Hutchinson v Australian Securities and Investments Commission
[2001] VSC 465
•30 November 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7588 of 2001
| WAYNE HUTCHINSON | Plaintiff |
| v | |
| AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION | Defendant |
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MASTER: | Senior Master Mahony | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21 September, 4 October 2001 | |
DATE OF ORDER | 4 October 2001 | |
DATE OF JUDGMENT: | 30 November 2001 | |
CASE MAY BE CITED AS: | Hutchinson v ASIC | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 465 | |
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Corporations – registration – reinstatement of registration – deregistration induced by liquidator with notice of proceeding against company – plaintiff’s alternative right to proceed against company’s insurer – whether plaintiff “aggrieved by the deregistration” – whether reinstatement order “just”
Corporations Act 2001, ss 601AG, 601AH
Pagnon v WorkCover Queensland [2000] QCA 421, applied
Suncorp Metway Insurance Limitedv Clonmel Pty Ltd [2001] 2 Qd R 94, distinguished
Norsworthy and Encel v SGIC [1999] SASC 496, considered
Insurance – insurer’s obligation to indemnify – estoppel from denying that risk insured – assumption by insurer of conduct of legal proceeding
Northern Assurance Co Ltd v Cooper [1968] Qd R 46, applied
Hansen v Marco Engineering (Aust) Pty Ltd [1948] VLR 198, at 209-210, referred to
Corporations – registration – deregistration – liability of deregistered company’s insurer under s 601AG – possible denial on ground of delay in claim – plaintiff’s entitlement to exercise powers of ‘insured’ under s 54 (3) and (4) of the Insurance Contracts Act 1984 (Cth)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr. B. F. Quinn | Slater & Gordon |
| For the Defendant | Mr J. Munro (solicitor) | Legal Department, ASIC |
JUDGMENT
On 4 October 2001 I made an order under s 601AH (2) of the Corporations Act 2001 that the defendant (‘ASIC’) reinstate the registration of S.E.F. Constructions Pty. Ltd. (‘the company’). Because it appeared that the plaintiff had an alternative remedy under s 601AG of the Act, I indicated that I would publish in due course my reasons for making the order. These are those reasons.
Background
The plaintiff is also plaintiff in a proceeding in the County Court of Victoria which was commenced on 20 August 1999 (according to the date stamp on the copy of the writ in evidence before me) or 23 August 1999 (according to the supporting affidavit made by the plaintiff’s solicitor in this proceeding and the order of Master Evans to which I subsequently refer: [4]). The company was the defendant in that proceeding. By that proceeding the plaintiff claims damages for personal injury caused (he alleges) when on or about 9 April 1997 he slipped on gravel and fell to the ground while walking on a footpath outside a property in Epping where the company was carrying out building works. The plaintiff alleges negligence against the company, its servants and agents.
It seems the proceeding was commenced in the County Court without the plaintiff’s solicitors first having taken the precaution of searching ASIC’s records with respect to the company. Had this precaution been taken it would have disclosed that the company was in liquidation. It was subject to a creditors’ voluntary winding up resulting from its being placed in voluntary administration on 1 September 1998 and its creditors having passed a resolution for winding up at a meeting on 25 September 1998. In consequence, the company’s former administrator became its liquidator. (See ss 439C (c), 446A (1)(a), (2), (3), (4)(a)(i) and (b) of the Act (which, in all relevant respects, is identical with the Corporations Law which applied at the time).)
Having encountered a problem in effecting service of the County Court writ by post to the registered office of the company as disclosed by an ASIC search made on 14 July 1997 (that is, more than two years before), the plaintiff’s solicitors made further searches and had direct communications with the liquidator, and on 9 March 2000 they filed originating process in this Court with respect to an application for leave nunc pro tunc to commence the County Court proceeding. The application was made under s 500 (2) of the Corporations Law. On 24 March 2000 Master Evans ordered that the plaintiff “has leave now for then on 23 August 1999 to commence and prosecute [the County Court proceeding]”. In ‘Other Matters’ of the order it is noted that, “The Master read the fax letter from the Liquidator of the Respondent Company dated 22 March 2000”. The letter read by the Master was not on the court file with respect to that proceeding and was presumably returned to the plaintiff’s solicitors, for Mr Quinn of Counsel for the plaintiff was able to produce it to me at the hearing on 4 October 2001. The letter, on the letterhead of the liquidator’s firm, signed by him and addressed to the plaintiff’s solicitors reads: “I refer to your letter dated the 14th March 2000. I consent to Orders set out in the Originating Process being your application under Section 500(2) of the Corporations Law.” Having regard to what subsequently occurred, the notice given to the liquidator of the application before Master Evans and his expressed consent to the order have more than their immediate significance to that proceeding.
