Frederick William McMurray and Jennifer Grace McMurray v AIG Insurance Australia Ltd [No 3]
[2019] WASC 452
•6 DECEMBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: FREDERICK WILLIAM MCMURRAY and JENNIFER GRACE MCMURRAY -v- AIG INSURANCE AUSTRALIA LTD [No 3] [2019] WASC 452
CORAM: SMITH J
HEARD: 28 OCTOBER 2019
DELIVERED : 6 DECEMBER 2019
FILE NO/S: CIV 2962 of 2016
BETWEEN: FREDERICK WILLIAM MCMURRAY and JENNIFER GRACE MCMURRAY
Plaintiffs
AND
AIG INSURANCE AUSTRALIA LTD
First Defendant
RUSSELL BRESLAND
BRESLAND CONSULTANTS PTY LTD
Second Defendants
TOKIO MARINE & NICHIDO FIRE INSURANCE CO LTD
Third Defendant
MOSMAN BAY CONSTRUCTION PTY LTD
First Third Party
TOKIO MARINE & NICHIDO FIRE INSURANCE CO LTD
Second Third Party
HANS BO KRISTIAN HOLGERSSON trading as HOLGERSSONS COMPLETE HOME SERVICE
First Fourth Party
Catchwords:
Practice and procedure - Concurrent wrongdoers - Proportionate liability - Civil Liability Act 2002 (WA) s 5AN - Application to add first fourth party as defendant - Whether second defendant and first fourth party are concurrent wrongdoers - Whether damage or loss caused by alleged concurrent wrongdoers is the same - Whether appropriate to determine concurrent wrongdoing in interlocutory proceedings - Whether appropriate to join first fourth party as defendant
Subrogation - Whether right to subrogation exists where party caused to bear the total liability of a claim because plaintiff opts not to seek relief from another party - Whether unjust enrichment supports claim of subrogation - Where no right to subrogation of established category exists - Where claim novel - General principles that apply to the pleading of emerging points of law - Where pleading would conflict with existing principles underpinning doctrine of unjust enrichment
Legislation:
Australian Consumer Law, s 236
Civil Liability Act 2002 (WA), s 5AN, s 5AI, s 5AJ, s 5AK
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B, 18 r 3, O 18 r 6(2), O 19 r 8, O 21 r 9
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Plaintiffs | : | Mr G R Hancy |
| First Defendant | : | Mr C K Russell |
| Second Defendants | : | Mr G J Pynt |
| Third Defendant | : | Mr P W Graham |
| First Third Party | : | No appearance |
| Second Third Party | : | Mr P W Graham |
| First Fourth Party | : | Mr M H Zilko SC & Mr B A Winburn-Clarke |
Solicitors:
| Plaintiffs | : | Solomon Brothers |
| First Defendant | : | Wotton + Kearney |
| Second Defendants | : | Sparke Helmore Lawyers |
| Third Defendant | : | Clyde & Co (Perth Office) |
| First Third Party | : | No appearance |
| Second Third Party | : | Clyde & Co (Perth Office) |
| First Fourth Party | : | SRB Legal |
Case(s) referred to in decision(s):
Banque Financière de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221; [1998] 1 ALL ER 737
Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269
Glencore International AG v Federal Commissioner of Taxation [2019] HCA 26; (2019) ALJR 967
Hart v JGC Accounting & Financial Services Pty Ltd [2015] WASCA 22; (2015) 47 WAR 582
Holmes Regional Medical Center Inc v Allstate Insurance Company (Unreported, Florida, SC15-1555, 13 July 2017)
Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613
Intex Coatings Ltd (in liq) v Deo [2016] NZHC 2754; [2017] NZAR 47
J Leavey & Co Ltd v George H Hirst & Co Ltd [1943] 2 All ER 581; [1944] KB 24
Landpower Australia Pty Ltd v Penske Power Systems Pty Ltd [2019] NSWCA 161
Mann v Patterson Constructions Pty Ltd [2019] HCA 32
McMurray v AIG Insurance Australia Ltd [2018] WASC 144
Menelaou v Bank of Cyprus UK Ltd [2015] UKSC 66; [2016] AC 176
Merryweather v Nixan (1799) 8 TR 186; (1799) 101 ER 1337
PGA v The Queen [2012] HCA 21; (2012) 245 CLR 355
Tokio Marine & Nichido Fire Insurance Co Ltd v Holgersson [2019] WASCA
Ucak v Avante Developments Pty Ltd [2007] NSWSC 367
Wallace v Litwiniuk 200 DLR (4th) 534
Weld-Bundell v Stevens [1920] AC 956
Zervas v Burkitt [No 2] [2019] NSWCA 236
SMITH J:
The applications made by the second defendants and the result
The second defendants, Russell Bresland and Bresland Consultants Pty Ltd (Bresland parties), by chamber summons, filed on 10 October 2019, seek orders to the effect that:
(1)the first fourth party, Hans Bo Kristian Holgersson t/as Holgersson's Complete Home Service (Holgersson), be added as a fourth defendant to the action pursuant to s 5AN of the Civil Liability Act 2002 (WA);
(2)within seven days, the Bresland parties file a counterclaim against Holgersson substantially in the terms set out in [67] ‑ [75] and [89] ‑ [91] of the Bresland parties' re-amended defence dated 10 October 2019;
(3)in the alternative to (1) and (2):
(a)Holgersson be added as a fourth defendant to the action pursuant to O 18, r 3 or r 6(2) of the Rules of the Supreme Court 1971 (WA); and
(b)within seven days, the Bresland parties file a counterclaim against Holgersson substantially in the terms set out in the Bresland parties' notice of contribution against Holgersson dated 5 September 2019;
(4)the Bresland parties be granted leave:
(a)to file a counterclaim against the plaintiffs, Frederick William McMurray and Jennifer Grace McMurray (McMurrays), in terms of the minute of counterclaim dated 10 October 2019; and
(b)not to comply with O 21, r 9 of the Rules of the Supreme Court in relation to their re‑amended defence filed 10 October 2019;
(5)within 21 days, the McMurrays file and serve a defence to the counterclaim against them; and
(6)within 21 days, Holgersson file and serve a defence to the counterclaim against him.
