Johnson v PANDARAGAN Pty Ltd

[2001] WADC 264

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION:   PERTH

CITATION:   JOHNSON -v- PANDARAGAN PTY LTD & ANOR [2001] WADC 264

CORAM:   MARTINO DCJ

HEARD:   2 & 15 NOVEMBER 2001

DELIVERED          :   27 NOVEMBER 2001

FILE NO/S:   CIV 854 of 2000

BETWEEN:   ROBERT WILLIAM JOHNSON

Plaintiff

AND

PANDARAGAN PTY LTD
Defendant

MANNOR HOLDINGS PTY LTD
Third Party

Catchwords:

Procedure - Security for costs - Defendant's claim against third party - Claim pursued by defendant's insurer

Legislation:

Law Reform (Contributory Negligence & Tortfeasors Contribution) Act 1947, s 7

Corporations Law, s 436A, s 562, s 601AG, s 1335

Result:

Defendant ordered to provide security for third party's costs

Representation:

Counsel:

Plaintiff:     No appearance

Defendant:     Mr H M O'Sullivan

Third Party                   :     Mr K C Staffa

Solicitors:

Plaintiff:     No appearance

Defendant:     Srdarov Richards Burton

Third Party                   :     Kevin Staffa

Case(s) referred to in judgment(s):

Australian Workers Union v Bowen (1946) 72 CLR 575

Commercial Developments Pty Ltd (t/as Don Rogers Motors Pty Ltd) v Mercantile Mutual Insurance (Workers' Compensation) Limited (1991) 5 WAR 208

Hazart v Rademaker (1993) 11 WAR 26

Case(s) also cited:

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1

Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42

Erolen Pty Ltd v Baulkham Hills Shire Council (1993) 11 ACLC 511

Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306

Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584

Memutu Pty Ltd v Lissenden (1983) 8 ACLR 364

Newtrend Pty Ltd v Oceanic Life Limited (1990) WAR 1

Pasdale Pty Ltd v Concrete Constructions (1995) 14 ACLC 554

PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 9 ACLC 1603

Sir Lindsay Parkinson & Co Ltd v Triplan Limited [1973] QB 609

West's Process Engineering Pty Ltd v Westralian Sands Ltd (1998) 16 ACLC 1020

West v Jackson McDonald [2001] WASC 198

Westralian Gold Mines Ltd v Westralian Minerals & Drilling Pty Ltd (1986) 4 ACLC 167

Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542

MARTINO DCJ: 

Introduction

1. This an appeal by the defendant against a decision of Deputy Registrar Harman delivered on 17 August 2001.  Deputy Registrar Harman ordered that the defendant provide security for the third party's costs of the third party proceedings in the sum of $27,830 either by a bank guarantee or payment into court.  The appeal is a hearing afresh of the third party's application:  Hazart v Rademaker (1993) 11 WAR 26.

2. The plaintiff's claim against the defendant is for damages for personal injuries claimed to have been suffered by the plaintiff in an industrial accident as a result of the negligence and breach of statutory duty of the defendant.  The plaintiff claims that the defendant was the main contractor at a building site and that it subcontracted some of the work to the plaintiff's employer.  He contends that he was instructed by the defendant, its servants or agents to remove facia from the front of a building and that he suffered injury when a beam against which his ladder was leaning collapsed.

3. The defendant denies liability to the plaintiff.  It says that it retained the third party to demolish an existing building on the site.  By its statement of claim against the third party it contends that the third party directed or allowed the plaintiff to carry out the work he was performing at the time of the accident.  The defendant claims that if it has any liability to the plaintiff the third party is also liable to the plaintiff and the defendant is entitled to contribution from the third party pursuant to s 7 of the Law Reform (Contributory Negligence & Tortfeasors Contribution) Act 1947.  The third party denies liability.

4. On 27 March 2001 an administrator was appointed to the defendant pursuant to s 436A of the Corporations Law. Section 436A(1) provides:

   "SECTION 436A       COMPANY MAY APPOINT ADMINISTRATOR IF BOARD THINKS IT IS OR WILL BECOME INSOLVENT

   436A(1)[How company may appoint administrator]

   A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that:

   (a)in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and

   (b)an administrator of the company should be appointed."