Under cover of a letter dated 7 April 2000 the plaintiff’s solicitors forwarded to the liquidator “by way of service” copies of the County Court writ against the company and a copy of the order of Master Evans as authenticated. The letter requested the liquidator “to ensure that you file an Appearance within the time required by the Court rules”; and added a ‘recommendation’ that the liquidator “contact the responsible liability insurer or solicitor without delay and provide them with a copy of these documents”. (In the circumstances, it is unnecessary to consider whether the “service” attempted was effective to cause time to run for the filing of an appearance by the company.) An appearance had not been filed or served by 30 June 2000 when the solicitors wrote a further letter to the liquidator, referring to their previous letter dated 7 April and information subsequently received from the liquidator as to the identity of the company’s relevant insurer, and noting that a “Notice of Appearance” had not been received. (The evidence of the solicitor who wrote the letter was that the liquidator gave the information about the insurer on 1 June 2000, it being different from previous advice he had given; and that the insurer named on 1 June 2000 was telephoned the same day and gave “confirmation that at the time of the accident the company had public liability insurance with it”. I shall refer to it hereafter as ‘the insurer’.) The letter concluded: “To protect your interests I suggest that you refer this matter to the insurers immediately. If I do not receive an Appearance by 5.00 p.m. Friday 7 July 2000, I will enter judgment in default.” The evidence was silent as to when an appearance was filed and served but no default judgment was entered, and the insurer’s solicitors served a defence on 24 August 2000.
The Deregistration of the Company
In the meantime a somewhat surprising step had been taken by the liquidator. On 12 July 2000 – that is, just five days after the date limited by the letter dated 30 June to avoid judgment in default of appearance – the liquidator lodged with ASIC notification of the final meeting of creditors convened by him together with his final accounts and statement. He did this pursuant to s 509 (1) of the Corporations Law. It provided:
“As soon as the affairs of the company are fully wound up, the liquidator must make up an account showing how the winding up has been conducted and the property of the company has been disposed of and, when the account is so made up, he or she must convene a general meeting of the company, or, in the case of a creditors’ voluntary winding up, a meeting of the creditors and members of the company, for the purpose of laying before it the account and giving any explanation of the account.”
Subsection (2) provided that the meeting must be convened by publishing a notice in the gazette at least a month before the date of the meeting. Subsection (3) provided:
“The liquidator must, within 7 days after the meeting, lodge a return of the holding of the meeting and of its date with a copy of the account attached to the return.”
Subsection (5) obliged ASIC to deregister the company “at the end of the 3 month period after the return was lodged”. The deregistration duly occurred on 12 October 2000. The company was thereupon dissolved: “A company ceases to exist on deregistration”: s 601AD (1).
Since the lodgment with ASIC occurred 12 days after 30 June 2000, the date of the second letter from the plaintiff’s solicitors to the liquidator, the ‘timetable’ provided for by s 509 (3) suggests that the meeting of creditors and members must have occurred in that period, after having been convened at least one month before. Unless the liquidator convened the meeting months earlier than s 509 (1) required, it may be assumed that he did so after 24 March 2000 when Master Evans made the order granting the plaintiff leave and after 7 April 2000 when the plaintiff’s solicitors forwarded to the liquidator a copy of the order as authenticated.
Whatever the date of convening the meeting, however, there was no basis for proceeding with it – a fortiori for effecting lodgment – unless the condition was satisfied which is laid down by s 509 (1) for the making up of the liquidator’s account, namely, that “the affairs of the company [were] fully wound up”. This could not be so while the County Court proceeding, of which the liquidator had notice, was on foot. It may be presumed that there was some ‘breakdown in communication’ in the liquidator’s office but the fact remains that, on the evidence before me, the steps which led to the company’s dissolution should not have occurred. (Having regard to the date of service of the company’s defence (supra, [5]), one infers that the liquidator also took the steps he did without informing the insurer.)
A ‘Claim’ under Section 601AG
For reasons about which the evidence again was silent, it appears that the plaintiff’s solicitors did not discover the deregistration of the company until they obtained from ASIC a search with respect to the company on 5 April 2001. Their reaction was to “serve” on the insurer’s solicitors an amended statement of claim in the County Court proceeding with the insurer’s name (or what was intended to be the insurer’s name) substituted for that of the company as the defendant. It is immediately apparent that this document had no status. No order had been sought, let alone obtained, for substitution of the insurer for the company as defendant to the proceeding. Similarly, there had been no leave sought, let alone granted, to amend the statement of claim. The County Court proceeding was, in effect, stayed because the defendant had ceased to exist and no consequential procedural step had been taken by the plaintiff to alter this.
This is not to say that the plaintiff by his solicitors was not on the right track. The idea behind the ‘amended statement of claim’ was the cause of action which s 601AG of the Act now confers when a defendant company or a potential defendant company is deregistered. At the time to which I am referring, it was s 601AG of the Corporations Law. Section 601AG provided (as does s 601AG of the Act):
“A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if:
(a) the company had a liability to that person;
(b)the insurance contract covered that liability immediately before deregistration.”