For the reasons that follow, the applications should be dismissed.
A summary of the proceedings and the Bresland parties' applications
The first third party, Mosman Bay Construction Pty Ltd, was engaged by the McMurrays to undertake renovations to a house the McMurrays had purchased in Mosman Park. The renovations commenced in May 2015 and were almost complete by 15 January 2016. During this period of time the house was unoccupied. During the night of 15 to 16 January 2016, a fire occurred which resulted in the whole of the house, including the areas under renovation, being extensively damaged.
The cause of the fire is in dispute in the third and fourth party proceedings. It is alleged by Mosman Bay and the first defendant, AIG Insurance Australia Ltd (AIG), that the fire was caused by the spontaneous combustion of oil soaked rags in a bin in a room on the ground floor of the house.
Mosman Bay engaged Holgersson as a subcontractor to do painting works on the McMurrays' house.
The rags said to be the cause of the fire are claimed to be rags used by painters to apply a product known as Lobasol 'HS 2K ImpactOil and ImpactOil Colour' (Loba oil) to stain various timber surfaces in the house.
The McMurrays have brought their action in the main proceedings against:
(1)AIG, as the insurer of the house, who denies liability under the relevant policy of insurance on the basis of the contract works exclusion;
(2)the Bresland parties, being insurance brokers who arranged the insurance with AIG, by alleging that if, as AIG contends, the contract works exclusion applies, then the Bresland parties were in breach of contract, negligent, and engaged in misleading and deceptive conduct in arranging insurance containing such an exclusion; and
(3)Tokio Marine & Nichido Fire Insurance Co Ltd (Tokio) who were the insurers of Mosman Bay (from whom Mosman Bay procured annual project and legal liability insurance) by claiming that the Tokio policy contained an extension by which Tokio provided property insurance to all principals of Mosman Bay for contract works carried out by Mosman Bay. Tokio has denied indemnity to the McMurrays and the McMurrays sue Tokio for breach of contract.
The main proceedings, together with the third and fourth party proceedings, are listed for hearing for four weeks commencing on 30 March 2020. Because of the number of parties involved in the proceedings the matters have been listed for hearing since April 2019 as it was difficult to obtain available dates for hearing. The pleadings in the proceedings are closed.
The McMurrays have not sought to join Holgersson, Mosman Bay or any contractors or subcontractors engaged by Mosman Bay as defendants. The McMurrays are of the opinion that there is no admissible expert or lay evidence establishing that the fire was caused by oil soaked rags or that painters placed oil soaked rags in a plastic rubbish bin inside the McMurrays' house. They say that if, in the future, a party produces admissible evidence that oil soaked rags caused the fire, and that Holgersson's negligence led to that outcome, the McMurrays will reconsider their position. It is the McMurrays' view that insurance contracts were in place for the house and renovation works, and the McMurrays' loss should be recovered from insurers or a combination of one or more insurers, and the Bresland parties. Should it prove necessary, the McMurrays anticipate that any potential claim against Holgersson will not be time-barred before a decision after trial of the current claims.
AIG commenced third party proceedings against Tokio and Mosman Bay, pursuant to contended rights of subrogation to the McMurrays' claims.
Mosman Bay commenced fourth party proceedings against Holgersson alleging that the manner in which Holgersson or his employees, subcontractors, or agents disposed of rags used to carry out the staining of the timber was negligent and/or in breach of an implied term of the contract between Mosman Bay and Holgersson to perform the work with due care, skill and attention.
When the fourth party proceedings were commenced on 26 April 2017, they were commenced in the name of Mosman Bay (after Tokio obtained leave of the court to require Mosman Bay to do so pursuant to its right under a contract of insurance to pursue a claim against the painters). Following the decision of Chaney J, on 10 May 2018, in McMurray v AIG Insurance Australia Ltd,[1] Tokio could no longer instruct solicitors to maintain the fourth party proceedings against Holgersson, as Holgersson was found to have been insured by Tokio. However, Mosman Bay has continued to maintain the fourth party proceedings against Holgersson.
[1] McMurray v AIG Insurance Australia Ltd [2018] WASC 144 (affirmed in Tokio Marine & Nichido Fire Insurance Co Ltd v Holgersson [2019] WASCA 114).
Proposed order [1(1)] (and the consequent proposed [1(2)] and [1(6)] orders) sought by the Bresland parties are orders to join Holgersson, as a fourth defendant (in the main proceedings) pursuant to s 5AN of the Civil Liability Act, on grounds that the Bresland parties and Holgersson are concurrent wrongdoers.
If this court finds that the Bresland parties and Holgersson are not concurrent wrongdoers the Bresland parties seek proposed orders [1(3)] (and the consequent [1(6)]) to join Holgersson as a fourth defendant on grounds that (it says) it can claim by standing in the shoes of the plaintiffs (the McMurrays) against Holgersson by exercising an equitable right of subrogation.