5. The third party's application for security for costs was filed on 7 June 2001. It is pursuant to s 1335(1) of the Corporations Law, which provides:

   "1335(1) [Security given by corporation]

   Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."

The defendant and its insurer

1. The defendant opposes the application for security for costs.  It has filed affidavits sworn by Antony Barrett on 16 July 2001 and by Denise Joy Newman on 12 November 2001.  Mr Barrett and Ms Newman are insurance claims officers.  Mr Barrett has deposed that he is employed by QBE Mercantile Mutual Insurance Limited.  Ms Newman has deposed that she is employed by QBE Mercantile Mutual Limited.  Counsel for the defendant informed me that Mr Barrett's affidavit contains an error and that both Mr Barrett and Ms Newman are employed by QBE Mercantile Mutual Limited.

2. The appeal first came on for hearing before me on 2 November 2001.  In the course of argument counsel for the defendant requested an adjournment to enable the defendant to file a further affidavit to supplement Mr Barrett's affidavit.  I granted the adjournment.  When the appeal next came on for hearing on 15 November 2001 the defendant had filed Ms Newman's affidavit.

3. Mr Barrett has deposed:

   "1I am an insurance claims officer in the full time employment of QBE Mercantile Mutual Insurance Limited.  QBE Mercantile Mutual Insurance Limited administers all claims made on policies of insurance issued by Mercantile Mutual Insurance Limited.

   …

   5At all relevant times the defendant maintained a policy of insurance with Mercantile Mutual Insurance Limited which relevantly protects the defendant against any liability to pay claims of the sort now being pursued by the plaintiff.

   6On or about 10 April 2000 Mercantile Mutual Insurance Limited received notification of the current claim.  Shortly thereafter Mercantile Mutual agreed to indemnify the defendant against any liability which the defendant may incur to pay damages to the plaintiff in respect of the claim the subject of the court proceedings.

   7Exercising a contractual right under the policy of insurance to conduct the defence on behalf of the defendant, I instructed the firm of Srdarov Richards Burton, on 25 May 2000, to act for the defendant in the defence of the action ...

   …

   10I am informed by Mr O'Sullivan [of Srdarov Richards Burton] and verily believe that on 18 May 2001 he wrote to the solicitor for the third party advising that Mercantile Mutual Insurance Limited had agreed to indemnify the defendant.  Now shown to me and annexed hereto and marked with the letter "A" is a true copy of Mr O'Sullivan's letter.  The agreement to indemnify necessarily encompasses any costs orders that may be made."

4. Annexure "A" was in the following terms:

   "We note your correspondence of 18 May 2001.

   We receive instructions from an insurer which has agreed to indemnify.

   In the circumstances, we do not propose to provided you with the financial documentation sought."

5. Ms Newman's affidavit contained the following paragraphs:

   "3At all relevant times the defendant, now under external administration, maintained a construction/liability insurance policy with Mercantile Mutual Insurance.  Mercantile Mutual Insurance is a trading name owned by ING Group.  Claims on Mercantile Mutual policies current in October 1999 (such as the policy held by the defendant) are dealt with by QBE Mercantile Mutual Limited, a joint venture between QBE and ING.

   4Now shown to me and annexed hereto and marked with the letter "A" is a true copy of the policy of insurance.

   5An examination of the underwriting records discloses that there is no excess payable in respect of the policy.  Further, the "limit of liability" is $5,000,000 in respect of any one event.

   6I refer to the affidavit sworn by Antony Barrett on 16 July 2001 and confirm that on or about 10 April 2001 (sic) the defendant made a claim on the aforementioned policy of insurance in respect of the current action by the plaintiff.  Shortly thereafter Mercantile Mutual agreed to indemnify the defendant against any liability which the defendant may incur to pay damages to the plaintiff in respect of the claim the subject of the proceedings.  In addition, Mercantile Mutual agreed to indemnify the defendant against any costs awarded against the defendant.

   7The ING Group is a multinational organisation active in the areas of banking, insurance and asset management.  The company operates in 65 countries with more than 100,000 employees.

