Independent Tube Mills Pty Ltd (in liq) v Corplex Pty Ltd
[2024] VSC 267
•24 May 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY, ENGINEERING AND CONSTRUCTION LIST
S CI 2016 04423
| INDEPENDENT TUBE MILLS PTY LTD (In Liquidation) (ACN 136 627 186) | Plaintiff |
| v | |
| CORPLEX PTY LTD (ACN 108 916 310) & ANOR (according to the attached Schedule) | Defendants |
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JUDGE: | Waller J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 March 2024 |
DATE OF RULING: | 24 May 2024 |
CASE MAY BE CITED AS: | Independent Tube Mills Pty Ltd (in liq) v Corplex Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 267 |
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PRACTICE AND PROCEDURE — Whether proceeding an abuse of process — Applications for summary judgment or a permanent stay — Whether proceeding brought for illegitimate purpose — Whether proceeding brought for benefit of third party — No abuse of process — Applications dismissed — Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 23.01 — Treasury Wine Estates Ltd v Melbourne City Investments Pty Ltd (2014) 45 VR 585.
EQUITY — Subrogation — Insurer’s right of subrogation — Whether right of subrogation waived or extinguished following transfer of conduct of proceeding — Whether insurer acted contrary to continued existence of right of subrogation— Right of subrogation not waived or extinguished — Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 97 ALJR 1 — Francis v Powercor Australia Ltd [2020] VSC 836.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr MH Whitten KC with Mr DJ Carolan | Hall & Wilcox |
| For the Second Defendant | Mr S Senathirajah KC with Ms N Hassan | Wotton + Kearney |
| For the Third Defendant | Mr PG Cawthorn KC with Mr J Whelen | Macpherson Kelley |
HIS HONOUR:
A. INTRODUCTION
The nominal plaintiff in this proceeding, Independent Tube Mills Pty Ltd (‘ITM’), operated a steel mill. The second defendant, Corplex Pty Ltd (‘Corplex’), and the third defendant, Intrax Consulting Engineers Pty Ltd (‘Intrax’), were contracted in respect of the design and construction of the building housing the mill. The statement of claim alleges negligence in the design and construction of the floor of that building resulting in damage to, and misalignment of, the mill machinery.
QBE Insurance (Australia) Ltd (‘QBE’) insured ITM pursuant to an Industrial Special Risks Policy (‘Policy’). ITM claimed against the Policy. QBE accepted the claim and indemnified ITM in certain respects. Exercising its right of subrogation, QBE commenced this proceeding in ITM’s name against Corplex and Intrax and also against Pincove Pty Ltd, the owner of the land on which the steel mill operated.
By summonses filed on 9 August 2023 and 28 August 2023 respectively, Intrax and Corplex seek orders for summary judgment in their favour, alternatively for the proceeding to be permanently stayed on the asserted ground that continuation of the proceeding constitutes an abuse of process.[1] They submit that QBE has lost its right of subrogation and is pursuing this proceeding for an illegitimate purpose.
[1]The first defendant, Pincove Pty Ltd, made an application in similar terms by summons filed on 30 August 2023. Following orders made by consent on 20 December 2023, the plaintiff’s claim against the first defendant was discontinued.
The plaintiff opposes Corplex’s and Intrax’s applications.
The issues for determination are:
(a) Has QBE’s right of subrogation to litigate this proceeding been waived or extinguished?
(b) Does QBE’s conduct of the proceeding constitute an abuse of process?
For the reasons set out below, I have concluded that QBE’s right of subrogation to litigate this proceeding has not been waived or extinguished and that its conduct of the proceeding is not an abuse of process.
B. FACTUAL BACKGROUND[2]
[2]The facts set out below are drawn predominantly from the Statement of Agreed Facts filed by the plaintiff on 8 March 2024.
The following losses are claimed in this proceeding:
(a) material damage to the steel mill owned and operated by ITM during the relevant period; and
(b) economic loss in the period between 1 November 2010 and 30 October 2011 said to be caused by the movement of the mill.
Between July and December 2013, following QBE’s acceptance of ITM’s insurance claim, QBE made payments of $3.8 million for business interruption losses. In November 2013, QBE paid $1 million for material property damage, although this apparently was not used to rectify the claimed mill misalignment.[3]
[3]Australian Pipe & Tube Pty Ltd v QBE Insurance Australia Ltd (No 2) [2018] FCA 1450, [90]–[94] (‘Australian Pipe & Tube’).
On 16 May 2014, ITM entered into two agreements with Australian Pipe & Tube Pty Ltd (‘APT’):
(a) first, ITM entered into an Asset Sale Agreement, by which ITM sold to APT the assets (comprising the stock, receivables, contracts and records) of its steel milling business in exchange for APT assuming certain liabilities of ITM;
(b) secondly, ITM entered into a Deed of Assignment (‘ITM–APT Assignment’) pursuant to which ITM assigned all of its rights ‘to recover any sum, cost or loss or to receive any benefits whether presently or in the future in relation to or in connection with’:
(i) a claim with respect to or in connection with an event that is insurable or the subject of a claim made under any of ITM’s insurance policies; or
(ii) ‘any other rights, claims, causes of action, benefits and entitlements’ that ITM may have pursuant to or under the insurance policies.
Those agreements were executed by David Brandi as sole director of APT and his father Erminio Brandi as sole director of ITM. David Brandi was a previous director of ITM.
On 30 June 2014, a liquidator was appointed to ITM.
On 19 August 2014, ITM gave notice of the assignment to QBE.
There remained a dispute between APT and QBE about some losses sought under the Policy. In 2015, APT commenced Federal Court of Australia Proceeding VID 527 of 2015 against QBE (‘Federal Court Proceeding’), in which APT claimed indemnification from QBE as assignee of ITM’s rights under the Policy.
In the Federal Court Proceeding, APT claimed:
(a) business interruption losses in the form of lost profits exceeding $9.4 million;
(b) losses in respect of the additional increased cost of working; and
(c) insurance claim preparation costs.
APT then entered into two further assignment agreements:
(a) on 1 March 2016, APT entered into an Asset Sale Agreement to sell its assets consisting of stock, receivables, contracts and records to Laurus Group Pty Ltd (‘Laurus’) in exchange for Laurus assuming certain debts of APT. David Brandi was the sole director of Laurus. Laurus later entered into voluntary administration with debts of some $27 million;[4]
(b) on 1 July 2016, APT assigned all its rights under the Policy to Leaning Back Pty Ltd (‘Leaning Back’) for nominal consideration (‘APT–Leaning Back Assignment’). The director of Leaning Back at that time was David Brandi.
[4]See Laurus Group Pty Ltd v Mitsui & Co (Australia) Ltd [2022] VSC 360; Laurus Group Pty Ltd v Mitsui & Co (Australia) Ltd [2023] VSC 412.
After the APT–Leaning Back Assignment, Leaning Back was joined as the second applicant in the Federal Court Proceeding.[5]
[5]Australian Pipe & Tube (n 3) [96].
In 2016, exercising its right of subrogation, QBE commenced this proceeding in ITM’s name.
