Gibbs v Haoma Mining NL [No 6]
[2017] WADC 67
•30 MAY 2017
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: GIBBS -v- HAOMA MINING NL [No 6] [2017] WADC 67
CORAM: STAUDE DCJ
HEARD: 16 JANUARY 2017
DELIVERED : 30 MAY 2017
FILE NO/S: CIV 1348 of 2007
BETWEEN: BARBARA JEAN GIBBS
Plaintiff
AND
HAOMA MINING NL
DefendantINSURANCE COMMISSION OF WESTERN AUSTRALIA
Third PartyINSURANCE AUSTRALIA LTD
Third person
Catchwords:
Appeal from registrar's decision - Application for debt appropriation order - Objection by third person - Whether an insurer's liability to indemnify a defendant is an available debt - Effect of consent order dismissing third party claim for indemnity
Legislation:
Civil Judgments Enforcement Act 2004
Result:
Appeal allowed
Objection to debt appropriation order dismissed
Representation:
Counsel:
Plaintiff: Ms R Sorgiovanni
Defendant: No appearance
Third Party : No appearance
Third person : Mr D H Williams
Solicitors:
Plaintiff: Sorgiovanni Legal
Defendant: Not applicable
Third Party : Not applicable
Third person : WHL Legal Pty Ltd
Case(s) referred to in judgment(s):
Alexander v Ajax Insurance Co Ltd [1956] VLR 436
AMP Workers' Compensation Services (NSW) Ltd v QBE Insurance Ltd [2001] NSWCA 267; (2001) NSWLR 35
Bank of NSW v Fremantle Auto Centre (1973) WAR 161
Baxter v Obachelo Pty Ltd [2001] HCA 66
Cigna Insurance Asia Pacific Ltd v Packer [2000] WASCA 415; (2000) 23 WAR 159
Commercial Developments Pty Ltd v Mercantile Mutual Insurance (Worker's Compensation) Limited (1991) 5 WAR 208
Do Carmo v Ford Excavations Pty Ltd [1984] HCA 17; (1984) 154 CLR 234
Edmunds v Lloyd Italico e L'Ancora Cia di Assicurazioni e Riassicurazioni SpA [1986] 2 All ER 249
Gibbs v Haoma Mining NL [2012] WADC 127
Gibbs v Haoma Mining NL [No 4] [2016] WADC 105
Gray v Sirtex Medical Ltd [2009] WASC 126
Hondros v Chesson [1981] WAR 146
Israelson v Dawson (Port of Manchester Insurance Co Ltd garnishee) [1933] 1 KB 301
James Hardie & Co Pty Ltd v Seltsam Pty Ltd [1998] HCA 78; (1998) 196 CLR 53
Jones v Thompson (1858) 27 LJQB 234
Morrell v Mercantile Mutual Insurance (Australia) Ltd [1999] WASCA 250
New Cap Reinsurance Corporation Ltd (in liq) v AE Grant [2008] NSWSC 1015
Newport Assn Football Club Ltd v Football Assn of Wales Ltd [1995] 2 All ER 87
Odyssey Re (Bermuda) Ltd v Reinsurance Australia Corporation Ltd [2001] NSWSC 266
Penrith City Council v Government Insurance Office (NSW) (1991) 24 NSWLR 564
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
QBE Insurance (Australia) Ltd v Lois Nominees Pty Ltd [2010] WASCA 86
Re Mitchell; Freelove v Mitchell (1913) 1 Ch 201
The State of Western Australia v Wardley Australia Ltd [1991] FCA 314; (1991) 102 ALR 213
Trident General Insurance Co Ltd v McNiece Brothers Pty Ltd (1988) 165 CLR 107
Victorian WorkCover Authority v Esso Australia Ltd [2001] HCA 53; (2001) 207 CLR 520
Wallaby Grip Limited Limited v QBE Insurance (Australia) Limited; Stewart v QBE Insurance (Australia) Limited [2010] HCA 9
Western Metals Zinc NL v Wesfarmers Transport Ltd [2003] WASCA 152
STAUDE DCJ: This appeal comes to the court as a fresh hearing of an objection by the third person, Insurance Australia Ltd (IAL), to the plaintiff's application for a debt appropriation order made pursuant to s 49 of the Civil Judgments Enforcement Act 2004 (CJEA). On 15 July 2016 Registrar Kingsley allowed the third person's objection: Gibbs vHaoma Mining NL [No 4][2016] WADC 105.
The defendant, through in-house counsel, informed the court by letter dated 13 January 2017 that it did not intend to appear at the hearing of the appeal. Haoma's position is that it has no funds with which to pay the judgment and believes that IAL (referred to as CGU) is liable to indemnify it in respect of the plaintiff's judgment: email James Yeatman dated 17 August 2015 (affidavit of Rebecca Sorgiovanni sworn 18 September 2015, annexure RLS 11).
Background
The plaintiff was involved in a motor vehicle crash on 27 September 2003 when she was driving a vehicle in the course of her employment by the defendant. The defendant was the owner of the vehicle. The crash was caused when a rear wheel of the vehicle fell off, causing the plaintiff to lose control of the vehicle. The plaintiff suffered injuries as a result of that incident for which she claimed damages.
As the owner of the vehicle, the defendant was insured for liability for death and personal injury by a policy of insurance issued by the Insurance Commission of Western Australia (Insurance Commission) in accordance with the Motor Vehicle (Third Party Insurance) Act 1943 (MVA).
The trial was conducted on the basis that the injuries for which the plaintiff claimed damages were caused directly by, or by the driving of, the motor vehicle and that, accordingly, the policy issued pursuant to the MVA responded and the provisions of that legislation applied. Section 7 of the MVA provides that any person who has obtained a judgment against an insured person may recover from the Insurance Commission such amount of the money awarded as is unsatisfied, notwithstanding any breach of the policy by the insured person.
The defendant joined the Insurance Commission as a third party, claiming an indemnity under the statutory policy.
