Employers Reinsurance Corporation & Ors v Ashmere Cover Pty Ltd & Ors

[2008] HCATrans 296

[2008] HCATrans 296

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P12 of 2008

B e t w e e n -

EMPLOYERS REINSURANCE CORPORATION AND SUNCORP METWAY INSURANCE LIMITED

Applicants

and

ASHMERE COVE PTY LTD AND CG SUPER PTY LTD AND CHORAL PTY LTD AND PULLINGTON INVESTMENTS PTY LTD AND GERALDINE GRAY (IN HER CAPACITY AS EXECUTOR FOR THE LATE CONSTANCE PHYLLIS JAMES) AND MANTLE BREWING SERVICES PTY LTD AND CATHERINE EMMA HUSK AND MIKAYLA KIM DUNNE AND JENNIFER ANNE ALLEN AND BLYTH NOMINEES PTY LTD AND JOHN ANDREW MASLEN AND JOAN CARMEL MASLEN AND CREATON PTY LTD

First Respondents

PETER CORNELIUS BEEKINK AND HERSH SOLOMON MAJTELES AND GREGORY PHILLIP GAUNT

Second Respondents

KNIGHTSBRIDGE MANAGED FUNDS LIMITED (IN LIQUIDATION)

Third Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 8 AUGUST 2008, AT 11.55 AM

Copyright in the High Court of Australia

__________________

MR G.R. DONALDSON, SC:   May it please your Honours, I appear with MR J. GARAS for the applicants.  (instructed by Allens Arthur Robinson)

MR J.D. ALLANSON, SC:   May it please the Court, I appear with MR M.D. CUERDEN for the first respondents.  (instructed by Fiocco’s Lawyers)

GUMMOW J:   And there is a submitting appearance, I think, from the second and third respondents.  Yes, Mr Donaldson.

MR DONALDSON:   Your Honour, we need an extension of time.  It is not opposed.

GUMMOW J:   Yes, you have that extension.

MR DONALDSON:   Thank you, your Honour.  Your Honours, the effect of the order of Justice French in this matter, which was affirmed by the Full Court, is that judicial power is exercised by the making of a mere declaration as to the meaning and effect of a contract of insurance where the declaration is sought by a person not a party to the contract of insurance, where the parties to the contract of insurance have not sought the declaration, where any declaration made would not be binding as between the insured and the insurer but where, as postulated by his Honour, any such declaration would have a practical effect or utility; this practical effect or utility being, as postulated, that if the declaration sought by the, in this case, stranger to the contract were made, then at a time in the future were the insured to make a claim on the contract of insurance, the insurer may be estopped from asserting that the contract of insurance does not respond to the claim on the basis of the principle derived from Anshun. 

Your Honour, that order or the effect of that order and the decision of his Honour and the Full Court give rise to a short but important question as to whether a declaration made in that circumstance would be an exercise of judicial power.  Your Honours, preceding that question is a question as to whether the declaration made in this case sought by the plaintiff in the proceedings as against the insurer would give rise to a res judicata as between the insured and the insurer.

GUMMOW J:   What is the answer to the citation from Wakim, which appears at page 55 of the application book in the reproduction of the Full Court’s reasons, in bold type, namely, there may only be the one matter even though there are third party claims linked into it?

MR DONALDSON:   Yes, your Honour.

GUMMOW J:   Indeed, there may be the one matter spread between more than one court.

MR DONALDSON:   Yes.  Your Honour, it may be that the two actions, which have been referred to as the compensation action and the declaration action, constitute a single matter, but discrete from that, your Honour, is the issue as to whether any order that might be made on the application of the plaintiff, that is, the declaration that they seek, is in the circumstances in which it is sought, that is, by a stranger to the contract in the circumstance where it would not bind the parties to the contract, constitutes an exercise of judicial power.  Could I say, your Honours, in respect of the question as to whether any such ‑ ‑ ‑

HAYNE J:   Can you go back a stage?  Assume that the matters you identify are matters that are properly taken into account in deciding whether or not to grant declaration.  Is not the resolution of the controversy about where the declaration should go exercise of judicial power in a case where there is but one matter?

MR DONALDSON:   Your Honour, our contention is that judicial power is not exercised in answering a contention as to whether judicial power is being exercised.  The prior question is, in the circumstances of this case where the declaration is sought by a stranger and would not bind the contracting parties, whether that is an exercise of judicial power.  The question which I understand your Honour Justice Hayne is putting is, well, is an argument about that or a dispute about that an exercise of judicial power?