The ‘amended statement of claim’ inter alia added allegations of the deregistration and that the plaintiff “claims from the defendant pursuant to the provisions of section 601AG of the Corporations Law”.
By letters dated 26 June 2001 and 31 July 2001 respectively the insurer’s solicitors set out their reaction to the ‘amended statement of claim’ and, in particular, to the proposition that their client was susceptible to an application under s 601AG. In the former they stated:
“We do not agree that [the section] enables the plaintiff to pursue recovery directly against an insurer until such time as a liability against [the company] has been established. We are instructed therefore to advise you that our client does not consent to service of the proposed amended statement of claim in its present form. We suggest that you proceed with an application to re-instate the company.”
The letter dated 31 July 2001 expanded upon the construction of s 601AG favoured by the insurer’s solicitors:
“Section 601AG creates a cause of action in a situation where an amount was payable to the deregistered company under the insurance contract, if the deregistered company had a liability to the person and the insurance contract covered that liability immediately before deregistration.
“In our view the section applies where there was an entitlement to cover as well as an established liability prior to the date of deregistration. This view is supported by Suncorp Metway Insurance Limited v Clonmel Pty Ltd [2000] QSC 135, Norsworthy v SGIC [1999] FASC (sic) 496 and Pagnon v WorkCover Queensland [2000] QSA 421.
“In our view, the correct procedure in the current matter is to make an application to the Supreme Court to reinstate the company.”
This Proceeding
This correspondence apparently satisfied the plaintiff’s solicitors that they should accept the view expressed as to “the correct procedure”, and this proceeding was commenced by originating process filed on 14 September 2001. Paragraph 12 of the supporting affidavit referred to the insurer’s solicitors as having “refused to accept” that s 601AG applied in the circumstances and “(a)ccordingly, this application is made so that the [County Court] proceeding may continue against the company.”
The letters dated 26 June 2001 and 31 July 2001 were not exhibited to the supporting affidavit – they were exhibited to an affidavit made on 4 October 2001 – and, not knowing why the insurer had “refused to accept” that s 601AG applied, I requested my Associate to convey to the plaintiff’s solicitors my desire that the insurer be represented as to this at the hearing of the plaintiff’s application. It seemed to me that the purpose of the section is to obviate the need for reinstatement of registration of companies to which and to whose insurers s 601AG applies, and that, in such cases, it may be that a plaintiff under s 601AH (2)(a) might not qualify as a person who is “aggrieved by the deregistration” and further, because reinstatement is not needed, the Court may not be satisfied under s 601AH (2)(b) that it is “just that the company’s registration be reinstated”. This would be especially so in any case, such as the present, where the insurer is the only conceivable source of funds to satisfy a judgment obtained by the plaintiff whether against the (reinstated) company or the insurer itself.
When the plaintiff’s application first came on for hearing, on 21 September 2001, Ms Rava, a solicitor from the firm acting for the insurer, was in attendance. She submitted that s 601AG did not apply because the ‘liability’ of the company to which the section refers has to be what she described as an “actual liability”, explaining that this meant liability under a judgment. The liability here was only “potential”, in that the claim of the plaintiff against the company had not “crystallised” into a judgment. As authority for this construction of s 601AG, Ms Rava referred me to the first of the cases to which her firm had referred the plaintiff’s solicitors in their letter dated 31 July 2000, Suncorp Metway Insurance Limitedv Clonmel Pty Ltd, which is now reported: see [2001] 2 Qd R 94. I consider that decision subsequently: see [22] – [24]. Ms Rava also informed me that if the company’s registration were reinstated and if the plaintiff obtained a judgment against the company in the County Court proceeding, the insurer would indemnify the company for its liability under the judgment, subject to the insurer’s having admitted liability under the policy. As to whether there had been, or would be, any such admission, she was without instructions and not in a position to obtain them that day. This being a question of potential significance not only to the application of s 601AG but also as to the practicality of the plaintiff’s pursuing the County Court proceeding if the company’s registration were reinstated, I ordered adjournment of the hearing to 4 October 2001. In ‘Other Matters’ of the order I noted that the purpose of the adjournment was to enable the insurer or its solicitor to file and serve an affidavit clarifying the insurer’s position with respect to the company’s claim under the policy “immediately prior to its deregistration and its position in that behalf after the reinstatement of the company’s registration if that be ordered”.
I did not order any such affidavit and, in the event, none was made. Instead the insurer’s solicitors wrote a letter to the plaintiff’s solicitors and forwarded a copy to my Associate. The letter was dated 1 October 2001. Its substance was as follows:
“We refer to your letter dated 27 September 2001 enclosing orders made by Senior Master Mahony [in this proceeding].
As you are aware, we are instructed by [the insurer] in respect of [the County Court proceeding].