The Insurance Commission's defence alleged that the defendant had breached a warranty that the owner would not allow the vehicle to be driven in an unsafe or damaged condition. It pleaded also that it had offered to defend the plaintiff's claim on behalf of the defendant provided that the defendant authorised it to do so on the basis that the Insurance Commission would have a right of recovery against the defendant for breach of warranty pursuant to s 7(5) of the MVA.
The Insurance Commission did not plead in its defence that it was not liable to indemnify the defendant by reason of s 3G of the MVA. Section 3G, enacted in 2006, limits the Insurance Commission's liability to indemnify an owner or driver of a motor vehicle, or to pay damages, in circumstances where the owner is liable to pay compensation under the Workers' Compensation and Injury Management Act 1981 (WCA), to liability for negligent driving of the motor vehicle only.
The defendant was also insured by IAL for employers' liability. IAL was joined as a third party by the defendant on the basis that if the MVA did not apply to the plaintiff's claim by reason of s 3G, or if the Insurance Commission were not obliged to indemnify the defendant by reason of s 3G, or by reason of a breach of warranty of the statutory policy, IAL's policy would respond.
The policy provided that IAL was not liable to indemnify the defendant in respect of a liability for which the defendant was required by law to have another policy of insurance.
The policy wording is annexure RLS7 to the affidavit of Ms Sorgiovanni sworn 18 September 2015 and is not in issue in terms of content or construction. Clause 2 of the policy provides that IAL 'will indemnify the employer against legal liability to pay damages … for personal injury sustained by any person employed by the employer' and will pay all reasonable costs and expenses incurred with the insurer's written consent. The wording does not require the insured employer to pay the liability before a right to indemnity arises. Rather, the insured employer is to be indemnified 'against legal liability to pay'.
IAL's defence pleaded in par 7 that the defendant was otherwise indemnified under a policy of insurance which was in force under the MVA and therefore not entitled to indemnity by IAL. IAL raised no other defence.
Although the policy provided that the truth of the insured's proposal and any other information and the insured's observance and fulfilment of the conditions of the policy and any memoranda endorsed or attached, were conditions precedent to any liability of the insurer, IAL's defence raised no issue with respect to this proviso.
During the course of the action, the third party claim against IAL was dismissed by a consent order dated 7 April 2010.
After trial, the defendant was found liable in damages for negligence subject to a 25% reduction for contributory negligence: Gibbs v Haoma Mining NL [2012] WADC 127. Damages were provisionally assessed in the sum of $353,420 net of the reduction for contributory negligence. The learned trial judge assessed damages subject to the relevant provisions of the MVA.
The defendant's liability to the plaintiff was based on a breach of its non‑delegable duty to provide safe equipment to the plaintiff. The court inferred from the evidence that the nuts by which the wheel was attached to the vehicle were either undertightened or overtightened, and that one or other of these events was the cause of the wheel falling off.
The defendant's claim for indemnity against the Insurance Commission as third party was dismissed on the grounds that the defendant had breached the warranty that the vehicle would not be driven in an unsafe or damaged condition.
It was further held, on the authority of Western Metals Zinc NL v Wesfarmers Transport Ltd [2003] WASCA 152, that although the claim was one to which the MVA applied, the plaintiff nevertheless required a determination pursuant to s 93E(3) of the WCA that her degree of disability was not less than 16%, being the threshold requirement for a claim for damages against her employer.
Accordingly, judgment was not entered, but the matter adjourned to enable the plaintiff to obtain such a determination. In the result she obtained a determination of a 41% degree of disability which, being not less than 30%, would entitle her to unrestricted damages pursuant to the WCA.
The plaintiff then applied for a re-assessment of damages on the grounds that the MVA did not apply, relying on s 3G.
The defendant, having appealed the decision dismissing its third party claim against the Insurance Commission (which appeal is pending), maintained that the claim was one to which the provisions of the MVA applied. The Insurance Commission appears to have been of the view that s 3G had no application as it was enacted after the incident which caused the plaintiff's injuries and had no retrospective effect.
The learned trial judge found for the plaintiff on the issue. It was held that by reason of s 23 of the MVA, the 2006 amendment by which s 3G was enacted applied retrospectively. Damages were re-assessed, accordingly, and allowed in the sum of $448,420 net after apportionment: Gibbs v Haoma Mining NL [No 3] [2015] WADC 57.
Ironically, the effect of this determination was to deprive the plaintiff of the right to payment of her damages by the Insurance Commission pursuant to s 7, the defendant having failed to satisfy the judgment debt.
Debt appropriation order
A debt appropriation order may be made pursuant to s 49(1) of the CJEA in respect of an available debt. An 'available debt' is defined by s 46(1):
(1)An available debt in relation to a judgment debtor is any obligation on the part of a person to pay money to the debtor alone, or to the debtor jointly with another or others, which obligation, at the time a debt appropriation order is made —
(a)is current and unconditional, irrespective of whether the money or any part of it is payable at some future time; or
(b)will arise on the fulfilment of one or more conditions under —
(i)an existing agreement or trust; or
(ii)the will of a deceased person; or
(iii)an issued share or other marketable security;
or
(c)may arise in respect of an existing cause of action; or
(d)is imposed by a written law and is likely to arise as a result of an event that has occurred.
(2)The following are not available debts in relation to a judgment debtor —
(a)earnings that are or may be payable to the debtor;
(b)money standing to the credit of the debtor in a court;
(c)money that is payable to the debtor as a trustee and in which the debtor does not have a beneficial interest, unless the judgment concerned was given against the debtor as that trustee.
The procedure for debt appropriation orders is set out in div 5 of the CJEA, sch 1 of the Act, and div 4 of the Civil Judgments Enforcement Regulations 2005 (the regulations). A debt appropriation order is obtained ex parte, there being no requirement to serve the application on the person to whom the order is to be addressed (the third person): s 49, reg 28. Yet, the order must be served on the third person and takes effect upon service: s 50(2), s 51(1).