By proposed orders [1(4)(a)] and [1(5)] the Bresland parties seek leave to add a counterclaim against the McMurrays to, in effect, stand in the shoes of the McMurrays for the purpose of exercising the 'McMurrays' rights' against Mosman Bay and Holgersson (and other contracting painters as defined in [39] of the re-amended defence) by exercising an equitable right of subrogation.
The orders sought by the Bresland parties are, in effect, their 'backup plan'. The primary case put by the Bresland parties is that AIG will not prove on the balance of probabilities that the Holgersson painters started the fire. The Bresland parties contend that if at trial AIG adduces no evidence that Holgersson's painters started the fire, AIG will be found liable to the McMurrays because it will not have proved the application of the contract works exclusion. On the other hand, if AIG does adduce evidence at trial that Holgersson's painters started the fire, the Bresland parties will rely on that evidence in support of its alternative defence that the Holgersson painters started the fire.
The Bresland parties intend to rely on the lay evidence adduced by AIG as to the cause of the fire for its defence. As long as AIG adduces evidence that the Holgersson painters used Loba oil out of Loba oil tins to stain timbers, and used rags to wipe the excess Loba oil off, the Bresland parties will not produce any evidence of its own about the cause of the fire. However, if AIG does not adduce this evidence then the Bresland parties may subpoena Mr Holgersson to give evidence about this matter. The Bresland parties do not intend to call any expert evidence about the cause of the fire.[2]
[2] ts 277 ‑ 278, 28 October 2019.
The Bresland parties are concerned that the fourth party proceedings may fall away before the trial. However, this contention appears to be speculative.
I will deal first with the issue of whether the Bresland parties and Holgersson are concurrent wrongdoers at law. I then deal with the question whether, in Australia, the law recognises equitable subrogation. I will deal then with the Bresland parties' application (in relation to their re-amended defence) for an order not to comply with O 21, r 9.
Section 5AN of the Civil Liability Act 2002 (WA) - should the court determine whether the Bresland parties and Holgersson are concurrent wrongdoers in interlocutory proceedings?
The Bresland parties argue that the McMurrays' claim against them is an 'apportionable claim' within the meaning of s 5AJ(4) and s 5AI of the Civil Liability Act. In the context of these proceedings, to be an apportionable claim the Bresland parties must claim for economic loss or damage to property in an action for damages (whether in contract, tort, under statute or otherwise) arising from a failure to take reasonable care.
For a defendant to assert that there is a person who is a concurrent wrongdoer the defendant must plead the necessary elements which result in that conclusion as follows:[3]
(a)the existence of a particular person;
(b)the occurrence of an act or omission by that particular person; and
(c)a causal connection between that occurrence and the loss (damage) that is the subject of the claim.
[3] Ucak v Avante Developments Pty Ltd [2007] NSWSC 367 [35] (Hammerslag J); applied in Hart v JGC Accounting & Financial Services Pty Ltd [2015] WASCA 22; (2015) 47 WAR 582 [25] (Murphy JA; Martin CJ & Newnes JA agreeing).
In Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd, the majority explained that the purpose of the provisions is:[4]
[T]o give effect to a legislative policy that, in respect of certain claims such as those for economic loss or property damage, a defendant should be liable only to the extent of his or her responsibility. The court has the task of apportioning that responsibility where the defendant can show that he or she is a 'concurrent wrongdoer', which is to say that there are others whose acts or omissions can be said to have caused the damage the plaintiff claims, whether jointly with the defendant's acts or independently of them. If there are other wrongdoers they, together with the defendant, are all concurrent wrongdoers.
[4] Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613 [16] (French CJ, Hayne & Kiefel JJ).
In Hunt & Hunt, the financier, Mitchell Morgan, had lent money on security of real property. The loan was obtained as a result of the borrower's fraud and the fraud of the borrower's cousin, a solicitor, who falsely certified that he had identified the true owner of the property over which Mitchell Morgan took security and witnessed that person's signature on the loan documentation and mortgage, when in fact that person's signature had been forged by the fraudster borrower. The loan agreement was held to be void because of the forgery, with the result that the mortgage secured nothing.
Mitchell Morgan sued its solicitors who had been negligent in failing to draft a mortgage that included a covenant to repay a specific amount. The question before the High Court was whether the two fraudsters were concurrent wrongdoers with Mitchell Morgan's solicitors. The majority held that the claim against them was in respect of the same loss. That loss was the inability of Mitchell Morgan to recover the moneys advanced and that the solicitors and fraudsters each materially contributed to that loss.[5]
[5] Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613 [9] (French CJ, Hayne & Crennan JJ).
The view of the majority in Hunt & Hunt was that:[6]
[T]here were two conditions necessary for the mortgage to be completely ineffective: (a) that the loan agreement was void; and (b) that the mortgage document did not itself contain the debt covenant, but did so solely by reference to the loan agreement. Hunt & Hunt was responsible for (b), but the fraudsters were responsible for (a).
It should not be overlooked that the effect of the fraudsters' conduct was that Mitchell Morgan entered into the transaction and was left with an unenforceable loan agreement. Mitchell Morgan had no promise to repay upon which it could sue and it was unable, in a practical sense, to recover from the fraudsters when the fraud was discovered. The fraudsters' conduct must therefore be seen as contributing to Mitchell Morgan's inability to recover.
