HIH Casualty & General Insurance v Insurance Australia (No 2)
[2006] VSC 128
•5 April 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 5769 of 2000
| HIH CASUALTY & GENERAL INSURANCE LIMITED (IN LIQUIDATION) (ACN 008 482 291) & ANOR | Plaintiffs |
| v | |
| INSURANCE AUSTRALIA LIMITED (ACN 000 016 722) (FORMERLY SGIC GENERAL INSURANCE LTD) | Defendant |
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JUDGE: | Bongiorno J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9 February, 6 March 2006 | |
DATE OF JUDGMENT: | 5 April 2006 | |
CASE MAY BE CITED AS: | HIH Casualty & General Insurance v Insurance Australia (No.2) | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 128 | |
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Insurance – liability insurance – interest – date from which interest runs – “unreasonable to have withheld payment” – objective test – stay of execution – solvency of payee of judgment sums – s 57 Insurance Contracts Act 1984 (Cth); Insurance Contracts Regulation 1985 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J. R. Dixon | Tress Cox Lawyers |
| For the Defendant | Mr M. W. Thompson SC | Norris Coates Lawyers |
HIS HONOUR:
On 26 August 2005 the Court gave judgment in this proceeding for the plaintiffs. [1] It ordered that the first plaintiff recover approximately $40,000 by way of equitable contribution from the defendant and ordered the defendant to indemnify the second plaintiff in respect of various sums which had been paid or were to be paid on his behalf by the HIH Support Scheme.
[1][2005] VSC 342.
Upon the handing down of that judgment questions of the proper form of the judgment, and the question of interest and costs were not settled pending discussion between the parties. No resolution of the issue of interest was achieved by discussion so that the matter was listed again for the Court to determine that question and a further application by the defendant for a stay of execution of the judgment pending an appeal which has been instituted and is awaiting hearing in the Court of Appeal.
Interest
Unlike interest on judgment sums awarded by the Court in claims for debts or damages, which is governed by the Supreme Court Act 1986, when an insurer is required by a judgment to make a payment to a policyholder questions of interest are governed by s 57 of the Insurance Contracts Act 1984 (Cth) which is in the following terms:
“57 Interest on claims
(1)Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section.
(2)The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days:
(a)the day on which the payment is made;
(b)the day on which the payment is sent by post to the person to whom it is payable.
(3)The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations.
(4)This section applies to the exclusion of any other law that would otherwise apply.
(5)In subsection (4):
“law” means:
(a)a statutory law of the Commonwealth, a State or a Territory; or
(b)a rule of common law or equity.”
As the issues raised by s 57 had not been averted to by counsel during the trial of this proceeding, nor on an initial application for interest to be fixed heard on 9 February 2006, no evidence is before the Court which goes directly to those issues. They are somewhat complex in this particular case because of the various items which make up the second plaintiff’s claim and because of the intervention on Mr Steele’s behalf of the HIH Support Scheme and its retainer of solicitors to act for him.
Interest on the first plaintiff’s claim for equitable contribution is not disputed. It does not depend on the Insurance Contracts Act, as is explained below.
The assessment of interest on the second plaintiff’s claims depends upon a determination of the date from which it was unreasonable for the insurer not to pay each of those claims. The insurer contends that because no evidence was led at the trial to enable a determination of this question to be undertaken the second plaintiff must fail in his claim for interest. It says that no interest should be awarded.
Counsel for the plaintiffs submitted that the defendant insurer in this case commenced to act unreasonably from the time it rejected its obligation to indemnify Mr Steele under the SGIC policy. His contention was that that date was at or before the issue of this proceeding or, at the very latest, upon filing a defence on 20 August 2000 disputing liability to contribute to the amounts paid by HIH because the SGIC policy did not respond to the claim. This conduct was said to be unreasonable because the insurer was not successful at trial in its contention that the policy did not respond to the claim. Its counsel referred to Settlement Wine Company Pty Ltd v National and General Insurance Co Ltd.[2] The defendant’s argument was that as there was no evidence as to when SGIC was first notified of the particular claim for a particular sum under the policy, no evidence as to what materials were provided to it from which it could assess the claim and no evidence as to any further reasonable steps SGIC would have to have taken to assess properly the merits of the claim, no finding can be made as to the date from which interest should commence to run.
[2](1994) 62 SASR 70.