In March 2017, APT issued proceeding S ECI 2017 0066 (‘APT Proceeding’). The defendants to the APT Proceeding were the same defendants in this proceeding, and one additional defendant. The alleged wrongdoing claimed in the APT Proceeding was, in effect, the same as that claimed in this proceeding. The difference was that this proceeding was brought in ITM’s name by QBE in respect of insured losses, whereas the APT Proceeding was brought by APT as ITM’s assignee in respect of uninsured losses.
On 8 October 2018, the Federal Court gave judgment in favour of Leaning Back and ordered QBE to pay to Leaning Back the sum of $2,160,866.17 together with interest of $525,531.39.
Final Stop was incorporated on 22 November 2018. The sole director and shareholder of Final Stop is David Brandi’s spouse, Tina Brandi.
Also on 22 November 2018, QBE, APT, Leaning Back and Final Stop entered into a Deed of Settlement and Release (‘2018 Deed’). The terms of the 2018 Deed were negotiated by David Brandi (on behalf of the non-QBE parties), and executed by David Brandi as director of Leaning Back and Final Stop. It was also executed by his father, Erminio Brandi, as director of APT.
Clause 3(h) of the 2018 Deed provides:
Any settlement and/or judgment funds recovered in the QBE Proceeding [being this proceeding] and/or the APT Proceeding and received by QBE, APT, Leaning Back and/or Final Stop will be aggregated and distributed as follows:
(i)Firstly, in payment of QBE's legal costs and disbursements incurred in the QBE Proceeding and/or the APT Proceeding from the date of QBE assumes the conduct of the APT Proceeding pursuant to and in accordance with clause 3(b), up to $500,000;
(ii)The balance, if any, to be divided equally between QBE and Final Stop.
Clause 3(i) of the 2018 Deed provides:
Without prior consultation with Final Stop, QBE will not elect (including on behalf of APT, Leaning Back and/or Final Stop) to discontinue both the QBE Proceeding and the APT Proceeding on terms that would result in no net recovery after deduction of QBE’s legal costs under clause 3(h)(i):
(i)If to do so would be contrary to its duty of utmost good faith;
(ii)Without first giving Final Stop the option of assuming the conduct of the QBE Proceeding and the APT Proceeding (and assuming liability for the costs, including adverse costs orders, of such proceedings).
On 29 November 2018, the APT Proceeding was discontinued.
On 21 December 2018, APT (by then renamed Sputnik Holdings Pty Ltd), was wound up by court order and a liquidator was appointed.
On 29 November 2019, a liquidator was appointed to Leaning Back.
In around June 2022, QBE informed Final Stop that it was not willing to continue to prosecute this proceeding to trial and intended to settle the proceeding on the best possible terms.[6] A dispute subsequently arose between Final Stop and QBE as to the operation of the 2018 Deed. The dispute concerned Final Stop’s right to assume the conduct of this proceeding and the distribution of any proceeds of this proceeding between QBE and Final Stop.
[6]Affidavit of Tina Brandi sworn 4 October 2022 in the Final Stop Proceeding, [26], TB-1 211.
On 4 October 2022, Final Stop commenced proceeding S ECI 2022 03914 against QBE in this Court (‘Final Stop Proceeding’).
On 10 March 2023, by consent between Final Stop and QBE, Elliott J made an order that Final Stop ‘hereupon is to assume the conduct of [this proceeding], assuming liability for the costs, including adverse costs orders of that proceeding’ (‘Transfer Order’). It was submitted by the parties to be, and made on the basis that it was, an order for specific performance of the 2018 Deed.
The defendants to this proceeding were not notified of the Final Stop Proceeding and were not heard on the making of the Transfer Order.
On 23 March 2023, the plaintiff’s solicitor, Hall & Wilcox, sent an email to Corplex’s and Intrax’s respective solicitors which stated (amongst other things):
… our file in this matter is currently being transferred to HFW, who act for Final Stop Pty Ltd which has assumed conduct of the proceeding for the plaintiff (including assuming liability for the costs, including adverse costs orders).
On 3 April 2023, Hall & Wilcox provided a copy of the Transfer Order to Corplex and Intrax.
On 5 May 2023, Corplex applied for security for costs against the plaintiff. On 24 August 2023, Steffensen AsJ made orders that:
(a) the plaintiff provide security for costs by 16 October 2023; and
(b) if the plaintiff failed to pay the security sum the proceeding against Corplex be stayed until further order.
On 22 June 2023, QBE provided Corplex and Intrax with a copy of the 2018 Deed.
On 9 August 2023, Intrax brought an application for summary judgment, alternatively a permanent stay of this proceeding pursuant to r 23.02(1)(b) of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’), alternatively the inherent jurisdiction of the Court, on the basis that the proceeding had become an abuse of process. Corplex brought a similar application on 28 August 2023.
On 6 October 2023, Corplex filed its submissions in support of the application. On 11 October 2023, Intrax filed its submissions.
The plaintiff did not pay the security sum by 16 October 2023 and the proceeding against Corplex was stayed pursuant to the orders of Steffensen AsJ.
By orders of Stynes J made on 1 September 2023, the plaintiff was to file its submissions in response to the applications by 20 October 2023. At that time, Final Stop had conduct of this proceeding on behalf of the plaintiff. The plaintiff did not file any submissions by 20 October 2023.
On 30 October 2023, Final Stop and QBE entered into a new deed dealing with the conduct of this proceeding (‘2023 Deed’).
The 2023 Deed provided for QBE to ‘resume carriage and conduct’ of this proceeding on behalf of ITM.
Clause 2.1(a) of the 2023 Deed provides:
On and from [the date the 2023 Deed was executed] QBE will resume carriage and conduct of the QBE Proceeding [being this proceeding] on behalf of the Plaintiff in the QBE Proceeding.
Clause 2.3 of the 2023 Deed provides:
Subject to clause 4.2, QBE shall be entitled to retain any and all amounts recovered in the QBE Proceeding irrespective of when any entitlement to such recovery arose.
Clause 2.4 of the 2023 Deed provides:
QBE is liable to pay any and all costs ordered against the Plaintiff or Final Stop in the QBE Proceeding irrespective of when any obligation to pay such costs arose.
Clause 4.2 of the 2023 Deed provides:
In substitution of any rights Final Stop may have had to the proceeds of the QBE Proceeding under the [2018 Deed] or otherwise QBE shall pay to Final Stop the amount set out in this clause within 28 days of settlement or Final Judgment in the QBE Proceedings:
Amount Recovered (as defined in cl. 4.3)
Payment to Final Stop by QBE
$1 to less than $1M
$500,000
$1M to less than $2M
$750,000
$2M to less than $3M
$1,250,000
$3M to less than $4M
$1,750,000
$4M or more
$2,250,000
Clause 4.3 of the 2023 Deed provides:
Amount Recovered means the net amount recovered by QBE in the QBE Proceeding calculated by deducting from the total settlement or judgment sum (including principal, costs and interest):
(a)the total sum of any adverse costs orders paid by QBE in the QBE Proceeding; and
(b)the legal costs (irrespective of when any obligation to pay such costs arose) paid by QBE in the QBE Proceeding.