More generally, it is plain that the fraudsters' conduct induced Mitchell Morgan to enter into the transaction, of which the taking of a mortgage was a foreseeable element. The advance of the moneys by Mitchell Morgan may have been made on the faith of an ineffective security, but Mitchell Morgan would never have had the need to take a mortgage, nor Hunt & Hunt to draw one, had Mitchell Morgan not been induced to enter into the transaction.
[6] Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613 [49] ‑ [51] (French CJ, Hayne & Crennan JJ).
Thus, in Hunt & Hunt, there were two conditions causative of the damage (economic loss to the plaintiff) each of which were attributable to separate defendants.
The majority in Hunt & Hunt established the following principles:[7]
(1)Loss or damage the subject of the claim is not to be equated with, and must be distinguished from, the compensation by way of damages (the amount) awarded by the court for the loss and damage suffered by the plaintiff, which a defendant caused.
(2)Damage, within the meaning of an apportionable claim, properly understood, is the injury and other foreseeable consequences suffered by a plaintiff. In the context of economic loss, loss or damage may be understood as the harm suffered to a plaintiff's economic interests.
[7] Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613 [24] (French CJ, Hayne & Crennan JJ).
The majority in Hunt & Hunt referred to a Canadian decision of the Alberta Court of Appeal in Wallace v Litwiniuk as an example of what they regarded to be an obvious case where the damage caused by each wrongdoer was different.[8] In that matter a plaintiff suffered physical injuries as a consequence of another driver's negligent driving. Her solicitor also failed to institute proceedings within time. The Alberta Court of Appeal concluded that the damage caused by each wrongdoer was different because the physical injuries the plaintiff suffered were damage distinct from the harm to her economic interests by reason of her inability to recover damages for those injuries.
[8] Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613 [38] (French CJ, Hayne & Crennan JJ) [97] (Bell & Gageler JJ) citing Wallace v Litwiniuk 200 DLR (4th) 534 [32].
It follows, therefore, that to be a concurrent wrongdoer different wrongful conduct of the defendants must each cause the same loss or damage to the plaintiff, that is, they must all have contributed to the loss or damage to the plaintiff, or, put another way, the acts or omissions must have independently or jointly caused the damage or loss that is the subject of the claim. However, the causes of action relied upon against each defendant are not required to be concurrent.
In this matter, the allegations put by AIG and Mosman Bay in the third and fourth party proceedings are that Holgersson caused the McMurrays' house (including the renovations) to be damaged (to be destroyed) by a failure to take reasonable care. If Holgersson is found to have caused any loss or damage to the McMurrays, it was damage to the McMurrays' property and the loss is the cost of repairing the McMurrays' house. The McMurrays claim that by reason of the breaches of contract by the Bresland parties (as the McMurrays' insurance broker) they (the McMurrays) have suffered loss and damage in that extensive fire damage was caused to the house and the renovation works, and that they have not received any payment under a contract of insurance for the full extent of their losses (or any payment).
The Bresland parties say that the McMurrays' damage is the diminution in the value of their financial interest in the house. If it is found that the Bresland parties were negligent for not delivering the insurance monies to indemnify the McMurrays for the loss in value of the house, they contend that the way of testing whether or not the loss or damage caused is the same, is to ask whether the McMurrays could recover from the Bresland parties that sum and in addition recover from Holgersson the cost of restoring the house.[9] If it can be found that the McMurrays would be entitled to recover and keep the money from both, then clearly the damage or loss is not the same.
[9] ts 288, 28 October 2019.
The question is whether the damage or loss that is the subject of the claims, if found to have been caused by the Bresland parties, is the same damage or loss that is claimed to have been caused by Holgersson.
The answer to this question may depend upon whether it could be found, by independent causation pathways, that the Bresland parties and Holgersson relevantly caused, or could be found relevantly responsible for, the McMurrays' damage or loss. In some circumstances, loss or damage caused by a failure to insure may result in the same damage or loss to the owner of property that has been damaged. This issue arose recently in Zervas v Burkitt (No 2).[10] In that matter the New South Wales Court of Appeal was called upon to consider whether the primary judge erred in finding that Mr Zervas, a director of a company, Ultimate Car Rentals Australia Pty Ltd, and the company together with a third person, Mr Amro, were concurrent wrongdoers.
[10] Zervas v Burkitt [No 2] [2019] NSWCA 236.
Mr Zervas was the second of three defendants in proceedings brought by Dr Burkitt. The proceedings arose out of the crash of Dr Burkitt's 2006 F430 Spider Ferrari motor vehicle in circumstances where it had been sub-bailed by Ultimate Car Rentals to the third defendant, Mr Amro, who owned a panel and paint shop in Melbourne and crashed the vehicle whilst 'joy riding' it. The company, of which Mr Zervas was the sole director, had entered into an agreement with Dr Burkitt to rent out the vehicle in return for a minimum monthly payment and a 50% share of net profits derived from any 24 hour rental of the vehicle.
One of the issues on the cross-appeal was whether the primary judge erred in finding that Mr Zervas was a concurrent wrongdoer, with the result that the company and Mr Zervas remained jointly and severally liable to Dr Burkitt.