HAYNE J:   Your argument appears to at least come close to an argument which says the claim for declaration is so hopeless that no order for joinder should be made.  That is an argument of a recognised common kind dealt with interlocutorily one way or tother, but it is not a judicial power question.  You are translating it into a judicial power question.

MR DONALDSON:   With respect, your Honour, we are not saying that the application advanced by the plaintiff is so hopeless that his Honour’s discretion as to joinder and amendment of the statement of claim ought not to have been exercised.  We contend that the order which is sought would not be an exercise of judicial power.  Now, if it is not an exercise of judicial power, your Honour, then the discretion to join and the discretion to have allowed the amendments to the statement of claim ought not to have been exercised. 

So the special leave point, if I can put it that way, is whether the relief sought in the declaration proceedings by the plaintiff as against the insurer constitutes an exercise of judicial power.  If it does not, then, your Honour, the insurers ought not to have been joined and the amendment to the statement of claim that was sought ought not to have been allowed.

Prior to that question, your Honours, if I can say, in relation to whether the relief sought constitutes judicial power is whether in the circumstances of this case, that is, where the declaration is sought by a stranger to the contract, whether the declaration would in fact bind the insured and the insurer in ‑ ‑ ‑

GUMMOW J:   You say “stranger to the contract”, which is a nice flourish I suppose, but they are not an alien, are they?  It is an insurer.

MR DONALDSON:   Yes, but, your Honour, they do not have an immediate right to it.  They do not assert a direct right as against the insurer.  I am not entirely sure what your Honour really means by “alien”, but quite obviously they are a potential claimant.

GUMMOW J:   All sorts of equitable doctrines get entangled, do they not, in these tripartite situations?

MR DONALDSON:   Well, they do, your Honour, but in this matter ‑ ‑ ‑

GUMMOW J:   Subrogation, contribution, so on and so forth, indemnities.

MR DONALDSON:   Quite so, your Honour, but in this matter, none of that has been contended as the basis for joinder.  What has been contended for the basis of joinder here is simply, following on from really Justice Davies’ judgment in Interchase, that there would be a practical utility in the making of the declaration that is sought.  It is not contended that there would be direct cause of action available to the plaintiff on the basis of trident or anything, section 11 of the Property Law Act or anything of that kind.  It is simply advanced on the basis that the declaration that is sought would have a practical utility in the sense that I have identified, and, your Honour, in our respectful submission, mere practical effect or utility does not constitute judicial power in the circumstances of this case where no binding order as between the parties to the contract would be known. 

If I could simply say in relation to that, your Honours, that there is a division of opinion between State Full Courts as to that question.  Your Honours will have seen in the submissions a reference to the decision of the Full Court of South Australia in JN Taylor.  That, your Honours, is behind tab 10 of our authorities.  The relevant page of that, your Honours is page 441 of the judgment of the Chief Justice at line 30.  I do not need to take your Honours to that.  Your Honours, that was dealt with in Interchase which is behind tab 11 of our authorities.  In that respect, in the judgment of Justice Davies it is at page 309 at line 40 and in the judgment of Justice McPherson at page 313, again at line 40 where his Honour agrees with Justice Byrne.  In Justice Byrne’s judgment, your Honour, it is at page 319, again at line 40. 

So there is a division of authority as amongst Full Courts as to whether the order which the applicant seeks in this case would bind the insured and the insurer.  Below, Justice French, your Honours, and this is at page 28 of the application book in paragraph 58 ‑ ‑ ‑

GUMMOW J:   This constitutional point was kept in the cupboard at that stage, was it not?

MR DONALDSON:   It was not raised, your Honour, before his Honour. It only arose in the Full Court.  In any event, your Honours, Justice French agreed, as it were, with the decision of the Full Court of the Supreme Court of Queensland in Interchase and below in the Full Court their Honours did not decide the question at all, left it open, and that is at paragraph 67 of the judgment at page 60 of the book.  Of course, if JN Taylor is right, that is, that if any declaration made would bind the insured and insurer, then there is no issue as to judicial power, that is, it would be an exercise of judicial power.  However, if the decision of the Full Court of the Supreme Court of Queensland in Interchase is correct, then no declaration would bind the insured and insurer.

