Gorczynski v W & FT Osmo Pty Ltd

[2009] NSWSC 693

CITATION:	Gorczynski v W & F T Osmo Pty Ltd [2009] NSWSC 693
HEARING DATE(S):	30 April 2009
JUDGMENT DATE :	24 July 2009
JURISDICTION:	Common Law
JUDGMENT OF:	Simpson J
DECISION:	Notice of motion dismissed.
CATCHWORDS:	PROCEDURE – Supreme Court procedure – New South Wales – application to join insurance company as a party to proceedings – INTERPRETATION – interpretation and application of s 6(4) Law Reform (Miscellaneous Provisions) Act 1946 and s 54(1) Insurance Contracts Act 1984 (Cth) – INSURANCE – professional indemnity insurance – insured failed, during any period of cover, to notify insurance company of any fact or circumstance that might give rise to a claim against it – claim not within policy – no application of s 54(1) Insurance Contracts Act 1984 – motion dismissed
LEGISLATION CITED:	Insurance Contracts Act 1984 (Cth) Law Reform (Miscellaneous Provisions) Act 1946 Uniform Civil Procedure Rules
CATEGORY:	Procedural and other rulings
CASES CITED:	Bailey v NSW Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399 FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641 FAI General Insurance Ltd v Jarvis [1999] NSWCA 23; (1999) 46 NSWLR 1 Gorczynski v Perera & Dee [2003] NSWLEC 6 Gorczynski v Perera & Dee [2003] NSWLEC 8 State Bank of NSW Ltd v N A MacDonald (NSWSC, Cole J, 17 January 1992, unreported) Tzaidas by his tutor Tzaidas v Child [2004] NSWCA 252; (2004) 61 NSWLR 18 Yorkville Nominees Pty Ltd (In liquidation) v Lissenden [1986] HCA 6; (1986) 160 CLR 475
TEXTS CITED:	“Choosing your life raft: A review of Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6, and its analogues” (2007) 81 ALJ 180 New South Wales Legislative Assembly, Parliamentary Debates, 20 March 1946, Vol 180
PARTIES:	Peter Francis Gorczynski (Plaintiff) W & F T Osmo Pty Ltd (Defendant)
FILE NUMBER(S):	SC 20520 of 2008
COUNSEL:	M E Luitingh (Plaintiff) K Turner (Defendant) J Duncan (QBE)
SOLICITORS:	Niall Connolly Lawyers (Plaintiff) Verekers (Defendant) Deacons (QBE)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

Simpson J

24 July 2009

20520/2008 Peter Francis Gorczynski v W & F T Osmo Pty Ltd

JUDGMENT

1 HER HONOUR: By notice of motion filed on 16 December 2008, Peter Francis Gorczynski, to whom I will refer as “the plaintiff”, seeks, pursuant to UCPR 6.24, an order joining, as a party to the substantive proceedings, the QBE Insurance Group Ltd (“QBE”).

6.24(1) provides:

“(1) If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party.”

3 The plaintiff seeks to have QBE joined in order to avail himself of the right conferred by s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (“the LR(MP) Act”).

4 Section 6 of the LR(MP) Act relevantly provides as follows:

“ 6 Amount of liability to be charge on insurance moneys payable against that liability
(1) If any person (hereinafter in this Part referred to as the insured) has … entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person’s liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.
(2) …
(3) …
(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:
Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.
(5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.
(6) …
(7) …
(8) …
(9) …”

5 The substantive proceedings were commenced by statement of claim filed in the District Court on 5 May 2006. They involve a claim against the defendant, W & F T Osmo Pty Ltd (“Osmo”) in negligence.

6 The statement of claim pleads that the plaintiff was the owner of a property at 78 Booth Street, Annandale; that Osmo was incorporated as a firm of consulting structural and civil engineers; that, in or about 1999, Osmo was retained by neighbours of the plaintiff (at 80 Booth Street, Annandale) to provide various certificates with respect to building works at 80 Booth Street, and that Osmo did so; that the certificates were sought by the owners of 80 Booth Street for the purpose of submission to the Leichhardt Municipal Council (“the Council”), in connection with the determination of a building application made by the owners of that property; that Osmo performed the work associated with the provision of the certificates negligently; that, in reliance on the certificates, the Council granted building certificates authorising [retrospectively] construction of a building at the rear of 80 Booth Street; that Osmo owed a duty of care to the plaintiff; that Osmo breached its duty of care to the plaintiff; and that, as a consequence of that breach of duty, the plaintiff suffered damage.

