims will fail on the merits.  In the earlier judgment I left to the trial the whole question as to whether any part of the claim was statute barred, as I understood is required by the statement of Mason CJ, Dawson, Gaudron and McHugh JJ in Wardley Australia & Anor v Western Australia [1992] 175 CLR 514 at 533 that, except in the clearest of cases, limitation questions of this kind should not be decided until the hearing of evidence at the trial has been concluded.

4. This case is certainly not “the clearest of cases”.  Indeed the insurers have constructed a most complex argument as to when the time bar commences to run based on an interesting variety of views expressed on this subject by the New South Wales Court of Appeal to which this Court is yet to give close attention.  The argument is principally between three viewpoints:

   1.   that the insurer has only any Limitation Act defence which is possessed by the insured : NSW Medical Defence Union Limited v Crawford [1993] 31 NSWLR 469

   2.   that time runs from the time leave for joinder is or would be granted : Grimson v Aviation & General (Underwriting) Agents Pty Ltd [1991] 25 NSWLR 422

   3.   that time runs against an insurer from the time the cause of action accrues to the party claiming from the insured and ceases to run when the proceedings are brought against the insured : Kinzett v McCourt [1999] 10 ANZ Ins Cas 61-427 , a decision of a 5 judge bench.

5. These arguments only need to be stated to reveal why this submission of the insurers cannot be upheld now.  Quite apart from questions of binding precedent within the Supreme Court, none of these decisions are binding on this Court.  Even though one is likely to be influential, it is not a matter that could or should be decided by a single Judge in an interlocutory proceeding.  Moreover, for the reasons given in the earlier judgment, it is simply not possible to decide the matter now because the evidence has not been taken and the facts have not been found on any of the matters at the fount of each viewpoint.  These matters will be decided at the trial.

   Coverage by the insurance policy

6. The policy in question provided what it calls Accountants’ Professional Indemnity Insurance and insured the third respondent company and the fourth respondent firm (together called in the policy the “assured firm”) in respect of claims made “by reason of any act error or omission or breach of contract between the insured firm and its clients in or about the conduct of any professional business conducted by or on behalf of the insured firm …” (cl I).  It provided that “[t]he words ‘professional business’ are understood to apply to advice given or services performed of whatsoever nature undertaken by or on behalf of the insured firm provided always that any fee occurring for such work shall inure to the benefit of the insured firm, or alternatively if work is done without fee, that such work is undertaken in the name or on behalf of the insured firm”.  Evidence is required to prove each element of these provisions if the policy is to operate.  There is certainly sufficient to establish that it may be applicable to the circumstances of this case.  The policy says that the term ‘ “insured firm” or “partner” or “partners” are respectively (my emphasis) understood to mean also where applicable “company” “director” “directors” “shareholder” “shareholders” ’.  It is at least arguable that this clause means that the “insured firm” included a company and “partner” includes a director and shareholder the company.

7. Clause III of the policy provides for exclusions from the indemnity in respect of claims made:

   (a)by or on behalf of any person named in [the policy] as a co-insured

   (b)by or on behalf of any person operated or controlled by the insured firm or by any partners … of the insured firm … and in which the insured firm or any of its partners or any member of their respective families has a direct or indirect financial interest

   (c)by any person advised or induced by the insured firm or partners … of the insured firm … to invest in or lend money to any person … referred to in the previous sub-clause or to any person names as the insured firm under [the policy]

   (d)…

   (e)arising out of the provision by the insured firm of any advice, inducement, recommendation, endorsement or opinion regarding the investment of any … capital … in an investment facility or service in which the insured firm … or any of its partners … has a direct or indirect control or financial interest

   “Financial interest” is defined as excluding “any financial interest of less than 10% of the insured capital in a company or less than 10% of the value of any other enterprise”.

   The business of the parties

8. A partnership agreement entered into between a number of parties, including the applicants and the third and fourth respondents, defined the object of the partnership as, inter alia, “the business of investing in thoroughbred bloodstock … and racing and breeding thoroughbred bloodstock …”.  The insurers argued on the motion for joinder that the partnership agreement constituted “an investment facility or service” within clause III(e).  They submitted that the policy means that the third respondent company and the fourth respondent firm are one insured and not, as the applicants contended, separately insured or co-insureds under a composite policy for their separate insurable interests.  The insurers contended further that the extended definitions given to “the insured firm” and “the partners” means that these terms are interchangeable with “companies” and therefore that the third respondent’s involvement in the partnership gave it a direct financial interest.  The exclusion clause thus operated, they said, to remove the arguability of any claim against the insurers.

9. This argument appears to give no weight to the word “respectively” which at least may create an ambiguity about who is actually insured.  If so, it is open for the applicants to argue that the clause should be construed contra proferentum : Halford v Price [1960] 105 CLR 23 at 34; Darlington Futures Ltd v Delco Australia Pty Ltd [1986] 161 CLR 500. See also Gilmore v AMP General Insurance Co Ltd [1996] 67 SASR 387. Accordingly, as the argument would then presumably go, although the third respondent had a relevant financial interest, the fourth respondent firm did not. Moreover, the third respondent’s interest may have been held in its own right, not as trustee for the fourth respondent firm’s service trust. It would be the unitholders of the trust who then held the financial interest not the individual fourth respondents as shareholders of the third respondent.

   Conclusions

10. In my opinion, these disputes are not capable of final decision in this summary interlocutory proceeding.  The matter is complex and requires evidence and full argument, based on the evidence, as to the construction of the policy, the partnership agreement and the relevant trust deeds.  No doubt the difficulty of the matter is one of the reasons why indemnity under the policy and the insurers’ attitude to joinder have changed during the long and tortured course of this litigation.  I am not yet even persuaded that the breeding partnership was “an investment facility or service” despite the use of the word “invest” in the partnership agreement.  It may have been but on the limited evidence I have, it is by no means unarguable that it is not.  This situation does not bespeak a summary decision to exclude the insurers whose policy contains at best problematic and confusing language : eg “advised or induced … to invest in … any person”; “advice given or services performed … undertaken by or on behalf of the insured firm …”; and the extended definitions of “insured firm” and “partner” or “partners”, including the meaning of the word “respectively”, to which I referred earlier, and whose earlier undertaking to indemnify has been belatedly withdrawn.

11. In their initial scanty outline of submissions, the insurers said that it was necessary for the applicants to establish a prima facie case against the insured, as well as the insurer, and said that no such case has been made out.  In their supplementary (and final) submissions, they said that the “principal basis” upon which the application for joinder was opposed was based on clause III(e), without a mention of the absence of a case against the fourth respondent.  It will therefore suffice to dispose of the summary argument raised earlier by holding that, in my opinion, there is evidence to support a case against the fourth respondent under the Trade Practices/Fair Trading Acts, for breach of fiduciary duty and in negligence.  And there is evidence of loss.  The success and viability of these causes of action cannot be resolved on a motion for joinder.

12. For these reasons the motion for joinder will be granted.  Costs will be reserved.  The parties should bring in short minutes of orders, preferably agreed, for the incorporation of the insurers into the pre-trial preparations, by not later than 4 pm on Tuesday 10 August 1999.  There will be liberty to apply on 3 days notice.

I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marcus Einfeld AO.

Associate:

Dated:             5 August 1999

Counsel for the Applicants:	Robert E. Dubler
Solicitors for the Applicants:	Hegarty & Elmgreen
Counsel for the Insurers:	Jonathan B. Simpkins
Solicitors for the Insurers:	Phillips Fox
Dates of Hearing:	4 November 1998, 14 April, 10 June and 25 June 1999
Date of Judgment:	5 August 1999