Lloyds Syndicate v RAB Finance

[2009] NSWSC 1311

CITATION:	Lloyds Syndicate v RAB Finance [2009] NSWSC 1311
HEARING DATE(S):	24 November 2009
JUDGMENT DATE :	17 December 2009
JUDGMENT OF:	James J
DECISION:	Summons dismissed Plaintiffs to pay the costs of the defendants of the summons
LEGISLATION CITED:	Civil Procedure Act Fair Trading Act Law Reform (Miscellaneous Provisions) Act 1946 Trades Practices Act Uniform Civil Procedure Rules
CASES CITED:	Fraser v BN Furman (Productions) Ltd; Miller Smith & Partners, (A firm) Third Party [1967] 1 WLR 898
PARTIES:	Lloyds Syndicate - Heritage Managing Agency Limited - First Plaintiff Lloyds Syndicate - Markell Syndicate Management Limited - Second Plaintiff RAB Finance Pty Limited - First Defendant John Dignan Real Estate Pty Limited - Second Defendant John Dignan - Third Defendant Kayteal Pty Limited - Fourth Defendant
FILE NUMBER(S):	SC 13056/09
COUNSEL:	D J Higgs SC / B Shields - Plaintiffs A J McInerney - First Defendant N/A - Second Defendant N/A - Third Defendant G F Grinter - Fourth Defendant
SOLICITORS:	Curwoods Lawyers - Plaintiffs HWL Ebsworth Lawyers - First Defendant No appearance - Second and Third Defendants O'Brien Lawyers - Fourth Defendant A. Dimento - for Home Wilkinson Lowry Solicitors

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

JAMES J

THURSDAY 17 DECEMBER 2009

13056/09 LLOYDS SYNDICATE – HERITAGE MANAGING AGENCY LIMITED & 1 ORS v RAB FINANCE PTY LIMITED & 3 ORS

JUDGMENT

1 HIS HONOUR: This is a summons by Lloyds Syndicate – Heritage Managing Agency Limited and Lloyds Syndicate – Markell Syndicate Management Limited for an order that the proceedings in the District Court number 1825 of 2008 (“the District Court proceedings”) be transferred to the Supreme Court pursuant to s 140 of the Civil Procedure Act and for an order that upon transfer of the proceedings to the Supreme Court they be heard together with the proceedings number 20360 of 2007 which were commenced in this Court (“the Supreme Court proceedings”). There is no need to distinguish between the two plaintiffs and in this judgment I will generally refer to them collectively as “Lloyds”.

2 The parties in the District Court proceedings are RAB Finance Pty Limited (“RAB”) as the plaintiff, John Dignan Real Estate Pty Limited (the first defendant), John Dignan (the second defendant), Kayteal Pty Limited (“Kayteal”) (the third defendant) and the two Lloyds Syndicates (the fourth and fifth defendants).

3 The parties to the Supreme Court proceedings are Kayteal as the plaintiff, John Dignan (the first defendant), John Dignan Real Estate Pty Limited (the second defendant), a large number of individuals who were the partners in the firm Home Wilkinson Lowry Solicitors (“HWL”) (the third defendants) and the two Lloyds Syndicates (the fourth and fifth defendants).

4 At the hearing before me there were appearances for Lloyds, RAB, Kayteal and HWL. There was no appearance for Mr Dignan or John Dignan Real Estate Pty Limited. I am satisfied that John Dignan Real Estate Pty Limited was served with the summons. I am also satisfied that Mr Dignan, who is bankrupt, received notice of the summons.

5 The making of the orders sought by Lloyds was opposed BY all of RAB, Kayteal and HWL.

6 The amended statements of claim in both the District Court proceedings and the Supreme Court proceedings are lengthy documents. I will now give a brief outline of the allegations in each document.

Allegations in the amended statement of claim in the District Court proceedings

7 On about 10 March 2006 the first two defendants (it is unnecessary to distinguish between them) prepared a valuation of a property at Carramar and a valuation of a property at Villawood. The owner of each of the properties was a company Nasamatta Pty Limited.

8 On about 16 March 2006 the first two defendants provided amended valuations of the two properties for RAB. The first two defendants owed RAB a duty to act with reasonable care and skill in preparing the amended valuations.

9 In reliance on the amended valuations RAB agreed to lend, and lent, to Nasamatta Pty Limited the sum of $941,250 on the security of mortgages over the two properties.

10 The first and second defendants failed to prepare the two amended valuations with reasonable care and skill. Separate particulars of negligence are provided in the amended statement of claim in respect of each property. The valuation of the Carramar property by the first two defendants was $575,000, whereas the true value of the property was between $150,000 and $175,000. The valuation of the Villawood property by the first two defendants was $680,000, whereas the true value of the property was between $250,000 and $275,000. If RAB had received correct valuations of the two properties, it would have lent only an amount of between $400,000 and $450,000 to Nasamatta.

