Interchase Corporation Limited v Colliers Jardine (Qld) Pty Ltd

[1997] QSC 59

IN THE SUPREME COURT

OF QUEENSLAND

Brisbane  No 520 of 1994

Before the Hon. Justice Williams

[Interchase Corporation Limited v. Colliers Jardine (Qld) Pty Ltd & Ors]

BETWEEN:
  INTERCHASE CORPORATION LIMITED (in liquidation)
  Plaintiff
AND:
  COLLIERS JARDINE (QLD) PTY LTD
  First Defendant
AND:
  MICHAEL GEORGE TIDBOLD
  Second Defendant
AND:
  GROSVENOR HILL (QUEENSLAND) PTY LIMITED
  (formerly known as Hillier Parker (Queensland) Pty Ltd
  Third Defendant
AND:
  BRIAN MOFFATT WAGHORN
  Fourth Defendant

JUDGMENT - WILLIAMS J

Judgment delivered 17/04/1997

CATCHWORDS:     PRACTICE - joinder of defendants - insurers refusing to indemnify defendants - declaration sought - managed case - insurers joined -JN Taylor Holdings v. Bond (1993) 59 SASR 432 approved and applied.

Counsel:Morrison QC for applicant plaintiff

TDOJ North for FAI

Muir QC for HIH

Barlow for first and second defendants

DB Fraser QC and TW Quinn for third and fourth defendants

Solicitors:Allen Allen & Hemsley for applicant plaintiff

Minter Ellison for FAI

Gadens Ridgeway for HIH

Ebsworth & Ebsworth for third and fourth defendants

Hearing Date:   25 March 1997

IN THE SUPREME COURT

OF QUEENSLAND

No 520 of 1994

Brisbane

[Interchase Corporation Limited
v. Colliers Jardine (Qld) Pty Ltd & Ors]

BETWEEN:

INTERCHASE CORPORATION LIMITED (in liquidation)
  Plaintiff

AND:

COLLIERS JARDINE (QLD) PTY LTD
  First Defendant

AND:

MICHAEL GEORGE TIDBOLD
  Second Defendant

AND:

GROSVENOR HILL (QUEENSLAND) PTY LIMITED
  (formerly known as Hillier Parker (Queensland) Pty Ltd
  Third Defendant

AND:

BRIAN MOFFATT WAGHORN
  Fourth Defendant

JUDGMENT - WILLIAMS J

Judgment delivered 17/04/1997

This is an application by the plaintiff, Interchase Corporation Limited, to join FAI General Insurance Company Limited ("FAI") and HIH Casualty and General Insurance Ltd ("HIH") as fifth and sixth defendants in the action.  The application is made pursuant to O.3r.5 and is resisted by both FAI and HIH.
           The plaintiff's claim in the action as presently constituted is for damages for negligence or breach of contract arising out of the negligent performance of valuations of the Myer Centre by the defendants.  It is the plaintiff's contention that in consequence of the negligence of the defendants it has lost approximately $60 million.
           The present pleadings indicate that at trial relevant issues will include the conduct of the valuations, the appropriate basis therefore, whether the valuers acted with reasonable care and diligence in performing the valuations, and the methodology used in performing the valuation exercises.
           FAI and HIH are the professional indemnity insurers of the first defendant (Colliers Jardine (Qld) Pty Ltd) and the second defendant (Tidbold).  The policy written by FAI insured the first and second defendants to the extent of $10 million.  For a considerable period of time FAI conducted the defence on behalf of those defendants but recently has denied liability to indemnify either of them, and has withdrawn its instructions to the solicitors formerly acting for the first and second defendants.
           Without going into particulars it is necessary to record for purposes of these reasons that the decision of FAI is based, at least in part, on its conclusion that the valuation prepared by the second defendant and presented by the first defendant to the plaintiff contained deliberate misrepresentations as to the methodology used to arrive at the valuation and did not represent a true expression of the author's opinion about the open market value of the property in question.  In addition FAI also bases its refusal to indemnify on allegations that false statements were knowingly made in support of the claim for indemnity.
           HIH has issued two professional indemnity policies which are relevant.  The first is an excess liability policy under which it indemnified the first defendant to the extent of $10 million, and the second was a policy covering a later period during which the level of cover was to the extent of $3,750,000.
           As the HIH policy was dependent on there being an excess after a payout under the FAI policy, HIH deferred making a decision on the claim by the first and second defendants until FAI had make its decision.  On learning of FAI's decision to refuse indemnity, HIH indicated it was considering its position under its policies.  In or about February 1997 HIH communicated to its insured a decision denying indemnity.  The first ground on which it denied liability was that FAI had declined indemnity under its policy.  But, significantly for present purposes, HIH also denied liability on the ground that "no liability has attached to HIH pursuant to Provisos A and B"; to understand that statement it is necessary to set out the relevant extract from the policy:

"Provided Always That:

(A)Any A claim for loss is covered by or but for the relevant limit of liability in reporting conditions would have been covered by the said Policy of the Primary and/or Underlying Excess Insurers, and

(B)liabilities attaches to the Company only for coverages in respect of which an amount has been inserted in the Schedule and then only after the Primary and Underlying Excess Insurers have paid or have been held liable to pay the full amount in the aggregate of their respective "ultimate net loss" liability set forth in the Schedule and designated "Excess Applicable" and then the Company shall be liable to pay only such additional amounts in the aggregate as will provide the Insured with total limits under the Policy/ies of the Primary and/or Underlying Excess Insurers and this Policy combined as set forth in the Schedule."

Thus it seems clear that HIH is, inter alia, denying liability on the basis that the loss is not covered by FAI's policy, but it gives no separate reasons or grounds for making that decision.  It can only be assumed that HIH intends to rely on the same grounds as taken by FAI.
           It is also important to note that the letter rejecting liability on the part of HIH goes on to say:

"However, HIH reserves its rights at law and under HIH's policy to rely upon any other facts and grounds which may be available to it to deny indemnity in respect of a claim for indemnity made by Colliers Jardine and Mr Tidbold under HIH's policy."

The plaintiff seeks to join FAI and HIH so that it can obtain a declaration that each of those insurers is liable to indemnify the first and second defendants with respect to the plaintiff's claim.  That is a rather unusual basis for seeking the joinder of defendants and it is necessary to refer to some other matters, said to be of importance, before considering the authorities.  The material satisfies me that there are at least very serious questions as to the ability of both the first and second defendants to fund the action, let alone meet any judgment.  Solicitors previously acting for the first and second defendants withdrew and gave as their reason the incapacity of those defendants to continue to provide funds.  When FAI withdrew from further conduct of the defence on behalf of the first and second defendants it was again stated that each of those parties did not have resources to fund the defence.  Material not contested by the first defendant suggests that its assets are valued at about $200.  There has been no response to written enquiries as to the financial position of the first defendant.
           Counsel appeared for the first and second defendants on the hearing of this application, but indicated that he was directly briefed by those parties and was appearing merely to assist the court.
           In those circumstances it is realistic, in my view for the plaintiff to conclude, as deposed to, that it would be pointless for it to press on against the first and second defendants in the absence of a realistic chance of obtaining indemnity with respect to any judgment under the policies of insurance referred to.  If the insurers were not joined as defendants the submission is that lengthy and costly procedures would have to be adopted in order for the plaintiff to obtain the benefit of those policies.  Consequent upon a judgment against the first and second defendants it would be necessary to have a liquidator and trustee in bankruptcy respectively appointed.  It would then be necessary for the plaintiff to indemnify the liquidator and trustee and have those persons commence an action against the insurers.  In that action there would be no estoppel based on findings in this action; findings, for example, that the first and second defendants were negligent in preparing the subject valuation would have to be relitigated.  Major issues would have to be litigated twice; once in the action as presently constituted, and secondly in the subsequent action brought to obtain indemnity under the policies of insurance.  Central issues in each case would involve a consideration of all the details of the performance by the valuers of their task, including a determination as to whether or not the duty of care owed was breached.
           It is essentially because of such considerations that the plaintiff submits that it is appropriate to join FAI and HIH as defendants in this action.  It is submitted that common questions of law or fact arising out of the same transaction would be in issue in the claim against the first and second defendants and the claims seeking to enforce indemnity against FAI and HIH.
           In resisting the application counsel for FAI pointed to the fact that no action had been taken by the first and second defendants as a consequence of FAI denying liability to indemnify.  Neither of those defendants, who it was said were still solvent, had sought to join FAI as a third party.  In consequence it was said that the plaintiff, a stranger to the contract of insurance, was manufacturing a dispute with the insurers.  Counsel for HIH made similar submissions and contended that it would be inappropriate and unjust to join that insurer.
           Finally, before turning to the authorities, it should be noted that counsel for the plaintiff conceded that only a declaration could be obtained against the insurers; he conceded there was no basis upon which the plaintiff could obtain a monetary judgment against either of them.
           The critical authority relied by the plaintiff was the decision of the Full Court of South Australia in JN Taylor Holdings Limited (in liquidation) and Anor v. Bond and Ors (1993) 59 SASR 432. There the plaintiff companies, in liquidation, sued three of their former directors alleging breaches of duty as directors. Each of the directors held policies of insurance indemnifying them in respect of any wrongful act committed in their capacity as directors of the plaintiff companies. Of the three, one was bankrupt, and the other two had left the country. The insurer denied any liability to indemnify. In those circumstances the plaintiff companies sought to join the insurer as an additional defendant so that they could seek, by way of declaration, an order that the insurer was obliged to indemnify the directors in respect of any judgment in favour of the plaintiff companies arising out of any wrongful act within the terms of the policy.
           The principal judgment was that of King CJ; Perry J agreed with him, and Prior J in agreeing added some additional reasons of his own.  Initially King CJ considered those authorities establishing that the jurisdiction to grant declaratory relief was "very wide".  He expressly dealt with the considerations that there must not only be a party with a true interest in opposing the declaration, but the plaintiff must have a real interest in having the question determined (437).  He came to the conclusion that the plaintiff did have a sufficient interest in having the question determined.  At 438 he said:

"It is true that the plaintiffs have to surmount certain obstacles before they can gain recourse to the proceeds of the indemnity, but the first and most important of those obstacles is the determination of whether the insurer is liable to indemnify the directors under the policy in respect of any judgment the plaintiffs might recover.  If that question is determined against the insurer concurrently with the determination of the defendant directors' liability to the plaintiffs, the plaintiffs will avoid the costs of a further trial of that issue.  Moreover, armed with a declaration of the insurer's liability to indemnify the directors, the plaintiffs will be far better placed to secure the consent of the trustee in bankruptcy, or alternatively authority to sue in the trustee's name.  It is true that the issue of the insurer's liability will cease to be a live issue if the plaintiffs fail in their action against the defendants, but, to my mind, their interest in obtaining a declaration of the insurer's liability concurrently with that of the liability of the defendants, is undeniable."

There was no doubt that in that case there was a party with a true interest in opposing the declaration, and also, as the learned Chief Justice pointed out the right to the declaration sought arose out of the same transactions as the plaintiffs claim against the directors, namely the conduct by the directors of the affairs of the companies (439).  He then went on to discuss the discretionary factors relevant to the issue of joinder.  Relevantly he said at 440-1:

"There are very strong considerations in favour of disposing of the issues of the liability of the defendant directors to the plaintiffs and the liability of the insurer to indemnify the directors in the one trial.  The trial of the action against the directors seems likely to be very lengthy, very complex and very costly.  The prospect of a subsequent trial of comparable length complexity and expense, might be prohibitive.  It is clear that much of the ground would have to be covered again.  In the action against the insurer, it would be necessary to prove the nature of the breaches of duty in order to establish that they amounted to wrongful acts within the meaning of the policy.  At least some of the breaches of duty pleaded against the defendants could come within an exclusion in the definition of "wrongful act" in the policy, namely "acts or omissions done or alleged to have been done in conflict or in preferment of the interests of the company over those of a Subsidiary Company or vice versa".  Some could fall within an exception to liability relating to "dishonest fraudulent criminal or malicious or wilful or reckless" acts or omissions.  The resolution of those issues would involve canvassing much the same evidentiary ground as will be involved in the trial of the action against the directors.

Would the need for the canvassing of the same ground in a subsequent trial be removed by the joinder of the insurer?  The declaratory judgment sought against the insurer would be a judgment in personam or inter partes, and would enure ordinarily for the benefit only of a party in whose favour it was granted.  If the defendant directors were to give notice of a third party claim seeking the same relief against the insurer, the declaratory judgment would enure for their benefit and that of their privies including any trustee in bankruptcy.  If, however, they did not make that claim, would the judgment declaring the liability of the insurer to indemnify the directors be effective in subsequent proceedings against the insurer by the defendant directors or their trustee in bankruptcy?