1. Indemnity
We note those orders refer to the issue of indemnity under the insurance policy between [the company] and [the insurer]. As the alleged incident for which the plaintiff pursues this claim occurred on 9 April 1997 and the claim was first notified to [the insurer] in mid 2000 our client has reserved its position on indemnity.
2. The application for reinstatement
Though requested by the Court to appear and having appeared as a matter of courtesy on 21 September 2001 in respect of your client’s Supreme Court application for reinstatement of [the company] (deregistered), our client is not a party to that proceeding. As such, we have no standing to appear and put arguments on our client’s behalf in respect of the matters raised by your client’s reinstatement application, or by the Master in respect of that application.
As you are aware, our client has refused to consent to being joined as the defendant, in place of its insured [the company] in your client’s County Court proceeding, pursuant to section 601AG of the Corporations Act. Our client holds a particular view with respect to the effect and application of section 601AG of the Corporations Act. Our client is reluctant to present those views by way of argument before the Master on 4 October 2001 when an application pursuant to section 601AG is not before the Court and the plaintiff’s application that is before the Court is for the reinstatement of [the company].
Our client is also concerned about the prospect of any orders being made against it with respect to the costs of your client’s application for reinstatement. As such we note that prior to pursuing its County Court proceedings against [the company] your client obtained leave from the Supreme Court to proceed against that company as it had been placed in liquidation. We understand that prior to that date your firm was in contact with the liquidator of the company. Subsequent to leave being granted by the Supreme Court to proceed against a company in liquidation, the company was deregistered. The necessity for your client’s current application was, therefore, created by a failure on the part of the liquidator to take note of the proceedings (sic) and not deregister the company. Our client played no part in the subsequent deregistration of the company. As that is the case it would be wholly unfair for any application to be made for orders that our client pay any costs in respect of your client’s application.
For the reasons set out above we do not propose to appear at the hearing on 4 October 2001.”
As thus foreshadowed, there was no attendance on 4 October 2000 by the insurer’s solicitors; and, since their client “holds a particular view with respect to the effect and application of section 601AG”, it was unfortunate that I was thus deprived of the opportunity of hearing it. The solicitors’ concern about their client’s “standing” perhaps was misplaced since their client had responded to an invitation originating with the Court to assist it by explaining its “view”. The sense of opportunity lost was, however, much assuaged, at least in my mind, by what Ms Rava had submitted on 21 September 2001; by the letters dated 26 June 2001 and 31 July 2001 from the insurer’s solicitors to the plaintiff’s solicitors which were exhibited to the affidavit made on 4 October 2001; and, in particular, by the case references in the latter of those letters. Before considering those cases, I turn to the matter which led me to order the adjournment on 21 September 2001.
Indemnity
The insurer’s purported reservation of “its position on indemnity”, seen now to be based solely on a delay in notification of the plaintiff’s claim against the company, would not be such as to concern the plaintiff on a claim founded on s 601AG.
The insurer clearly conducted the company’s case against the plaintiff in the County Court proceeding. Knowing of the delay in notification, the insurer had instructed its solicitors and they were on the record as the company’s solicitors in that proceeding; and prior to the company’s deregistration they had served and filed the company’s defence in that proceeding. In such circumstances, an insurer is (at least, usually) estopped from denying indemnity under the policy with its insured: see Hansen v Marco Engineering (Aust.) Pty Ltd [1948] VLR 198, at 209-210, where Fullagar, J referred to United States and Canadian cases and to texts for that proposition; and, for direct Australian authority, see Northern Assurance Co. Ltd v Cooper [1968] Qd. R 46. Whether the insurer would be so estopped in fact may depend on the actual terms of the policy which have not been disclosed. This is something which would be assessable after an insurer’s defence was served in a proceeding commenced under s 601AG.
Further confidence would be gleaned by the plaintiff, however, from s 54 of the Insurance Contracts Act 1984 (Cth), which provides:
“(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 or 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 by reason only of the act.
(4)Where the insured proves that some part of the loss that gave rise to the claim was not 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.
(5)Where:
(a)the act was necessary to protect the safety of a person or to preserve property; or
(b)it was not reasonably possible for the insured or other person not to do the act;
the insurer may not refuse to pay the claim by reason only of the act.
(6) A reference in this section to an act includes a reference to:
(a) an omission; and
(b)an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter.”
An immediate question which suggests itself concerning the application of s 54 to defeat an insurer’s defence in a proceeding under s 601 AG is how the plaintiff could rely on subs (3) or (4) when those subsections require “the insured” to provide the proof referred to and, by definition under s 601AG, the insured has ceased to exist through deregistration. The function of s 601AG is, in effect, not only to provide a cause of action to an alleged victim of the insured company which has ceased to exist, but also to provide the victim with subrogation to the right of indemnity which the company would have had against its insurer had it been extant. The scope of that right is determined by reference to the policy of insurance; but the exclusion and limitation provisions of that policy have to be applied subject to the operation of such provisions as s 54. Accordingly, in such a case as this, the right of recovery conferred by s 601AG would be emasculated if it were construed other than as extending to a right to prove the matters open to be proved by an insured under s 54 (3) or (4).
