Hancock Family Memorial Foundation Ltd v Fieldhouse (No 3)
[2010] WASC 223
•24 AUGUST 2010
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD -v- FIELDHOUSE [No 3] [2010] WASC 223
CORAM: LE MIERE J
HEARD: 1 APRIL & 3 JUNE 2010
DELIVERED : 24 AUGUST 2010
FILE NO/S: CIV 1802 of 1995
BETWEEN: THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD
Plaintiff
AND
CARNEGIE RICHMOND HALLETT FIELDHOUSE
Defendant
Catchwords:
Practice and procedure - Application for leave to join defendants - Insurance policy - Professional indemnity insurance - Whether Law Society of NSW is a party to the insurance contract - Whether there is an insurance contract between the defendant and the Law Society of NSW - Insurance Contracts Act 1984 (Cth) s 51 - Legal Profession Act 1897 (NSW) - Discretionary considerations - Stay of proceedings - Delay - Lloyd's syndicates - Syndicate not a legal entity or partnership
Legislation:
Insurance Contracts Act 1984 (Cth), s 10(2), s 11(6), s 11(7), s 51
Law Reform (Miscellaneous Provisions) Act 1991 (WA), s 4(1)
Legal Profession Act 1897 (NSW), s 40, s 41, s 44, s 45
Probate and Administration Act 1898 (NSW), s 61
Rules of the Supreme Court 1971 (WA), O 1 r 4B, O 18, O 26A
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr M H Zilko SC & Mr A P Hershowitz
Defendant: Mr G R Donaldson SC & Mr J L Sher
Potential Parties : Mr G R Donaldson SC & Mr J L Sher
Solicitors:
Plaintiff: Middletons
Defendant: Clavey Legal
Potential Parties : Clavey Legal
Case(s) referred to in judgment(s):
Australian Health Insurance Association Ltd v Esso Australia Ltd (1993) 116 ALR 253
Bayswater Car Rental Pty Ltd v Hannell [1999] WASC 34
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125
Gould v Curtis (1913) 3 KB 84
Lee v Phair (Unreported, NSWSC, 31 October 1996)
Medical Defence Union v Department of Transport [1980] 1 Ch 82
New South Wales Solicitors Mutual Indemnity Fund v Hancock Family Memorial Foundation Ltd (No 2) [2009] WASCA 146
News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; (1996) 21 ACSR 635
Rafter v Solicitors Mutual Defence Fund Ltd [1999] IEHC 230
Review Australia Pty Ltd v Red Berry Enterprises Pty Ltd [2003] FCA 1009
Society of Lloyd's v Robinson [1999] 1 WLR 756
The Hancock Family Memorial Foundation Ltd v Fieldhouse [2005] WASCA 93; (2005) 30 WAR 398
Universal Music Australia Pty Ltd v Cooper [2004] FCA 78
Vandervell Trustees Ltd v White (1971) AC 912
LE MIERE J: The plaintiff (HFMF) applies for leave to join the Law Society of New South Wales (as owner of the New South Wales Solicitors' Mutual Indemnity Fund) and Syndicate 657 D R Lowe and four other Lloyd's syndicates as defendants. The defendant applied to permanently stay the action.
Background
In March 1992 Mr Lang Hancock died. Prior to his death Mr Hancock effectively controlled a group of companies including The Hancock Family Memorial Foundation Ltd (HFMF) (the present plaintiff) and Hancock Prospecting Pty Ltd (HPPL).
HPPL was incorporated in 1955 by Mr Hancock. Its principal revenue producing asset was the right to receive royalties from the iron ore miner, Hamersley Iron Pty Ltd. HPPL was highly profitable and had substantial reserves, out of which it could properly pay dividends. From the inception of the company, and until not long before his death, Mr Hancock held a share called the Life Governor's share no 1. This share gave him extraordinary powers and entitlements, which effectively meant that Mr Hancock had total control of the company and its board, and the power to distribute dividends to himself, as long as the power was exercised bona fide for the purpose of obtaining a dividend and not for some ulterior purpose: The Hancock Family Memorial Foundation Ltd v Fieldhouse [2005] WASCA 93; (2005) 30 WAR 398 [4].
As at August 1991 and since 15 March 1989 (following the sale of Mr Hancock's one third shareholding in HPPL to HFMF) HFMF held a combination of 'A' Class and ordinary shares amounting to one third of the shareholding in HPPL. Also by August 1991 Mr Hancock owed substantial amounts to HFMF.
In order to repay this debt Mr Hancock sold to HFMF his Life Governor's share in HPPL for $20 million. HFMF alleges that the price paid by it for the share was far in excess of its actual worth.
The defendant, Mr Fieldhouse, was a solicitor who had been employed by and worked for the late Mr Hancock and his group of companies from around 1969. On 21 August 1995 HFMF commenced this action. HFMF alleges that Mr Fieldhouse stood in a position of conflict whilst acting as solicitor for both Mr Hancock and HFMF when negotiating and procuring the sale of the Life Governor's share to HFMF. Accordingly, HFMF asserts that Mr Fieldhouse breached his fiduciary and common law duties owed to it, acted negligently in advising it, and claims damages for the loss suffered.