   8According to the annual report for the year 2000, ING has a market capitalisation of more than 80 billion Euros.  Now shown to me and annexed hereto and marked with the "B" is a true copy of the ING annual report for 2000.

   9In the circumstances, QBE Mercantile Mutual Limited maintains that a order for security for costs is unnecessary."

6. Annexure "A" to Ms Newman's affidavit was a copy of a form of annual construction/liability insurance policy.  It did not include any certificate of insurance.  The form of policy contradicts much of par 3 of Ms Newman's affidavit.  The insurer in the definition of "WE/OUR/US" at page 4 of the form of policy is not the trading name Mercantile Mutual Insurance but the company Mercantile Mutual Insurance (Australia) Limited.  I have not been provided with any evidence about that company.  I pointed that fact out to counsel for the defendant.  He informed me that Mercantile Mutual Insurance (Australia) Limited was part of the ING Group.

7. Clause 7 of the form of policy provided:

   "7.1COVERAGE

   We will cover You up to the Limit of Liability against claims for Compensation in respect of:

   7.1.1Personal injury; or

   7.1.2Property Damage;

   occurring during the Period of Insurance as a result of an Occurrence happening in connection with the carrying out by You of Your Business.  The amount of each claim otherwise payable shall be reduced by the amount of the Excess shown in the Certificate.

   7.2LIMIT OF LIABILITY

   Our liability under Section 2 as a result of any one Occurrence shall not exceed the Limit of Liability.

   7.3ADDITIONAL PAYMENTS

   If You are entitled to be indemnified in respect of a claim under this section We will, in addition to Our indemnity in respect of payment of compensation referred to in clause 7.1:

   7.3.1pay all expenses incurred by Us and all costs awarded against You in any suit and action; and

   7.3.2reimburse You for all Your reasonable expenses, other than loss of earnings, incurred in the defence of the action and incurred with Our consent,

   provided however:

   7.3.3Our obligation to pay costs and expenses under this section is limited to up to that time when We have paid, tendered or deposited in a court that amount of any judgment or settlement sum which does not exceed the Limit of Liability; and

   7.3.4further, if a payment exceeding Our Limit of Liability has to be made under this section, Our liability to pay any additional payments in connection therewith shall be limited to such proportion of the said additional payments as the Limit of Liability bears to the amount paid to dispose of the claim."

8. Clause 9.2 provided:

   "9.2SUBROGATION

   In the event that We have a right to recover any monies payable under this Policy from any other person, You must co-operate with Us fully in any proceedings, available to Us at law, which We may take."

9. Annexure "B" to Ms Newman's affidavit was not a copy of ING Group's annual report for 2000, but was a copy of the introductory 19 pages of the 79 page report and did not include the balance sheet or other accounts.

Action or other legal proceeding

1. Section 1335 applies to "any action or other legal proceeding". The defendant's third party claim is effectively a separate legal proceeding against the third party in which the defendant is claiming a declaration of entitlement to contribution from the third party: Commercial Developments Pty Ltd (t/as Don Rogers Motors Pty Ltd) v Mercantile Mutual Insurance (Workers' Compensation) Limited (1991) 5 WAR 208. In that separate legal proceeding the third party is in the position of a defendant. The third party claim is therefore an action or other legal proceeding and s 1335 applies to it. The defendant did not submit otherwise.

Inability to pay debts

1. As an administrator has been appointed to the defendant there is reason to believe that it will be unable to pay the costs of the third party if the third party is successful in the defence of the third party claim.  The defendant's outline of submissions included the submission that "the existence of the [insurance] policy amounts to cogent evidence that the defendant is able to pay".  I analyse that issue later in these reasons.