The “loss in respect of which the insurance cover [was] provided by the contract” in the plaintiff’s case was expressed by his claim for damages. The delay in notification of the plaintiff’s claim to the insurer until “mid 2000” (which suggests that it was the liquidator who first notified the insurer of the claim after he received the plaintiff’s solicitors’ letter dated 30 June 2000) could not reasonably be regarded “as being capable of causing or contributing” to that “loss” and, therefore, the insurer would not be entitled to refuse the claim: subs (2). Indeed, since the plaintiff could show that “no part of the loss that gave rise to the claim was caused by” the delay in notification, the insurer would seem prohibited by subs (3) from refusing “to pay the claim by reason only of [the delay]”. As nothing more than the delay is suggested as cause for the insurer’s having reserved “its position on indemnity”, this would seem to conclude that issue favourably to the plaintiff.
I turn now to the cases referred to in the letter dated 31 July 2001 from the insurer’s solicitors to the plaintiff’s solicitors.
Suncorp Metway Insurance Limited v Clonmel Pty Ltd
It may be recalled that at the hearing on 21 September 2001, Ms Rava for the insurer had submitted that Suncorp Metway is authority for the proposition that, for s 601AG to apply, the person invoking the section against an insurer must have been a judgment creditor of the insured company immediately before its deregistration: supra, [14]. I have heard such a contention put in other cases in which the possibility of the application of s 601AG was being canvassed. An immediate reaction is to ask, in how many cases would a company which has suffered such a judgment then be deregistered before receiving the benefit of its insurer’s indemnity against that judgment? Is the deregistration of such companies after suffering a judgment and before satisfying it by payment by their insurers so prevalent as to warrant the remedial s 601AG? Yet, if the contention put by Ms Rava, and others, is correct, that is the sole situation to which the section is directed, and Suncorp Metway is authority for that conclusion.
Properly analysed, it is seen that Suncorp Metway is authority for an entirely different, and by no means novel, proposition. The proposition is given expression in the passages in the judgments on which Muir, J of the Supreme Court of Queensland relied in Suncorp Metway, namely, Littlewood v George Wimpey & Co Ltd and British Overseas Airways Corporation [1953] 2 QB 501, at 519 per Denning, LJ (as he then was), and Bitumen and Oil Refineries (Australia) Limited v Commissioner for Government Transport (1954-1955) 92 CLR 200, at 211 (per Dixon, CJ, McTiernan, Webb, Fullagar and Taylor, JJ): see [2001] 2 Qd R, at 97. The proposition is that a claimant for indemnity or contribution only has a cause of action in that behalf if and when there is a judgment against him. The passage from Lord Denning’s judgment in Littlewood, to which reference is made in Suncorp Metway, was also quoted in full by the High Court in the Bitumen and Oil Refineries case: see 92 CLR, at 210. The passage as so quoted concluded thus:
“ In cases where a writ is issued against the first tortfeasor and he serves a third-party notice against the second tortfeasor, the notice is convenient machinery, but it does not mean that he then has a cause of action. His cause of action only arises when judgment is given against him ascertaining his liability.”
In Suncorp Metway defendants to a pending action in tort were seeking to use s 601AG to join as a third party the insurer of a company which was alleged to have been liable prior to its deregistration to make contribution if the plaintiff succeeded against the defendants. The authorities to which Muir, J referred made it clear that this could not be done under s 601AG because, since the plaintiff had not obtained judgment against the defendants, the defendants had no cause of action for contribution against the deregistered company; and, thus, prior to its deregistration the company could not have a liability to the defendants within subs (a) of s 601AG. The authorities cited by Muir, J show that while a judgment debtor may have a cause of action for contribution, a defendant against whom there is no judgment has not; and that, therefore, while there is no judgment a potential third party cannot be said to be “liable” to the defendant in the sense in which that word is used in subs (a) of s 601AG.
Accordingly, Suncorp Metway is not authority for the proposition that s 601AG requires that the deregistered company have been sued to judgment before the deregistration, but is merely another example of the application of the principle which obtains with respect to claims for indemnity or contribution, albeit that, to avoid a multiplicity of proceedings, court rules permit such a claim to be raised in the proceeding in which the claimant is being sued and before the claimant has any cause of action against the third party.