On 22 September 1998 HPPL, HFMF and Mr Fieldhouse entered into a Deed of Release and Indemnity (the Deed of Release). The document covers a number of matters. Clause 2.1 provides that Mr Fieldhouse will make himself available to HPPL, HFMF and other companies in the Hancock group, at such times as they may reasonably require, to provide evidence on matters relating to the affairs of Mr Hancock and other things. Clause 2.5 expressly preserves HFMF's rights in the present action. In cl 2.6 HFMF says that it will not make any claim of fraud against Mr Fieldhouse. Clause 2.7 limits the recovery HFMF might make under any judgment it obtains. HFMF agreed that in the event of obtaining judgment it shall not seek to enforce any judgment and any costs order that may be made against Mr Fieldhouse to recover moneys beyond that paid or payable by Mr Fieldhouse's professional indemnity insurers (including LawCover) in respect of that judgment.
The action has proceeded slowly. In May 2002 Mr Fieldhouse gave notice of intention to apply to strike out the action for want of prosecution. On 6 April 2004 a Master of this court ordered that the action be dismissed for want of prosecution. On 26 May 2005 the Court of Appeal allowed an appeal from that order and ordered that the defendant's application to strike out the action for want of prosecution be dismissed. Since then the action has again proceeded slowly.
Mr Fieldhouse passed away on 16 November 2007.
Plaintiff makes enquiries
On 18 March 2008 HFMF's solicitor wrote to the defendant's solicitor and stated, amongst other things, that they understood the action was being defended by Mr Fieldhouse's insurers, and that the defendant's solicitors obtained instructions from Yeldham Price O'Brien Lusk, a Sydney firm of solicitors, who act on behalf of those insurers. The plaintiff's solicitors referred to s 51 of the Insurance Contracts Act 1984 (Cth) which provides third parties, such as HFMF, with a statutory right to recover directly from an insurer in circumstances where the insured has died and that the insurer is liable under the contract of insurance to cover the insured's liability in damages to the third party. The plaintiff's solicitors requested discovery of the contract (or contracts) of insurance between Mr Fieldhouse and his insurers and details concerning the identity of Mr Fieldhouse's insurers.
At a directions hearing before me on 1 April 2008, Mr Edwards, who announced he appeared on behalf of the defendant, informed the court that the defendant's solicitors were instructed by LawCover but 'LawCover itself is not an insurer and is unlikely to be swept up in any joinder application'. Mr Edwards said that there were excess layers of insurance held by a number of Lloyd's syndicates and there were five names associated with those syndicates (ts 246).
By letter dated 30 April 2008 to HFMF's solicitors, Mr Edwards provided further details about the identity of the defendant's insurers. Mr Edwards stated:
1.At all material times Mr Fieldhouse held a Certificate of Insurance issued by the Solicitors Mutual Indemnity Fund pursuant to the compulsory requirements of the Legal Profession Act 1987 (NSW).
2.Mr Fieldhouse held excess insurance policies through Underwriters at Lloyd's. We're instructed that the full market participation in the relevant policies was as follows:
2.1Syndicate 657 D R Lowe 47.618%
2.2Syndicate 683 R J Wallace 23.810%
2.3Syndicate 839 A M Sharpe 19.048%
2.4Syndicate 376 J H Benton 4.762%
2.5Syndicate 510 R J Kiln 4.762%
On 1 May 2008 Mr Nicholas Brown, a solicitor with the firm of solicitors representing HFMF, spoke with Mr Simon Lusk of Yeldham Price O'Brien Lusk. Mr Lusk told Mr Brown that his clients would not be prepared to disclose to HFMF details of the contracts of insurance between the late Mr Fieldhouse and those insurers.
Following further telephone conversations, Mr Edwards wrote to Mr Brown on 6 June 2008. Mr Edwards stated:
I understand you seek to:
1.clarify the status of the Solicitors Mutual Indemnity Fund (SMIF) and LawCover in relation to the insurance held by Mr Fieldhouse that is relevant to this proceeding.
2.confirm that SMIF is the correct potential party for the purposes of your client's pre-action discovery application.
We respond as follows …:
1.As you may know, in relation to professional indemnity insurance, Mr Fieldhouse was required to comply with the requirements of the Legal Profession Act 1987 (NSW). In relation to the role of SMIF and LawCover in Mr Fieldhouse's professional indemnity insurance we refer you to Part IXA of the Legal Profession Act.
2.It is for your client to decide from which potential parties it wishes to seek pre-action discovery. We have already identified the parties relevant to the insurance held by Mr Fieldhouse in our letter of 30 April 2008.
On the same day HFMF's solicitors replied to the defendant's solicitors stating that Mr Edwards' letter of 6 June 2008 had failed to identify the legal entities who are the parties relevant to the insurance held by Mr Fieldhouse, that the LawCover website identifies three corporate entities which are all wholly‑owned subsidiaries of the Law Society of New South Wales (Law Society) and that s 40 of the Legal Profession Act 1987 (NSW) simply refers to a 'company' managing the New South Wales Solicitors Mutual Indemnity Fund (SMIF) without identifying that legal entity.
The application for discovery
HFMF applied for discovery to identify potential parties and discovery from the potential parties pursuant to O 26A r 3 and r 4 of the Rules of the Supreme Court 1971 (WA). HFMF's application was made by reference to a minute of proposed amended application which referred to the SMIF as the first potential party and the five Lloyd's syndicates as the second potential parties.
