Morgan and Co Pty Ltd v Commonwealth Bank of Australia Ltd

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: MORGAN & CO PTY LTD -v- COMMONWEALTH BANK OF AUSTRALIA LTD [2007] WASC 316

CORAM: ACTING MASTER CHAPMAN

HEARD: 15 NOVEMBER 2007

DELIVERED : 20 DECEMBER 2007

FILE NO/S: CIV 1954 of 2005

BETWEEN: MORGAN & CO PTY LTD (ACN 008 673 694)
Plaintiff
AND
COMMONWEALTH BANK OF AUSTRALIA LTD (ACN 123 123 124)
First Defendant
WESTERN PACIFIC FINANCIAL GROUP PTY LTD (ACN 050 159 156)
Second Defendant
SHAW THOMSON & ASSOCIATES PTY LTD (ACN 067 469 309)
Third Defendant
JAMES GORDON THOMSON
Fourth Defendant

Catchwords:

Practice and procedure - Leave sought to dismiss the action against the second and fourth defendants - Leave to issue third party proceedings

Legislation:

Rules of the Supreme Court 1971 (WA), O 19 r 8

Result:

Leave to dismiss the action against the second and fourth defendants deferred
Leave to issue third party proceedings granted

Category: B

Representation:

Counsel:

Plaintiff:     Mr P Mendelow
First Defendant              :     Mr C G Colvin SC
Second Defendant         :     Mr P B O'Neal
Third Defendant            :     No appearance
Fourth Defendant           :     Mr P B O'Neal

Solicitors:

Plaintiff:     Anchor Legal
First Defendant              :     Corrs Chambers Westgarth
Second Defendant         :     Downings Legal
Third Defendant            :     No appearance
Fourth Defendant           :     Downings Legal

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

James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53
J‑Corp Pty Ltd v Pannell Kerr Foster (A Firm) [2007] WASC 122

ACTING MASTER CHAPMAN:

Applications

By notice of motion filed on 29 August 2007, the plaintiff seeks orders that its action against the second, third and fourth defendants be dismissed. By order on 2 October 2007, I dismissed the plaintiff's action against the third defendant.
The first defendant, by application filed on 12 September 2007, seeks leave to issue third party proceedings against the second and fourth defendants.

The facts

The plaintiff claims damages of $1 million against the first defendant for failing to exercise reasonable care in keeping the plaintiff informed as to the requirements to keep a keyman life insurance policy in force. The first defendant denies the claim.
The plaintiff was a customer of the first defendant and assigned the policy to the first defendant as security for its loan facilities. The fourth defendant was the plaintiff's insurance agent. He was employed either by the second or third defendants and the first defendant argues that he failed to take reasonable care in keeping it and the plaintiff informed as to the requirements regarding payment of the appropriate premiums.
On 17 November 2006, the plaintiff was granted leave to join the second, third and fourth defendants and on 19 April 2007, the second, third and fourth defendants were ordered to provide discovery. The first defendant contends that it intended to review its position with respect to the second, third and fourth defendants after discovery. The first defendant now intends to seek contribution from the second and fourth defendants.
Whilst formal discovery against the second and fourth defendants was not ordered until 19 April 2007, the solicitors for the first defendant wrote to the fourth defendant on 9 September 2005 seeking discovery of documents indicating that if an agreement could not be reached, an application pursuant to O 26A r 5 would be made. In the affidavit of Mr Stuart Braddon Child sworn 3 September 2007, at par 13, he deposes to the fact that the first defendant received limited documents from the fourth defendant on or about 5 October 2005.
On or around 4 October 2005, the first defendant's solicitors interviewed the fourth defendant. There is no evidence that there was any complaint about the adequacy of the information the fourth defendant gave.
On 17 July 2007, the second and fourth defendants informed the first defendant that they had settled with the plaintiff. The first defendant was not party to these negotiations. On 9 August 2007 a deed was entered into between the relevant parties, a copy of which is to be found as exhibit SBC 2 to the affidavit of Mr Child sworn 3 September 2007. Paragraphs 3(c) and (d) read:
(c)Immediately following the execution of this Deed, Morgan & Co's solicitors will file a minute of consent to the making of orders that:
(i)the Proceedings are dismissed against each of WPFG, STA and Thomson; and
(ii)each Party is to bear its own costs and all extant costs orders be vacated.
(d)In the event the Court will not make the orders detailed in clause 3(c) above, Morgan & Co's solicitors will file a minute of consent to the making of orders that:
(i)the Proceedings are discontinued against each of WPFG, STA and Thomson; and
(ii)each Party is to bear its own costs and all extant costs orders be vacated.