“Had a liability”
Since Suncorp Metway does not establish that, for a deregistered company to have “had a liability” to a claimant before it was deregistered, the claimant must have had a judgment against it, what is the criterion by which it is to be determined that the deregistered company “had a liability” to the claimant? For the section to be efficacious, having regard to its apparent purpose (supra, [13]), it would seem to be necessary that, immediately prior to the deregistration, the claimant had a fully-constituted cause of action against the company. This does not mean a cause of action which would be certain to succeed, one to which there could be no defence. It means a cause of action which would have supported a proceeding against the company which, absent its being defended, would have succeeded; or, in other words, a claim which could be made by pleading on which a judgment in default of defence could be obtained. Whether such claim would have succeeded against the company strictly cannot be determined because of its deregistration. In resisting the proceeding brought under s 601AG, however, the insurer of the deregistered company would be entitled to rely on any defence on which the deregistered company might have relied. (In practice in such a case as the plaintiff’s County Court proceeding, where the defence would be conducted by the insurer in any event, this would make no substantive difference.) The section, in effect, empowers a plaintiff to bring against the insurer, not a case against the insurer, but what would have been his or her case against the company. This analysis of how a deregistered company is to be regarded as having “had a liability” to a plaintiff relying on s 601AG appears to be supported the decision of the Court of Appeal of the Supreme Court of Queensland in the third case mentioned by the insurer’s solicitors in their letter dated 31 July 2001.
Pagnon v WorkCover Queensland
This case is not yet reported. Its ‘media neutral citation’ is [2000] QCA 421. The Court of Appeal comprised McPherson and Thomas, JJA and Muir, J, the judge who decided Suncorp Metway. Their judgments were handed down on 10 October 2000. The appeal involved the construction of s 186 of the Queensland Workers Compensation Act 1990. Section 186 (1) is as follows:
“If a worker suffers injury in respect of which compensation under this Act is payable in circumstances conferring a right of action for damages in respect of the injury against the worker’s employer who –
(a) has died; or
(b) being a corporation, has ceased to exist; or
(c) cannot be served with process
a person who might have obtained judgment for damages against the employer in respect of the injury may recover by action against the board, as if the board were the employer, the sum that would have been payable by way of damages to that person by the board under section 183 (1) had judgment been given against the employer.” [My emphasis]
The similarity of this provision to s 601AG will be apparent. It confers a cause of action against a third person (“the board”) where, for one of the reasons in (a), (b) or (c), it is impossible or impracticable to proceed against the worker’s employer.
WorkCover Queensland being the statutory successor of “the board”, the issue before the Court of Appeal in Pagnon was whether the trial judge had been right in concluding that a proceeding commenced under s 186 was not statute-barred although, by the date of commencement, more than three years had passed since the plaintiff was injured and, therefore, the time had expired for commencing a proceeding against the plaintiff’s employer. The complicating factor – and that giving rise to the claim under s 186 – was that, in the meantime, the employer, a company, had been deregistered. Thus, s 186 (1)(b) applied. The Court of Appeal dismissed the appeal, holding that s 186 provides an injured worker with a new cause of action, distinct from that which previously the worker had against his employer.
The principal judgment in Pagnon was given by McPherson, JA. Thomas, JA agreed with him. Muir, J disagreed only with respect to whether the giving of notice – required by s 186 (2) – was a constituent of the cause of action conferred by s 186 (1). In the course of his judgment, McPherson, JA referred to a number of cases which concerned legislative provisions of the same type as s 186; to authorities dealing with the consequences for a limitation period of a defendant company’s being deregistered; and to s 601AH (2) and (3) – then of the Corporations Law, now of the Act – concerning the court’s power to order reinstatement and to make “appropriate” consequential orders inter alia that the time for which the company was deregistered should not count for the purposes of a limitation period, observing (at [15]) that in an appropriate case there would be “every reason why it would be ‘just’ to adopt that course”. He went on (at [16]):
“If there is any remaining doubt about the correctness of that conclusion, it is to my mind put to rest by s 601AG of the Corporations Law.”
He then set out the terms of the section, and continued:
“Under the Workers Compensation Act 1990, the obligation of an employer was to insure and remain insured with the board under a policy covering the employer’s liability at common law to his employee: see s 44 (1)(b). Under such a policy the employer is indemnified by the board against legal liability for damages payable in respect of the injury suffered by the employee or worker: s 183 (1). It appears to follow that, within the meaning of s 601AG, the company Croway Pty Ltd, which was formerly the plaintiff’s employer, was, before it was deregistered, a company that “had a liability” to the plaintiff; and also that, immediately before deregistration, the insurance policy or contract with the defendant board “covered that liability”. In these circumstances the only question would be whether the plaintiff could under s 601AG have recovered from the board as insurer of Croway Pty Ltd an amount that was payable to him from the statutory insurance fund. Section 601AG speaks of “the amount that was payable to the company under the insurance contract”, which is not really apt to describe the statutory insurance regime in Queensland under which the amount is payable directly out of the insurance fund to the employee, and not to his corporate employer as envisaged by s 601AG."