On 25 July 2008 I ordered the SMIF and the Lloyd's syndicates to give discovery of documents that constitute the contract of insurance between Mr Fieldhouse and the potential parties and other related documents.
The SMIF and the Lloyd's syndicates applied to the Court of Appeal for leave to appeal against the order that they give discovery under O 26A r 4. On 20 August 2009 the Court of Appeal refused leave to appeal. The SMIF and the Lloyd's syndicates then discovered to HFMF certain documents in accordance with the order for discovery.
Insurance Contracts Act s 51
Section 51(1) of the Insurance Contracts Act provides relevantly:
(1)Where:
(a)the insured under a contract of liability insurance is liable in damages to a person (in this section called the third party);
(b)the insured has died …; and
(c)the contract provides insurance cover in respect of the liability;
The third party may recover from the insurer an amount equal to the insurer's liability under the contract in respect of the insured's liability in damages.
To succeed in a claim for damages against an insurer HFMF must establish:
1.Mr Fieldhouse is liable in damages to HFMF; and
2.the insurer is a party to a contract of liability insurance that provides insurance cover in respect of the liability.
Mr Fieldhouse's liability to HFMF and the insurers obligation to indemnify Mr Fieldhouse under the insurance policy can be litigated and determined in the same proceedings: New South Wales Solicitors Mutual Indemnity Fund v Hancock Family Memorial Foundation Ltd (No 2) [2009] WASCA 146 [23] (McLure JA).
Joinder of defendants
Order 18 r 6(2) provides that at any stage of the proceedings the court may order that any person who ought to have been joined as a party or whose presence before the court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon be added as a party.
The relevant test of joinder is one of necessity. Something more is required than merely that joinder is just or convenient: Vandervell Trustees Ltd v White (1971) AC 912, 935 ‑ 936. In News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; (1996) 21 ACSR 635, Lockhart, von Doussa and Sackville JJ in referring to rules of court similar to O 18 r 6(2)(b) said:
The test involves matters of degree, and ultimately judgment, having regard to the practical realities of the case, and the nature and value of the rights and liabilities of the third party which might be directly affected. The requirement that a third party's rights against, or liability to, any party to the proceedings be directly affected is an important qualification that recognises that many orders of a court are likely to affect other people to the greater or lesser extent … The requirement of a direct effect on rights or liabilities differentiates the case where a person ought to be joined, from cases where the effect of the order on one party can be characterised as only indirect or consequential (525).
A question in the present action is the liability of Mr Fieldhouse to HFMF. The determination of that issue will affect the liability of Mr Fieldhouse's insurers to HFMF because one of the elements of the insurer's liability to HFMF under s 51 of the Insurance Contracts Act is that Mr Fieldhouse is liable in damages to HFMF. If HFMF obtains judgment against Mr Fieldhouse, or his estate, the insurer is not entitled to challenge its merits, especially if it has stood by and permitted the claim to proceed undefended: Derrington and Ashton The Law of Liability Insurance (2nd ed) [13‑209] and cases cited at footnote 721.
The joinder of the insurers would advance the objects in O 1 r 4B(1) and would avoid the multiplicity of proceedings which would result if HFMF is required to commence separate proceedings against the potential parties rather than join them as parties to the present action.
Law Society opposes joinder
The Law Society opposes joinder on the grounds that it is not a party to a contract of liability insurance that provides insurance cover in respect of Mr Fieldhouse's alleged liability to HFMF.
The applicant on a joinder application must show that there is an arguable case sufficient to resist the entry of summary judgment by the parties sought to be joined: Universal Music Australia Pty Ltd v Cooper [2004] FCA 78 [6] (Tamberlin J). The test is that stated by Barwick CJ at 128 ‑ 129 in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125: Universal Music Australia Pty Ltd v Cooper [7] (Tamberlin J); Review Australia Pty Ltd v Red Berry Enterprises Pty Ltd [2003] FCA 1009 [5] (Heerey J). It would be futile to order that a person be joined as a defendant if the material before the court disclosed that if the person, having been joined as a defendant, applied for summary judgment the application would succeed.
Is the Law Society an insurer?
On the hearing of HFMF's application for discovery from the potential parties on 9 June 2008, Mr Donaldson SC and Ms Davis announced their appearance for the defendant, the SMIF and the Lloyd's syndicates. Mr Donaldson SC submitted that the SMIF had issued a certificate of insurance to Mr Fieldhouse. In answer to a question from the court Mr Donaldson SC said that if HFMF were to commence proceedings against the SMIF and plead that the SMIF covers Mr Fieldhouse under a policy of insurance then the SMIF would enter an appearance and plead that they had granted cover under an insurance policy (ts 285). However, Mr Donaldson SC then said that there is an issue as to whether the SMIF issues a contract of insurance as distinct from a claimant having some right of indemnity from the SMIF (ts 287). Mr Donaldson SC then went on to say that HFMF knew that Mr Fieldhouse's insurer was the SMIF because the solicitors for the defendant and the SMIF had told it (ts 290 ‑ 291).
If those statements and the correspondence I have referred to earlier were the totality of the evidence before the court it would give rise to an arguable case that Mr Fieldhouse was insured under a contract of liability insurance with the SMIF, or the Law Society, and that the contract provides insurance cover in respect of Mr Fieldhouse's claimed liability and damages to HFMF. However, counsel for the Law Society opposes joinder of the Law Society as a defendant on the ground that Mr Fieldhouse was not insured under a contract of liability insurance with the Law Society (or the SMIF). The Law Society relies upon the provisions of the Legal Profession Act 1987 (NSW) (the Legal Profession Act) and the documents in evidence concerning Mr Fieldhouse's insurance arrangements.