On 31 October 2023, Hall & Wilcox served a notice of change of solicitor advising that Hall & Wilcox again acted for the plaintiff. Hall & Wilcox had previously acted as solicitor for the plaintiff in this proceeding whilst it was being conducted by QBE. Hall & Wilcox wrote to the Court advising that the plaintiff was not in a position to file submissions as it had only reassumed conduct of the proceeding that day.
On 2 November 2023, Hall & Wilcox informed the defendants that Final Stop no longer had conduct of this proceeding and that QBE had resumed conduct of the proceeding and intended to continue prosecuting the plaintiff’s claims pursuant to its right of subrogation.
On 20 November 2023, the plaintiff filed a summons seeking, amongst other things, that the hearing of the stay applications on 24 November 2023 be adjourned.
On 28 November 2023, both the plaintiff’s and the defendants’ summonses were returned for hearing. The Court relevantly made orders:
(a) substituting an undertaking by QBE for the requirement that the plaintiff pay security for costs for Corplex;
(b) lifting the stay of the proceeding against Corplex; and
(c) setting a timetable for further affidavits and submissions in respect of the stay applications.
On 22 January 2024, the Court made orders in the Final Stop Proceeding (‘Resumption Order’), by consent between the parties in that proceeding, to the effect that:
(a) the Transfer Order is vacated; and
(b) QBE is to resume the carriage and conduct of this proceeding.
By correspondence dated 24 January 2024, the Court stated that the orders of 22 January 2024 were made ‘to give effect to the proposed consent orders provided by the parties to the Final Stop proceeding, and should not be taken as any indication of the Court’s position in relation to the applications to be heard in [this proceeding] on 12 March 2024’.
In December 2023, Corplex applied for leave to inspect and obtain copies of certain documents filed in the Final Stop Proceeding. Following a hearing on 28 February 2024, I granted the leave sought.[7] Various affidavits and exhibits were released to both Corplex and Intrax,[8] relevantly including correspondence between QBE and Final Stop surrounding their dispute concerning the operation of the 2018 Deed.
[7]Final Stop Pty Ltd v QBE Insurance (Australia) Ltd (Ruling) [2024] VSC 101, [102].
[8]Although Intrax was not involved in the application for leave to inspect and obtain copies of documents, QBE’s solicitors released those documents to both parties: Transcript of Proceedings (12 March 2024) 1.16–1.28.
C. RELEVANT PRINCIPLES
Abuse of process
Rule 23.01(1) of the Rules provides:
Where a proceeding generally or any claim in a proceeding—
(a)is scandalous, frivolous or vexatious; or
(b)is an abuse of the process of the Court—
the Court may stay the proceeding generally or in relation to any claim or give judgment in the proceeding generally or in relation to any claim.
Apart from the Rules, the Court has inherent power to stay or dismiss any proceeding which is an abuse of the process of the Court.[9]
[9]Burton v President, etc, of the Shire of Bairnsdale (1908) 7 CLR 76, 91 (O’Connor J); Knight v Bell [2000] VSCA 48, [12] (Ormiston JA).
The onus of proving an abuse of process is heavy and rests on the party alleging it.[10]
[10]Treasury Wine Estates Ltd v Melbourne City Investments Pty Ltd (2014) 45 VR 585, 599 [62] (Kyrou JA) (‘Treasury Wine Estates’).
What amounts to an abuse of process is broad and its categories are not closed, but the cases generally fall into one of three categories:
(a) where the Court’s processes are invoked for an illegitimate or collateral purpose;
(b) where use of the Court’s procedures are unjustifiably oppressive to a party; or
(c) where use of the Court’s procedures bring the administration of justice into disrepute.[11]
[11]Moti v The Queen (2011) 245 CLR 456, 463–4 [10] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ), citing Rogers v The Queen (1994) 181 CLR 251, 286.
The purpose of the Court’s power to stay, or summarily dismiss, proceedings for abuse of its processes is to prevent injustice. That power is properly exercised where a moving party’s abuse of process may ‘prevent or stultify the fair and just determination of a matter’.[12] Where a proceeding is brought for an improper purpose, the only appropriate remedy is likely to be a stay of proceedings,[13] but a stay should only be ordered as a ‘last resort’ if no other means are available to prevent prejudice to a fair trial.[14]
[12]Victoria International Container Terminal Ltd v Lunt (2021) 271 CLR 132, 141 [18] (Kiefel CJ, Gageler, Keane and Gordon JJ) (‘Victoria International Container Terminal’).
[13]Ibid 141 [20] (Kiefel CJ, Gageler, Keane and Gordon JJ), citing Jago v District Court (NSW) (1989) 168 CLR 23, 71.
[14]Victoria International Container Terminal (n 12) 141 [20] (Kiefel CJ, Gageler, Keane and Gordon JJ).
An improper or illegitimate purpose includes bringing a proceeding ‘not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they were not designed or some collateral advantage beyond what the law offers’.[15]
[15]Williams v Spautz (1992) 174 CLR 509, 526–7 (Mason CJ, Dawson, Toohey and McHugh JJ) citing In re Majory (1955) Ch 600, 623–4 and Goldsmith v Sperrings Ltd [1977] 1 WLR 478, 498–9; [1917] 2 All ER 566, 581–2, cited in Brown v Corrections Victoria Department of Justice [2022] VSC 217.
Subrogation
Subrogation is the doctrine under which one person becomes entitled to exercise the rights of another.[16] The doctrine applies to an insurance contract under which the insured is entitled to be indemnified against loss. By subrogation, the insurer is entitled to exercise, in the name of the insured, any rights of the insured against third parties that relate to the subject matter of the contract of insurance, the exercise of which may reduce the loss of the insured.[17]
[16]Meacock v Bryant & Co [1942] 2 All ER 661, 663–4 (Atkinson J); Justice ML Ball and D St L Kelly, LexisNexis Australia, Kelly & Ball Principles of Insurance Law (online at 23 April 2024) [9.0010] (‘Kelly & Ball Principles of Insurance Law’).
[17]H Cousins & Co Ltd v D & C Carriers Ltd [1971] 2 QB 230, 241 (Widgery LJ); [1971] 1 All ER 55; Kelly & Ball Principles of Insurance Law (n 16) [9.0010].
The rationale of the doctrine of subrogation is the avoidance of a double indemnity and unjust enrichment of the insured,[18] to prevent the insured from recovering from the insurer under the indemnity and from the wrongdoer directly. An insured will not be unjustly enriched if he or she is fully indemnified, but not more than fully indemnified.[19]
[18]AFG Insurances Ltd v City of Brighton (1972) 126 CLR 655, 663 (Mason J); Castellain v Preston (1883) 11 QBD 380, 402 (Bowen LJ) (‘Castellain v Preston’). Cf SR Derham, Subrogation in Insurance Law (The Law Book Company Limited, 1985) 30.
[19]Transport Accident Commission v CMT Construction of Metropolitan Tunnels (1988) 165 CLR 436, 442 (Wilson, Dawson, Toohey and Gaudron JJ), citing Castellain v Preston (n 18).