From this passage it will be observed that McPherson, JA provides no support for the insurer’s contention in this proceeding that, for the “liability” of the company to the plaintiff to be within s 601AG, it must be liability under a judgment; indeed, he does precisely the opposite. The only reason for excepting the operation of s 601AG in Pagnon was that, by force of the statute which required the insurance, the amount payable by ‘the board’ as insurer was not payable to the employer but to the employee.
His Honour added some further valuable observations about s 601AG (at [17]):
“The legislative policy underlying s 601AG is, however, not open to doubt. It is to ‘short-cut’ the need to reinstate the company, and to do so by enabling the ultimate recipient of the insurance proceeds to sue the insurer direct where the company has been dissolved, without imposing the additional trouble and expense of first applying to have it reinstated.”
This succinct statement echoed the relevant paragraphs of the Explanatory Memorandum which accompanied the Company Law Review Bill 1997, the passing of which resulted inter alia in the insertion in the Corporations Law of the new “Chapter 5A – Deregistration of companies”, a chapter which included s 601AG (and s 601AH). The relevant paragraphs were 15.22 and 15.23 which were grouped under the heading, “Third party rights against insured deregistered companies”. Those paragraphs were as follows:
“15.22 At present, a person wishing to make a claim against a deregistered company may need to apply to a court for the reinstatement of the company in order to bring an action against it. The Bill enables a person to proceed directly against the insurer of a company that is deregistered, without seeking the company’s reinstatement (Bill, s 601AG). Comparable rights have previously been provided in other legislation, for example, section 6 of the Law Reform (Miscelleaneous Provisions) Act 1946 (NSW).
15.23 The Bill enables a third party to recover directly from the insurer of the deregistered company an amount payable under their contract of insurance if 2 preconditions are met:
(a) the deregistered company had a liability to the third party;
(b) the insurance contract covered that liability (Bill s 601AG).”
Thus, one concludes, not without some relief after the various arguments insurers have sought to raise over the years to avoid the application to them of s 601AG, that the section really does mean what it seems clearly enough to say. There are, of course, situations to which it would be inapposite e.g., that in Pagnon where the sum payable under the policy was not payable to the insured; that where, as in an asbestosis case involving employers over a number of years, it is unclear which of several policies of different insurers would be involved; that where the insurer has merged in or been taken over by another which will accept the liability but did not itself have a contract with the deregistered company at the relevant time; and that where the proceeding which would be commenced if the company’s registration were reinstated is not one for which the plaintiff would recover a sum, e.g. an application under s 135A (4)(b) of the Accident Compensation Act 1985 (Vic) for leave to commence a proceeding for damages for work-related injuries when a certificate consenting to the proceeding on the ground of serious injury has not been granted.
However, applying Pagnon, it seems clear that in the case of the plaintiff in this proceeding the insurer would be liable by virtue of s 601AG.
In this, I am not ignoring the third case referred to by the insurer’s solicitors in their letter dated 31 July 2001.
Norsworthy and Encel v SGIC
Section 601AG was mentioned by Olsson, J of the Supreme Court of South Australia at the conclusion of his judgment in Norsworthy ([1999] SASC 496) in order to indicate that, in reaching the conclusions he had expressed, he had not overlooked its existence. The proceeding before him was an appeal from a Magistrates Court in which two related cases, with an extraordinary and highly irregular procedural history, found their way to the Supreme Court in the form of a single appeal, the respondent to which was the insurer of the defendant company in the first case and contended by the appellants thereby to be the insurer of the company’s directors who were the defendants in the second. The insurer-respondent had not been an original party to either of the first instance proceedings. The company already was a judgment debtor to the appellants in the first before they made any claim in that case against the insurer. Since the events giving rise to the cases, the company had been placed in liquidation and, before the insurer had been joined, deregistered. (The deregistration occurred in 1997 before s 601AG was enacted.) The company had never been a defendant in the second case. The issue on the appeal was whether the appellants in either case had any claim directly against the insurer. It is unnecessary that I refer to the reasoning by which Olsson, J concluded that they did not. Having referred to and set out the terms of s 601AG, he stated (at [93]) that the section –
“avails the present appellants nothing, because it was only enacted by Act No 61 of 1998 which came into operation on 1 July 1998. It is not merely a procedural provision. It enacts a completely new cause of action.”
This is non-controversial. No claim had been made against the insurer under the section and it could have no impact on the outcome of the appeal. Further, it was clear that, whatever (if any) the means by which the plaintiffs could seek to claim directly against the insurer, such a claim would be subject to the insurer’s failing to make good its refusal to indemnify the company on the ground that the events giving rise to the plaintiffs’ claims involved a breach by the company of a fundamental safety requirement. In other words, it was a case in which the insurer would rely on s 54(2) of the Insurance Contracts Act (supra, [18]).In that context, the use of s 601AG would be no more appropriate than the various means employed by the plaintiffs to that time. This, in my view, explains the observations made by Olsson, J in the following paragraph [94] which, if read in isolation with the passage I have quoted from paragraph [93] of the judgment, otherwise might suggest that s 601AG could not be used save with respect to a cause of action against an insured arising on or after 1 July 1998 – a conclusion which would clash with the clear inference to the contrary in Pagnon. The observations to which I refer were as follows:
“What it [the section] does assist in underlining is that, in the instant cases, the appellants will only be able to enforce their rights by first seeking to reinstate [the company] on the register, and then pursuing the rights via that entity. This, if it occurs, may give rise to a need to revisit issues of joinder in those proceedings and a potential reframing of pleadings.”