The documents produced pursuant to the order for discovery under O 26A r 4 include a document entitled 'The Law Society of New South Wales Certificate of Insurance' (the Certificate of Insurance), a document entitled 'LawCover Pty Ltd, Compulsory Professional Indemnity Insurance Scheme for Insurance Year 1.7.95 to 30.6.96, Explanatory Memorandum, to be read in conjunction with the Certificate of Insurance' (the Explanatory Memorandum), and a document entitled 'The Law Society of New South Wales Professional Indemnity Insurance Master Policy No 96 NSW12' (the Master Policy).
The NSW Professional Indemnity Insurance Scheme
In 1995 solicitors in New South Wales were required to hold a professional indemnity insurance policy which had been approved by the Attorney General: Legal Profession Act s 41. The insurer was not specified by the Law Society. However, all solicitors were required to contribute to the SMIF: s 45(1). The SMIF consisted of the SMIF established by the Legal Practitioners Act 1898 (NSW), the money paid on account of the SMIF by insurable solicitors either as annual contributions or as levies under the Legal Profession Act and money earned or received from other sources: s 40(1). The purpose of the SMIF is to pay the difference between an indemnity provided by an insurer to an individual solicitor and the amount of a claim made against the solicitor: s 44(1). The SMIF was administered by the company under the Legal Profession Act. The company was LawCover.
The insurance policy which was in force in 1995 and approved by the Attorney General was the Master Policy, which was entered into with insurers by the Law Society on behalf of the insurable solicitors.
The effect of the Master Policy and the Certificate of Insurance, which I will refer to shortly, is that claims up to $1.1 million in respect of liability of solicitors arising out of their practices will be met by the insurers under the Master Policy when the aggregate amount of claims for the year exceeds $58 million. Until that aggregate amount has been reached the insurance policy does not cover the solicitor's liability. There is no evidence that the aggregate amount of claims for the year exceeded $58 million. Therefore, Mr Fieldhouse had to look to the SMIF to indemnify him in respect of the first $1.1 million of a claim against him. Under s 44 of the Legal Profession Act Mr Fieldhouse was to be paid from the SMIF such amount as LawCover determined towards meeting any difference between the indemnity provided by the Master Policy and his liability. It is common ground that the Lloyd's syndicates provided top up cover. That is, there was a contract of insurance between Mr Fieldhouse and the Lloyd's syndicates under which the Lloyd's syndicates provided insurance cover for any liability that exceeded his indemnity from the SIMF and under the Master Policy.
To establish an arguable case against each of the potential defendants (the Lloyd's syndicates and the Law Society) HFMF must establish that there was a contract between Mr Fieldhouse and the potential defendant and that that contract was a contract of liability insurance for the purpose of Insurance Contracts Act s 51. I will first consider whether the plaintiff has established an arguable case against the Lloyd's syndicates.
Plaintiff's case against Lloyd's syndicates
There is evidence that:
(1)Mr Fieldhouse was insured under a contract, or contracts, of liability insurance with the Lloyd's syndicates;
(2)Mr Fieldhouse has died; and
(3)the contract provides, or the contracts provide, insurance cover in respect of Mr Fieldhouse's claimed liability in damages to HFMF.
If HFMF can prove that Mr Fieldhouse is liable in damages to it then it may recover from the Lloyd's syndicates an amount equal to their liability under the contract, or contracts, in respect of Mr Fieldhouse's liability in damages to HFMF: Insurance Contracts Act s 51.
Counsel for the Lloyd's syndicates agreed that HFMF has an arguable case against the Lloyd's syndicates but submitted that the court should refuse to make an order joining the Lloyd's syndicates as defendants for discretionary reasons. I will consider the discretionary considerations after considering HFMF's case against the Law Society.
HFMF's case against the Law Society
HFMF says that the Law Society is a party to a contract of liability insurance that provides insurance cover in respect of Mr Fieldhouse's liability to HFMF under the Master Policy and by reason of Mr Fieldhouse's right to be indemnified by the SMIF under the Legal Profession Act.
I will first consider whether the Master Policy is a contract of liability insurance between Mr Fieldhouse and the Law Society.
The Master Policy
The opening clause of the Certificate of Insurance provides:
This is to certify that in accordance with the authorisation granted to the undersigned under the Master Policy referred to in the Schedule by the Insurers subscribing such Master Policy [hereinafter called 'The Insurers'] insurance is granted by the Insurers in accordance with the terms and conditions following and in consideration of the payment of the premium stated in the Master Policy.
The Assured is defined to mean the practitioner or practitioners named in the letter to which the certificate of insurance was provided. It is common ground that the Certificate of Insurance was delivered to Mr Fieldhouse.
The insuring clause provides:
On the terms and conditions herein contained the Insurers shall indemnify the Assured up to an amount not exceeding the Sum Insured against amounts payable by the Assured to claimants [including claimants costs] whensoever occurring arising from any claim or claims first made against the Assured during the Period of Insurance in respect of any description of civil liability whatsoever incurred in connection with the Practice other than loss arising out of any circumstance or occurrence which has been notified under any other insurance attaching prior to the inception of this Certificate of Insurance.