11 On about 22 March 2006 RAB assigned to Kayteal a half interest in the right to the debt and the securities RAB had taken. It was because of this assignment that RAB joined Kayteal as a defendant in the District Court proceedings.

12 Nasamatta Pty Limited and its controller Mr Victor Bsat, who was a guarantor of Nasamatta Pty Limited, defaulted. RAB exercising its power of sale as mortgagee sold both the Carramar and the Villawood properties but a substantial amount of money remains outstanding.

13 Nasamatta Pty Limited has been wound up and Mr Bsat has been made bankrupt.

14 RAB makes alternative claims under the Trades Practices Act that the first defendant in providing the valuations engaged in conduct which was misleading and deceptive and that the second defendant aided and abetted the first defendant.

15 As against the fourth and fifth defendants (Lloyds) RAB makes a claim based on s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (“the Act”), including the following allegations.

16 On about 15 February 2007 Lloyds entered into a contract of professional indemnity insurance with the first two defendants in respect of their professional business as real estate agent and valuer (“the Contract of Insurance”).

17 Clause 2.1 of the Contract of Insurance provided:-

“In consideration of the full premium being paid to the Insurers, the Insurers agree to indemnify the Insured up to the aggregate Indemnity Limit stated in the Schedule, inclusive of all costs and expenses, for all Claims for compensation first made against the Insured and notified by the Insured to the Insurers during the Policy Period for breach of the professional duty of care owed by the Insured in the conduct of the Professional Business.”

18 By a letter dated 1 December 2008 Lloyds declined to indemnify the first two defendants under the Contract of Insurance on the grounds of non-compliance by them with cl 5.8 of the Contract of Insurance, which provided:-

“The insured shall take all reasonable steps to prevent any breach of professional duty which may cause or contribute to any claim or loss which may be covered by this policy.”

19 Clause 2.2 of the Contract of Insurance provided that the cover extended to:-

“Any fraudulent or dishonest act or omission of any former or present Employee, partner, director or principal of the Insured but there is no cover for the offending Employee, partner, director or principal for these Claims.”

20 RAB alleges that if Lloyds establishes that the first defendant or the second defendant acted in breach of cl 5.8 of the Contract of Insurance, with the consequence that Lloyds is not liable to indemnify the first two defendants under cl 2.1 of the Contract, then the first two defendants’ conduct would have rendered them liable to RAB for the tort of deceit and Lloyds would be liable to indemnify the first two defendants (or at least the first defendant) for a dishonest act or omission within cl 2.2 of the Contract. Consequently, RAB would have an action against Lloyds under s 6(4) of the Act to enforce the charge arising under s 6(1) of the Act.

21 I interpolate that in making the allegations based on clauses 5.8 and 2.2 of the Contract of Insurance, RAB was relying on the interpretation which has been given to clauses like cl 5.8 in a contract of indemnity insurance, for example by Diplock LJ in Fraser v BN Furman (Productions) Ltd; Miller Smith & Partners, (A firm) Third Party [1967] 1 WLR 898 at 906:-

“What in my judgment is reasonable as between the insured and the insurer, without being repugnant to the commercial purpose of the contract, is that the insured, where he does recognise a danger, should not deliberately court it by taking measures which he himself knows are inadequate to avert it. In other words, it is not enough that the (insured’s) omission to take any particular precautions to avoid accidents should be negligent; it must be at least reckless, ie, made with actual recognition by the insured himself that a danger exists, not caring whether or not it is averted.”

Allegations in the amended statement of claim in the Supreme Court proceedings

22 On about 24 April 2006 the first two defendants prepared for Kayteal a valuation of a property at Canley Vale at a figure of $1,200,000. The owner of this property was Mr Bsat. In reliance on the valuation made by the first two defendants Kayteal lent the sum of $780,000 to Mr Bsat.

23 Each of the first two defendants owed Kayteal a duty to act with reasonable care and skill in the preparation of the valuation and this duty was breached. Particulars of negligence are provided in the amended statement of claim. The true value of the property was only $52,000.

24 Mr Bsat made default under the loan and a large amount of money is outstanding.

25 In addition to the claims in negligence, there is a claim against the first defendant under the Fair Trading Act and a claim against the second defendant under the Trade Practices Act.

26 A claim is made against HWL that they were guilty of professional negligence as solicitors in acting for Kayteal in the transaction.