GUMMOW J:   Where do we find the Queensland Court of Appeal?

MR DONALDSON:   That is behind tab 11, your Honour.

GUMMOW J:   Thank you.

MR DONALDSON:   Again, your Honour, Justice Davies at page 309, line 40, Justice McPherson at 313, line 40 and Justice Byrne at page 319, line 40.  Of course, below, Justice French and the Full Court have followed the approached that were of Justice Byrne in Interchase and that is the effect that, even if the declaration does not bind the insured and insurer, it will have an asserted practical effect, that is, that if the insured comes to claim on the insurance policy, the insurer – and it is really put no higher as it may be in the Full Court – may be estopped by the principle derived from Anshun from asserting that the policy does not respond.  As I have said, your Honours, mere practical effect or utility is not ‑ ‑ ‑

GUMMOW J:   What is the practical reason for resisting this joinder?

MR DONALDSON:   Because, your Honour, the liability under the insurance policy may never arise.  There has been no claim on the policy and there may never be a claim on the policy.

GUMMOW J:   That could be the reason for not making the joinder, I suppose.  That is not a special leave point by itself.

MR DONALDSON:   No.  We have put the judicial power issue, your Honours, at the forefront of the special leave application, but your Honours will see that we also contend that the exercise of discretion erred.  That on itself would not be a special leave matter.  Can I say, your Honours, the position in which the applicant finds itself in this matter is there is no final decision or determining decision as to whether any declaration made would in fact be binding as between it and the insured.  That is because of the division of authority in Interchase and JN Taylor. 

Then what is put to them is, well, even if you are not bound by the decision, if you do not participate in this proceeding and if you do not put on your case as to why it is that the policy does not respond, you may be –

and it is not put that you will be – estopped from running your case as to why the policy does not respond when a claim is made on the policy.  That puts litigants such as the applicant in this case in a wholly impossible position, with respect.  Those are our submissions, your Honour.

GUMMOW J:   Thank you, Mr Donaldson.  Yes, Mr Allanson.

MR ALLANSON:   If your Honours please, the first point is that this is not, of course, a case which is going to call for the resolution of the question of whether JN Taylor was correct in the wider proposition that was put forward in that case because that is not the basis upon which either his Honour Justice French or the Full Court held that it was appropriate to join the insurer.  In particular, the Full Court expressly made the joinder on the basis that a declaration to the extent that it would be binding between parties would be binding as between the investors, that is the first respondent, and the insurer.  So it was not purporting to make a declaration on the basis that it would have a binding effect in the wider sense put forward in JN Taylor.  So in that sense this is not a case which, in order to resolve these issues, requires any consideration of the correctness of JN Taylor.

The position before his Honour Justice French was that there is an application by the investors against the company, KMF.  That company is in liquidation but it is still registered.  The company has no assets but it has an insurance policy and, as we say the Full Court correctly held, the liability under policy is a matter of the single matter or comes within the single matter which was within federal jurisdiction which was being raised in the proceedings in the Federal Court.  Within the context of that single matter there is an application by the investors for a declaration against the insurer.

GUMMOW J:   The second respondents represent the investors, do they?

MR ALLANSON:   The first respondents represent the investors.

GUMMOW J:   Who are the second respondents?  The second respondents are the directors of Knightsbridge, are they?

MR ALLANSON:   The second respondents are the directors of KMF.

GUMMOW J:   That is right.  They are not here.

MR ALLANSON:   They are not here.  The party that I refer to as the investors is the first respondent who I represent.

GUMMOW J:   Yes, your clients.

MR ALLANSON:   It is my clients, yes.

GUMMOW J:   What is in this litigation for your clients in terms of money in the hand?  It depends upon the access to the insurance policy, does it?

MR ALLANSON:   It does, your Honour.  As both the Full Court and Justice French pointed out, we have by reason of the Corporations Act a priority with regard to that.  It not simply something which goes into the liquidation; we have a priority.  The Full Court also referred to the fact ‑ ‑ ‑

GUMMOW J:   Where do we see that priority indicated by Justice French?

MR ALLANSON:   Justice French refers to it at page 17 of the application book in paragraph 31.

GUMMOW J:   Thank you.  We will just read section 562 to ourselves for a moment.  Yes, thank you.