There is a general exclusion in the following terms:
(a)This Insurance shall be subject to a Deductible of $58,000,000 in the aggregate in respect of all Certificates of Insurance issued under the Master Policy pursuant to which this Certificate of Insurance is issued, thereafter this Insurance shall be subject to an Excess of:‑
…
The Schedule specifies 'Master Policy No 96NSW12'.
The execution clause provides:
IN WITNESS WHEREOF this document has been signed on behalf of the undermentioned Insurers who severally agree each for their own part and not one for another for the proportion set against their name to indemnify the Assured in accordance with the terms and conditions contained herein or endorsed hereon.
1.LAYER: $1,100,000 any one claim subject to an aggregate of $40,000,000 in respect of all claims which aggregate is itself excess of $58,000,000 in the aggregate
HIH Casualty and General Insurance Limited (ACN 008 482 291) 37.50%
FAI General Insurance Company Limited (ACN 000 327 855) 37.00%
GIO General Ltd (ACN 002 861 583) 24.50%
Sun Alliance and Royal Insurance Aust Ltd (ACN 005 297 807) 1.00% 100.00%
2.LAYER: $1,100,000 any one claim in excess of $98,000,000 in the aggregate
HIH Casualty and General Insurance Limited (ACN 008 482 291) 50.00%
FAI General Insurance Company Limited (ACN 000 327 855) 50.00% 100.00%
The Master Policy and the Certificate of Insurance constitute or give rise to a contract, or contracts, of insurance between the solicitor and the Insurers, HIH, FAI, GIO and Sun Alliance, or at least arguably do so. The Master Policy is not, and does not give rise to, a contract of insurance between the solicitor and the Law Society. It is HIH, FAI, GIO and Sun Alliance who are the 'undermentioned Insurers who severally agree … to indemnify the Assured'. The solicitor's right of indemnity, if any, from the SMIF arises from the statutory scheme created by the Legal Profession Act.
Does the statutory scheme give rise to a contract?
In Lee v Phair (Unreported, NSWSC, 31 October 1996) the plaintiff sought leave under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Law Reform Act) to join LawCover as a second defendant. The plaintiff alleged that the first defendant, a solicitor, held a contract of insurance with LawCover, indemnifying him against liability to pay damages as sought against him and that under s 6 of the Law Reform Act the first defendant's liability to the plaintiff was a charge on the insurance monies payable by LawCover in respect of the first defendant's liability to the plaintiffs. Section 6 of the Law Reform Act provided that if a person has entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation the amount for which he is liable will be a charge on all insurance monies that may be payable in respect of that liability. By s 6(4) every charge is enforceable by action against the insurer and any judgment may be enforced as if the action were against the insured person. LawCover submitted that there was no contract of insurance with it and it was not an insurer. LawCover said that its only liability was to manage the SMIF and that any payments made under it are discretionary. Cohen J referred to AustralianHealth Insurance Association Ltd v Esso Australia Ltd (1993) 116 ALR 253 where the Full Court of the Federal Court referred to MacGillivray and Parkington On Insurance Law (8th ed) at 1 which gave a useful working definition of contract of insurance as being one whereby one party, the insurer, promises in return for a money consideration, the premium, to pay to the insured a sum of money or to provide that person with some corresponding benefit, upon the occurrence of one or more specified events. Cohen J said:
It may be, if these principles were to be applied, that the effect of the sections of the Legal Profession Act is to provide a system of insurance in order to give protection to the clients of solicitors. That however would not in itself constitute a contract of insurance which would enable s 6 to be used by a claimant. A number of matters are made clear by the Act. The Fund consists of contributions made by solicitors and accruals to those monies. Next, the Fund is property of the Law Society and LawCover is a manager only. Payments from the Fund are strictly discretionary, although it must be assumed that there would be a requirement that that discretion be reasonably exercised in accordance with the principles of administrative law. The payments when made are required to meet the difference between the indemnity given under the policy and the liability of the policy holder.
…
Under s 44(1)(b) LawCover has a discretion as to the amount which it may determine should be used towards meeting a claim arising out of the solicitor's liability. This means that it could determine that no amount would be paid, although, in practice, this is unlikely to occur in normal circumstances. Nevertheless, that discretion is given under the Act. There may be circumstances where, for instance, a solicitor may be required to contribute at least part of the amount of liability, although I am not seeking to suggest what might lead to that occurring. In my view the principles in Medical Defence Union Ltd v Department of Trade (1980) 1 Ch 82 are applicable here. There is no absolute entitlement to payment or other benefit to the solicitor who has been found liable, so that this element of a contract of insurance does not exist.
I do not consider that the operation of the statutory form of indemnity, even if there were no discretion under s 44, could be regarded as constituting a contract of insurance. What the scheme does is to require as a condition of obtaining a practicing certificate each year that each solicitor pay a contribution fixed under s 45 for that year to be paid to the Fund. The Fund is established by the Act, and LawCover, as the manager, is required to administer it. In that capacity it must consider all claims where the aggregate of claims is less than that agreed with the insurers …
It therefore seems to me that the Act has produced a means of creating a fund of money to be available to pay to clients the money for which their solicitors are liable because of breaches in the conduct of their practices. LawCover could not be taken to be an insurer since its only role is that of manager with the duty to administer the Fund. Further, it does not seem to me that the Law Society could be regarded as an insurer by virtue of it being a party to a contract of insurance. It holds the property on trust, and is required to obtain contributions to that fund from solicitors. The Fund no doubt exists for the purpose of providing an indemnity, but this is by a statutory directive and not by way of contract entered into by a solicitor, LawCover or the Law Society. Rather than there being an offer made and acceptance given by one to the other, there is a compulsory contribution and a fund available for payment.