A third person, having been served with a debt appropriation order, has the obligations imposed by s 52. A third person may object to the order. Section 54 provides:
(1)A third person who is served with a debt appropriation order may object to the order on one or more of these grounds —
(a)that a person other than the judgment debtor and the judgment creditor owns or has a claim on or interest in the appropriated debt;
(b)that the appropriated debt does not and will not exist;
(c)that the third person has an unsatisfied monetary judgment against the judgment creditor or the judgment debtor.
(2)The objection must —
(a)be in writing; and
(b)state the grounds on which it is made and the facts that support the grounds; and
(c)be lodged at the court within 7 days after the day on which the third person is served with the debt appropriation order.
(3)The court must serve a copy of the objection on —
(a)the judgment creditor; and
(b)the judgment debtor; and
(c)any other person whom the third person claims owns or has a claim on or interest in the appropriated debt.
(4)A civil action does not lie against a third person who has made an objection under this section in respect of the disclosure of any information in the objection, if the disclosure was reasonable in the circumstances.
Section 55 provides that the judgment creditor may allow the objection, but if it does not do so within seven days, then the third person, the judgment debtor or any other person whom the third person claims owns or has a claim on or interest in the appropriated debt, may apply to the court for an order that the objection be allowed, whereupon the court may allow or reject the objection.
Section 56 deals with the consequences of failing to obey a debt appropriation order:
(1)If a third person who is served with a debt appropriation order —
(a)does not obey the order; or
(b)does not object to the order under section 54; or
(c)objects to the order under section 54 but does not appear at the hearing of the objection,
the judgment creditor may apply to the court for an enforcement order for the purposes of recovering from the third person —
(d)the amount that was not paid in accordance with the debt appropriation order; and
(e)the costs of obtaining and carrying out the enforcement order.
(2)The court may make such an order.
(3)For the purposes of subsection (2) this Part applies as if the third person were a judgment debtor and the money to be recovered from the third person were a judgment debt.
Section 57 provides that an amount paid to a judgment creditor under a debt appropriation order discharges the third person from the obligation to pay the amount to the judgment debtor.
Legislative background
Prior to the enactment of the CJEA, s 126 of the Supreme Court Act 1935 authorised the attachment of
debts, legal or equitable, owing or accrued from any third person … to a defendant against whom any person has obtained a judgment or order for the recovery or payment of money.
The procedure for obtaining a garnishee order was provided by O 49 of the Rules of the Supreme Court 1970. If the court was satisfied of the existence of the debt on an ex parte application, it would make an order nisi. On being served the garnishee could pay the money into court or show cause why the order should not be made absolute.
That the CJEA was intended to broaden the scope of attachment as a means of enforcing judgments is clear from the second reading speech of the Hon. JA McGinty MLA, attorney general (Hansard, 4 December 2003, page 14278b):
The bill implements the Western Australian Law Reform Commission's recommendations to allow for the appropriation of all debts, whether those debts are present or arising in the future, as well as debts in which the debtor has a joint interest or State debts. Money in banks and other financial institutions is included.
The attorney general stated that the Civil Judgments Enforcement Bill 2003 would 'provide a range of changes to improve efficiency, including a wider choice of enforcement options and an enhanced garnishee system'.
This expressed intention to enhance the means of recovery by allowing for the appropriation of all debts is clearly evident in the terms of s 46(1) which sets out four categories of obligation to pay money which may be seen as expanding the scope of this form of enforcement. The previous statutory scheme merely permitted the attachment of a debt as such, that is, a specified sum of money owing under a contract or otherwise.
In Bank of NSW v Fremantle Auto Centre (1973) WAR 161, Jackson CJ observed in relation to the words 'all debts owing or accruing' (162):
It is well settled that these words require that at the date of the garnishee summons there should be an existing debt; whether presently payable or accruing due in the future. Whether there is at the relevant date a debt due and owing depends on the terms of the contract between the garnishee and the judgment debtor and the practical test is whether the debt was one for which the judgment debtor could have immediately and effectively sued the garnishee: per Sugarman J in Bank of NSW v Barlex Investments (1964) 64 SR (NSW) 274 at p 278.
An entitlement to damages did not constitute an attachable debt, but if a judgment for damages was given then the judgment debt could be attached: see Jones v Thompson (1858) 27 LJQB 234. In Israelson v Dawson(Port of Manchester Insurance Co Ltd garnishee) [1933] 1 KB 301, it was held that a third party insurance policy did not create a debt as between the insured and the insurer as the breach of such a policy merely afforded a right to damages. As Malcolm CJ explained in Morrell v Mercantile Mutual Insurance (Australia) Ltd [1999] WASCA 250 [18]:
At common law a person injured by reason of another person's wrongdoing has no right of action against insurers who have undertaken to indemnify the wrongdoer; the only cause of action available is against the wrongdoer, whether the wrong was a tort or a breach of contract. This is the reason why in England the Third Parties (Rights against Insurers) Act 1930 was enacted which enabled a third party who had a claim against an assured to establish a direct right of action against the insurers in the event that the insured became insolvent. If this condition was fulfilled, the third party was afforded such remedies as the assured had against insurers. It follows that the common law rule applies in any insurance context except to the extent modified by statute. In the past there were attempts by a third party who had recovered damages against an assured to seek a remedy against insurers by way of garnishee proceedings. Israelson v Dawson [1933] 1 KB 301 is an example of such a case. It was held that no debt was due from an insurer to his assured. There was only a promise to indemnify the assured against such payment as the assured was legally liable to make. If the promise was not honoured, the assured had a claim for breach of contract, but since no debt was due there was nothing which could be garnished in the hands of the insurers. Furthermore, the obligation of the insurer could be discharged by satisfying any judgment obtained against the assured by the third party. Such a payment would discharge the insurer's obligation to the insured.