7 In the statement of claim the plaintiff particularised the damage he then alleged that he suffered. He pleaded that he commenced proceedings in the Land and Environment Court, claiming declaratory relief and orders for the demolition of the building work at 80 Booth Street; and that, on 8 March 2001 and 27 June 2002, the Land and Environment Court ordered demolition of the building work. The plaintiff claimed the sum of $316,816.77 as costs incurred in obtaining the orders. (He claims that the commencement of the proceedings, and the costs thereby incurred, were made necessary as a result of Osmo’s breach of its duty to him.)

8 Osmo elected not to defend the proceedings in the District Court. On 7 July 2006 default judgment was entered in favour of the plaintiff, and the matter stood over to a date in August of that year for assessment of damages.

9 On 17 November 2008 the matter was transferred to this Court. I was told that the order was made on the basis that the sum now sought by way of damages exceeds the $750,000 jurisdictional limit of the District Court.

10 The plaintiff now seeks to have QBE joined as a defendant in these proceedings. This is because Osmo is said to be impecunious and unable to meet any award of damages made against it, but, during the time that the certificates were negligently prepared, held an insurance policy issued by QBE. It did not hold such a policy at the time the statement of claim was filed in May 2006.

The evidence on this application

11 At the commencement of the proceedings there was some discussion about the extent of the evidence. Included in the material initially to be presented was what was said to be “a great volume of material” that “we may refer to”, contained in a folder, made up of exhibits to an affidavit sworn by the plaintiff. After discussion, agreement was reached on the evidence material on the application. It was:

● the statement of claim filed in the District Court and transferred to this Court;

● an affidavit sworn by the plaintiff on 7 August 2008;

● an affidavit sworn by Paul Baram (solicitor for QBE) on 8 April 2009;

● an affidavit sworn by Ava June Bentley (National Claims Manager of QBE) on 15 April 2009.

12 In addition, both counsel contended that, as there was little, if any, dispute on the facts, it would be appropriate that I approach the factual substratum on the basis of assertions of fact contained in written submissions filed by both parties.

13 At the time, I was in no position to appreciate whether those matters were sufficient to provide me with an adequate understanding of the relevant facts. Having now read all of that material, and digested the written and oral submissions, and being, I hope, somewhat better informed, I have doubts whether that material does adequately expose the relevant facts and circumstances. However, since that was the basis on which the application was conducted, I will, as I must, confine myself to that material.

14 It does, however, leave in a state of some uncertainty some other material. As will become apparent, the dispute between the plaintiff and his neighbours has spawned a massive amount of litigation, principally in the Land and Environment Court, but also in this Court, the Court of Appeal and on one occasion at least, in an application for special leave to appeal to the High Court. The extent to which the judgments that resulted are relevant or available for my consideration is not clear. I was provided with copies of some judgments, and reference was made to others with which I was not provided. As I have indicated, I consider it inappropriate to go beyond what was identified on behalf of the parties as the material on the basis of which the application was made and defended. With those observations, I move to the factual background.

Background

15 The evidence establishes that the plaintiff is the owner of the property at 78 Booth Street, Annandale. The adjoining property is 80 Booth Street, which was, until 1999, owned by a Mr Gerard Van Den Bossche, and thereafter by Ms Ravini Perera and Ms Rebecca Dee. Constructed on each property is a two-storey building. A driveway on No 78 is burdened by a right-of-way in favour of No 80. It provides vehicular access to the back of both properties. Above the driveway, the building on No 78 has been extended by the addition of another room which is supported by the walls of the two buildings. Both properties are in the local government area of the Council. Each is zoned Residential, although, since 1971, the ground floor of No 78 has, with the consent of the Council, operated as a laundromat. No 80 was originally constructed as a residence, but it, too, has operated (also with the consent of the Council) as partly commercial.

16 At some unspecified time Mr Van Den Bossche carried out what the plaintiff described as “extensive” building work, without (according to the plaintiff) Council approval.

17 (Again according to the plaintiff) the work interfered with sewer and stormwater services to his property, encroached on his land, and relied upon his garage for support.

18 This precipitated a dispute between the plaintiff and Mr Van Den Bossche. The Council issued Mr Van Den Bossche with Notices of Proposed Orders (“NPO’s”) for the demolition of the work. However, the Council signalled that it may withdraw the NPO’s if Mr Van Den Bossche were able to satisfy it of the structural integrity of the work and its compliance with building standards.

19 Mr Van Den Bossche engaged Osmo to provide reports and certificates for that purpose. This it did. It may be assumed, for present purposes, that the certificates and reports were favourable to Mr Van Den Bossche and were to the effect that the work was sound and safe. The Council invited the plaintiff to respond to the reports and certificates, which he did, having engaged a structural engineer.