In a similar way the Law Society is required under s 70 of the Act to establish and maintain a Solicitors' Fidelity Fund, which again is the property of the Law Society and is to be administered by the council of the Society in accordance with Pt 7 of the Act. Under the scheme set out in that Part there are to be contributions and levies from solicitors and payments are made under s 73, which does not seem to contain any discretion similar to that in s 44. Again, there is no contract between solicitors and the Law Society.
I agree with Cohen J that there is no contract between the Law Society and the solicitor, in this case Mr Fieldhouse, for the reasons stated by Cohen J. If, contrary to my finding, there was, or arguably was, a contract between Mr Fieldhouse and the Law Society then there remains the question of whether the contract is a contract of liability insurance for the purposes of s 51 of the Insurance Contracts Act.
Is the contract, if any, a contract of insurance?
The expression 'contract of liability insurance' is defined in s 11(7) of Insurance Contracts Act to be a contract of general insurance that provides insurance cover in respect of the insured's liability for loss or damage caused to a person who is not the insured. A contract of general insurance is defined by s 11(6) as a contract of insurance that is not a contract of life insurance. Section 10(2) provides that a reference in the Act to a contract of insurance includes a reference to a contract that includes provisions of insurance in so far as those provisions are concerned, although the contract would not ordinarily be regarded as a contract of insurance. The Act otherwise contains no definition of insurance or contract of insurance.
In Bayswater Car Rental Pty Ltd v Hannell [1999] WASC 34 Steytler J referred to the discussion of the definition of 'contract of insurance' in MacGillivray On Insurance Law (9th ed). In the eleventh edition of MacGillivray at [1‑001] the learned authors write:
A useful working definition is that given by Channell J in Prudential Insurance Co v Inland Revenue Commissioners [1904] 2 KB 658 according to which a contract of insurance is one whereby one party (the insurer) promises in return for a money consideration (the premium) to pay to the other party (the assured) a sum of money or to provide him with a corresponding benefit upon the occurrence of one or more specified events.
It is necessary to consider two elements of this definition ‑ the 'promises to pay' and the 'sum of money or corresponding benefit' elements.
In relation to the element 'promises to pay', the learned authors of the eleventh edition of MacGillivray say that the insurer must undertake a binding obligation to pay the assured upon the happening of the relevant event and continue at [1‑003]:
A contract whereby the notional assured has no contractual right to be paid in that eventuality but merely a right to require the notional insurer to give earnest consideration to his claim for an indemnity, and to pay him at its discretion, is not a contract of insurance [CVG Siderurgica Del Orinoco v London Mutual Steamship Owners Association Ltd [1979] 1 Lloyd's Rep 557; Medical Defence Union v Department of Transport [1980] 1 Ch 82; Rafter v Solicitors Mutual Defence Fund [1999] 2 ILRM 305]. A contract of insurance is intended to confer security and certainty on the assured and not merely an expectation of payment, however well founded [Hampton v Toxtteh Co‑operative Provident Society Ltd [1915] 1 Ch 721]. …
In relation to the element 'sum of money or corresponding benefit' the learned authors say at [1‑004]:
'Sum of money or corresponding benefit.' It was formerly thought that the only obligation undertaken by the insurer under a contract of insurance was to pay money [Rayner v Preston (1881) 18 Ch D 19]. However, the decision in Department of Trade and Industry v St Christopher Motorists' Association Ltd [1974] 1 WLR 99 widens the definition to include the provision of services to be paid for by the insurer for the benefit of the assured. …
In Medical Defence Union v Department of Transport [1980] 1 Ch 82 the Medical Defence Union Ltd (the Union) sought a declaration that it did not carry on any class of insurance business within the meaning of the Insurance Companies Act 1974 (UK). Sir Robert Megarry VC noted that the Insurance Companies Act contained no definition of 'contract of insurance' and that the term fell to be construed, in its context, according to the general law. The central question to be determined was whether the contract between each member of the Union and the Union was a contract of insurance. Sir Robert Megarry VC said that the leading authority was the judgment of Channell J in Prudential Insurance Co v Commissioners of Inland Revenue as read in the light of Gould v Curtis (1913) 3 KB 84 from which cases it appears that a contract is a contract of insurance if three elements are present. The element in dispute in that case was the first element which is that the contract must provide that the assured will become entitled to something on the occurrence of some event. Sir Robert Megarry VC said that the point arose in this way:
On the face of the memorandum and articles a member of the Union has no right to require the Union to conduct legal proceedings for him, and no right to require the Union to indemnify him against claims for damages. All that he has is the right to have his request for the Union's help under these three heads properly considered by the Council or by one of its committees. In practice it is rare for such a request to be refused. Yet although the prospects of such a request succeeding are great, all that the member has by way of right is that his request should be properly considered and, of course, if it is granted, that the Union should conduct the proceedings or indemnify him, or both. On that footing, Mr Chadwick contends that although this right is not a right to money or money's worth, it is of value, and so is a benefit; and for the first of the three elements of insurance, all that is required is that on the occurrence of some event the assured will become entitled to some benefit. Mr Alexander, on the other hand, says that this is far too wide. The first element is satisfied if on the occurrence of the event the assumed becomes entitled to a benefit consisting of money or money's worth, but not if the only benefit is something else (90).