In Settlement Wine, Perry J suggested that where an insurer reasonably suspected fraud or arson it should be allowed a period to assess that circumstance before interest should begin to run against it. However, in Bankstown Football Club Ltd v CIC Insurance Ltd[3] Cole J rejected a submission that the question of the date from which it became unreasonable for an insurer to withhold payment of a claim depends upon any concept of a bona fide dispute. If liability is ultimately found to exist:
“. . . then the presumption must be that the insurer ought be deemed to know of that obligation as ultimately determined, even though it may bona fide have held a different view at all times prior to determination, at least at the first instance level, in relation to the question of liability.”
His Honour considered that a reasonable period must be given to the insurer to investigate and determine its position but that if it adopts an incorrect position in relation to its obligation to pay under a policy its bona fides as to that position are irrelevant. This decision was followed by Einstein J in Max Hams & Anor v CGU Insurance Ltd.[4]
[3]Unreported, NSWSC, Cole J, 17 December 1993.
[4][2002] NSWSC 843.
The approach of Cole J is to be preferred to that of Perry J. Once the court has rejected the insurer’s defence to a policyholder’s claim, that defence becomes irrelevant as does the fact that the insurer had a bona fide belief in its efficacy. To hold otherwise would put a premium on erroneous advice. Taken to its logical extreme, an insurer which relied upon incorrect legal advice or an inadequate report of a loss adjuster to form a belief as to the possibility of its successfully defending a policyholder’s claim would be advantaged by having obtained bad legal or loss adjusting advice. The successful policyholder would be correspondingly disadvantaged by the same irrelevant circumstance.
Ormiston J in V.L. Credits v Switzerland General Insurance[5] assessed interest on the same principle; that is to say he allowed the insurer a reasonable time to investigate the claim and determined the date from which interest ran as being at the end of that time. His Honour appears to have selected a period of three months in a case involving arson as being a reasonable period during which the insurer was entitled to investigate the claim. He awarded interest after that period. His judgment does not suggest that that assessment was made on the basis of evidence as to what the insurer knew and what it did. Rather, it appears to have been selected by his Honour as being a reasonable period taking into account the type of case and the probable issues which had to be investigated.
[5](1991) 2 VR 311.
In this case the parties are agreed that, notwithstanding the provisions of the Insurance Contracts Act, the sum awarded by paragraph 1 of the judgment of 26 August 2005 carries interest in favour of the first plaintiff of $22,712.26 to the date of judgment (26 August 2005) calculated in accordance with the Supreme Court Act 1986. This is because that part of the first plaintiff’s claim was for contribution in equity and was not “under a contract of insurance or under (the Insurance Contracts Act) in relation to a contract of insurance . . .”. This mutual concession means that there is no need to consider this item further.
Interest on Second Plaintiff’s Award
On 31 August 2005 the plaintiffs’ solicitors wrote to the insurer’s solicitors setting out calculations of interest based on the Supreme Court Act 1986. On 21 February 2006 they again wrote to the defendant’s solicitors with a revised claim calculated in accordance with the Insurance Contracts Act. The calculations applied interest rates derived, as the Act required, from the Insurance Contracts Regulations 1985. There was no argument between the parties as to the correctness of any of these calculations. The only issue was as to the date from which interest should run in respect of the various payments made by the HIH Support Scheme on Mr Steele’s behalf.
Interest on judgment sum
Mr Steele was held liable to pay damages to Screenco by McClellan J in the New South Wales Supreme Court on 16 September 2002. Those damages were paid by the Scheme by cheque on 13 December 2002 on Mr Steele’s behalf. Interest is now claimed from a date one week later (to allow cheque clearance and funds transfer) to the date of judgment in this proceeding. As Mr Steele was entitled to indemnity from the defendant immediately upon his being held liable, the date from which interest is claimed is reasonable. Interest should be allowed to the date of judgment in the sum of $291,565.65.
Costs payable to Screenco
On 4 December 2003 the Scheme paid $175,000 costs to solicitors for Screenco. Again, there seemed to be no reason why interest should not run from a week after that date on the same basis as the sum paid in respect of the New South Wales judgment. The agreed amount to the date of judgment in this proceeding is $24,721.75.
Costs payable to Highrise Scaffolding
There is no direct evidence of the date upon which the scheme paid a sum of $81,000 demanded by solicitors for Highrise Scaffolding for their costs by letter of 17 September 2004. The second plaintiff claims interest from a date one month after that demand as being a reasonable time allowance for the demand to be met in the ordinary course of business. This is not unreasonable. The agreed amount to the date of judgment is $8,197.64, being interest at appropriate rates on $81,000 from 17 October 2004 to 26 August 2005.