27 Claims are made against Lloyds pursuant to s 6 of the Law Reform (Miscellaneous Provisions) Act, which are generally similar to the claims made against Lloyds in the District Court proceedings. Lloyds have denied indemnity to the first two defendants under the same contract of professional indemnity insurance, that is the Contract of Insurance, and on the same ground, that is non-compliance with cl 5.8.

Issues in the two proceedings

28 As I have already noted, Mr Dignan is bankrupt. John Dignan Real Estate Pty Limited, although not in liquidation, is no longer carrying on business. It is unlikely that Mr Dignan or his company will take any active part as parties at the hearing of either the District Court proceedings or the Supreme Court proceedings. It is also unlikely that any of the other parties will contest at the hearing of the District Court proceedings that Mr Dignan and his company were negligent in preparing the amended valuations of the Carramar and Villawood properties or at the hearing of the Supreme Court proceedings that Mr Dignan and his company were negligent in preparing the valuation of the Canley Vale property.

29 Likely live issues at the hearings of both proceedings are:-

1. Were Lloyds entitled to refuse indemnity to Mr Dignan and his company by reason of cl 5.8 of the Contract of Insurance.

2. If so, are Lloyds liable to indemnify at least John Dignan Real Estate Pty Limited pursuant to cl 2.2 of the Contract of Insurance.

3. Whether the plaintiff is prevented from recovering against Lloyds under s 6 of the Act because, although the Contract of Insurance was a “claims made” contract of insurance, the plaintiff’s cause of action against the insured accrued before the Contract of Insurance was entered into (which can conveniently be referred to as “the s 6 issue”).

30 There are other issues which are specific to one or other of the proceedings. In the District Court proceedings Kayteal has brought a cross-claim against RAB, alleging that, as part of the transaction in which RAB assigned to Kayteal half of its interest in the debt and the securities, RAB promised that it would indemnity Kayteal against any loss arising out of the transaction. In the Supreme Court proceedings there is a claim by Kayteal against its former solicitors HWL for professional negligence.

Provisions of the Act and the Rules

31 Before turning to the submissions which were made by the parties on the application, it is convenient to set out the terms of s 140(1) of the Civil Procedure Act and r 28.5 of the Uniform Civil Procedure Rules.

“s 140(1)
The Supreme Court may, of its own motion or on application by a party to proceedings before the District Court or the Local Court, order that the proceedings, including any cross-claim in the proceedings, be transferred to the Supreme Court.
r 28.5
If several proceedings are pending in the court and it appears to the court:
(a) that they involve a common question, or
(b) that the rights to relief claimed in them are in respect of, or arise out of, the same transaction or series of transactions, or
(c) that for some other reason it is desirable to make an order under this rule,
the court may order those proceedings to be consolidated, or to be tried at the same time or one immediately after another, or may order any of them to be stayed until after the determination of any other of them.”

The Submissions of the parties

32 Counsel for Lloyds informed the Court that the two orders sought are connected. The order for the transfer of the District Court proceedings to the Supreme Court was sought, only so that the proceedings could be heard at the same time as the Supreme Court proceedings. As to the second order sought, Lloyds did not seek an order that the two proceedings be consolidated, only that the two proceedings be tried at the same time or one immediately after the other.

33 Counsel for Lloyds submitted that the two proceedings had many things in common, including similar lenders, in that RAB had signed half its interest as lender to Kayteal; a similar borrower (Mr Bsat or his company Nasamatta Pty Limited); the same valuer; valuations given in similar circumstances; the same contract of professional indemnity insurance; similar particulars of negligence on the part of the valuer; similar issues arising under cl 5.8 and cl 2.2 of the Contract of Insurance; and a similar question of whether the plaintiff was prevented from recovering against Lloyds under s 6 of the Act because the plaintiffs’ cause of action against the insured had accrued before the contract of indemnity insurance was entered into.

34 It was submitted that in determining whether, in regard to the making of a particular valuation, Mr Dignan (and his company) had failed to comply with cl 5.8 of the Contract of Insurance, and, if so, whether Mr Dignan, in so failing to comply, had been guilty of a dishonest act or omission within cl 2.2 of the Contract of Insurance, evidence as to Mr Dignan’s conduct in making the other valuations would be likely to be relevant and admissible and, hence, if there were separate hearings of the District Court proceedings and the Supreme Court proceedings, evidence about Mr Dignan’s conduct in making all of the valuations would be likely to be admitted at each hearing. It would be a waste of court time for evidence to be duplicated in separate hearings.

35 It was submitted, that if the hearings of the two proceedings were conducted separately, in different courts and before different judges, there would be a risk of inconsistent findings and this risk should be avoided.

36 Counsel for RAB submitted that none of the three conditions or “gateways” in pars (a), (b) and (c) of r 28.5 was satisfied.