MR ALLANSON: The Full Court referred to it also at page 44 of the application book in paragraph 10. The Full Court referred also to the fact that should the company become deregistered by section 601AG of the Corporations Act:

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 ‑ ‑ ‑

GUMMOW J:   I am sorry, whereabouts is this?  This is important, I think.

MR ALLANSON:   Page 44.  This is in the decision of the Full Court.

GUMMOW J:   Yes.  This is on deregistration?

MR ALLANSON:   That would only apply if there were to be deregistration.

GUMMOW J:   Which  has not happened, yet.

MR ALLANSON:   Which has not happened.  .

GUMMOW J:   No.

MR ALLANSON:   The other statutory provision that was referred to in the Full Court was simply the ‑ ‑ ‑

GUMMOW J:   So this notion of strangers to the contract has to take account of this statutory regime, does it not?  The notion put against you of strangers to the contract has to take into account the statutory regime manifested in these provisions of the Corporations Act.

MR ALLANSON:   Yes.  So that when you come to the question of the exercise of the power to grant a declaration, we are not parties to the contract of insurance but, we are not simply in the position of somebody who would benefit from the fact of there being funds obtained from the indemnity being honoured.  We have a priority by virtue of a statute.  The other statutory provision that their Honours referred to in the Full Court at page 57 of the application book in paragraph 53.  Their Honours referred to the provisions of the Corporations Act in section 1321 by which the investors could go to the Court to seek to have an appeal from a decision of the liquidator not to proceed against the insurers.

In that context of, firstly, the priority, secondly, the right to make a claim if deregistration should occur and, thirdly, our position whereby we can appeal against the decision of the liquidator, while we are not parties to the contract, to use your Honour Justice Gummow’s term, we are not aliens and we have a real and practical interest in the resolution of this question of indemnity which then comes to the fact that the Federal Court has the power to grant declarations within a matter.  There is the one matter before the Court.

Within the context of that matter the Court has the power to grant a declaration.  We say that the Full Court correctly approached that by looking at the power to grant a declaration and by looking at whether a declaration in these circumstances would produce real practical utility.  It is not, in our submission, necessary for the grant of a declaration in the exercise of federal jurisdiction that it be in relation to rights which are reciprocal.

GUMMOW J:   Truth About Motorways helps you, I would have thought.  The reasoning in Truth About Motorways.

MR ALLANSON:   Yes.  We rely on that, your Honour.  We rely on the fact that this is not answering an abstract or a hypothetical question.  It would be answering a question arising out of an actual insurance policy on the facts as they are found in the litigation.  It would not be hypothetical.

GUMMOW J:   Yes, we do not need to hear you any more, Mr Allanson.

MR ALLANSON:   If your Honours please.

GUMMOW J:   We will hear Mr Donaldson in reply.

MR DONALDSON: Your Honours, can I deal with the statutory provisions that my friend referred to which my friend relied upon to contend that his clients were not, as it were, strangers to this contract. Section 562 of the Corporations Act does not apply in this circumstance. Section 562 of the Corporations Act is the equivalent of section 117 of the Bankruptcy Act and all that that does, your Honours, is provide a priority to, in this case, my friend’s client in the event that the insured receives insurance moneys.  So that does not bear at all upon the contention that it is a stranger to the contract seeking the declaration.

Likewise, your Honour, 601AG only applies in the circumstance of a deregistered company.  Your Honours, there is no relevant statutory provision – by that I mean relevant to this action – such as, for instance, section 6 of the Law Reform (Miscellaneous Provisions) Act (NSW) which provides in circumstances such as this for a direct right of action by a plaintiff as against an insurer.  There is no equivalent to that relevant here, your Honours, and so the contention that what this proceeding seeks is a non‑binding declaration as to the meaning and effect of a contract by a stranger to the contract is the position.  In our submission, your Honours, that does not constitute an exercise of judicial power.  If your Honours please.

GUMMOW J:   Thank you.

The constitutional point which the applicant seeks to argue would enjoy no reasonable prospects of success. The more general questions about joinder of parties that might otherwise arise depend upon particular facts and circumstances of the case. These include the possible engagement of s 562, s 601AG and s 1321 of the Corporations Act 2001 (Cth).

There is no point raised suitable for the grant of special leave.  Special leave is refused with costs.

AT 12.22 PM THE MATTER WAS CONCLUDED