20 While this was going on, Mr Van Den Bossche contracted to sell No 80 to Ms Perera and Ms Dee.

21 Having taken into account both Osmo’s reports and certificates, and those provided by the plaintiff, the Council withdrew the NPO’s and issued building certificates in respect of the work that had been performed on No 80 and approved the work. It appears that, in doing so, the Council accepted, and relied upon, Osmo’s reports and certificates.

22 The dispute between the plaintiff and Mr Van Den Bossche continued, after completion, in November 1999, of the sale, with the new owners, Ms Perera and Ms Dee. In April 2000 Ms Perera and Ms Dee gave a lease of No 80 to a real estate agency to occupy it for commercial purposes. The plaintiff alleges that this was done without Council approval, which was required.

23 The plaintiff commenced various proceedings in the Land and Environment Court. Initially, in proceedings No 40012/00 (filed on 24 January 2000), he challenged the validity of the building certificates and approvals issued by the Council, and sought orders for demolition of the work that had been retrospectively approved. Cowdroy J appointed Mr Geoffrey Gleeson, an engineer, as referee. Mr Gleeson reported, disagreeing with the reports and certificates of Osmo, and recommending demolition and/or replacement of certain structures as unsound or unsafe. The Land and Environment Court adopted Mr Gleeson’s report, over objection on behalf of Ms Perera and Ms Dee.

24 The precise outcome of this litigation was in evidence only in an indirect fashion. In Gorczynski v Perera & Dee [2003] NSWLEC 8 (delivered 6 February 2003), Cowdroy J dealt with the plaintiff’s application for costs in four different proceedings, including 40012/00. In doing so, he outlined the nature of the proceedings, and the outcome. He noted that the proceedings related to “unlawful work” had been referred to Mr Gleeson, who reported that the work was defective and ought to be demolished. Cowdroy J said that proceedings 40012/00 did not proceed to adjudication because the parties resolved the issues between themselves, with the result that orders (presumably consent orders) were made. The substantive order was for dismissal of the proceedings; but the resolution also included orders for demolition of “various works”. Cowdroy J held that the effect of the orders, and the adoption of the Gleeson report, was that the plaintiff had been successful in his claim against Ms Perera and Ms Dee. He ordered them to pay the plaintiff’s costs of the proceedings.

25 Since no orders were made against the Council, he declined to make any order for costs in that respect.

26 In proceedings 40120/00 the plaintiff sought interlocutory orders restraining the Council from assessing a development application for the use of No 80 as a real estate agency. He was unsuccessful in obtaining interlocutory orders, and his claim for final relief was rendered redundant because the Council granted consent, and a related claim by the plaintiff (40208/01), challenging that consent, failed: Gorczynski v Perera & Dee [2003] NSWLEC 6.

27 I have set out in some detail the course of some of the litigation (although that appears to be only a small fraction of the litigation in which the plaintiff has been involved) because of the nature of the damage that the plaintiff claims he suffered by reason of Osmo’s negligence. (I have refrained from detailing the various appeals that followed: it is sufficient to note that none of the first instance orders was disturbed.)

28 I have already referred to the damages claimed as particularised in the statement of claim. However, that is not the last word on the claim now made. In his affidavit, the plaintiff set out 11 categories of damage he asserts resulted from Osmo’s breach of duty, and which he now wishes to claim against QBE. These are largely for legal costs of the litigation, or costs associated with the preparation of the litigation, and include, for example, costs incurred in defending bankruptcy proceedings brought against him by Ms Perera. There are other costs itemised for matters to which I can find no reference in the evidence. Many of the individual categories of costs he claims have not (or had not, at the date he swore the affidavit) been quantified.

29 It was no doubt because of the extent of the claim so made that the plaintiff was able to secure a transfer of the proceedings from the District Court to this Court (although it is also to be remembered that, since Osmo has taken no part in the proceedings, the Court presumably made the orders without the benefit of hearing argument as to the merits of any or all aspects of the claim).