Mr Steele’s own costs payable to Deacons
The New South Wales proceeding went both to the Court of Appeal and to the High Court. In this instance interest has been calculated from one month after the date each bill was rendered by Deacons at a discounted rate of 90%, to reflect the portion of Deacons’ accounts which were paid by the Scheme on Mr Steele’s behalf. Calculated pursuant to the Insurance Contracts Regulations, the sums for interest to the date of judgment are $1,803.08 and $1,568.69, a total of $3,361.77.
Costs payable to Ligeti Partners
Four separate amounts are involved under this heading. The first involves interest on the portion of Ligeti’s accounts payable by the Scheme following the collapse of HIH. This amount has been calculated at the applicable rates from one month from the date each bill was rendered to the date of judgment in this proceeding. These dates are reasonable in the circumstances. The amount claimed is $28,651.52. The second amount involves interest on the portion of Ligeti’s accounts payable by HIH prior to its collapse. Three calculations of interest are involved; in respect of payments made prior to 1 January 2000; in respect of payments made prior to 1 January 2001 and in respect of payments made in 2001. Each of the amounts claimed have been reduced by 50% because the first plaintiff was entitled to only 50% from the defendant in respect of the amounts paid by it. The interest payments claimed are $3,791.34, $11,980.54 and $792.89 respectively.
Taking into account each of the calculations described, the total for interest is $370,368.04 to 26 August 2005, the date of judgment.
So far as interest from that date onwards is concerned, having regard to the terms of s 57 of the Insurance Contracts Act, it would seem that Victorian legislation as to interest on judgments is displaced once again. Giles J in the Supreme Court of New South Wales held in Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd & Ors [6] that, as a matter of construction, s 57 applied to post-judgment interest as well as pre-judgment interest. His Honour applied NRMA Insurance v Tatt.[7] This construction of s 57 appears, with respect, to be correct. Accordingly, interest will continue to run on all of these amounts at the rate prescribed by the Insurance Contracts Regulations until payment is made by the defendant insurer.
[6](1993) 32 NSWLR 735.
[7](1989) 94 FLR 339; 92 ALR 299.
Stay of proceedings
The defendant insurer seeks a stay of proceedings pending its appeal to the Court of Appeal in respect of this Court’s judgment of 26 August 2005. It argues that the circumstances of this case justify a stay notwithstanding the ordinary rule that an appeal does not, of itself, operate as such.
The circumstances relied upon by the defendant arise from the fact that although Mr Steele would be the nominal recipient of any sum paid by the defendant by way of indemnity, in fact any money so paid would be paid to Mr Steele’s assignee, HIH Claims Support Limited – an entity of unknown solvency. Once paid to HIH Claims Support Limited such money would become part of its funds available to meet its ongoing liabilities. As HIH Claims Support Limited has no apparent income or income earning capacity, once the Commonwealth Government’s appropriated subvention is exhausted the capacity of HIH Claims Support Limited to make any repayment to the defendant, should it be successful on appeal, must be considered, at least, doubtful.
The defendant’s argument has merit. In the circumstances, to ensure preservation of the subject matter of the appeal now before the Court of Appeal it is appropriate that a stay be granted as sought by the defendant. However, it should be granted only upon terms that the defendant vigorously prosecutes its appeal to achieve finality in this litigation as soon as possible.
Orders
Subject to hearing counsel as to form and on the question of costs (including the costs of the proceeding generally) the orders proposed are as follows:-
1.That to the judgment given 26 August 2005 by this Court there be added interest in the sum of $370,368.04 and continuing from that date until payment, such interest calculated on the various sums referred to in this judgment in accordance with the Insurance Contracts Regulations 1985 (Cth).
2.That upon the defendant undertaking to the Court by its counsel that it will vigorously prosecute its appeal in this proceeding currently pending in the Court of Appeal, there be a stay of execution in respect of the judgment of this Court of 26 August 2005 and the interest ordered to be added by this judgment, until the completion of that appeal by judgment or otherwise or until further order of this Court or the Court of Appeal.
3.There be liberty to the plaintiffs to apply in respect of the stay of proceedings granted in paragraph 2.
4.There be liberty to apply generally in respect of post-judgment interest.
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