The doctrine of subrogation gives two distinct rights to the insurer: first, the right to require the insured to pursue any remedy available against the tortfeasor for the benefit of the insurer; and second, the right to recover from the insured any benefit received in reduction or elimination of the loss against which the insurer has indemnified the insured.[20] An insurer is only entitled to be subrogated to the insured’s rights in respect of a loss for which it is liable, and the insurer’s entitlement to exercise its right of subrogation arises when it has fully indemnified the insured in accordance with the contract.[21]
[20]Insurance Commission of Western Australia v Kightly (2005) 30 WAR 380, 387–8 [26] (Steytler P, Wheeler and Roberts-Smith JJA agreeing) (‘Kightly’). See also John Birds et al, MacGillivray on Insurance Law (Sweet & Maxwell , 14th ed, 2018) [24-001]–[24-005].
[21]John Edwards and Company v Motor Union Insurance Company Ltd [1922] 2 KB 249, 254–5 (McCardie J); Halliday v High Performance Personnel Pty Ltd (1993) 113 ALR 637; Davis v Taylor (No 2) [1974] AC 225; Kelly & Ball Principles of Insurance Law (n 16) [9.0080], [9.0090]. But note the comment in JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015) [9-290] (‘Meagher, Gummow and Lehane’s Equity Doctrines and Remedies’): ‘a payment made by an insurer reasonably and in good faith and accepted by the insured, but not in truth within the four corners of the policy will still be regarded as a payment on the policy and as giving rise to the doctrine of subrogation’.
There is a divergence of opinion as to whether subrogation finds its origins in equity or common law.[22] However, it may be accepted that the doctrine of subrogation, whether or not exclusively founded upon equitable principles, finds its heartland in those principles.[23] Significantly, to the extent that subrogation is an equitable doctrine, its exercise is subject to equitable principles.[24]
[22]See Kelly & Ball Principles of Insurance Law (n 16) [9.0040]; Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (n 21) [9-020], [9-025]; Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380, 387–8 (Ipp J, Malcolm CJ and Pidgeon J agreeing) (‘Woodside Petroleum Development’); Kightly (n 20) 387–8 [26] (Steytler P, Wheeler and Roberts-Smith JJA agreeing).
[23]Owners Strata Plan 56587 v TMG Developments Pty Ltd [2007] NSWSC 1364, [31] (Einstein J).
[24]Kelly & Ball Principles of Insurance Law (n 16) [9.0040.1]. See Morris v Ford Motor Co Ltd [1973] 1 QB 792, 801 (Lord Denning MR); [1973] 2 All ER 1084.
It has been recognised that a right of subrogation may effectively be lost or extinguished in some circumstances. Two such recognised circumstances are: first, an express contractual waiver of subrogation; and second, where equity may prevent an insurer from exercising its rights of subrogation.
In the first circumstance, an insurer may agree to its rights of subrogation being explicitly waived, limited or excluded by the terms of the insurance contract. This may be in respect of a type of loss or against a class of people.[25] In Woodside Petroleum Development Pty Ltd v H & R - E & W Pty Ltd (‘Woodside Petroleum Development’),[26] the Full Court of the Supreme Court of Western Australia held that a waiver of subrogation clause deprives the insurer of its entitlement to exercise rights by way of subrogation against anyone who falls within the terms of the waiver. Rather than asking whether the person was entitled to enforce the benefits conferred on it by the insurance contract,[27] the basis for the conclusion was that once it is established that a person falls within the class of persons in respect of whom subrogation is waived, that person may rely on the waiver because the insurer cannot establish that it has the right to bring an action in the name of the insured to enforce the insured’s rights.
[25]See, eg, Kelly & Ball Principles of Insurance Law (n 16) [9.0130]; Charles Mitchell, ‘Defences to an insurer’s subrogated action’ [1996] (3) Lloyd's Maritime and Commercial Law Quarterly 343, 351–3 (‘Defences to an insurer’s subrogated action’).
[26]Woodside Petroleum Development (n 22).
[27]See Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107.
In a case relied on by the Court in Woodside Petroleum Development, Waite J in Canbra Foods Ltd v C&L Transport Ltd said:[28]
To put the case in other terms, the defendant is not claiming a benefit under a contract to which it is not a party, but, rather, the insurer is seeking to enforce a right which it no longer has by virtue of its renunciation of that right.
[28]Canbra Foods Ltd v C&L Transport Ltd (1981) 36 AR (NSW) 477 citing New Zealand Society of Accountants v ANZ Banking Group (NZ) Ltd [1996] 1 NZLR 283.
Ipp J (with whom Malcolm CJ and Pidgeon J agreed) took issue with the characterisation of a waiver clause as a ‘renunciation’ of subrogation rights:[29]
There are a number of authorities which speak of waiver clauses … resulting in a “renunciation”, or “relinquishment” or “abandonment” by the insurer of rights of subrogation. In my view, these words are not an entirely accurate description of the effect of such clauses. A “renunciation”, or “relinquishment” or “abandonment” of rights suggests that rights exist which are given up or lost. In my view, however, waiver clauses … affect rights of subrogation, as it were, at their birth. Additionally, the commentaries discuss the circumstance where it is the conduct of the insured in settling a claim that precludes or prejudices the exercise of the right of subrogation by the insurer.
[29]Woodside Petroleum Development (n 23) 389–90.
In this case, there is no argument that QBE’s subrogation rights were affected ‘at their birth’. Rather, the argument is that they have been lost, extinguished or waived after both the date of the policy of insurance and the loss the subject of the claim.
In Leicester v State of Western Australia,[30] Mr Leicester suffered loss and damage as a result of a prescribed burn lit by a Western Australia state department. His insurer, Westpac, paid him pursuant to an insurance claim, and then brought a proceeding against the State in exercise of a purported right of subrogation. The State claimed that Westpac had waived its right of subrogation against it by reason of an earlier agreement by which the State paid Westpac a sum in full and final settlement of all claims Westpac may have against it in respect of the prescribed burn. Citing the decision in Woodside Petroleum Development, Schoombe DCJ held there was no reason why a waiver of subrogation could not be agreed in a contract between an insurer and an alleged third party wrongdoer.[31]
[30][2017] WADC 162.
[31]Ibid [17]–[18].
The second recognised circumstance in which a right of subrogation may effectively be lost is where equity may deprive an insurer of its right of subrogation where the insurer has acted unconscionably. However, third parties are limited in what they may raise against an insurer bringing a subrogated action. The authors of Kelly & Ball Principles of Insurance Law note:[32]
The only defences that a third party is entitled to raise to a subrogated action are defences which are available against the insured … One exception to this principle is where the insurer’s right of subrogation has not arisen because, for example, the insurer has not indemnified the insured against his or her loss, and the insured does not ratify the proceedings brought in his or her name. In that case, the third party can have the proceedings struck out on the basis that they were not properly brought.
[32]Kelly & Ball Principles of Insurance Law (n 16) [9.0010.1] (citations omitted).