Garnishee proceedings, however, have been abolished by the CJEA. Section 46 defines an available debt as any obligation on the part of a person to pay money to the judgment debtor. The definition does not expressly exclude an obligation to pay damages, liquidated or unliquidated, or limit the obligation to one that involves a specific or specifiable sum. Neither does s 46 limit the meaning of an available debt to a judgment debt, speaking merely of an obligation to pay money, and specifically including in s 46(1)(c) an obligation which 'may arise in respect of an existing cause of action'.
Where judgment is given for a plaintiff against a defendant, a declaration of indemnity in related third party proceedings does not give rise to a right on the part of the plaintiff to enforce the judgment against the third party.
In Morrell v Mercantile Mutual Insurance (Australia) Ltd, the appellant was the plaintiff in a civil liability case. She was awarded damages for personal injuries. The unsuccessful defendant had joined the respondent as a third party claiming an indemnity pursuant to a liability insurance policy. The third party was ordered to indemnify. The appellant sought to be heard in the third party's appeal.
The Full Court held that the appellant had no standing because she had 'no direct legal or equitable right which would be affected by the existence or otherwise of a liability on the part of the appellant insurer'. That was the case even though it was accepted that she had a real commercial interest in supporting a claim by the defendant who had been found liable to her in damages in its claim for indemnity against the insurer. Malcolm CJ held [18]:
At common law a person injured by reason of another person's wrongdoing has no right of action against insurers who have undertaken to indemnify the wrongdoer; the only cause of action available is against the wrongdoer, whether the wrong was a tort or a breach of contract.
Israelson v Dawson was cited as an example of such a case. His Honour observed:
It was held that no debt was due from an insurer to his assured. There was only a promise to indemnify the assured against such payment as the assured was legally liable to make. If the promise was not honoured, the assured had a claim for breach of contract, but since no debt was due there was nothing which could be garnished in the hands of the insurers. Furthermore, the obligation of the insurer could be discharged by satisfying any judgment obtained against the assured by the third party. Such a payment would discharge the insurer's obligation to the insured.
His Honour went on at [20] to comment on s 7 of the MVA which allows a person who has obtained a judgment against an insured in respect of negligence causing death or bodily injury caused by the driving of a motor vehicle to recover the amount unsatisfied under such a judgment by action against the Insurance Commission, noting that the provision did not give the third party any right to sue the insurer before the liability of the assured had been established.
Discussing the other means by which a plaintiff could recover a judgment from the insurer of a tortfeasor, his Honour also referred to s 117 of the Bankruptcy Act 1966 (Cth) which provides:
(1)Where:
(a)a bankrupt is or was insured under a contract of insurance against liabilities to third parties; and
(b)a liability against which he is or was so insured has been incurred (whether before or after he became a bankrupt),
the right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall, if the liability has not already been satisfied, be paid in full forthwith to the third party to whom it has been incurred.
(2)Subsection (1) does not limit the rights of the third party in respect of any balance due to him after the payment referred to in that subsection have been made.
(3)This section applies notwithstanding any agreement to the contrary, whether entered into or after the commencement of this Act.
His Honour observed that this provision is modelled on the Third Parties (Rights Against Insurers) Act 1930 (UK). The provision has the effect of modifying the previous rule which was that an insurance indemnity owed to a bankrupt was the property of the bankrupt and passed to the trustee as part of the general assets divisible among creditors.
There is a corresponding provision in the Corporations Act 2001 (Cth). Section 562 provides that where a company is insured against a liability to a third party and such liability is incurred either before or after the commencement of the winding up, in respect of which the liquidator receives an amount from the insurer, that amount is to be paid to the relevant third party, less only the expenses incurred in getting it in, in priority to all debts mentioned in s 556.
The abovementioned provisions protect the interest of a person entitled to damages as against a tortfeasor by effectively affording recourse to the tortfeasor's insurer in the event of the tortfeasor's insolvency.
The plaintiff's application
By application dated 18 September 2015 the plaintiff sought a debt appropriation order against IAL on the grounds that it was liable to indemnify the defendant pursuant to an employers' liability insurance policy which the defendant held at the time of the incident giving rise to the claim. The plaintiff's application was supported by an affidavit of her solicitor sworn on the same date deposing to the fact that the defendant was liable to be indemnified by IAL in respect of the plaintiff's claim.
The plaintiff relied also on the pleadings in the third party proceedings between the defendant and IAL. IAL's defence in the third party proceedings admitted the policy. IAL pleaded that the defendant's claim for indemnity under the policy was 'denied on the basis that the circumstances of the plaintiff's claim fall within an exclusion to the employer's indemnity policy of insurance' (par 4).
IAL's submissions
In support of its objection, IAL's solicitors filed an outline of submissions dated 19 February 2016. The submitted basis for IAL's objection to the debt appropriation order was that the consent order dated 7 April 2010 dismissing the defendant's claim for indemnity against IAL had the effect of a formal judgment of the claim on its merits, citing James Hardie & Co Pty Ltd v Seltsam Pty Ltd [1998] HCA 78; (1998) 196 CLR 53 and Baxter v Obachelo Pty Ltd [2001] HCA 66. It was submitted that there were no grounds for setting aside the consent order and that the plaintiff was estopped from asserting that IAL was liable to indemnify the defendant, the indemnity issue having been determined.
It was further submitted that the principle of res judicata prohibited the plaintiff from asserting that the defendant was indemnified by IAL. Essentially, the basis for objection is that the available debt does not and will not exist. The submissions of IAL did not suggest, by reference to the policy wording or otherwise, that any condition of the policy had not been satisfied. No factual issues have been raised with respect to the liability of IAL to indemnify Haoma.
IAL's solicitors filed supplementary submissions on 10 March 2016. The matters addressed in those submissions do not bear on the appeal.
Plaintiff's submissions
The plaintiff's solicitor filed an outline of submissions on 11 March 2016. In these submissions it was contended that the consent order was executed in terms that 'the defendant's proceedings against the second third party be dismissed', but that it was settled and sealed by the court so as to read 'the defendant's claim against the second third party be dismissed'. This much appears from the face of the consent order.