The primary judge had found that the relevant conduct of each of the defendants comprised a different species of activity that, on its face, seemed to be separate in time. His Honour then found that: [11]
(a)the failure of the company and Mr Zervas to effect any insurance of the plaintiff's vehicle, was in breach of their agreement to do so, and that breach continued up until the time of the breach by the driver of the car, Mr Amro. Such failure was found to be quite separate and distinct from the driver's actions which comprised negligent driving. However, those separate activities, which had a concurrent effect at the time of the damage, had led the plaintiff to suffer the common element of loss comprising $200,000;
(b)although each failure was an independent cause of the plaintiff's loss, this did not mean that the respective wrongdoings were not concurrent; and
(c)Dr Burkitt would not have parted with the possession of his vehicle if he had known that it would not be covered by insurance arranged according to his agreement with the company and Mr Zervas. In those circumstances, the driver, Mr Amro, would not have acquired possession of the vehicle so as to enable him to have the opportunity to drive it into a collision with trees, yet he did drive it into the trees, thus causing damage.
[11] Zervas v Burkitt [No 2] [2019] NSWCA 236 [47].
Consequently, at first instance his Honour found, by independent causation pathways, that all defendants relevantly caused, and were relevantly responsible for, the damage to the plaintiff's vehicle. The New South Wales Court of Appeal found that the primary judge did not err and found that any liability that Mr Zervas had on the basis of a knowingly involvement claim (for assessorial liability) was a liability under s 236 of the Australian Consumer Law and as such, the proportionate liability regime under pt 4 of the Civil Liability Act 2002 (NSW) applied to make the claim against Mr Zervas an apportionable claim.[12]
[12] Zervas v Burkitt [No 2] [2019] NSWCA 236 [51] - [60] (Bell P, McFarlane & McCallum JJA).
However, whether or not a claim is 'apportionable' is a matter that does not generally fall to be determined simply on the pleadings. The question of whether or not a claim is 'apportionable' will generally involve a characterisation of a claim based on the evidence before the court.[13]
[13] Landpower Australia Pty Ltd v Penske Power Systems Pty Ltd [2019] NSWCA 161 [42] (Bell P, McFarlan & Payne JJA).
Zervas v Burkitt illustrates that until the facts are found in the hearing on the merits of a claim the court is not in a position to conclusively determine whether there is more than one wrongdoer responsible for the loss or damage so as to warrant a finding that each of those persons are concurrent wrongdoers. Where a defendant names other parties as concurrent wrongdoers it does not follow that the court will accept this characterisation.[14]
[14] Landpower Australia Pty Ltd v Penske Power Systems Pty Ltd [2019] NSW 161 [41] (Bell P, McFarlan & Payne JJA).
I do agree, however, that it is open to the Bresland parties to name Holgersson as a concurrent wrongdoer, as a person whose act or omission caused the damage or loss that is the subject of the McMurrays' claim. Consequently, I am obliged to consider whether to allow the Bresland parties' application to join Holgersson as a fourth defendant pursuant to s 5AN of the Civil Liability Act.
In Hart v JGC Accounting & Financial Services Pty Ltd, Murphy JA set out the following principles that are relevant to the application by the Bresland parties:[15]
(1)the power to join a concurrent wrongdoer under s 5AN of the Civil Liability Act is discretionary and on its terms is unconfined. However, the court must have regard to a number of factors which include:
(i)the likelihood and extent to which joinder would add complexity and delay to the litigation, the attitude of the plaintiff to the proposed joinder will also generally be an important, albeit not determinative, consideration;
(ii)matters relevant to the attainment of justice in respect of the requirement of the court in pt 1F of the Civil Liability Act to give judgment against a defendant for no more than the amount which the court considers 'just having regard to the extent of the defendant's responsibility for the damage or loss' (s 5AK(1)(a));
(iii)it is in the interests of justice for the court to have before it, so far as practicable, all the relevant materials to enable it to determine what is just; and
(iv) the general administration of justice will also be relevant in determining whether the court should exercise its discretion under s 5AN of the Civil Liability Act. For example, the prospect of multiplicity of suits, with the potential for inconsistent findings, if joinder were not ordered, would ordinarily be of some relevance; and
(2)ultimately, the question is to be determined by whether, on the evidence before the court and having regard to the issues in the litigation, and bearing in mind the statutory scheme in pt 1F of the Civil Liability Act as a whole, it is in the interests of justice to grant leave to join a defendant under s 5AN of the Civil Liability Act.
[15] Hart v JGC Accounting & Financial Services Pty Ltd [2015] WASCA 22; (2015) 47 WAR 582 [38] ‑ [47] (Martin CJ & Newnes JA agreeing).
It was also observed by Murphy JA that where a concurrent wrongdoer is not made a party to, or participates in, proceedings it was relevant to consider that the conception of a 'just' determination does not involve making adverse findings on questions of responsibility for loss (as opposed to questions of fact arising in the course of giving evidence) against a person who has not had the opportunity to be heard (even where the findings could not formally bind that person).[16]
[16] Hart v JGC Accounting & Financial Services Pty Ltd [2015] WASCA 22; (2015) 47 WAR 582 [40] (Martin CJ & Newnes JA agreeing).