Similarly, in his article Defences to an Insurer’s Subrogated Action, Charles Mitchell identifies the key difficulty facing a third party seeking to raise in its defence matters relevant to the insurer’s entitlement to subrogation:[33]
A third party wishing to raise matters going to the insurer’s entitlement to subrogation is therefore faced with the problem that the courts are liable to refuse to go behind the form of the action in order to consider matters which are strictly irrelevant to the only question it is constituted to address: viz., the question of the third party’s liability to the insured.
[33]Mitchell, ‘Defences to an insurer’s subrogated action’ (n 25) 346.
Before considering circumstances in which impropriety on the part of the insurer would provide a basis for the insured to resist the insurer’s right of subrogation, Mitchell provides a brief introduction to the origins of subrogation in insurance law:[34]
[M]ost treatments of this subject fail to distinguish properly between three distinct remedies which are awarded to insurers in different situations to give effect to the principle of indemnity, and which are commonly but inaccurately conflated with that principle and described as the insurer’s “rights of subrogation”. These are: a common law action for money had and received, an equitable declaration that the insured owes the insurer a duty to account for moneys received from a third party, and subrogation to the insurer’s subsisting right of action … [I]t must straight away be added that from an early period the courts of equity have lent a supplementary hand in giving effect to the common law remedy: before the Judicature Act 1873, they alone had the jurisdiction to compel a recalcitrant insured to lend his name to an insurer’s action. And this suggests that it should at least be possible for an insured to resist an insurer’s action to compel him to lend his name to the insurer’s subrogated action on the ground that the insurer has acted improperly towards him: in the language of equity, that he has not “done equity”, or has failed to come to the court “with clean hands”.
The leading English Authority for the proposition that such defences are available is Morris v Ford Motor Co … The result reached in that case was inconsistent with the House of Lords’ decision in Lister v Romford Ice and Cold Storage Co., and in principle it seems doubtful that the courts would be justified in refusing an insurer subrogation on equitable grounds simply because its insured’s personal relationship with the third party is such that he would prefer not to sue. But this is not to say that the courts might not more properly withhold subrogation on equitable grounds where an insurer has behaved badly towards its insured. Examples of the remedy being denied on such grounds can be found in the Canadian and American reports … The common feature of [these] cases is that in each the insurer failed to act even-handedly between its two insureds, one of whom had a right of action against the other: it provided one, but not the other, with resources, information, and access to its regular legal counsel.
[34]Ibid 348–9 (citations omitted).
Mitchell also considers whether the right may be waived by conduct or laches, identifying some American cases where insurers have been denied the right to share in money recovered by their insureds from third parties where the insurer has ‘simply failed to participate in [the insureds’ actions] and taken no other steps to enforce or protect their subrogated interest’. He notes that ‘[w]hether an insurer’s inaction constitutes a waiver of its rights is a question of fact which varies from case to case’.[35] Ivamy identifies a Queen’s Bench decision to the same effect, stating that an insurer may by their conduct ‘debar themselves from afterwards asserting their rights’ where ‘they … have so acted as to estop themselves and make it inequitable for them to insist on the position which they must, by their conduct as between them and the assured be deemed to have abandoned’.[36]
[35]Ibid 353, citing Egan v British & Foreign Marine Insurance Co (1901) 61 NE 1081 (an insurer was held not to have waived its rights by failing to participate as the insured had never requested it do so); Zych v Unidentified Vessel (1991) AMC 1254 (an insurer was held not to have abandoned its ownership of a wreck, title to which it had acquired via subrogation, notwithstanding that it had taken no steps of recovery for 130 years, given that technology required to locate the wreck efficiently had only recently become available); Powers v Calvert Fire Insurance Co (1950) 57 SE 2d 638 (‘Powers v Calvert Fire Insurance’); Shawnee Fire Insurance Co v Cosgrove (1911) 116 P 819.
[36]E R Hardy Ivamy, General Principles of Insurance Law (Butterworths, 6th ed, 1993) 496, citing West of England Fire Assurance Co & Isaacs [1896] 2 QB 377, 385 (Collins J) (affd [1897] 1 QB 226, (CA)).
Similarly, in Calvert Fire Insurance Company v James,[37] Legge J noted ‘the insurer’s right of subrogation, being founded in equity, may be forfeited by inequitable conduct on its part; it may be lost by laches, or by conduct giving rise to waiver or estoppel’.[38] This general statement was made in a case, however, where an insured and third party settled without notice to the insurer, and it was held that such a release did not bar the insurer’s right to subrogation.[39]
[37](1960) 114 SE 2d 832, a case citing Powers v Calvert Fire Insurance (n 35) referenced by Mitchell, ‘Defences to an insurer’s subrogated action’ (n 25).
[38]Ibid 836 [8].
[39]N.B. this statement was cited by Smart J in Morganite Ceramic Fibres Pty Ltd v Sola Basic Australia Ltd (1987) 11 NSWLR 189, 196 together with a warning about the differences between American and Australian insurance law. However, that was in the context of ‘real party in interest’ rules, particularly as they concerned a settlement between the insured and tortfeasor.
Bupa Australia Pty Ltd v Shaw is a relatively recent decision of this Court considering whether an insurer was deprived of its rights of subrogation due to its conduct.[40] There, the defendants (executors of Mr Shaw’s estate) had reached a settlement with a surgeon alleged to have negligently performed surgery on Mr Shaw. Justice Almond concluded that the terms of the settlement prejudiced the insurer’s (Bupa) exercise of its right of subrogation. The defendants argued that Bupa was prevented from exercising the right of subrogation due first, to an election not to exercise, or waiver, of its right of subrogation, which was said to be evident from correspondence demanding immediate payment; and second, to inaction in taking no steps to intervene and take over the running of the negligence proceeding.[41]
[40][2013] VSC 507.
[41]Ibid [78].
Justice Almond concluded that where the claim against the surgeon claimed damages under a number of different heads, only part of which was insured by Bupa, Bupa had no right to take over the running of the proceeding and therefore was not prevented from exercising its right of subrogation (which must be taken to mean its right to recover or recoup from the insured) as a consequence of any inaction on its part.[42] His Honour further held that Bupa had not adopted an inconsistent position as to whether it had indemnified (or should be taken to have indemnified) the insured at all relevant times, and accordingly, was not prevented from exercising its right of subrogation as a result of its conduct.[43]
[42]Ibid [106]–[108].
[43]Ibid [118]–[119].
However, that decision turned on specific facts and correspondence, and his Honour does not discuss any matter of applicable principle in deciding whether an insurer has lost, or should be prevented from exercising, its right of subrogation. It should also be noted that the ‘lost right’ of subrogation relevant in that case was for recouping money, not controlling litigation, and further, the relevant conduct was that of the insurer against the insured.
D. SUBMISSIONS
Has QBE’s right of subrogation to litigate this proceeding been waived or extinguished?
Both Corplex and Intrax submit that QBE has lost its right of subrogation in respect of this proceeding.
Both rely on the principle that an insurer’s right of subrogation may be extinguished if the insurer takes a course of action inconsistent with the continued existence of that right or, put another way, elects to act in accordance with an alternative set of rights inconsistent with the original right.[44]
[44]Second Defendant’s Reply Submissions filed 4 March 2024, [6] citing Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 97 ALJR 1, [2022] HCA 38 (‘Allianz’), [60], [62]; Third Defendant’s Further Submissions filed 5 February 2024, [33].