30 If the plaintiff is to succeed in his application to join QBE, it will be necessary that he establish an arguable case that Osmo is liable for at least some of the costs he now claims. By reason of the default judgment, he is, as matters presently stand, entitled to proceed on the basis that Osmo owed him a duty of care, and breached that duty. But, as was acknowledged, that is not necessarily the final position: QBE is not bound by Osmo’s capitulation, should QBE be joined as a defendant then it would be entitled to move to set aside the default judgment, although, in my view, that may not be necessary. Notwithstanding that the plaintiff seeks to join QBE to the existing proceedings, the claim it seeks to bring against QBE is, as I read s 6(4), a separate and independent action of which an essential element is Osmo’s liability to the plaintiff. Establishing liability (particularly without determination on the merits) against Osmo, in proceedings to which QBE was not a party does not amount to proof against QBE that Osmo is liable to the plaintiff. And it will also be necessary that the plaintiff establish an arguable case that some, at least, of the costs he has incurred were incurred as a consequence of Osmo’s breach of duty.

31 Osmo held successive insurance policies (contracts of insurance within s 6 of the LR(MP) Act) covering it against claims, inter alia, in professional negligence, issued annually by QBE from 7 May 1997 to 7 May 2004. The policies were of the kind commonly known as “Claims Made and Notified” policies. (This may be a slightly misleading label: see FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641, at [23], per McHugh, Gummow and Hayne JJ.)

32 A copy of the policy wording (but no actual policy) is annexed to the affidavit of Ms Bentley.

33 The policy contains the following relevant provisions:

“1.1 QBE agrees to indemnify the Insured [Osmo] against legal liability for any Claim for compensation first made against the Insured during the Period of Cover and which is notified to QBE during the Period of Cover, in respect of any civil liability whatsoever and howsoever incurred in the conduct of the Professional Business Practice.

QBE shall not be liable under this Policy to provide indemnity in respect of any Claim against the Insured:

4.1 (a) made, threatened or intimated against the Insured prior to the Period of Cover;

(b) directly or indirectly based upon, attributable to, or in consequence of any fact or circumstance:


(i) of which written notice has been given, or ought reasonably to have been given, under any previous policy; or

(ii) of which the Insured first became aware prior to the Period of Cover, and which the Insured knew or ought reasonably to have known had the potential to give rise to a Claim under this Policy.


5.2 If during the Period of Cover, the Insured becomes aware of any fact or circumstance that might give rise to a Claim under this Policy and elects to give notice in writing to QBE of such fact or circumstance, then any Claim which may subsequently arise out of such fact or circumstance shall be deemed to be a Claim made during the Period of Cover. PROVIDED ALWAYS THAT such written notice is given to QBE during the same Period of Cover or within twenty-eight (28) days after its expiry.

7.1 ‘Claim’ shall mean:

(a) the receipt by the Insured of any written or verbal notice of demand for compensation made by a third party against the Insured,

(b) any writ, statement of claim, summons, application or other originating legal or arbitral process, cross-claim, counterclaim or third or similar party notice served upon the Insured.

7.8 ‘Period of Cover’ shall mean the period specified in the Schedule.”

34 The copy of the policy in evidence does not contain a Schedule in which the “Period of Cover” is defined, but I am prepared to assume, for present purposes, that the “Period[s] of Cover” were each of the years from 7 May 1997 to 7 May 2004.

35 Although the statement of claim was filed on 5 May 2006 and presumably served shortly thereafter on Osmo, Osmo did not, at any time, notify QBE of that fact. Nor did Osmo at any time notify QBE of any fact or circumstance that might have given rise to a claim against it by the plaintiff.

36 In March 2009, presumably after the service of the present notice of motion, Mr Baram telephoned Mr William Osmo, the director of Osmo. Mr Osmo told Mr Baram that the statement of claim was filed in about May 2006, by which time Osmo had “switched insurance from QBE”. He said he had notified “Miramar Underwriting Agency”. He said he recalled a discussion with the plaintiff in about May 1999, in which the plaintiff told him that he risked being sued, but said that he did not take it seriously.

37 A more expansive account of the “discussion” was set out in the written submissions made on behalf of the plaintiff, incorporating file notes of the plaintiff (records of the conversation) annexed to an affidavit that does not form part of the agreed evidence identified in para [11] above. It was said that, on 26 May 1999, the plaintiff explicitly warned Mr Osmo that if the Council determined the building application on the basis of Osmo’s certificate he (the plaintiff) would have no choice but to sue “him” [either Mr Osmo or Osmo] for negligence or “deceptive conduct/representations”.

38 On 26 October 1999, the plaintiff wrote to Osmo, advising that QBE had been warned that Osmo had issued “false certifications” that would probably result in claims against Osmo’s policy. He gave formal notice that he held Osmo liable for any loss and damage suffered as a consequence of Osmo’s conduct.

39 In her affidavit, Ms Bentley deposed that she had conducted a search of QBE’s records, and that that search did not reveal any notifications that involved the plaintiff. However, the database did not include records of notifications made by third parties (ie persons not insured by QBE).