Accordingly, although referred to by the insurer’s solicitors in their letter dated 31 July 2001, Norsworthy, by reason of the insurer’s defence and its peculiar procedural history, is clearly distinguishable from Pagnon and from this case.
Consequences of application of s 601AG
Since the underlying purpose of s 601AG, in a situation where it applies, is to obviate the need to apply to the Court for an order for reinstatement of a company’s registration (supra, [13], [29], [30]), it ought be used against insurers where appropriate. The corollary is that, in such a situation, an application for a reinstatement order generally ought not be made. The resources of the Court and of ASIC clearly are not intended by the Legislature to be called upon in such circumstances. I have to express my disagreement with the attitude of ASIC as expressed in the very helpful written submission with which Mr Munro provided me, namely, that –
“(E)ven where it is open to a party to proceed under section 601AG, if the party applies for reinstatement the Court should look favourably on the application.”
For ASIC and the Court to adopt such an approach would be to undermine the effect and intended operation of s 601AG; and neither should feel able to conduce to such an outcome.
An application for reinstatement made under s 601AH which is unnecessary because s 601AG applies generally ought be dismissed. In such a situation, it could be said properly that the plaintiff seeking reinstatement is not “aggrieved by the deregistration”, the primary criterion for an order under s 601AH.
The making of an order under s 601AH is, however, clearly discretionary and special circumstances may exist which satisfy the Court that, notwithstanding that s 601AG applies to enable the plaintiff to proceed directly against the deregistered company’s insurer, the plaintiff is nevertheless “aggrieved by the deregistration” and it is “just” to order the company’s reinstatement. This accorded with the submissions put by Mr Quinn for the plaintiff, and by Mr Munro for ASIC, in support of the proposition that this was just such a case. I accepted those submissions.
Factors favouring an order under s 601AH in this proceeding
Usually a person in the position of the plaintiff will found his or her being “aggrieved by the deregistration” of the prospective defendant to a claim, on the consequential incapacity to sue a non-existent person: see, for example, Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 34 ACSR 232, (2001) 19 ACLC 341, at [22] and [23]. If, as I have stated, this arises in a situation where s 601AG applies, the application of the section will usually negative the person’s being “aggrieved” within the meaning of s 601AH (supra, [37]). In this case, however, the plaintiff was entitled reasonably to expect that the liquidator of the company, since he necessarily knew of the existence of the County Court proceeding, would do nothing to finalise the winding up of the company and cause the deregistration of the company while the County Court proceeding was pending. That reasonable expectation was not realised; and, in my view, this provided the plaintiff with special and direct cause for being “aggrieved by the deregistration of the company”.
Mr Quinn informed me that the plaintiff presently is in very poor health indeed; and that his legal advisers considered it imperative that he proceed with all due haste with the County Court proceeding. This would be achieved most expeditiously in the circumstances obtaining by ordering ASIC to reinstate the company’s registration. The alternative, application by the plaintiff to the County Court for leave to substitute the insurer as defendant and to serve on it an amended statement of claim, which the plaintiff’s advisers apprehended probably would be delayed by opposition from the insurer, would involve much more delay, not to mention cost. This was undeniably true.
In the circumstances, I concluded that justice favoured the order which the plaintiff sought and I ordered ASIC to reinstate the company’s registration.
Costs
Mr Quinn sought an order that the insurer pay the plaintiff’s costs of the proceeding. It may be recalled that this prospect was the subject of some expressed apprehension in the letter dated 1 October 2001 from the insurer’s solicitors. Such an order was not possible, however, without the insurer’s having an opportunity to be heard; and that opportunity was unnecessary because there was no real prospect that the order sought would be made. As I have indicated (supra, [39]), the order made for the reinstatement of the company’s registration reflected the liquidator’s fundamental role in the dissolution of the company at a time when “the affairs of the company” were not “fully wound up”, due to the continuation of the County Court proceeding; and, thus, the order was inconsistent with a liability of the insurer for costs.
In “Other Matters” of the order made on 4 October 2001, I recorded the salient matters with respect to that role of the liquidator; and the order required service on the liquidator of a copy of the order as authenticated and reserved the plaintiff’s costs of the proceeding as against the liquidator. He too must have an opportunity to be heard before any order that he pay the plaintiff’s costs is possible.
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