The plaintiff's application

Consistent with par 3(c) of the deed the plaintiff has brought its application seeking orders that the plaintiff's claim against the second, third and fourth defendants be dismissed. Counsel for the plaintiff submits there is nothing here to suggest that the settlement is a sham and the orders sought should be made.
In addition to the submissions of the plaintiff, which are adopted by counsel for the second and fourth defendants, it is submitted by the second and fourth defendants that the first defendant would not be prejudiced if the orders were made because the first defendant has no case against the second and fourth defendants and the orders sought by the plaintiff are supported.
In oral submissions, counsel for the plaintiff submitted if an order for dismissal were refused, the plaintiff would seek to discontinue against the second and fourth defendants in accordance with par 3(d) of the deed.
I agree with the submissions of the first defendant that the two applications are interdependent because the orders sought by the plaintiff's application may prejudice the first defendant. I accept that the first defendant is entitled to be heard in opposition to the orders sought by the plaintiff and the court is not obliged to make the orders sought. In that regard, I refer to the decision of Gaudron and Gummow JJ in James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53 where they said:
The Tribunal, as a court of record, had an overriding power to control its own proceedings and was not obliged to act upon the request by some of the parties before it that consent orders be entered. The appellant had the right to be heard before the Tribunal entered the consent judgment in favour of the respondent against the plaintiff in the plaintiff's action.
The matter was taken by counsel for the appellant no further than as appears from his statement to the Tribunal:
'I do not want to be seen to be consenting to any judgment in favour of the [respondent]. In my submission, in any event even if I could be heard, it would not be relevant in any sense to impede my claim for contribution.'
The appellant might have sought deferral of the entry of judgment in favour of the respondent until determination of the issue of liability of the appellant to the plaintiff for the purposes of the appellant's contribution claim against the respondent. In the process of negotiation between the parties, various options might have been available. A release agreed between the plaintiff and one tortfeasor would not necessarily have released the others. Further, the respondent concedes that, if the plaintiff had released the respondent without a judgment, then the appellant could have maintained its action for contribution (62 ‑ 63). (footnotes omitted)
The first defendant contends that the prejudice it will suffer if the orders sought by the plaintiff are made are exacerbated because of the following:
(1)the first defendant was not a party to the confidential settlement negotiations between the plaintiff and the other defendants; and
(2)it appears the plaintiff intends to continue its claim against the first defendant for full recovery of the alleged loss and the first defendant will not gain the benefit of credit for any settlement sum.
It is further contended that the delay in entry of judgment in the action between the plaintiff and the other defendants will not prejudice the settlement that has been reached with the plaintiff. Judgment can be entered in due course. The other defendants can plead the settlement and need incur no further costs in defending the claim by the plaintiff.
However, delay in entry of judgment will allow the first defendant to pursue its rights against the other defendants. It would be unfair for those rights to be extinguished as a collateral and avoidable consequence of a settlement to which the first defendant was not a party.