It is my opinion that Holgersson should not be joined as a fourth defendant. The factors that I have taken into account relevant to my discretion are:
(a)that the plaintiffs, the McMurrays, have firmly expressed the opinion that they do not intend to join Holgersson as a defendant;
(b)Holgersson is, and has for some time been, a party to the proceedings as a first fourth party;
(c)for the reasons that follow, the Bresland parties can bring no cause of action against Holgersson, nor is it open to them to stand in the shoes of the McMurrays;
(d)the effect of the orders sought by the Bresland parties is that they seek to join Holgersson as a defendant and then to file a counterclaim against Holgersson. Procedurally, this is not a course open to the Bresland parties as the Bresland parties have not sought to bring third party proceedings against Holgersson by the filing of a notice of contribution, on 5 September 2019, against Holgersson (even though the notice was filed pursuant to O 19, r 8 of the Rules of the Supreme Court);
(e)the Bresland parties have significantly delayed in bringing this application which, if allowed, will raise the issue of whether Holgersson is liable for the actions or omissions for the painters who applied the Loba oil and disposed of the oily rags on grounds that Holgersson owed a non-delegable duty of care;
(f)the allegations that the Bresland parties seek to raise in its application to join Holgersson as a defendant are allegations that are not raised by any other party. These go to whether the painters engaged in an extra-hazardous activity, in particular whether or not the:
(i)oily rags were not stored or disposed of 'fire‑proofely'; and
(ii)oily rags were a 'danger' according to the warning criteria on the label on the can of oil.
These allegations are sought to be raised despite the fact that the Bresland parties do not intend to adduce any expert evidence on these issues and do not contemplate calling any lay evidence on the issues unless AIG fails to do so;
(g)in their amended defence, filed on 5 July 2017, the Bresland parties plead that Mosman Bay, Simmo's Home Improvements Pty Ltd (defined inclusively within the term Holgersson's, together with Hans Bo Kristian Holgersson and Mark Lawrence Simpson as a contracting painter in [39] and [40] of the re‑amended defence) Tokio, and AIG, are concurrent wrongdoers but has not sought to bring third-party proceedings against Mosman Bay, Simmo's Home Improvements, Tokio, or AIG, or to join Mosman Bay or Simmo's Home Improvements as a defendant.
All of these considerations militate against the granting of the Bresland parties' application. For these reasons, I am of the opinion that the order sought in [1(1)] should not be made.
I am also of the opinion that the order sought in [1(2)] should not be made. This is because it is not open to a defendant to file a counterclaim against another defendant. It appears clear from the Bresland parties' submissions that the reason why this order is sought is that they seek to stand in the shoes of the plaintiff. Such a procedural step is not, however, open to the Bresland parties. For the reasons that follow, the Bresland parties have no right to subrogate any claim the McMurrays may have against Holgersson.
Equitable subrogation - is it open to the Bresland parties to plead a cause of action against Holgersson by standing in the shoes of the McMurrays?
The Bresland parties contentions
The Bresland parties seek to invoke an equitable remedy of subrogation based on a claim of unjust enrichment to address the following outcome if (in the event that such findings are made):
(a)the McMurrays lose against AIG (and the fourth party proceedings succeed against Holgersson);
(b)the Bresland parties and Holgersson are found not to be concurrent tortfeasors;
(c)the reduction in value and breach of a duty to mitigate defences fail;
(d)the judgment obtained by the McMurrays against the Bresland parties is for everything they would have recovered under the 'Notional insurance policy' effectively putting the Bresland parties in the position of a notional insurer;
(e)the judgment will leave the McMurrays with no reason to sue Holgersson; and
(f)if the McMurrays had the 'Notional insurance policy':
(i)the notional insurer, upon paying their claim, would have been able to sue Holgersson in their names; and
(ii)the McMurrays settled or obtained a judgment against Holgersson before claiming on the policy, that would have reduced their claim on the policy;
in light of (a) to (f), it would be unjust to deprive the Bresland parties of the opportunity to obtain a judgment against Holgersson.
Put another way, the Bresland parties ask the question, in these circumstances, just because the McMurrays choose not to sue Holgersson why should the Bresland parties have to bear the entire loss and Holgersson not have to bear any loss caused by its negligence?
It is common ground that the Bresland parties would be unable to bring a subsequent action against Holgersson (if they are not concurrent wrongdoers) as the claims against them (in the main and fourth party proceedings) are that they are both tortfeasors and, in the absence of a statutory right of contribution, at common law the Bresland parties have no claim of contribution.[17]
[17] Merryweather v Nixan(1799) 8 TR 186; (1799) 101 ER 1337; approved in Weld-Bundell v Stevens [1920] AC 956, 976 (Lord Dunedin).
The Bresland parties contend that the categories of those entitled to equitable subrogation are not closed. They point out that the learned authors of the fourth edition of Meagher Gummow & Lehane's Equity Doctrines & Remedies state that it is feasible for equity to permit subrogation in circumstances newly before it outside recognised categories of subrogation.[18]
Principles that apply to the pleading of emerging points of law
[18] Meagher Gummow & Lehane's Equity Doctrines & Remedies, (4th ed) [9‑265].
In Glencore International AG v Federal Commissioner of Taxation, a very recent joint decision of the High Court, their Honours applied the decision of the court in PGA v The Queen by observing:[19]
The law develops by applying settled principles to new circumstances, by reasoning from settled principles to new conclusions, or determining that a category is not closed. Even then the law as developed must cohere with the body of law to which it relates. (citations omitted)
[19] Glencore International AG v Federal Commissioner of Taxation [2019] HCA 26; (2019) ALJR 967 [40] applying PGA v The Queen [2012] HCA 21; (2012) 245 CLR 355.
In the passage referred to in PGA v The Queen, their Honours applied the principles enunciated by Sir Owen Dixon to the development of the common law by judicial reasoning to the work of the courts in Australia:[20]
In his words, these are: (i) extending 'the application of accepted principles to new cases'; (ii) reasoning 'from the more fundamental of settled legal principles to new conclusions'; and (iii) deciding 'that a category is not closed against unforeseen instances which in reason might be subsumed thereunder'.