After reviewing authorities and text books Sir Robert Megarry VC said:
I am quite unable to see any justification for replacing 'money' or its equivalent by 'benefit' as a constituent part of the definition of a contract of insurance. …
In rejecting the term 'benefit' I may say that I think that one is in a different world from the world of insurance when the only contractual right is a right to have a claim fairly considered. No doubt one must not attach too much importance to the basic meaning of words; but terms such as 'insure' and 'assure,' like 'ensure', seem to me to convey the sense of making something certain, and not merely of giving a hope or expectation, no matter how well founded. When a person insures, I think that he is contracting for the certainty of payment in specified events, and not merely for the certainty of proper consideration being given to his claim that a discretion to make a payment in those events should be exercised in his favour. The certainty must be direct, and not at one remove (95).
Sir Robert Megarry VC found that the Union was not an insurance company carrying on insurance business within the meaning of the Act of 1874. He said:
In particular, I reject the contention that the right to have an application properly considered suffices for a contract of insurance (97).
In Lee v Phair, to which I have already referred, Cohen J followed the reasoning of Sir Robert Megarry VC in the Medical Defence Union case and held that there was not a contract of insurance between the solicitor and the Law Society.
Rafter v Solicitors Mutual Defence Fund Ltd [1999] IEHC 230 concerned a plaintiff who had suffered injuries in a road traffic accident. She instructed a solicitor to institute proceedings. The solicitor failed to do so and the proceedings were statute barred. The plaintiff issued proceedings against the solicitor for damages for professional negligence and obtained judgment. The solicitor became bankrupt. The plaintiff claimed against the defendant, the Solicitor's Mutual Defence Fund Ltd, relying on s 62 of the Civil Liability Act 1961 (Eire) which provided that where a person (the insured) who has effected a policy of insurance becomes bankrupt moneys payable to the insured under the policy shall be applied to discharge claims against the insured in respect of which those moneys are payable. The solicitor had applied to the defence fund for membership and top up cover. His application was accepted and he became a member of the defendant company and eligible for indemnity under its scheme. McCracken J held that the solicitor's conditions of membership of the defence fund were such that the defence fund had a discretion whether to indemnify the solicitor rather than an absolute obligation to do so. McCracken J followed the reasoning of Sir Robert Megarry VC in the Medical Defence Union Ltd case that the solicitor's membership of the Defence Union did not constitute a contract of insurance. After referring to the reasoning of Sir Robert Megarry VC, McCracken J said:
I would entirely agree with this reasoning. Of course it is perfectly possible to have mutual benefit societies or companies which do provide policies of insurance to their members and indeed many life insurance companies operated on this basis but in all such cases there was a binding obligation on the insurance company to indemnify its member or in the case of life insurance to make the relevant payments on the happening of the event. An obligation to pay on the happening of a specified event is essential to the existence of a contract of insurance.
It is necessary to consider whether in this case there is an obligation on the Law Society or the SMIF to pay to Mr Fieldhouse the amount of his liability to HFMF or any part of it.
Mr Fieldhouse's right to be paid out of the SMIF arises from s 44 of the Legal Profession Act. Section 44(1) provides:
There shall be paid from the indemnity fund in such order as the company decides:
…
(b)such amount as the company determines towards meeting any difference between the indemnity provided by the approved insurance policy required by section 41 and the liability of a person insured under the policy …
On the materials before the court I do not think it can be maintained that the person insured under the approved insurance policy has a right to be paid the difference between the indemnity provided by the approved insurance policy and his liability insured under the policy or any amount. Section 44(1) provides that the amount to be paid is 'such amount as the company determines'. That is, the company has a discretion as to what amount it shall pay. That the company has a discretion to pay is emphasised by s 44(2) and s 44(3) which provide:
(2)The company may make determinations under subsection (1):
(a)that differ according to different circumstances, or
(b)that are subject to compliance with conditions imposed by the company,
or that do both.
(3)The company may:
(a)divide solicitors into classes approved by the Law Society Council, and
(b)under subsection 1(b), make a different determination for each of the classes.
If, contrary to my finding, there is a contract between Mr Fieldhouse and the Law Society in relation to Mr Fieldhouse being indemnified by the SMIF then it is not a contract of insurance.
If HFMF had commenced proceedings against the Law Society claiming that the Law Society, as owner of the SMIF, is a party to a contract of liability insurance that provides insurance cover in respect of Mr Fieldhouse's liability in damages to HFMF then I would have disposed of the action summarily on the grounds that the Law Society has a good defence on the merits. That is because there is no contract between Mr Fieldhouse and the Law Society and if, contrary to that finding, there is a contract between the Law Society and Mr Fieldhouse it is not a contract of insurance. I find that HFMF does not have an arguable case against the Law Society. HFMF's case against the Law Society is so clearly untenable that it cannot succeed: General Steel Industries Inc v Commissioner for Railways (NSW).