Section 6 of the LR(MP) Act

40 Section 6 has not proved to be an easy section to interpret or apply, and has been frequently litigated: see N G Rein SC, “Choosing your life raft: A review of Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6, and its analogues” (2007) 81 ALJ 180.

41 The history of s 6 is recounted in the judgment of McHugh and Gummow JJ in Bailey v NSW Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399 at pp 440-445 of the report, and its construction at pp 445-450.

42 Section 6 was intended to create a new, and enforceable, right: Bailey, at 446. The new, enforceable right so created is a right in a person who has a claim for damages or compensation (to whom I will refer generically as the claimant or third party, in this case, the plaintiff) against the holder of a relevant insurance policy to payment of the damages or compensation out of insurance moneys: Bailey, at 447.

43 That the section was enacted for the purpose of ameliorating the position of a third party is made quite clear when recourse is had to the Second Reading Speech. On 20 March 1946, introducing the Bill into Parliament, Major Martin, the Attorney-General, said, with respect to Pt IV, in which cl 6 (now s 6) appeared:

“… the position in New South Wales today is that if a person is insured against a liability and that liability arises, there is nothing to prevent him from entering into a collusive arrangement with his insurance company before trial, accepting a lump sum from the company, and either frittering away that sum or disappearing. In either case the plaintiff, though he may obtain a verdict, recovers nothing under it. Similarly, after a verdict is obtained, there is nothing to prevent the insurance company from paying the amount by which it is under the policy liable to indemnify the defendant to the defendant. Indeed, strictly, that is what the insurer has contracted to do. The plaintiff, in law, is a stranger to the defendant’s insurance company, the extent of its liability in the matter being to indemnify the defendant against any claim proved against him. In the result it could happen, and it has happened in some very tragic cases, that when a plaintiff has obtained a verdict the defendant’s insurer pays to the defendant the amount of that verdict, but the defendant disappears with the money, spends it at the races, or makes away with it in some other manner … The result in such cases is that the plaintiff does not recover the fruits of the judgment that the law has given him. This is remedied by clause 6 which has the effect, where a person is insured, of making the amount of his liability to a plaintiff, on the happening of an event giving rise to claim for damages or compensation, a charge on the moneys payable under the insurance policy. This charge, under subclause (4), is made enforceable by way of action against the insurer direct, the plaintiff and the insurer being, for this purpose, placed in the same position as the plaintiff and the insured.”
New South Wales Legislative Assembly, Parliamentary Debates , Vol 180 at 2809.

44 But there are circumstances in which the object of the section may be defeated, and, it may be, this case is one of them.

45 As I understand the effect of the authorities on s 6, especially s 6(4), the right given to the claimant is no greater than the right of the insured with respect to the policy. Where the insurer is or would be entitled to disclaim indemnity to its insured, then it is equally entitled to disclaim a claimant’s claim on the charge created by sub-s (1). That is illustrated by the High Court decision in Yorkville Nominees Pty Ltd (In liquidation) v Lissenden [1986] HCA 6; (1986) 160 CLR 475.

46 There, a material misstatement was made in a proposal for professional indemnity insurance made by a firm of accountants. A policy was issued. The proposal was agreed to have been the basis of the contract of insurance.

47 The plaintiffs in the proceedings (Yorkville Nominees and associated entities), who wished to take action against the firm of accountants, sought leave, under s 6(4), to commence proceedings against the insurer, to enforce the s 6(1) charge. The Court held that, by reason of the misstatement, the insurer was entitled to disclaim indemnity. Since it was entitled to disclaim indemnity to its insured, the claimant/plaintiff was in no better position.

48 I say that, in some circumstances, s 6 may not achieve its purpose. In this case, the policy provided cover where, during the period of cover, Osmo:

(i) became aware of any fact or circumstance that might give rise to a claim under the policy; and (importantly)

(ii) elected to give notice in writing to QBE of that fact or circumstance (Cl 5.2).

In that case, any actual claim subsequently made against the insured arising out of that fact or circumstance was deemed to be a claim made during the Period of Cover. But the deeming depended upon Osmo having given written notice to QBE of the fact or circumstance, known to it, that might give rise to the claim. If Osmo failed to give notice, QBE was entitled, where it subsequently made a claim arising out of those facts or circumstances, to disclaim.