To these steps may be added one which is determinative of the present appeal. It is that where the reason or 'foundation' (93) of a rule of the common law depends upon another rule which, by reason of statutory intervention or a shift in the case law, is no longer maintained, the first rule has become no more than a legal fiction and is not to be maintained.
Does the law in Australia recognise equitable subrogation based on a claim of unjust enrichment?
[20] PGA v The Queen [2012] HCA 21; (2012) 245 CLR 355 [29] ‑ [30] (French CJ, Gummow, Hayne, Crennan & Kiefel JJ).
Contrary to the contentions put by the Bresland parties, the settled law on this point in Australia is clear.
Subrogation is an equitable remedy. There is no all‑embracing theory that explains when subrogation will be permitted, the equity arises from the conduct of the parties on well‑settled principles and in defined circumstances which make it unconscionable for the defendant to deny the plaintiff's right.
Subrogation (or principles analogous to it) has been identified in at least eight categories of case. Those categories are vendors lien; payment out of prior securities; indemnity insurance; guarantees; executors and receivers carrying on ultra vires business; unauthorised or unenforceable borrowings by, among others, married women, infants, partners and companies; creditors of a trading trust in priority to the beneficiaries; and marshalling.[21]
[21] Meagher Gummow & Lehane's Equity Doctrines & Remedies, (5th ed) [9‑040].
The law in Australia does not recognise the concept of unjust enrichment as a principle entitling a person to claim equitable subrogation. Nor is there any category of law open to enable the Bresland parties to stand in the shoes of the McMurrays against Holgersson to enable a plea of the kind sought to be made by the Bresland parties.
Subrogation may arise by contract, statute or under the general law. Whilst the learned authors of Meagher Gummow & Lehane's Equity Doctrines & Remedies expressed the opinion in the fourth edition of the text, published in 2002, that there is some uncertainty whether subrogation is a principle of general application or confined to specific areas,[22] the authorities referred to by the learned authors are English authorities and no observation is made about whether unjust enrichment is open to be relied upon in a claim of subrogation. Whilst the same observation is reiterated in the fifth edition of the text, published in 2015, the observation made by the learned authors is made about cases heard and determined in English courts and in the United States of America.[23]
[22] Meagher Gummow & Lehane's Equity Doctrines & Remedies, (4th ed) [9‑005].
[23] Meagher Gummow & Lehane's Equity Doctrines & Remedies, (5th ed) [9‑005].
Whilst courts in England, New Zealand, and in the United States of America have accepted unjust enrichment as the doctrinal basis of equitable subrogation,[24] this approach has been rejected in Australia.
[24] Banque Financière de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221; [1998] 1 ALL ER 737; Menelaou v Bank of Cyprus UK Ltd [2015] UKSC 66; [2016] AC 176; Intex Coatings Ltd (in liq) v Deo [2016] NZHC 2754; [2017] NZAR 47 [143] ‑ [146] (Fitzgerald J); Holmes Regional Medical Center Inc v Allstate Insurance Company (Unreported, Florida, SC15-1555, 13 July 2017).
In Bofinger v Kingsway Group Ltd,[25] the High Court rejected the English approach of subrogation based upon unjust enrichment and found that the doctrinal basis of equitable subrogation in Australian law is not unsettled. Their Honours relevantly observed that the relevant principles of equity do not operate at large and in an idiosyncratic fashion,[26] and gave two reasons for rejecting the English approach. The first was that subrogation cases involve multilateral rather than bilateral relationships which create difficulty in identifying the 'unjust' element of unjust enrichment.[27] The second is that unjust enrichment did not provide an explanation (in that case) for the mortgagors being treated as bound in equity to treat the person who paid off the previous mortgage as entitled to security under it.[28]
[25] Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269.
[26] Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 [94] (Gummow, Hayne, Heydon, Kiefel & Bell JJ).
[27] Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 [97] (Gummow, Hayne, Heydon, Kiefel & Bell JJ).
[28] Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 [97] (Gummow, Hayne, Heydon, Kiefel & Bell JJ).
In their fifth edition of Meagher Gummow & Lehane's Equity Doctrines & Remedies, the learned authors observed that the High Court of Australia had unequivocally rejected aspects of the English approach in Bofinger v Kingsway Group,[29] and said:[30]
More generally, the High Court echoed earlier statements critical of any reliance on 'unjust enrichment' as a principal supplying a sufficient premise for direct application in a particular case; rather, it was a concept, capable of assisting the ordinary process of legal reasoning in a new or developing category of case, but of no assistance in the well- developed area such as subrogation.
[29] Meagher Gummow & Lehane's Equity Doctrines & Remedies, (5th ed) [9‑115].
[30] Meagher Gummow & Lehane's Equity Doctrines & Remedies, (5th ed) [9‑120].
Very recently, Nettle, Gordon and Edelman JJ in Mann v Patterson Constructions Pty Ltd, referred to the English approach to unjust enrichment in a different context (in respect of the availability of the restitutionary remedy of quantum meruit) and observed that more recent decisions in English courts have indicated a movement away from the concept of unjust enrichment as if it were a definitive legal principle:[31]
[T]hat supplies a sufficient premise for direct application by rigid, uniform application of questions concerning whether there is (1) an enrichment, (2) at the plaintiff's expense, (3) in circumstances of an unjust factor, and (4) subject to defences. Within that rigid approach, there was something of a tendency to treat tests for and measures of 'enrichment' as governed by a single principle; thus encouraging a view of the benefit abstracted from the contract price. More recently, some members of the Supreme Court of the United Kingdom have cautioned against mechanical application of the 'four questions' of enrichment, expense, injustice and defences. In Swynson Ltd v Lowick Rose Llp, Lord Sumption JSC denied that English law had a universal theory which explains all of the cases in which restitution is available. In view of those developments, it may be that the law of restitution in the United Kingdom and the law of restitution in Australia are no longer quite as far apart as was previously imagined.
