Farquharson Pty Ltd v FAI General Insurance Co Ltd

SUPREME COURT OF VICTORIA

CAUSES JURISDICTION

Not Restricted

No.6817 of 1993

FARQUHARSON PTY. LTD. & ORS.	Plaintiffs
v
F.A.I. GENERAL INSURANCE CO. LTD. & ORS	Defendants

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JUDGE:	COLDREY, J.
WHERE HELD:	Melbourne
DATE OF HEARING:	9 October 1998
DATE OF JUDGMENT:	15 October 1998
CASE MAY BE CITED AS:	Farquharson Pty. Ltd. v. F.A.I. General Insurance Co. Ltd.
MEDIA NEUTRAL CITATION:	[1998] VSC 106

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Practice - Leave of court to commence action - s.9 Law Reform Act 1936 (New Zealand) no retrospective leave - Substantive provision not governed by lex fori - Action a nullity.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr. P. Riorden	Gill Kane & Brophy
For the Fourth Defendant	Mr. D. Derham Q.C.	Herbert Geer & Rundle
and Mr. A. Kelly

FARQUHARSON PTY. LTD. & ORS. v. FAI GENERAL INSURANCE CO. LTD. & ORS.

HIS HONOUR:

The plaintiffs were owners of a breeding stallion, "French Chef". In January 1993 the horse died. It was subject to an insurance policy with the first defendant FAI General Insurance Co. Ltd. (FAI). That company declined to pay out on the policy on the grounds that the circumstances of the death fell within an exclusion clause in it. Accordingly, the plaintiffs instituted proceedings against FAI for indemnification under the policy or alternatively damages for breach of its terms. The plaintiffs also sued their insurance broker Equine Pacific Ltd. (Equine), the second defendant, for breach of its retainer or alternatively negligence in failing to procure the requisite indemnity insurance. A third defendant, Wayne Wilkinson Insurance Ltd. (Wilkinson Insurance), also an insurance broker, having initially been joined by Equine as a third party, was ultimately added as the third defendant facing the same claims as Equine.
Subsequently, on 16 July 1998, the plaintiffs and the then defendants obtained orders by consent for the joinder of the fourth defendant, American Home Assurance Company (AHA) in the proceedings. It appears that the second defendant has professional indemnity insurance with AHA and the plaintiffs claim is, in essence, that the second defendant's liability to pay them is a charge on insurance moneys that may become payable under the AHA insurance policy pursuant to s.9 of the Law Reform Act 1936 (New Zealand) (the Act). The factual basis for the liability of the fourthnamed defendant is a live issue but is not relevant to the matter before this Court. That matter is an application by the fourth defendant, made by summons dated 2 September 1998 seeking, in broad terms, the removal of the fourth defendant from the action.
Section 9 of the Act is in the following terms.

"(1)

If any person (hereinafter in this Part of this Act referred to as the insured) has, whether before or after the passing of this Act, entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his liability shall, on the happening of the event giving rise to the claim for damages or compensation, notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance money that is or may become payable in respect of that liability."

It is common ground that sub-ss.(2) and (3) are not relevant to this application.

(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same Court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the party shall, to the extent of the charge, have the same rights and liabilities, and the Court shall have the same powers as if, as if the action were against the insured:
Provided that ... no such action shall be commenced in any
Court except with the leave of that Court."

Equine is the insured in the present action.
There is no dispute that no leave was obtained by the plaintiffs pursuant to s.9(4) in any New Zealand or other court.
It was submitted by Mr. Derham, senior counsel who appeared on behalf of the fourth defendant, that, as a consequence of the failure to obtain the requisite leave, the cause of action was a nullity. It was argued that the creation of the statutory charge and the provision for the obtaining of leave by the court were inseparably intertwined. It was put that an action for enforcement of the charge could only be pursued by leave of the court. Put simply all s.9(1) of the Act does is to create a charge without any means of enforcement. The right to bring an action and the mode thereof is the subject of s.9(4) of the Act.