Corplex’s and Intrax’s submissions on this point are, essentially, that QBE elected to extinguish its right of subrogation in this proceeding by acting inconsistently with it through the following conduct:[45]
[45]Second Defendant’s Reply Submissions filed 4 March 2024, [7], [9]; Third Defendant’s Further Submissions filed 5 February 2024, [35].
(a) by entering into the 2018 Deed which provided for Final Stop to assume conduct of this proceeding and, in return, for QBE to receive certain contractual entitlements as against parties to the 2018 Deed (including Final Stop but not the insured, being ITM);
(b) the decision by QBE to trigger cl 3(i) of the 2018 Deed and the decision by Final Stop to exercise the option in that clause; and
(c) by consenting to the making by this Court of the Transfer Order, giving effect to specific performance of the relevant provision of the 2018 Deed.
Intrax submits that if QBE’s right of subrogation was not extinguished at the time of entering into the 2018 Deed, then its conduct since that time, as outlined in paragraph 79 above, effected a waiver of whatever remaining right QBE may have had. A waiver of subrogation effected by agreement between insurer and insured, may be relied on by a third party, even though they are not a party to the insurance arrangements. The principle is an exception to the doctrine of privity, and applies to agreements between insurers and insureds (and not just to clauses embedded in insurance policies).[46]
[46]Third Defendant’s Further Submissions filed 5 February 2024, [45].
The plaintiff submits that, on its proper construction, the 2018 Deed does not contain any express or implied assignment by QBE of its right of subrogation to Final Stop. It provided, in the circumstances prescribed in cl 3, an option for Final Stop to ‘assume conduct’ of the proceeding.
The plaintiff rejects the defendants’ contention that, from QBE’s consent to the Transfer Order, the inference can be drawn that QBE had effectively determined to abandon the proceeding pursuant to cl 3(i) of the 2018 Deed. QBE says that its motives or reasons for contracting with Final Stop in relation to the continued conduct of the litigation and its decision to consent to the Transfer Order, at that time, are irrelevant to whether it has waived its right of subrogation.[47]
[47]Plaintiff’s Submissions in Response filed 26 February 2024, [12].
The plaintiff submits that the defendants’ reliance on the Western Australian Supreme Court’s decision in Woodside Petroleum Development as authority for the proposition that an insurer can waive its rights of subrogation is misplaced.[48] The plaintiff submits that the construction of ‘subrogation waivers’ arises in circumstances where an alleged tortfeasor falls within the cover of a policy of insurance or within the definition of a named insured. This is not such a case. No such subrogation waiver term of the policy wording has been relied upon. The alleged waiver post-dates both the policy of insurance as well as the loss the subject of any claim. Even though, as a matter of law, QBE could waive its right of subrogation by engaging in inequitable conduct by reference to its insured, neither defendant has advanced that ground here.[49]
[48]Woodside Petroleum Development (n 22).
[49]Plaintiff’s Submissions in Response filed 26 February 2024, [14].
The plaintiff says that QBE’s consent to the Transfer Order does not automatically disentitle it from the proceeds of any damages recovered. Even if it is accepted that QBE initially acceded to Final Stop assuming the role of dominus litis, its right to share in any proceeds of the litigation have not thereby been extinguished.[50]
[50]Ibid [17].
Does QBE’s conduct of the proceeding constitute an abuse of process?
Corplex and Intrax made similar submissions on this issue, essentially arguing that QBE is litigating the proceeding for the benefit of Final Stop, rather than itself, which is illegitimate and constitutes an abuse of process.
Both defendants submit that the 2023 Deed effectively means Final Stop will be the main beneficiary of any damages awarded in this proceeding.[51] They argue that cls 4.2 and 4.3 of the 2023 Deed prescribe a regime that requires any proceeds from this proceeding be applied as follows:
[51]Second Defendant’s Reply Submissions filed 4 March 2024, [13]; Third Defendant’s Further Submissions filed 5 February 2024, [28].
(a) first towards any adverse costs orders paid by QBE in this proceeding (cl 4,3(a));
(b) then towards QBE’s own legal costs (cl 4.3(b)); and
(c) then to be retained by QBE (cl 2.3), subject to QBE being obliged to make certain guaranteed payments to Final Stop in the event of there being any net proceeds available (cl 4.2).
Intrax submits that the guaranteed payments regime allocates the bulk of any net proceeds to Final Stop. Indeed, in certain circumstances, QBE has bound itself to pay Final Stop out of its own pocket above and beyond what it might recover from this proceeding. To take an extreme example, the effect of cls 4.2 and 4.3 is that if QBE was to recover net proceeds of $1, QBE would still be bound to pay Final Stop $500,000 (notionally $1 from the net proceeds, and $499,999 from its own pocket).[52]
[52]Third Defendant’s Further Submissions filed 5 February 2024, [29].
Both defendants submit that the impropriety of this regime stems from the inference that QBE’s motivations for pursuing this litigation have fundamentally changed.
Intrax submits that, properly understood, the 2023 Deed has more to do with QBE managing and limiting its exposure on a range of fronts to Final Stop than it has to QBE diminishing its own loss represented by the amounts it has already paid under the Policy. Accordingly, the 2023 Deed not only aggravates the existing abuse by constituting yet further trafficking of this litigation, but it puts beyond doubt that the primary beneficiary of this proceeding remains Final Stop, not QBE. By the 2023 Deed, Final Stop, as a total stranger to the litigation, continues to substantially benefit from it. It will or may receive substantial sums and substantial proportions of the ‘Amount Recovered’ while ITM or its liquidator receive nothing. That QBE has purportedly resumed conduct of the litigation does not affect this.[53]
[53]Ibid [30]–[32].
Corplex’s submitted narrative is that QBE was dissatisfied with the consequences of its choice to transfer conduct of this proceeding through the 2018 Deed and tried to reverse that choice through the 2023 Deed.[54] Senior counsel for Corplex submitted that QBE’s intention to retake conduct of the proceeding now is therefore not genuine. It cannot be for QBE’s benefit because QBE has already come to the conclusion that it will fail. Instead, the proceeding is now being litigated for the benefit of Final Stop.[55]
[54]Second Defendant’s Reply Submissions filed 4 March 2024, [8].
[55]Transcript of Proceedings (12 March 2024) 58.24–59.4, 59.11–59.15.
Corplex says that Final Stop’s only interest in the outcome of the proceeding is that QBE has promised to share the proceeds. Final Stop’s interest is a contractual interest (given by QBE) that springs solely from the impugned transaction itself. This, Corplex submits, is not a legitimate interest. The relevant analysis is not whether Final Stop has a commercial interest in the outcome of the proceeding, but whether it has a legitimate interest in the underlying claim against the defendants, being, in essence, a claim for compensation for property damage to steel milling machinery.[56]
[56]Second Defendant’s Reply Submissions filed 4 March 2024, [12.2]. See also Third Defendant’s Reply Submissions filed 4 March 2024, [26].