49 An indolent, or malevolent, insured (especially if impecunious and with nothing to lose) could, by merely refraining from or failing to give the proper notice, entitle the insurer to disclaim the policy, thereby thwarting an attempt by a third party claimant to exercise the right conferred by s 6. In such circumstances, if the insurer were held entitled, by reason of the failure of the insured to notify, to disclaim to the insured, it would equally be entitled to disclaim a claim made by a third party, and it would be futile to grant leave under s 6(4). It might therefore be assumed that leave under s 6(4) would not be granted.

50 While that might, in those circumstances, defeat the stated object of the enactment of s 6, that appears to be the position. That is, unless, for some other reason, the insurer were precluded from disclaiming. Such a reason may be found in s 54 of the Insurance Contracts Act 1984 (Cth). Section 54(1) affords relief, where appropriate, to an insured against what might, but for the sub-section, be the drastic consequences (loss of insurance cover) of an immaterial or irrelevant or trivial breach of the policy, or the consequence of circumstances pre-dating the entry into the policy such as would entitle the insurer to disclaim. Section 54, especially s 54(1), is legislation that ameliorates what might otherwise be the harsh consequences of strict adherence to the terms of an insurance contract.

51 Leave under s 6(4) is discretionary. One relevant discretionary circumstance is s 54 of the Insurance Contracts Act: Tzaidas by his tutor Tzaidas v Child [2004] NSWCA 252; (2004) 61 NSWLR 18, not following FAI General Insurance Ltd v Jarvis [1999] NSWCA 23; (1999) 46 NSWLR 1.

52 Section 54 is relevantly in the following terms:

“ Insurer may not refuse to pay claims in certain circumstances
54(1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act.
(2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.
(3) Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim so far as it concerns that part of the loss, by reason only of the act.
(4) …
(5) …
(6) A reference in this section to an act includes a reference to:
(a) an omission; and
(b) …

53 Section 54 is, of course, directed to, and proceeds upon, the assumption that the claim is made by the insured against the insurer. It was not drafted with s 6(4) of the LR(MP) Act in mind. It is, however, adaptable to a claim by a third party on the charge created by s 6(1) of the LR(MP) Act. If, as was held in Tzaidas, it is relevant to the exercise of the s 6(4) discretion, that can only be because a third party claimant may also take advantage of the relief provided by the section. Just how it will operate in a s 6(4) application was left open: [49].

54 Here, the “act” (omission) that would entitle QBE to refuse to pay a claim (if made by Osmo) was Osmo’s failure to notify QBE of the potential claim by the plaintiff. Such an act (omission) could not, within s 54(2), reasonably be regarded as being capable of causing or contributing to a loss in respect of which the insurance was provided. Sub-section (2) would not entitle QBE to refuse to pay the claim, if made by Osmo; it does not entitle QBE to refuse to pay the claim made by the plaintiff.

55 That leaves s 54(1). That, in appropriate circumstances, may warrant some reduction in the amount the insurer (if otherwise liable) is obliged to pay. But that is a matter not to be decided on application for leave under s 6(4). It would not ordinarily be possible, in a s 6(4) application, finally to determine whether, by reason of the act or omission on the part of the insured (or some other person), s 54 would operate to prevent the insurer from refusing to pay the claim; in a s 6(4) application, it is sufficient if the third party claimant can establish an arguable case to that effect: Tzaidas, [48]. It is in that way that s 54(1) may be taken into account on the exercise of discretion.

56 If the circumstances are such that s 54(1) would or might arguably afford relief to an insured making a claim, then, on the authority of Tzaidas, it is also available to a person in the position of the plaintiff who seeks to claim directly on the policy.

57 The question therefore is: would Osmo, if it claimed on the policy, and if QBE refused to pay the claim by reason of Osmo’s failure to notify of the circumstances giving rise to the plaintiff’s claim against it, be entitled to the benefit of s 54(1)? In FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641 it was held (by majority) that failure to notify of a relevant fact or circumstance was an omission within s 54(1) and (6), even where the claim for indemnity was made after the expiration of the cover. Section 54(1) would then operate to prevent the insurer refusing to pay the claim. To the extent, if any, that the insured’s failure to notify increased the damage to the third party, and therefore the magnitude of the claim on the policy, than the insurer’s liability to pay would be reduced. But that, as I have indicated above, is a matter to be quantified on another occasion.

58 Section 6(4) expressly prohibits the grant of leave where each of two specified conditions is met. The first condition is the court’s satisfaction that the insurer is entitled, under the terms of the policy, to disclaim liability; there has been some discussion about what is comprehended by the phrase “under the terms of the policy”, but that is not presently relevant; the second condition is that any proceedings necessary to establish the insurer’s entitlement to disclaim have been taken (necessarily, by the insurer). (It is not a condition that these proceedings have been determined.)