Whether or not that is so, however, in this country restitution arises in recognised categories of case and is not necessarily available whenever, and to the extent that, a defendant is enriched at the plaintiff's expense in circumstances that render the enrichment unjust. Although, over time, novel categories of case may come to be recognised, or existing categories refined, that must occur in accordance with the common law's ordinary process of incremental development: by analogy with decided cases, albeit that, within that process of development and refinement, the four questions may serve to focus attention on the nature, availability and measure of restitutionary relief, and so assist in structuring understanding as to avoid the development of the law of unjust enrichment degenerating into an exercise in idiosyncratic discretion. (citations omitted)
[31] Mann v Patterson Constructions Pty Ltd [2019] HCA 32 [212] ‑ [213].
In light of the observations made by the High Court in Bofinger v Kingsway Group Ltd and Mann v Patterson Constructions Pty Ltd, it cannot be said that the law in Australia is unsettled. Unjust enrichment is not itself a definitive legal concept capable of uniform application to entitle a plaintiff to relief, the claim for unjust enrichment must be founded in a recognised category of case or developed as a novel category (or refine an existing one) in accordance with the ordinary principles of the development of the common law.
In this case, the Bresland parties are seeking to rely on unjust enrichment as a basis for equitable subrogation in a category of case that is entirely novel. No existing category supports the claim made by the Bresland parties. Nor is it apparent that an existing category can be refined to include such a claim.
In effect, the Bresland parties seek to subrogate the McMurrays' hypothetical 'rights' under an insurance policy that, in the specific circumstances described at [46] would have existed if the Bresland parties were the insurer. However, the Bresland parties are not, in fact, in the position of a notional insurer and no such rights of subrogation exist. What is clear is that the law will not permit the development of the law of unjust enrichment in an idiosyncratic fashion based on subjective notions of what is just and fair.
The development of the doctrine of unjust enrichment in such a fashion would be without foundation and would be inconsistent with existing principles underpinning the doctrine. It would enable a party with no legal right to claim against another almost squarely on the basis of an abstract notion of fairness.
Consequently, the orders sought by the Bresland parties, in [1(3)], should not be made, as to do so would be a futile attempt to invoke a remedy that is not available to them.
The application to file a counterclaim against the McMurrays in terms of the minute dated 10 October 2019
The Bresland parties' proposed counterclaim seeks to raise 'rights' of subrogation by standing in the shoes of the McMurrays to obtain an indemnity against Holgersson on the same grounds that they rely upon in seeking to join Holgersson as a fourth defendant.
As the Bresland parties have no legal basis for making this claim, the application for proposed orders [4 (a)], [5] and [6] must also fail.
The application not to comply with O 21 r 9 in relation to the Bresland parties' re-amended defence filed 10 October 2019
Whilst the Bresland parties are entitled to re-amend their defence without leave as it is more than seven weeks away from trial, the McMurrays oppose the order sought by the Bresland parties.
The purpose of O 21 r 9 is to ensure that the record of the court is accurately maintained, by knowing when and how an amendment was made,[32] that the history of amendments of pleadings is clearly apparent and that every party is properly apprised of the amendments that are made to a pleading.
[32] J Leavey & Co Ltd v George H Hirst & Co Ltd [1943] 2 All ER 581; [1944] KB 24.
The court must also have regard to the principles of efficient case flow management, one principle of which is the elimination of delay and the efficient disposition of the court's business.[33]
[33] Rules of the Supreme Court 1971 (WA), O 1 r 4A and r 4B.
Order 21 r 9 provides:
How amendments to be made
(1)Where the amendments authorised under any rule of this Order to be made in a writ, pleading or other document are so numerous or of such nature or length that to make written alterations of the document so as to give effect to them would make it difficult or inconvenient to read, a fresh document, amended as so authorised and showing its original contents with the amendments written in any manner that will distinguish the alterations from the original document or from any previous amendment, must be prepared, and in the case of a writ or originating summons re-issued.
Given the extent of the amendments sought to be made by the Bresland parties to their defence it is difficult and time-consuming to ascertain precisely the changes proposed in the new pleading with the existing pleading.
This task is difficult where changes to the pleadings, as here, have not been marked up. The Bresland parties have provided to the parties and to the court a document said to be a schedule that compares the re‑amended defence with the amended defence dated 5 July 2017.[34] However, this document does not greatly assist to clearly show the changes that are to be made to the existing pleadings. This is in part because the paragraphs of the amended defence and the proposed re‑amended defence largely do not correspond.
[34] Filed by the Bresland parties on 24 October 2019.
In circumstances where the amendments to the amended defence appear to be in a form that makes it difficult or inconvenient to distil what amendments have been made leave should not be granted.
In any event, as a result of the findings that I have made in respect of the Bresland parties' application to join Holgersson as a fourth defendant, the Bresland parties may wish to reconsider some of the issues they wish to plead in a re-amended defence.
Conclusion
For these reasons, the Bresland parties' applications should be dismissed. I will hear the parties as to the orders that should be made, including orders as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EH
Research Associate/Orderly to the Honourable Justice Smith6 DECEMBER 2019
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