If the proceeding is being continued for the benefit of Final Stop, in circumstances where QBE is otherwise not interested in pursuing its legal rights for its own benefit, then Corplex submits that the continued prosecution of the proceeding brings the administration of justice into disrepute. The defendants are being subjected to the trouble and expense of defending a proceeding for the benefit of a party with no legitimate interest in it.[57]
[57]Second Defendant’s Reply Submissions filed 4 March 2024, [13.2].
The plaintiff acknowledges that the categories of abuse of process are not closed. However, citing the High Court in PNJ v The Queen,[58] it identifies categories of abuse of process which exhibit at least one of the following characteristics:
[58](2009) 83 ALJR 384.
(a) the invoking of a Court’s processes for an illegitimate or collateral purpose;
(b) where the use of the Court’s procedures would be unjustifiably oppressive to a party; or
(c) where the use of the Court’s processes would bring the administration of justice into disrepute.[59]
[59]Plaintiff’s Submissions in Response filed 26 February 2024, [19].
The plaintiff submits that category (a) above clearly does not arise. Both defendants have acknowledged that QBE had valid grounds to issue the proceeding pursuant to its right of subrogation. Following the period from March to October 2023, during which Final Stop assumed conduct of the proceeding (pursuant to the Transfer Order), QBE has since resumed conduct of the same proceeding (pursuant to the Resumption Order). The purpose of the proceeding remains entirely unchanged.[60]
[60]Ibid [20].
The plaintiff submits that the defendants are misguided in arguing that the financial arrangements between QBE and Final Stop in their agreements in respect of any proceeds of this action demonstrate that Final Step is an ‘intermeddler’ in the proceeding with no legitimate interest, so that the agreements are tantamount to trafficking in litigation. When the history of this and related proceedings are viewed as a whole, it cannot be said that Final Stop has no legitimate commercial interest in the outcome of the ITM proceeding. None of the conduct or characteristics complained of here by the defendants fall within the features of maintenance, champerty or so-called trafficking in litigation.[61]
[61]Ibid [22].
Moreover, the plaintiff says that those financial arrangements relate solely to any proceeds recovered in respect of the claims pursued by QBE in accordance with its right of subrogation. Therefore, any distribution with Final Stop will, in effect, be coming out of QBE’s pocket, as it were. The agreements have no impact whatsoever on either defendants’ liability or exposure to damages.[62]
[62]Ibid [23].
Further, and in those circumstances, the plaintiff submits that on no view could QBE’s resumption of the conduct of the proceeding be said to give rise to category (c). Apart from adopting the broad label of that category, the defendants’ submissions do not specify in any way how the conduct of the proceeding, and the resumed conduct of it by QBE, could possibly bring the administration of justice into disrepute.[63]
[63]Ibid [24].
The plaintiff submits that category (b) also does not arise. Neither Intrax’s nor Corplex’s defences in this proceeding, nor the preparation of their respective cases, have been affected by the Transfer Order or the Resumption Order. At worst, the transfer of carriage may have resulted in a delay of about seven months in a proceeding which has been on foot since 2016. As at March 2023, all the evidence had been filed. The only outstanding pre-trial steps were an experts’ conclave and resulting joint report. Final Stop and its lawyers did not comply with those directions. The present applications then overtook that default, and have further protracted the litigation and distracted from the substantive issues in the case and what is required to progress it to trial. Once the conclave is completed, the matter will be ready for trial.[64]
[64]Ibid [26].
E. CONSIDERATION
Has QBE’s right of subrogation to litigate this proceeding been waived or extinguished?
It was common ground that there had been no assignment by QBE of its right of subrogation.
The defendants rely on QBE’s entry into the 2018 Deed, its decision to trigger cl 3(i) of the 2018 Deed and its consent to the Transfer Order as evidence that QBE has waived its right of subrogation or that such right has been lost or extinguished.
The 2018 Deed does not in terms refer to QBE’s right of subrogation. It will be recalled that the doctrine of subrogation gives an insurer two distinct rights: first, the right to require the insured to pursue any remedy available against the tortfeasor for the benefit of the insurer; and second, the right to recover from the insured any benefit received in reduction or elimination of the loss against which the insurer has indemnified the insured.[65]
[65]See above n 64.
It cannot be said that the 2018 Deed expressly or by implication involved QBE waiving any aspect of its right of subrogation. The proceeding in ITM’s name was commenced by QBE pursuant to its right of subrogation. It is difficult to see how the continuation of that proceeding so constituted can amount to a relinquishment by QBE of its right of subrogation.
Insofar as the 2018 Deed concerns QBE’s right to recover from the insured (or its assignees) any benefit received in reduction or elimination of the loss against which QBE has indemnified the insured, the Deed provides a mechanism by which any proceeds received will be distributed and, if appropriate, divided between QBE and Final Stop. In substance, QBE is agreeing to share with Final Stop some of the proceeds that QBE would otherwise be entitled to.
In the circumstances, I do not accept that QBE waived its right of subrogation or that such right was lost or extinguished as a consequence of QBE’s entry into the 2018 Deed.
Nor do I accept that QBE’s decision to trigger cl 3(i) of the 2018 Deed waived its right of subrogation or caused such right to be lost or extinguished. Clause 3(i) relevantly required QBE not to elect to discontinue the proceeding without first giving Final Stop the option of assuming conduct of the proceeding. Even where Final Stop elected to assume conduct of the proceeding, QBE remained entitled to receive the proceeds subject to agreeing to share such proceeds with Final Stop. Clause 3(i) does not provide that in the event that Final Stop assumes conduct of the proceeding the provisions of cl 3(h) dealing with distribution of settlement and/or judgment proceeds no longer applies.
Corplex placed particular reliance on the decision of the High Court in Allianz where the plurality said that a right will be extinguished ‘where a person takes a course of action that is inconsistent with the continued existence of the right or set of rights and the person pursues that course of action until all alternative rights arising from the course of action are wholly satisfied’.[66]
[66]Allianz (n 51) [62].
Corplex contended that in electing to trigger cl 3(i) of the 2018 Deed and in consenting to the Transfer Order QBE had taken a course of action inconsistent with the continued existence of its right of subrogation and had pursued that course of action until all alternative rights arising from the course of action were wholly satisfied.
There are a number of difficulties with Corplex’s submission.
First, I do not accept that in electing to trigger cl 3(i) of the 2018 Deed and consenting to the Transfer Order QBE had taken a course of action inconsistent with the continued existence of its right of subrogation.
As Nichols J said in Francis v Powercor Australia Ltd,[67] ‘the existence of rights of subrogation is, as a matter of principle and practicality, to be distinguished from the exercise of those rights’.
[67][2020] VSC 836, [82].
Even assuming that the assumption by Final Stop of the conduct of the proceeding may have affected the exercise by QBE of its right of subrogation, it did not affect the existence of that right. The continuation of the proceeding in the name of the insured reinforced the continued existence of QBE’s right of subrogation albeit that the conduct of the proceeding was to pass to Final Stop.
Secondly, even if electing to trigger cl 3(i) of the 2018 Deed and consenting to the Transfer Order involved QBE taking a course of action inconsistent with the continued existence of its right of subrogation, it is difficult to see how QBE had pursued that course of action until all alternative rights arising from the course of action were wholly satisfied.