The plaintiff argued that the consent order did not affect the defendant's right to indemnity because the matter had proceeded on the basis that there was no dispute that if the plaintiff's claim was one to which the WCA applied then IAL would be liable to indemnify the defendant. Notwithstanding the issues that were initially determined after trial, the trial judge's subsequent finding that s 3G of the MVA had retrospective effect meant that the plaintiff's claim was never one to which the MVA applied. This conclusion rendered otiose the earlier findings of the court in relation to the statutory third party policy.
The plaintiff submitted that the provisions of the WCA prohibited the defendant and IAL from contracting out of the statutory requirement that the defendant be insured for liability to pay compensation to a worker (although counsel for the plaintiff conceded that at the relevant time the WCA required that an employer be insured for liability for statutory compensation only).
Moreover, it was submitted that an agreement to dismiss the third party proceedings (made prior to the trial of the action) did not have the effect of barring a further claim by the defendant.
It was further submitted that under the slip rule (Rules of the Supreme Court 1971, O 21 r 10) the consent order could be amended to reflect the terms to which the parties had consented.
On the substantive issue, it was submitted that the debt appropriation order was valid as IAL had an obligation to pay money to the defendant, the obligation arising from IAL's policy of insurance and the judgment of the court with respect to the plaintiff's claim and the third party proceedings against the Insurance Commission.
It was further submitted that the court should set aside the consent order, but that in any event it did not bind the plaintiff as she was not a party. In fact, no application to set aside the consent order has been made by any party.
(The plaintiff submitted also that she was a beneficiary to the insurance policy and could sue on it in accordance with the principle in Trident General Insurance Co Ltd v McNiece Brothers Pty Ltd (1988) 165 CLR 107, but this submission is unsustainable as the plaintiff was not a beneficiary in the sense that she was insured by the policy.)
Registrar's decision
The learned registrar concluded that a contractual indemnity is not an available debt, holding that at the time of the making of the debt appropriation order 'there was no obligation on the part of the third person which was current and unconditional': [30]. This conclusion was reached as a matter of law on the basis of Israelson v Dawson. The obligation imposed by s 160 of the WCA upon an employer to be insured for its liability to pay compensation to a worker did not create an obligation to pay money for the purposes of s 46. The learned registrar otherwise found that that the indemnity did not fall within s 46(1)(d).
Dealing with IAL's argument that the plaintiff was estopped from asserting IAL's liability to indemnify the defendant because it had been determined by the consent order, the learned registrar observed that the consent order 'validly dismissed the [third party]'s proceeding as between Haoma and IAL', but concluded that the principles of estoppel did not apply so as to assist IAL. No conclusion was expressed as to the effect of the consent order on IAL's contractual obligation to indemnify the defendant.
The learned registrar dismissed IAL's contentions that the objection be allowed because the defendant's appeal against the dismissal of the claim against the Insurance Commission was still pending, and because the plaintiff had not by any other means sought to enforce the judgment against the defendant.
Issues
IAL does not dispute the existence of the employers' liability policy or its effect. Distilled, its contentions are that an available debt does not or will not exist because, firstly, a failure to indemnify an insured pursuant to a policy of liability insurance does not create a debt, but merely gives rise to a claim for damages for breach of contract, and, secondly, the effect of the consent order dismissing the third party claim was to finally determine that IAL had no liability to indemnify the defendant under the policy. The thrust of IAL's argument was that its liability had merged in the consent order and could not be re-litigated by the plaintiff. I will deal with the latter contention first.
Is the plaintiff precluded from asserting an available debt by reason of the dismissal of the defendant's claim for indemnity?
The nature of the third party claim for indemnity
Order 18 r 16 of the Rules of the Supreme Court 1970 permits the making of binding declarations of right without consequential relief. A declaratory judgment is equitable discretionary relief. The third party procedure provided by O 19 permits a claim to be made for a declaration of a contractual entitlement to indemnity.
In Commercial Developments Pty Ltd v Mercantile Mutual Insurance (Worker's Compensation) Limited (1991) 5 WAR 208, Malcolm CJ held (271) that such a declaration was in the nature of quia timet relief. The declaration did not render 'the person entitled to be indemnified a creditor of the indemnifier, for that relationship would only arise in the event that the former had first discharged the principal liability'. His Honour cited Re Mitchell; Freelove v Mitchell (1913) 1 Ch 201.
Commercial Developments decided that the District Court had no jurisdiction to entertain such a claim because it had no statutory power to grant equitable relief unless it was ancillary to substantive relief within its jurisdiction, as decided in Hondros v Chesson [1981] WAR 146. The anomaly was corrected by the subsequent enactment of s 50(1)(aa) of the District Court Act 1969 which specifically confers power to hear and determine a claim for indemnity where it arises from or in relation to another claim before the court.
The third party procedure is one that permits a claim for indemnity to be litigated with the substantive action notwithstanding that no actual liability to indemnify has arisen, as explained in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, 595 (Gibbs CJ, Mason & Aickin JJ):
Although the right to an indemnity arises on payment of the liability to which it relates and not before, this is not a bar to the litigation as between a defendant and a third party, or as between defendants, of a claim based on an indemnity in respect of a liability in negligence asserted by the plaintiff in his action. It is accepted that under so‑called 'third party procedures' of the kind provided for by O 16A, the claim to an indemnity may be litigated in the plaintiff's action, notwithstanding that the payment creating the right to indemnity is not made until after the amount of the plaintiff's verdict is ascertained in that action. It has been repeatedly affirmed that one of the peculiarities of third party procedure is that it enables litigation on the indemnity to take place before there is any liability. (citations omitted)
The availability of this procedure is consistent with the notion that there are two obligations that may arise from a policy of liability insurance, namely the primary contractual obligation to indemnify, which arises upon the event giving rise to the insured's loss, and the secondary obligation to pay damages in the event of breach: see Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, discussed in Sutton on Insurance Law (4th ed, Thomson Reuters) [3‑100].