... In my opinion, the insurer, if joined as a defendant, would be bound, in subsequent proceedings by the defendant directors or their trustee in bankruptcy by a declaration of liability and also by any findings of fact made in the present proceedings.

For the above reasons it seems to me that the joinder of the insurer would be likely, in the event of a judgment against the defendant directors to obviate the need for a long trial of an action against the insurer in which much the same factual ground would have to be covered.  That is the cogent consideration in favour of joinder."

His Honour then dealt with a number of considerations militating against the joinder but rejected them primarily because of the principle that "multiplicity of proceedings is to be avoided" (442).
           Prior J expressed short reasons for concluding that the plaintiffs had an interest sufficient to invoke declaratory relief in that action notwithstanding the absence of a direct cause of action vested in them against the insurer.  He was, it would appear, influenced by the consideration that the "plaintiffs should not be left pursuing potentially hollow remedies" (443).
           The High Court refused special leave to appeal against that decision.
           Matheson J followed and applied Taylor in somewhat similar circumstances in AMP Fire and General Insurance Co Ltd v. Balfour (1993) 61 SASR 492. One of the arguments addressed to him in that case was that additional issues would need to be tried as a result of the joinder. That argument was rejected because the learned judge concluded that the joinder would not make the trial overlengthy or complicated.
           Olsson J also approved of and applied Taylor in Beneficial Finance v. Price Waterhouse (1996) 9 ANZ Ins Cas 61-327. The facts there were again broadly similar to those which existed in Taylor and to those which now confront me.  The only passage that needs citing is the following:

"At the end of the day it seems to me that a decisive factor bearing on the exercise of discretion must be the sheer magnitude and the associated legal costs in judicial resource implications of this litigation.  It is simply horrific and unacceptable to contemplate the possibility that, absent the proper consideration of a potential joinder of the insurer, a situation might conceivably develop that, at the end of the litigation involving the expenditure of legal costs which, in their totality, could exceed $20 million and the committal of judicial resources for what may well prove to be considerably in excess of twelve months, further major litigation spanning similar factual issues might then need to be embarked upon, because the insurer had not been bound by findings of law and fact in the initial litigation."

Cooper J referred to Taylor with apparent approval in Dorrough v. Bank of Melbourne Limited (1995) 8 ANZ Ins Cas 61-209.
           During argument all counsel referred to the decision of the Victorian Court of Appeal in CE Heath Casualty and General Insurance Ltd v. Pyramid Building Society (in liquidation) which is unreported to date.  In procedural outline that was a fairly similar situation to that which exists here; but the critical fact there was that the insurer had not categorically denied liability.  Both Ormiston JA and Phillips JA wrote lengthy judgments, and each distinguished Taylor by reference to that fact.  Phillips JA also pointed out that the plaintiff did not contend, in the circumstances of that case, that the joinder of the insured would avoid multiplicity of proceedings.  The principle in Taylor was not questioned by Phillips JA.  Ormiston JA appears to have had some reservations about the reasoning in Taylor but he felt "constrained" to follow it.  Tadgell JA agreed with the reasoning of Ormiston JA.  I can find nothing in the reasoning in that case which causes me to doubt the relevance of Taylor to the facts here or the correctness of that approach.
           Counsel for each insurer also referred to an earlier decision of the Victorian Full Court:  AMP Fire and General Insurance Company Limited v. Dixon (1982) V.R. 833. The critical conclusion there was that the liability of a third party, such as an insurer, to a defendant should not be determined before the defendant had been found liable to the plaintiff. That principle would not be infringed by joining the insurers as defendants in this case; any determination of the issues between the plaintiff and the insurers would be dealt with in the light of all other matters decided after the trial.