Discretionary considerations
The defendant raises two discretionary considerations against the joinder of the proposed defendants. The first is that it would serve no purpose if the action is permanently stayed. The second consideration is that the plaintiff has not made its application for joinder in a timely way. It is convenient at this stage to refer to the application to permanently stay the action.
Application for permanent stay
Mr Fieldhouse died on 16 November 2007. At that time Mr Fieldhouse was the only defendant in this action.
Section 4(1) of the Law Reform (Miscellaneous Provisions) Act 1941 (WA) provides, subject to qualifications and provisos not presently relevant, on the death of any person after commencement of the Act all causes of action subsisting against him shall survive against his estate. The provisions of that section are reflected in O 18 r 7(1) which provides that where a party to an action dies but the cause of action survives, the action shall not abate by reason of the death. Order 18 r 7(2) provides that where at any stage of the proceedings the liability of any party devolves upon some other person, the court may order that other person to be made a party and the proceedings to be carried on as if he had been substituted for the party who died. Counsel for the plaintiff informed the court that Mr Fieldhouse died intestate and no person has applied for or been granted administration of his estate. Senior counsel further informs the court that Mr Fieldhouse lived and died in New South Wales and that the effect of the Probate and Administration Act 1898 (NSW) s 61 is that his estate vested in the New South Wales trustee. In any event no order has been made under O 18 r 7.
On 17 November 2009 the solicitors on the record for the defendant filed an application to permanent stay the action. When the application came on for hearing Mr Donaldson SC and Mr Sher announced that they appeared for the defendant. Senior counsel explained:
The professional indemnity insurer has not declined liability in relation to this claim and so at the present time … we have received instructions from the insurer to bring on this application (ts 422).
When the hearing of the matter resumed on 3 June 2010 there was further discussion concerning the competency of the defendant's application to permanently stay the action. Mr Donaldson SC in effect accepted that the application for a permanent stay was incompetent and did not pursue the application. It is not necessary for me to say anything further about the application at this time.
Delay
The prospective defendants submit that the court should exercise its discretion against joinder on the ground of delay in bringing the application in the context of the general delay in the conduct of the action.
The power of the court to order that a person be added as a party under O 18 r 6(2) is discretionary. The rule provides that the court 'may' order that a person be added as a party. As a general rule the court should not refuse to order that a person be added as a party on the grounds of delay where no limitation question arises. If the court refused to order joinder then the plaintiff might commence a new action against the person sought to be joined as a defendant. That would lead to a multiplicity of proceedings and inconvenience. In this case the potential defendants do not allege that any limitation question arises. In those circumstances the court should exercise its discretion having regard to the objects set out in O 1 r 4B, that is, promoting the just determination of litigation, disposing efficiently of the business of the court, maximising the efficient use of available judicial and administrative resources and facilitating the timely disposal of business at a cost affordable by the parties. Having regard to those objects the court should exercise its discretion to add as a defendant any person against whom the plaintiff has established an arguable case.
In any event, I am not satisfied that the plaintiff has unduly delayed in applying to join the potential parties as defendants. The plaintiff's cause of action against the insurers arose on the death of Mr Fieldhouse on 16 November 2007. I have set out earlier in these reasons the steps taken by the plaintiff to ascertain the identity of the insurers and then to seek to join them as defendants. The delay by the plaintiff in seeking to join the potential parties as defendants is not a sufficient reason for refusing to order that they be added as a party.
The Lloyd's syndicates
The Lloyd's syndicates who the plaintiff applies to join as defendants are described in the application as: Syndicate 657 D R Lowe, Syndicate 683 R J Wallace, Syndicate 839 A M Sharpe, Syndicate 376 J H Benton and Syndicate 510 R J Kiln.
Underwriting at Lloyd's was described by Lord Steyn in Society of Lloyd's v Robinson [1999] 1 WLR 756:
The corporation of Lloyd's does not carry on insurance business. The function of Lloyd's is to manage and regulate the Lloyd's insurance market. Underwriting at Lloyd's is done by Names. A person desiring to become a Name at Lloyd's must first execute a General Undertaking in favour of Lloyd's and be accepted by Lloyd's. Names then join in syndicates which specialise in underwriting particular forms of risk. A syndicate is not a legal entity or a partnership. It is simply a group of Names who have joined a particular syndicate for a particular underwriting year. Each policy issued at Lloyd's consists of individual contracts made on behalf of individual Names. Each Name is only liable for his share of the risk but not for the share of any other Name: see s 8(1) of the Lloyds Act 1982 (759 - 760) .
In these reasons I have referred to the Lloyd's syndicates. That is a convenient description of the individuals who make up each syndicate. However, each syndicate is not a legal entity and cannot be sued in the name of the syndicate. I decline to order that each of the Lloyd's syndicates described in the application be joined as defendants under those names. The proper course is for the plaintiff to join each of the Names who constitute each syndicate as a defendant or alternatively to apply for a representative order under O 18 r 12.
Conclusion
The plaintiff's application to join the Law Society of New South Wales (as owner of the New South Wales Solicitors' Mutual Indemnity Fund) as a defendant should be dismissed. I decline to order that the Lloyd's syndicates, as described in the application, be joined as defendants under those names because, as I have said, each of those syndicates is not a legal entity. However, the members of the syndicates should be joined as defendants if and when the plaintiff applies to do so.
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