59 The prohibition is conjunctive. It is insufficient, for an insurer to invoke the prohibition, if it is able to establish only one of the conditions.

60 Where the prohibition does not operate, the grant of leave under s 6(4) nevertheless remains discretionary, and may be refused for other proper reasons. Ordinarily, for example, leave would not be granted where it could clearly be seen that a claim was, by reason of limitation of actions legislation, statute-barred. It may not be granted where the insurer was able to demonstrate irreparable prejudice.

61 Before leave under s 6(4) may be granted to an applicant to proceed against an insurer (on a policy of insurance to which the applicant is not a party), the court must be satisfied:

(i) that a person the applicant claims is liable to pay him damages or compensation was a party to a contract of insurance (“the policy holder”) that indemnified him/her/it against liability to pay the damages or compensation of the kind claimed;

(ii) that an event occurred by reason of which the policy holder arguably became liable to pay the applicant damages or compensation (sub-s (1));

A court may not grant leave where:

(iii) it is satisfied that the insurer is entitled, under the terms of the policy, to disclaim liability;

(iv) that any proceedings necessary to establish the insurer’s right to disclaim have been taken (proviso to sub-s (4), which has come to be known as “the prohibition”).

62 I have framed the requirements as I have in order to avoid the language of onus. While it is reasonably clear that the applicant bears the onus of proving (i) and (ii), there is no indication in sub-s (4) that an onus was intended to be cast on the insurer (or, indeed, on the applicant), and I was referred to no decision that determined the question of onus.

63 Satisfaction as to entitlement to disclaim is something less than “a determination whether the insurer is liable” (Tzaidas, Giles JA, [20]).

64 Logically, in an application under s 6(4), the first question for determination is whether the prohibition operates. If it does, that is the end of the matter, and leave must be refused. If it does not, the second question is whether, having regard to all of the circumstances, leave ought to be granted (or ought to be refused).

65 In written submissions, QBE argued that the application is defective because there is no relevant existing or proposed pleading of a justiciable claim against QBE; and that an order for joinder ought not to be made because such an order will not be made after judgment where the purpose of the joinder is merely to aid in the execution of the judgment. State Bank of NSW Ltd v N A MacDonald (NSWSC, Cole J, 17 January 1992, unreported) was cited as authority for the latter proposition.

66 As to the first of these, it may be that, if leave is granted to the plaintiff, it will be necessary for him to make some amendments to his pleading. However, s 6(4) makes it clear that the charge sought to be enforced by way of action against QBE is enforceable in the same way and in the same court as if it were an action to recover damages or compensation from Osmo. While it may have been prudent for those representing the plaintiff to have prepared an appropriate pleading, I do not think that the absence of such a document precludes the making of an order under s 6(4).

67 As to the second, there are three answers. Firstly, the application is not made for the purpose of execution of the default judgment obtained in the District Court; damages have not been quantified, and there is, therefore, no final judgment. The second answer lies in s 6(5), which expressly permits an application under s 6(4) even where judgment has been recovered against the insured. The third answer is that, if leave is granted, the proceeding is a separate proceeding against QBE, independent of the proceedings against Osmo. (That, indeed, is implicit in the first argument addressed.)

68 In further opposition to the application, QBE advanced a number of independent propositions. These were summarised as follows:

“a. [s 6(4)] is not enlivened. There is not a contract of insurance by which Osmo is indemnified against liability, and the pre-condition in s. 6(1) is not met. This is so due to the matters set out in the preceding section of these submissions.

b. In the alternative, for the same reasons, the prohibition against leave specified in s. 6(4) applies.

c. Further, in the alternative, for discretionary reasons leave ought not be granted as the claim (as pleaded in the statement of claim) by the [plaintiff] against Osmo is hopeless because:


i. the claim is statute barred;

ii. the claim is bound to fail; and/or

iii. there is no non-barred causally related loss.

d. Section 54 of the Insurance Contracts Act , 1984 has no application in the circumstances of this matter.”

69 I will deal with these matters sequentially:

(a) “The section is not enlivened. There is not a contract of insurance by which Osmo is indemnified against liability …” :

70 In my opinion, this submission is misconceived. It is uncontested that Osmo entered into a contract of insurance which indemnified it against liability to pay damages or compensation. It appears that the submission is that QBE’s liability under the policy was not “enlivened” because of the failure of Osmo to give appropriate notification of the circumstances that might give rise to a claim. That is a different issue altogether.