In QBE Insurance (Australia) Ltd vLois Nominees Pty Ltd [2010] WASCA 86, Murphy JA held [170]:
A positive declaration of right is final and operates as a cause of action estoppel or issue estoppel: Marra Developments Ltd v BW Rofe Pty Ltd [1977] 2 NSWLR 616, 626; Coles v Wood [1981] 1 NSWLR 723, 727. However, a declaration is a discretionary remedy and may be refused on the grounds of utility. As circumstances affecting utility can change, a refusal to grant a declaration may not be final: Coles v Wood (727).
The position advanced by IAL is that the defendant's claim for indemnity merged with the consent order. That argument is based upon the premise that the claim for a declaration of an entitlement to be indemnified in respect of a claim yet to be determined is a cause of action.
A cause of action is constituted by every fact necessary for the plaintiff to prove in order to support its right to recover the amount of its loss or damage: The State of Western Australia v Wardley Australia Ltd [1991] FCA 314; (1991) 102 ALR 213, 227. As Wilson J put it in Do Carmo v Ford Excavations Pty Ltd [1984] HCA 17; (1984) 154 CLR 234, 245, 'It is simply the fact or combination of facts which gives right to a right to sue'. Prior to an insured's loss crystallising by a judgment, a claim for indemnity made in third party proceedings is simply a claim for a declaration of right. The insured cannot sue for breach of contract until the liability for which the indemnity is claimed has been incurred.
While a claim for a declaration may be a cause of action (Newport Assn Football Club Ltd v Football Assn of Wales Ltd [1995] 2 All ER 87, 95 (Jacob J)), the relief is discretionary and depends on, among other things, the utility of the declaration sought: QBE Insurance (Australia) Limited v Lois Nominees Pty Ltd [170]. See also Gray v Sirtex Medical Ltd [2009] WASC 126, [58] - [59] (Le Miere J).
The third party claim against IAL was for such a declaration of right under the policy of insurance. As no liability had been incurred by Haoma, no cause of action for breach of contract had arisen when the third party claim was made, nor when it was dismissed by consent. Indeed, the dismissal of the claim was agreed in the face of an unambiguous admission by another insurer, the Insurance Commission, that the MVA policy responded. For so long as the plaintiff's action was conducted on the basis that the claim was one to which the MVA applied, the declaration was uncalled for. The Insurance Commission, as noted, did not deny liability to indemnify other than on the grounds of breach of statutory warranty and was bound to pay the judgment in any event. IAL's liability to indemnify was excluded.
The law as to the effect of a final judgment is conveniently summarised in Halsbury’s Laws of Australia (LexisNexis) at [190-40]:
A final judgment by a competent tribunal may affect subsequent proceedings between the same parties in three different ways. First, the judgment extinguishes any cause of action which is the subject of the decision. If established, the cause of action is said to merge in the judgment; if rejected, the parties are estopped from claiming that the cause of action exists. Consequently, no further proceedings may be brought as between the parties or their privies to enforce that particular cause of action. This effect is referred to as 'res judicata' or 'estoppel per rem judicatam'. Second, the judgment of the court is a conclusive determination not only of the ultimate finding in the case but also of all the issues necessary to the decision. Hence, an issue of fact or of law so determined cannot afterwards be raised between the same parties or their privies in subsequent proceedings brought to pursue some other claim or cause of action. This effect is referred to as 'issue estoppel'. Third, the decision may preclude the parties or their privies from raising in future proceedings causes of action or issues which they could and should have raised in the former litigation. This extension of the doctrines of res judicata and issue estoppel is referred to as 'Anshun estoppel'. Although generally a judgment only creates an estoppel as between the parties to the judgment and those who claim through them, certain judgments determining the status of persons or things, described as judgments in rem, are binding on all the world. (citations omitted)
In James Hardie & Co Pty Ltd v Seltsam Pty Ltd, it was held that a consent judgment entered at trial was a final order, being 'no less effective … than if the judgment had been given after a trial'. In that case, one of two defendants was released by the plaintiff by consent order. The effect of that order was to preclude the second defendant from pursuing a claim from contribution against the former on the basis that the effect of a consent order dismissing the plaintiff's claim was that it was no longer a tortfeasor 'who is, or would if sued, be liable in respect of the same damage' for the purpose of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). It was observed by Gaudron and Gummow JJ (55) that it was for the appellant to have taken the necessary steps to oppose the entry of judgment and to have put itself in the procedural position where it was competent to appeal against it. The appellant in that case, which was found liable to the plaintiff, was held to have an interest in opposing the entry of the consent judgment on the grounds that its contribution claim would be prejudiced thereby and, accordingly, had standing to do so.
It is convenient to observe at this point that in this case, as in Morrell v Mercantile Mutual Insurance, the plaintiff had no legal or equitable right which would afford her standing in the third party proceedings as between Haoma and IAL. Accordingly, the suggestion by IAL that the plaintiff could have objected to the consent order, or could, even at this juncture, apply to set it aside, is idle.
Haoma, having no need for a declaration, its third party claim against IAL simply fell away. In the circumstances of this case, the dismissal of the claim by consent prior to Haoma incurring any liability to the plaintiff involved no compromise of any cause of action that amounted to a final determination in a way that would create a res judicata or issue estoppel. The consent order did not have the effect of finally determining that IAL was not liable to indemnify Haoma under any circumstances. There was no merger of an existing cause of action in the consent order. That the consent order was expressed as a dismissal as opposed to a discontinuance is a matter of form, not substance, in this case.