It was further submitted that such leave could not be obtained nunc pro tunc.
Accordingly, on these grounds the order for joinder should be set aside.
In developing this argument Mr. Derham referred firstly to Bailey v. New South Wales
Medical Defence Union Ltd. (1995) 184 C.L.R. 399. In that case the High Court
examined s.6 of the Law Reform (Miscellaneous Provisions) Act 1946 (N.S.W.) which,
for the purpose of this issue is in virtually identical terms. At p.446 of the judgment
of McHugh, and Gummow, JJ. their Honours referred to the creation of a new right
with an associated remedy to enforce it. At p.447 of the joint judgment their
Honours noted that the action by the claimant against the insurer may be brought
even though judgment has already been recovered by the claimant against the
insured for damages or compensation in respect of the same matter. The New
Zealand legislation has the same provision. Their Honours also noted that the
position of the insurer was guarded in several ways against the consequences of
exposure to the direct action by the claimant created in the section. Significantly in
my view, one of those protections was the leave requirement.

Mr. Derham principally relied upon the authority of National Mutual Fire Insurance Co. Ltd. v. Commonwealth of Australia [1981] 1 N.S.W.L.R. 400. In that case the New South Wales Court of Appeal again examined the equivalent New South Wales legislation. Mr. Justice Glass in considering the effect of the leave requirement stated (at p.408):
"There is no question of strict or substantial compliance. The action is commenced with leave or it is not. If it is commenced without leave, the proceeding is either a complete nullity or else it remains valid irrespective of whether or not leave is subsequently granted or else it continues in a state of suspended validity which will come to an end if leave is not obtained within an unspecified time. I can see nothing to support the attribution of a legislative intention properly to be garnered from the terms of sub-section (4) and its place in the framework of s.6 is that a failure to obtain the leave of the Court in advance invalidates the action and renders it incapable of being revived by leave retrospectively given. It follows that the order granting leave to the Commonwealth to commence its proceeding against the insurer cannot be supported."
President Moffitt remarked (at p.402):
"... The legislative purpose of s.6 is to create the charge and provide for its enforcement. Its subject matter is not to provide some optional alternative to the ordinary method of establishing liability by proceeding against the tortfeasor."
After discussing other legislation subject to limitations such as the Motor Vehicles
(Third Party Insurance) Act 1942, his Honour continued:
"The defined limits imposed by this other legislation upon the right to sue the insurer direct accept that there is a disadvantage to the insurer in not having the benefit of the insured as the defendants. The requirement of leave under s.6(4) in the statutory setting already referred to dealing with enforcement of a charge is to the same end."
Samuels, J.A. agreed with the remarks of each of the other members of the Court.
Mr. Derham drew the court's attention to the case of Ceric v. C.E. Heath Underwriting and Insurance (Australia) Pty. Ltd. [1994] 4 N.T.L.R. 135 (a decision of the Northern Territory Court of Appeal in which the decision of the New South Wales Court of Appeal in the National Mutual Case was not followed. In particular the Northern Territory court declined to adopt the reasoning that an action commenced without leave was a nullity precluding the granting of leave nunc pro tunc. In arriving at the decision the court placed some reliance upon a decision by Nicholson, J. in Carden v. Allen Insulations Pty. Ltd. [1987] V.R. 29. However that decision was subsequently over-ruled in Bestobell Overseas Ltd. v. Carden [1988] V.R. 891 by the Victorian Court of Appeal. In my view, therefore, the weight of judicial authority presently favours the views expressed in the National Mutual Case namely that leave is essential to the institution of any action of the type under consideration and, further, that such leave cannot be granted by a court retrospectively.
It was further submitted by Mr. Derham that any leave could, in any event, be granted only by a New Zealand court since the legislation should not be presumed to have extra territorial effect. Mr. Riorden, who appeared on behalf of the plaintiff, did not dispute this proposition. Accordingly I will proceed on the basis that it is correct.
On behalf of the plaintiffs, Mr. Riorden noted that it was common ground that the law applicable to the insurance contract was New Zealand law and that a cause of action would exist in New Zealand on the basis of s.9 of the Act subject to obtaining leave in a New Zealand court. It was also common ground that the fourth defendant was properly served within the jurisdiction of this Court
It was submitted that Australian courts have evinced a willingness to enforce a quasi contractual obligation created by a foreign law if that law is the proper law applicable and if there is no reason of public policy to the contrary: see Hodge v. Club Motor Insurance Agency Pty. Ltd. & Anor. [1974] 7 S.A.S.R. 86. The same applies to statutory rights of action: see Borg Warner (Australia) Ltd. v. Zupan [1982] V.R. 437. It was also submitted that the relevant New Zealand law did not infringe any rule of private international law which would prevent the Victorian court, otherwise endowed with jurisdiction, from enforcing such a provision. For example, it was not a claim in the nature of tort but a statutory right; the provision was not of a penal, revenue, or public law nature; it was not repugnant to any sense of justice and the defendant was within the jurisdiction.