(b) The prohibition :

71 I have already mentioned that the prohibition operates only where each of two conditions is met. Here, there was no suggestion in the evidence that QBE has taken any proceedings to establish its entitlement, under the terms of the policy, to disclaim liability. QBE argued that no proceedings are necessary because Osmo has made no claim on the policy for indemnity and therefore the occasion for the need to disclaim by QBE has not arisen.

72 I do not accept this. I do not pretend that the wording of the prohibition is easy. I can perceive no good reason why an insurer ought to be required to commence separate proceedings (even if by interlocutory application in an existing proceeding) where the very same argument could be put in defence to an application under s 6(4). However, the legislature has clearly imposed an onus on the insurer to take such proceedings. QBE has not done so. For that reason alone, the prohibition does not apply.

(c)(i) “The claim is statute barred” :

73 The argument put in support of this proposition on behalf of QBE was that the plaintiff’s cause of action arose “no later than the date of the commencement of the proceedings, 24 January 2000”. (I take this to be a reference to proceeding 40012/00 in the Land and Environment Court.) The limitation period is six years from the date the cause of action arose. The statement of claim against Osmo was filed on 5 May 2006 – outside that limitation period.

74 The argument assumes that the cause of action arose on the filing of that proceeding. It is not immediately apparent that the cause of action did arise on that occurrence. What the plaintiff now seeks to claim is damages representing the costs outlaid and incurred in repeated proceedings from that date and continuing. Moreover, it is at least arguable that, even in respect of that proceeding, damage did not arise until Cowdroy J delivered judgment, granting the plaintiff costs against Ms Perera and Ms Dee, but declining to order costs against the Council.

75 The limitation question was touched upon only briefly in both written and oral submissions. While it remains available to be argued in full on a final hearing, the answer is not so clear as to permit the making of an order that would lock the plaintiff out from his claim.

(c)(ii) “The claim is bound to fail”:

76 The basis upon which this argument was put is that the plaintiff is unable to establish that Osmo owed him a duty of care.

77 Certainly, on the current state of the law with respect to whether and where one person owes another a duty of care, I would not readily conclude, against the plaintiff, that he has no prospect of establishing that Osmo owed him such a duty; and, on an application such as this, it is neither necessary nor appropriate to conclude that Osmo did owe him a duty. It is sufficient to conclude that he has an arguable case to that effect. I have reached that conclusion.

(c)(iii) “No non-barred causally related loss”:

78 The submissions on behalf of QBE in this respect pointed to the wide ranging nature of the costs claimed by the plaintiff as damages arising from Osmo’s (alleged) breach of duty.

79 I accept that, in many instances, the damages claimed appear to be remote from what is (so far as the evidence establishes) said to be Osmo’s breach of duty. However, it is only necessary, for present purposes, that the plaintiff show that he has an arguable case that some loss, consequential upon any breach of duty he shows, has been occasioned. If he succeeds in doing that, then quantification is a matter for trial.

(d) s 54 of the Insurance Contracts Act :

80 I have discussed the interrelationship of s 6(4) and s 54 above [53]-[57]. Section 54 may have application in a claim under s 6(4).

81 Notwithstanding all of that, the plaintiff’s claim must fail. It must fail on this simple analysis:

● the successive periods of cover began on 7 May 1997 and ended on 7 May 2004;

● by the policies, Osmo was covered against a claim of the kind made by the plaintiff in two eventualities:


(i) that the claim made by the plaintiff was first made against Osmo during the (a) period of cover , and was notified (by Osmo) to QBE during the (a) period of cover (cl 1.1); or

(ii) that Osmo became aware during the (a) period of cover of facts or circumstances that might give rise to a claim under the policy and elected to notify QBE of such fact or circumstance within the (a) period of cover or 28 days thereafter (cl 5.2);


● the evidence does not disclose the date on which Osmo issued (allegedly in breach of duty) its certificates. It therefore does not disclose whether the alleged breach of duty occurred during any period of cover;

● the demand made by the plaintiff on Osmo was made in 1999 – outside the periods of cover;

● Osmo did not, during any period of cover, notify QBE of any fact or circumstance that might give rise to a claim against it;

● Osmo was therefore not covered against the plaintiff’s claim.

82 This is in accordance with the analysis in FAI v Australian Hospital Care at [40]-[44]. There, the majority drew a distinction between an insurer’s refusal to pay a claim by reason of an omission (in which case s 54(1) operated to override the provisions of the policy entitling it to do so) and an insurer’s refusal to pay a claim because, on examination, it is not a claim for which the policy provides cover (in which case, s 54 has no application).

83 The present claim by the plaintiff falls into the latter, not the former, category.

84 The notice of motion is dismissed.

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