Bad faith claim or weak claim

1. Counsel for the third party submitted that in the exercise of my discretion to order security for costs I should have regard to the fact that the defendant's claim is in bad faith or at least has poor prospects of success.  Counsel for the third party pointed to the third party notice which contains the following:

   "The defendant claims that it retrained (sic) Manor Holdings Pty Ltd, trading as Murphy Plant & Hire Demolition, to demolish the building at the aforementioned site.  The Defendant denies that it gave any direction to the Plaintiff to assist with the demolition work.  Further, the Defendant says that any such direction would have been given by Mannor Holdings Pty Ltd."  (emphasis added)

2. Counsel contrasted those sentences with par 8 of the third party statement of claim which is in the following terms:

   "8.At approximately 7:00am on 17 May 1999, and without the knowledge or consent of the Defendant, the Third Party directed/allowed Robert Johnson (the Plaintiff), an employee of Metro Lintels Pty Ltd, to climb ladders and with the aid of oxy/acetylene cutting equipment, retrieve the aforementioned steel beams ("the work")."

3. Counsel for the third party has also pointed to an affidavit sworn by Patrick Martin Murphy on 12 July 2001.  Mr Murphy is the son of a director of the third party and was its supervisor at the building site at which the accident is alleged to have occurred.  Mr Murphy's affidavit is to the effect that the third party did not instruct the plaintiff to carry out the work he was doing and that he believes that the defendant so instructed the plaintiff.  The person Mr Murphy has referred to appears to be the plaintiff, although I note that Mr Murphy says that he was putting bracing on brick walls whereas the allegation in the plaintiff's statement of claim is that he was removing facia.  Counsel for the third party submitted that the failure of the defendant to file an answering affidavit meant that I should accept the evidence of the third party and conclude that the defendant's claim against it is weak.

4. I do not accept those submissions.  I do not regard the difference in wording between the third party notice and the third party statement of claim as one from which I can conclude bad faith.  Nor do I consider this is a case in which the defendant should have filed an answering affidavit.  It appears from the affidavit of Mr Murphy that the third party was working on the building site and that a person was injured there.  Whether any injuries suffered by the plaintiff were a result of any negligence on the part of the third party can only be determined at a trial after all the oral evidence has been heard.

The insurance policy

1. Counsel for the defendant submitted that as the defendant's insurer had agreed to indemnify the defendant the third party is protected as to its costs if successful because the insurer would be obliged to pay those costs under the policy and the third party would receive the proceeds of any claim for costs under the policy by reason of s 562 and s 601AG of the Corporations Law.  Counsel for the third party disputed those submissions and pointed to the fact that no information was provided by the defendant as to the financial strength of the insurer of the third party.

2. I have quoted parts of the policy which the defendant says is the policy that it holds.  I do not accept that subclause 7.3 is relevant.  Clause 7 is concerned with the scope of the cover.  The cover is liability cover.  I accept that it appears to apply to any liability that the defendant may have to the plaintiff.  If the defendant has any costs liability to the plaintiff then the defendant's insurer will be obliged to indemnify the defendant in respect of that liability.

3. However any costs liability the defendant may incur to the third party would arise not out of any liability that the defendant has to the third party outside of this action.  It would arise out of the defendant seeking a declaration for contribution from the third party.  The defendant's insurer is pursuing that claim in the exercise of its right of subrogation.

4. Counsel for the defendant submitted that it would be extremely unusual for an insurer to refuse to indemnify its insured in the event that the insured incurred a costs liability as a result of the insurer exercising its right of subrogation.  I accept that as a consequence of the exercise of its power of subrogation the insurer has an obligation to the defendant to indemnify it in respect of costs:  Australian Workers Union v Bowen (1946) 72 CLR 575 at 589. However those moneys are not moneys payable under the insurance policy and that obligation is not a liability to which s 562 or s 601AG of the Corporations Law would apply to protect the third party.

5. I am also not satisfied that the defendant has established the financial standing of its insurer.  Counsel for the third party submits that simply because a company is an insurer does not establish that it is financially sound.

6. I can accept that the ING Group is a large worldwide financial services group.  However that tells me nothing about the financial standing of Mercantile Mutual Insurance (Australia) Limited, which appears to be the defendant's insurer.

7. For these reasons I conclude that it is appropriate to order that the defendant provide security for costs.  During the hearing I enquired of counsel for the defendant if the defendant contested that the amount of $27,830 was appropriate if I decided to order security.  He informed me that the defendant did not contest the amount.  The appeal will therefore be dismissed.