I do not apprehend any dispute as to the applicability of those criteria. As to an additional one, namely that it was a personal right created by foreign statute which was not incomplete, issue was taken by the fourth defendant. In this regard it was submitted that the plaintiffs' right was inchoate because no action could be commenced without the leave of the Court.
However, the thrust of Mr. Riorden's argument was that the leave requirement was procedural in character and could be divorced from the substantive right bestowed by the section. If this be the case, then, the argument proceeded, the substantive law of the lex loci contractus (being New Zealand) is applied, but the procedure is governed by the lex fori. In submitting that the procedural requirement of obtaining the leave of the Court was not applicable to a claim with respect to the charge brought in Victoria, Mr. Riorden referred to "Australian Private International Law", Sykes & Pryles, 3rd edn., pp.256 and 262: "The Conflict of Laws", 11th edn., Dicey & Morris, pp.173, 175 and 178. The text writers clearly recognise a distinction between substantial and procedural requirements with the latter governable by the lex fori.
Reliance was placed on the case of Allan J. Panozza & Co. Pty. Ltd. v. Allied Interstate (Qld.) Pty. Ltd. [1976] 2 N.S.W.L.R. 192. In that case the proper law relating to a contract was found to be Queensland law and the question was whether s.5(3) of the Carriage of Goods by Land (Carriers' Liabilities) Act of 1967 (Qld.), which required that a claimant shall give notice in writing to a carrier of the loss or injury in respect of which a claim is made, was procedural or substantive. That sub-section read:
"Save where the court before which the claim in question is brought is satisfied that, having regard to the death of any person on whose behalf such claim is made or to any incapacity of the claimant or exceptional cause, it is just that such claim should be enforceable notwithstanding that notice has not been given as prescribed by this subsection, a claim against a carrier in respect of loss of or injury to goods entrusted to him for carriage by land shall not be enforceable unless the claimant has given notice in writing to the carrier of such loss or injury ... [certain time limits were then prescribed]."
In discussing the section Street, C.J. stated (at p.196):
"In the light of the inescapable presence in that opening portion [of s.5(3)] of power in a court - that is to say, the Queensland court and not the court of any other State - before which a claim in question is brought to dispense with the requirement of notice before claim, I am of the view that the argument advanced on behalf of the appellant on this point fails. In my view, the requirement is a procedural stipulation having ... its primary significance is a statutory pre- requisite to the bringing of proceedings before a Queensland court, and it is in this sense that s.5(3) should be construed."
However, it should be noted that the provisions in this instance, as distinct from those considered in the National Mutual Case, envisaged the initially valid institution of legal action followed by an exercise of discretion by the court.
Mr. Riorden also referred to the case of Subbotovsky v. Waung [1968] 3 N.S.W.R. at 261. This is another example of a State court having to decide whether the requirements of a foreign law (here the Chinese Civil Code) were procedural, and hence governed by the lex fori or were substantive and therefore required the application of the foreign law. In that case it was determined by Nagle, J. that a court in China could have proclaimed a judgment in favour of the creditor on a guarantee although the creditor had not first sued the principal debtor and issued execution as ostensibly required by Article 745 of the Code. Since such a judgment would be properly made within the jurisdiction of the Chinese court unless the guarantor set up a defence available to him under that Article, the provision was held to be procedural. His Honour adopted the position put in Halsbury's, 3rd edn., Vol.7, p.167:
"A defendant cannot in any circumstances put forward the provisions of a foreign law requiring proceedings to be brought against another person as a condition precedent to an action being brought against himself. Such a plea affects the remedy available against him and this, being a matter of procedure only, is for the lex fori. It would be otherwise if no right whatever arose until after such other proceedings."
In the instant case it was submitted by Mr. Riorden that the right came into effect when "the happening of the event giving rise to the claim for damages or compensation" arose. There is no doubt, as was pointed out in Bailey's Case (p.446) that the charge arises at this stage, effectively protecting the interest of the claimant. It does not follow, however, that the happening of the event gives rise to a right of action. If the right of action can only be initiated with the leave of the court, then the requirement for leave may be properly characterised as substantive.
In my view that is the appropriate categorisation of the leave requirement according to the tenor of current Australian legal authority.
It follows that the fourth defendant should not have been joined in this action and the application for its removal must succeed. I will hear counsel as to the precise form of the orders to achieve this end.

[1998] VSC 106

16 October 1998