Accordingly, by reason of the plaintiff obtaining judgment against Haoma and it having been decided that the MVA does not apply, IAL is liable to indemnify Hoama. As IAL has not done so, in my view there exists a cause of action for breach of the insurance contract. In Wallaby Grip LimitedLimited v QBE Insurance (Australia) Limited; Stewart v QBE Insurance (Australia) Limited [2010] HCA 9, the High Court held [28]:
In insurance contract law an insurer promises to pay money to the insured if the circumstances stated in the policy exist. The insurer's promise may be equated with the cover provided by the insurance contract. The insured must prove such facts as are necessary to prove that the loss was covered by the contract, or as Bailhache J said in Munro Brice & Co v War Risks Association Ltd [1918] 2 KB 78, at 88, the plaintiff must prove such facts as bring the claim within the terms of the insurer's promise.
IAL's policy wording promised an indemnity against the insured's liability and did not require the insured to first discharge any such liability as a pre-condition. In any event it is clear that the cause of action for breach of an indemnity insurance policy arises upon the insured's liability to a third party being established: AMP Workers' Compensation Services (NSW) Ltd v QBE Insurance Ltd [2001] NSWCA 267; (2001) NSWLR 35 [9] (Handley JA).
In some cases it has been said that the right to indemnity arises when the insured has discharged the liability for which it is to be indemnified: see, for example, the dicta cited above from Commercial Developments Pty Ltd v Mercantile Mutual Insurance (Worker's Compensation) Limited. However, the point at which a cause of action arises (when time begins to run) depends upon the nature and extent of the indemnity and the nature of the relief claimed: Cigna Insurance Asia Pacific Ltd v Packer [2000] WASCA 415; (2000) 23 WAR 159, [82] (Pidgeon J). IAL's policy contained no 'pay to be paid' clause. In that decision Pidgeon J (Malcolm CJ, Kennedy J) declined to follow a decision of Giles J to the effect that a cause of action would not arise while there was a possibility that the insured would pay the claim: Penrith City Council v Government Insurance Office (NSW) (1991) 24 NSWLR 564.
The authors of The Law of Liability Insurance (third edition, LexisNexis) [8-8] put it this way:
The insured's right to indemnity under a liability insurance policy is engaged by three circumstances. First, an occurrence which has rendered the insured potentially liable to a third party must have occurred. Secondly, the occurrence and the consequent liability have to be within the scope of the cover provided by the policy. Thirdly, it must be established by judgment, award or settlement that such liability has caused loss to the insured of an amount within the scope of the contractual indemnity. Each of these constituents is necessary to a cause of action.
I conclude that the dismissal by consent of the third party claim against IAL did not constitute a final determination of IAL's potential liability to indemnify and, further, that a cause of action in damages for breach of contract arose upon the ascertainment of Haoma's liability to the plaintiff.
Is an indemnity due under a policy of liability insurance an available debt?
Determining whether a contractual indemnity is an available debt for purposes of the CJEA requires consideration of the nature of the contractual obligation. It must be an obligation to pay money to the judgment debtor that (in terms of s 46):
(a)is current and unconditional, irrespective of whether the money or any part of it is payable at some future time; or
(b)will arise on the fulfilment of one or more conditions under —
(i)an existing agreement or trust; or
(ii)the will of a deceased person; or
(iii)an issued share or other marketable security;
or
(c)may arise in respect of an existing cause of action; or
(d)is imposed by a written law and is likely to arise as a result of an event that has occurred.
IAL submits that an obligation to indemnify an insured pursuant to an employer's liability policy is not within any of those four categories.
The nature of an insurer's obligation under such a policy is to save and keep the insured harmless from loss: Victorian WorkCover Authority v Esso Australia Ltd [2001] HCA 53; (2001) 207 CLR 520 [16]. As noted above, the insured suffers a loss when its liability to pay damages is crystallised by a verdict or settlement. The right to indemnity arises at that point: AMP Workers' Compensation Services (NSW) Ltd v QBE Insurance Ltd. Indemnity insurance involves payment for the loss actually suffered by the insured: Wallaby Grip Limited v QBE Insurance (Australia) Limited; Stewart v QBE Insurance (Australia) Limited [30]. It follows that the indemnity obligation may be satisfied by paying the party to whom the insured is liable or reimbursing the insured. The secondary obligation, to pay damages, is an obligation to pay money to the insured.
In Victorian WorkCover Authority v Esso Australia Ltd [16] - [17], the plurality observed that at common law the party asserting a right to indemnity had first to discharge the obligation, whereas equity could order the indemnifier to pay the money directly to the creditor. In that case the High Court was concerned to decide whether a claim for an indemnity made under the Accident Compensation Act 1985 (Vic) was a 'proceeding for the recovery of debt or damages' for the purposes of s 60 of the Supreme Court Act 1986 (Vic) which permitted the recovery of interest. The facts were that the appellants, being Victorian WorkCover and an approved insurer, had made payments of statutory compensation to a worker who had been injured while working on an oil platform occupied by the respondent. The appellants sought a statutory indemnity in respect of payments that had been made and a declaration of the respondent's liability to indemnify with respect to future payments. It was held the words 'any proceeding for the recovery of debt or damages' should be understood as a composite expression which embraced any proceeding in which a claim for money is made, in contrast to declaratory relief and other claims for specific forms of relief not involving the payment of money': [41] (Gleeson CJ, Gummow, Hayne & Callinan JJ).
The nature of the remedy for breach of a liability insurance contract has been considered in a number of cases. I have previously noted the decisions in Jones v Thompson, Israelson v Dawson, and Morrell v Mercantile Mutual Insurance.
In Odyssey Re (Bermuda) Ltd v Reinsurance Australia Corporation Ltd [2001] NSWSC 266, at issue was the validity of a statutory demand made pursuant to s 459G of what was then the Corporations Law. The demand was an amount claimed to be due under a contract of reinsurance. The issue was whether the re-insurer's obligation was a debt. Windeyer J referred to a body of cases collected in Penrith City Council v Government Insurance Office (NSW) (1991) 24 NSWLR 564 as generally supporting the proposition that an action for indemnity under an insurance policy was a claim for unliquidated damages for breach of contract. The one exception was a claim for total loss under a valued policy: Alexander v Ajax Insurance Co Ltd [1956] VLR 436 (445) ‑ (446). The other cases involved fire, marine or accident policies.