           The instant case is on the Supervised Case List, and has been reviewed on numerous occasions since early 1995.  Current estimates of the length of trial range from 4-7 weeks.  Because of the exigencies of the list of cases awaiting trial there is little or no chance of trial dates being allocated for at least nine months.  It is clear that complex valuation issues will be raised at the trial and a number of expert witnesses, particularly valuers, will be necessary witnesses.  Senior counsel have been retained for a number of the parties.  It is obvious that the trial of the action as presently constituted will be costly to the parties and place a strain on the resources of the court.  The plaintiff has already been required to provide security in the sum of $750,000 to cover the costs of the third and fourth defendants.  It would be an unacceptable waste of judicial time if factual issues had to be relitigated in subsequent proceedings against the insurers because they were not estopped from denying findings of fact made in the existing action.
           Both FAI and HIH have been asked to acknowledge that they would be bound by findings of fact made in the present action but each has, probably for good reason, declined to do so.  Further, HIH has indicated that it is not prepared to accept as binding any findings of fact made in the proceedings if FAI alone was joined as a party.
           I cannot find any legitimate basis for distinguishing Taylor from the facts and circumstances of this case.  As already noted there is a growing body of authority supporting the Taylor approach to situations such as this; the reason for that is readily understandable given the cost of such litigation and the limited judicial resources available.
           Here the progress of the litigation will not be unduly protracted by the joinder of both insurers.  FAI has already been heavily involved in the conduct of the litigation on behalf of the first and second defendants, and it was conceded that it was familiar with all documents the subject of the discovery process to date.  Given that a trial within the next nine months is highly unlikely there is no reason why both insurers cannot complete all necessary interlocutory steps and be ready for trial on the first available date.
           The only substantial argument against joining the insurers is that each wishes to rely in support of the refusal to indemnify on matters personal to each insured.  It has already been noted that FAI alleges that false statements were knowingly made in support of the claim for indemnity.  During argument it emerged that HIH (and possibly FAI) would want to rely on other "misconduct" (such as misrepresentation or non-disclosure) on the part of the insured in order to deny liability.  However, if such issues are raised by way of defence the judge in charge of the Supervised Case List or a chamber judge could direct that such issues be tried separately and subsequently to the resolution of the other questions raised in the action.
           Further, at the close of pleadings (and perhaps after mediation) it may well be that either or both of the insurers would be prepared to acknowledge that it would be bound by findings of fact on certain specified issues and thus avoid being a fully active participant in the trial.
           HIH sought to distinguish its position from that of FAI by asserting that there had been no unequivocal denial of any obligation to indemnify on its part.  The submission was that HIH did not have to make a decision until at least there had been a finding that FAI was liable to indemnify its insured under the primary policy.  But that stance was, in my view, undermined by the refusal of HIH to acknowledge that it would be bound by a finding that FAI was liable under its policy.  That issue was specifically directed to senior counsel for HIH during argument and no unqualified acceptance of that position was forthcoming.  If HIH agreed to be bound by findings that FAI was obliged to indemnify its insured its role in this action could be kept to a minimum.
           In the circumstances outlined the plaintiff has a real interest in having the issue as to the liability of both FAI and HIH to indemnify the first and second defendants decided.  Further, both FAI and HIH have a true interest in opposing the making of the declaration sought and there will be a proper trial of the issues on which the making of the declaration sought depends.  It would follow that each insurer would be bound by findings of fact upon which the declaration made respecting it was based.  The wording of the declaration could be moulded to meet the circumstances as revealed by the evidence and joining the insurers in this action would not preclude them from litigating all issues relevant to liability under the policies in question.  As the insurers would be bound by the findings of fact on which the declaration was based a multiplicity of proceedings would be avoided; there would be no unnecessary costs incurred by a second trial and there would be no waste of judicial resources.  Further, there would be no significant delay in the progress of the action resulting from the joinder of each insurer.  Finally, it should be noted that the interests of justice support the joinder because the plaintiff may well not be in a position to litigate substantially the same issues twice.
           In the light of all the matters discussed in these reasons I have come to the view that FAI and HIH should be joined as defendants.
           The plaintiff seeks leave to amend the Writ of Summons in accordance with exhibit AJW-1 to the affidavit of Alexander John Wilson.  Senior counsel for the plaintiff conceded during argument that relief as specified in paragraphs 6 and 9 of that document could not be obtained.  Those claims were repeated in paragraphs 8 and 11 of the proposed new statement of claim which is exhibit AJW-2.  It is clear that the only relief which the plaintiff may obtain against FAI or HIH in this action is a declaration of liability to indemnify the first and second defendants.
           There may well be other consequential orders which parties will seek in view of my decision that both FAI and HIH should be joined as a defendant and I will hear further submissions on the appropriate orders which should be made.