37 It was submitted that, if the orders sought by Lloyds were made, RAB would suffer at least four forms of prejudice.

1. RAB would be required to prosecute its proceedings jointly with Kayteal’s prosecution of its proceedings. The two plaintiffs, RAB and Kayteal, would have separate legal representation. Kayteal is the plaintiff in the Supreme Court proceedings and a defendant in the District Court proceedings. There is a live issue between RAB and Kayteal in the District Court proceedings, namely whether RAB is liable to indemnify Kayteal against any loss it suffers.

2. Notwithstanding the similarities between the two proceedings pointed to by counsel for Lloyds, the two proceedings arose out of different transactions and most of the evidence in each proceeding would not be admissible in the other proceeding.

3. HWL are RAB’s solicitors in the District Court proceedings. If the two proceedings are heard together, HWL as a defendant in the Supreme Court proceedings might be obliged to withdraw from acting as RAB’s solicitors in the District Court proceedings and thereby RAB would be deprived of the solicitors it had chosen to act for it.

4. If the two proceedings were heard together, RAB’s legal representatives would be obliged to be present throughout, in case something affecting the interests of RAB might occur, and as a result RAB’s costs would be much higher than if there was a separate hearing of the District Court proceedings.

38 It was submitted that the s 6 question was not an appropriate question for separate determination and the answer which should be given in each proceedings to the question of when a cause of action had accrued against the valuer would depend on the evidence of relevant facts, which would not necessarily be the same in the two proceedings.

39 Counsel for Kayteal submitted that there were important differences between the two proceedings, including differences in the properties valued and in the particulars of alleged negligence on the part of the valuer. The property at Canley Vale was vacant land, apart from a shed, whereas there were improvements on the properties at Carramar and Villawood. Accordingly, there were different valuation considerations in the two proceedings. The valuer had actually valued the wrong land in making the valuation at Canley Vale, whereas at Carramar and Villawood the valuer had at least valued the right properties. Different expert witnesses had been retained by the plaintiffs in the two proceedings.

40 The Supreme Court proceedings have reached a stage where a hearing date could be fixed. On 19 November 2009 Lloyds had filed an application for an order that the s 6 issue be separately determined. Kayteal will oppose Lloyds’ application for a separate determination of the issue, on the basis that the issue, which would require evidence for its determination, would better be dealt with at a general hearing. The District Court proceedings are not as advanced, so that, if the two proceedings were joined, there would be a delay in the hearing of the Supreme Court proceedings.

Decision

41 The two orders sought are connected. The first order sought, that the District Court proceedings be transferred to the Supreme Court, is sought, only so that the second order can be made that the two proceedings be heard together.

42 It is clear that I have a wide discretion under both s 140 of the Civil Procedure Act and r 28.5 of the Uniform Civil Procedure Rules.

43 I do not consider that I should make the orders sought.

44 The making of the orders sought is opposed by all the other parties to one or other of the proceedings, apart from Mr Dignan and his company who are unlikely to take any active part as parties at the hearing of either proceedings.

45 I accept that, as submitted by counsel for Lloyds, there are a number of things in common in the two proceedings. However, the two proceedings arise out of different valuations of different parcels of land. The parcels of land are different in nature. The land at Canley Vale (the land in the Supreme Court proceedings) is vacant land, apart from the shed, whereas the parcels of land at Carramar and Villawood (the land in the District Court proceedings) have improvements. Notwithstanding the submissions by counsel for Lloyds, an inspection of the particulars of alleged negligence in the statements of claim in the two proceedings shows that many of the particulars of negligence alleged are specific to the valuation of a particular parcel of land. As already noted, Mr Dignan in making the valuation at Canley Vale, made the egregious error of valuing the wrong parcels of land.

46 Although Mr Dignan and his company are unlikely to dispute at any hearing of either proceedings that they were negligent, the respects in which they are found to be negligent in relation to a valuation of a particular property will be relevant in determining whether, according to the interpretation which has been placed on clauses like cl 5.8 of the Contract of Insurance, the valuer failed to take all reasonable steps to prevent any breach of professional duty and, if so, whether there was a dishonest act or omission by Mr Dignan within cl 2.2 of the Contract of Insurance.

47 I consider that any determination of the s 6 question in either proceedings will depend on the evidence in those proceedings about whether the plaintiff’s cause of action against the valuer accrued before the contract of insurance was entered into.

48 I am satisfied that, if the orders sought were made, the plaintiffs in the two proceedings, RAB and Kayteal, would suffer prejudice of the kinds submitted by counsel for those parties, which I have summarised.

49 I dismiss the summons by Lloyds and I order Lloyds to pay the costs of the defendants of the summons.

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