Windeyer J also referred to the decision of the English Court of Appeal in Edmunds v Lloyd Italico e L'Ancora Cia di Assicurazioni e Riassicurazioni SpA [1986] 2 All ER 249, that involved a claim of an undisputed amount. At [17] his Honour cited Donaldson MR (at 250):
One might well think that a sum due under an insurance policy constituted a debt. On this assumption, the plaintiff's solicitors were entitled to appropriate the drafts to the principal sums due, since otherwise they would have been deemed to have been appropriated to the payment of interest, the balance only being appropriated to payment of the principal amounts (see Chitty on Contracts (25th ed, 1983) para1424). However, as a matter of law, a claim under a contract of insurance is a claim for damages for breach of contract (see Luckie v Bushby (1853) 13 CB 864, 138 ER 1443 and Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd's Rep 65). The purported appropriation accordingly was unnecessary as such. However, it did make it clear that the drafts were not being accepted in full settlement.
Observing that the decisions referred to had been accepted for many years, Windeyer J held that any decision that the word 'debt' in s 459E of the Corporations Law should be interpreted so as to encompass an indemnity claim would need to be made by a higher court. His Honour concluded on the authorities that a claim for monies payable under a contract of insurance is a claim for unliquidated damages for a breach of contract.
In New Cap Reinsurance Corporation Ltd (in liq) v AE Grant [2008] NSWSC 1015, the issue was whether the plaintiff reinsurer was insolvent at a certain date. White J dealt with the issue of whether an insurance liability was for damages or in debt (from [86]). Following Odyssey Re (Bermuda) Ltd v Reinsurance Australia Corporation Ltd, his Honour found that the liability of an insurer is typically a liability to pay unliquidated damages, with the exception of total loss on a valued policy.
His Honour found that the cases revealed four reasons why a claim on an insurance policy was a claim for unliquidated damages. First, where the insured had not paid the loss, the insurer's obligation could be satisfied by other means, such as paying a third party, as in Israelson v Dawson; second, it may be necessary for the insured to prove the value of its loss; third, a claim for an indemnity was a claim for breach of contract (assumpsit); and fourth, the claim arose from a secondary obligation to pay damages for breach. At [101] – [102], his Honour stated:
A contract of indemnity insurance is often, perhaps usually, characterised as one under which the insured is entitled to be protected from loss. In In re Richardson [1911] 2 KB 705, Buckley LJ said (at 716) 'Indemnity requires that the party to be indemnified shall never be called upon to pay.' Where that is the nature of the contract, then the insurer is liable in damages if the insured is not protected from loss, because the insurer has failed to perform its primary obligation.
Such a promise can and should be distinguished from a promise to redress or compensate the indemnified party for losses sustained (and a fortiori paid) by that party. In the former case the indemnifier is liable in damages for his breach of contract in not preventing the loss. In the latter he can be sued in debt for the recovery of what he promised to pay (Jervis v Harris at 202-203; see generally Zakrzewski, 'The Nature of a Claim on an Indemnity' (2006) 22 JCL 54).
While there is support in the authorities to which reference has been made for the proposition contended by IAL that a claim under a policy of liability insurance is a claim for damages rather than for debt, it seems to me that to focus on that dichotomy is to risk overlooking the definition of an available debt contained in s 46.
The obligation to pay money as prescribed in s 46 is not limited to debts, and can be taken to include an obligation to pay damages. It should also be observed that the words 'existing cause of action' in s 46(1)(c) do not mean a 'cause' or 'action' as defined in s 4 of the Supreme Court Act 1935. The expression 'cause of action' has a legal meaning.
In this case the third person has not sought to adduce any evidence of the terms of the consent order dismissing the third party claim or of any pre‑condition or other obstacle to paying the defendant, by way of indemnity under the policy, the amount of the plaintiff's damages.
Yet, it would appear that Haoma has not sought to enforce its right to be indemnified in respect of the judgment debt. If Haoma is entitled to indemnity the making of a claim is not essential to its cause of action: Cigna Insurance Asia Pacific Ltd v Packer [2000] WASCA 415; (2000) 23 WAR 159. In my view, on a proper construction of the policy, it is not a prerequisite to IAL's liability to pay the judgment that Haoma has discharged it. It is sufficient that Haoma's liability to the plaintiff has been ascertained by a verdict.
Conclusion
As the authorities cited herein demonstrate, a claim for indemnity made by way of a third party claim in anticipation of a legal liability to pay damages is for a declaration of right. On the other hand, a claim for breach of a policy of indemnity insurance is a claim for damages for breach of contract. It is a claim for the payment of money.
On the undisputed facts of this case Haoma's liability to the plaintiff pursuant to the judgment given on 15 May 2015 is a liability to which IAL's policy of employers' indemnity insurance responds and that IAL is liable to indemnify Haoma with respect to that judgment.
Haoma's liability to the plaintiff has been determined by an award of damages. By reason of my finding that the consent order dismissing the third party claim did not finally determine IAL's liability to indemnify, that liability may be yet be enforced. Accordingly, for the purpose of s 46(1), IAL has an obligation to pay money to Haoma that 'may arise in respect of an existing cause of action'.
Because the obligation is to pay damages, it is not an obligation described in s 46(1)(b) or s 46(1)(d), although it might well be an obligation of the type described in s 46(1)(a) also. However, I would refrain from characterising the obligation as 'current and unconditional' as the authorities support the view that Haoma's right is to unliquidated damages for breach of contract, as opposed to a liquidated sum. The words 'current and unconditional' in my opinion denote a debt in the conventional sense.
It is not a reason to refrain from allowing the appeal that Haoma, as I am informed, has appealed the decision of the trial judge with respect to the breach of warranty finding. That finding has been rendered otiose by the subsequent finding that the MVA does not apply. I am not aware of any appeal from the latter decision.
The appeal should be allowed and the third person's objection to the debt appropriation order dismissed.
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