Complete satisfaction of all alternative rights arising from the course of action taken would require the aggregation and distribution of settlement and/or judgment funds recovered in the proceeding in accordance with cl 3(h) of the 2018 Deed. That did not occur.
For the same reasons, I do not accept that QBE’s consent to the Transfer Order waived its right of subrogation or caused such right to be lost or extinguished.
Nor has QBE engaged in inequitable conduct vis-à-vis its insured such that its right of subrogation has been lost.
Does QBE’s conduct of the proceeding constitute an abuse of process?
In Treasury Wine Estates Ltd v Melbourne City Investments Pty Ltd (‘Treasury Wine Estates’), Maxwell P and Nettle JA stated:[68]
As the law stands, the only legitimate purpose for bringing a proceeding is to vindicate legal rights or immunities by judgment or settlement. Consequently, unless the predominant purpose of bringing a proceeding is a legitimate purpose, the proceeding is an abuse of process and is liable to be stayed.
[68]Treasury Wine Estates (n 10) 588 [9] (citations omitted).
Their Honours continued:[69]
It is necessary, then, to examine the notion of ‘collateral advantage’. The authorities distinguish between two types of case. On the one hand, a proceeding will not be regarded as an abuse of process by reason only that it is brought for the purpose of taking collateral advantage of any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding. On the other hand, if a proceeding is brought for the predominant purpose of obtaining collateral advantage from the existence of the proceeding as such, as opposed to collateral advantage flowing from any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding, it will be an abuse of process and liable to be stayed.
[69]Ibid 588 [11] (citations omitted).
Similarly in Melbourne City Investments Pty Ltd v Leighton Holdings Ltd, the Court of Appeal observed:[70]
It is one thing to commence a proceeding for the purpose of obtaining substantive relief, and in the knowledge that if one is successful then costs will likely follow the event. It is another to have commenced a proceeding for the predominant purpose of simply generating income for a legal practitioner in circumstances where the value of any loss meant that it was unlikely that the proceeding had been commenced for the purpose of recovering compensation. We agree with the majority in Treasury Wine that commencing a proceeding, in the circumstances we have described, for the predominant purpose of generating income for a legal practitioner, was and is an abuse of process.
[70][2015] VSCA 235, [45].
Although the defendants brought their applications after the Transfer Order had been made and while Final Stop had conduct of the proceeding, their submissions at the hearing of the applications focussed on the state of affairs that currently exists following QBE’s entry into the 2023 Deed.
As the Court is now being asked to stay the proceeding as an abuse of process, it is appropriate first to consider the current state of the proceeding in determining whether its continued conduct by QBE constitutes an abuse of process.
The question that arises is what is QBE’s predominant purpose in maintaining the proceeding following its entry into the 2023 Deed?
Much is made by the defendants of the fact that QBE had determined by June 2022 to seek to settle the proceeding on the most favourable terms available.
It is not unusual for parties to assess and reassess their attitudes to settlement as litigation progresses. QBE has not waived privilege over the legal advice it received in 2022 or during the intervening period between its decision to seek to settle the proceeding in June 2022 and its entry into the 2023 Deed. It is therefore not possible to know all the factors that motivated QBE to seek to discontinue, settle or progress the proceeding at any particular time. The fact that QBE in 2022 regarded the plaintiff’s prospects as poor does not render the maintenance of the proceeding an abuse of process.
I am satisfied that QBE’s predominant purpose in maintaining the proceeding following its entry into the 2023 Deed is to litigate the proceeding to judgment or to settle it on the most favourable terms. The fact that the proceeds of any judgment or settlement would be applied in accordance with the terms of the 2023 Deed does not render the continuation of the proceeding an abuse of process.
This is not a situation where the proceeding is being conducted by QBE for the predominant purpose of obtaining a collateral advantage from the existence of the proceeding as such, as opposed to a collateral advantage flowing from any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding.
Any benefit accruing to Final Stop arises not from the existence of the proceeding as such, but as a consequence of any judgment or settlement in vindication of the plaintiff’s legal rights.
Moreover, I do not accept that the proceeding is now being pursued solely for the benefit of Final Stop. Final Stop will benefit from the proceeding only if a settlement or judgment is obtained in the plaintiff’s favour. That would necessarily mean that QBE will also benefit from the proceeding. Even if a modest amount is recovered, QBE will benefit first by having its costs paid and only then will money be paid to Final Stop or divided between QBE and Final Stop.
As mentioned above, the applications were initially brought after the Transfer Order had been made and prior to QBE’s entry into the 2023 Deed when Final Stop had conduct of the proceeding. I do not accept that the proceeding was an abuse of process at the time the applications were brought on the basis that it was being maintained solely for the benefit of Final Stop. At that time the proceeding was not being conducted for the predominant purpose of obtaining a collateral advantage from the existence of the proceeding as such. Even if the proceeding was being conducted at that time for the predominant purpose of obtaining a benefit for Final Stop, that collateral advantage necessarily flowed from a judgment or settlement in vindication of the plaintiff’s legal rights.
Corplex and Intrax also submit that the proceeding is an abuse of process because the use of the Court’s procedures would be unjustifiably oppressive to them or would bring the administration of justice into disrepute. Having rejected their arguments that QBE has lost its right of subrogation and that the proceeding is being prosecuted for the predominant purpose of benefitting Final Stop, there is no basis to find that the proceeding is otherwise an abuse of process.
In Treasury Wine Estates, Maxwell P and Nettle JA concluded their judgment by saying:[71]
Ultimately, the policy considerations which inform the law relating to abuse of process are twofold: to ensure that the processes of the Court are used fairly, and to maintain public confidence in the ability of the Court to function in that way. In this case, there is a palpable unfairness in a defendant being brought to court for the predominant purpose of enriching the plaintiff’s solicitor, and the community’s confidence would undoubtedly be shaken if that were held to be a legitimate purpose for bringing proceedings.
[71]Treasury Wine Estates (n 10) 590 [22] (citations omitted).
This proceeding has been on foot for eight years. Almost all pre-trial interlocutory steps have been undertaken. There is no unfairness in allowing the proceeding to continue so that the substantive claims the subject of the proceeding may be conclusively litigated or otherwise resolved through settlement.
F. ORDERS
I will order that the second and third defendants’ respective summonses be dismissed.
As the second and third defendants have been unsuccessful in their applications, I am inclined to order that they pay the plaintiff’s costs of the applications. Since there may be circumstances of which I am unaware that would displace the usual rule that costs follow the event, the parties are asked to confer and submit a consent minute in respect of the appropriate costs order. Failing agreement, I will hear the parties as to costs.
SCHEDULE OF PARTIES
| INDEPENDENT TUBE MILLS PTY LTD (In Liquidation) (ACN 136 627 186) | Plaintiff |
| v | |
| | |
| CORPLEX PTY LTD (ACN 108 916 310) | Second Defendant |
| INTRAX CONSULTING ENGINEERS PTY LTD (ACN 106 481 252) | Third Defendant |
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