The first defendant's application

Whilst the application of the first defendant seeks leave to issue a third party notice against the second and fourth defendants, counsel for the first defendant contends that if the second and fourth defendants remain defendants, the first defendant does not need leave in order to advance a contribution claim against them. He contends that the claim by the plaintiff against the second and fourth defendants should not be finally determined at this time to enable the contribution notice to be brought.
The first defendant's concern is that if the second and fourth defendants are removed from the proceedings, then the claim which the first defendant may have otherwise available under the Law Reform (Miscellaneous Provisions) Act 1941 (WA) may be lost. In J‑Corp Pty Ltd v Pannell Kerr Foster (A Firm) [2007] WASC 122, Master Newnes held:
In James Hardie, the plaintiff sued three defendants as concurrent tortfeasors in the Dust Diseases Tribunal of NSW. Two of the defendants cross‑claimed against each other for contribution under s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act. After the commencement of the trial consent judgments were entered in favour of the plaintiff against two defendants and judgment was entered for the third defendant against the plaintiff with no order as to costs. Before the judgments were pronounced, counsel for one of the other defendants said that his client did not consent to judgment being entered for the third defendant, but that he could not be heard in relation to that and it would not affect his client's claim for contribution against the third defendant. The Judge agreed and the cross‑claim was stood over for hearing at a later date. Before the cross‑claim had been heard the third defendant applied to strike it out contending that the judgment in its favour meant that it was not liable to the other defendant.
In the High Court, it was held (Gummow, Gaudron and Callinan JJ, McHugh and Kirby JJ dissenting) that the effect of the judgment in favour of the third defendant was that the other defendant had no entitlement to contribution against it. The majority rejected the proposition that a party only ceased to be liable if they had been sued to judgment so that a consent order dismissing the claim was no bar to a claim for contribution by a joint tortfeasor. Gummow and Gaudron JJ said (at [40]):
'… the order dismissing the plaintiff's action against the respondent was a final order which brought that action to an end. It would be a distortion of the text and structure of para (c) of s 5(1) to hold in those circumstances that the respondent thereafter answered the description of one yet to be sued. The plaintiff's cause of action against the respondent merged in the judgment, thereby destroying its independent existence.
The status of the Tribunal as a court of record was such that the circumstance that the judgment in favour of the respondent was entered by consent renders it no less effective to absolve the respondent from liability to the plaintiff. It was for the appellant to have taken the necessary steps to oppose that entry of judgment and to have put itself in the procedural position whereby it was competent to appeal against that entry. In the meantime, whilst that judgment remained on the record of the Tribunal, the respondent did not answer either of the statutory descriptions necessary to confer entitlement upon the appellant to proceed against it for contribution.
With respect to the first limb, the respondent had not been adjudged liable to the plaintiff. Rather, it had succeeded in establishing the opposite. With respect to the second limb, the presence of the judgment in the respondent's favour denied it the character of a party still awaiting a final determination of a suit in respect of the damage sustained by the plaintiff.'
In my view, the decision in James Hardie is determinative of the issue in this case. The legislation considered in that case was, so far as relevant, in the same terms as s 7(1)(c) of the Act. There is, in my opinion, no basis upon which the decision can be distinguished [30] ‑ [32].
In light of that decision, the first defendant opposes the entry of judgment and, out of an abundance of caution, any application to discontinue against the second and fourth defendants. Should the court allow judgment to be entered, then the first defendant would seek to commence third party proceedings and claim that there were duties owed to the first defendant by the second and fourth defendants.
Counsel for the second and fourth defendants argued that the first defendant has no cause of action against them and thus the application brought by the first defendant should be dismissed and orders made in terms of the plaintiff's application. It is argued that there is no duty of care owed by the adviser as there were no direct dealings between the adviser and the first defendant. Counsel for the second and fourth defendants contends that there is an element missing from what is alleged by the first defendant against his clients, namely, there is no basis in principle where a duty of care should be imposed.
Further, it is contended even if there was a duty owed to give notice, notice was actually given by the fourth defendant to Mr Morgan and in fact the first defendant had written notice from the insurer in any event. It is further argued that there is a break in any chain of causation because the first defendant and the plaintiff actually received notice that the premium was due. I accept that on the evidence there is a dispute as to what was communicated by the various parties to the first defendant and further the quality of that communication is in question.
The claim by the first defendant, it is said, is based essentially on the fact that there was an insurance policy taken out by the plaintiff. The plaintiff assigned the insurance policy to the first defendant by way of security. Ultimately, premiums were not paid and the policy was brought to an end a short time before the insured passed away. There were communications between the insurer and the first defendant and that correspondence did not produce payment of the premiums.
The claim that is sought to be raised by way of contribution or third party proceedings focuses upon what is the responsibility of the adviser and the persons who are the employers and whether those parties owe a duty of care to communicate to the first defendant in circumstances where the adviser receives notices from the insurer about the fact that premiums have not been paid and receives a trailing commission.
Counsel for the first defendant referred to [19.2.1] of Civil Procedure in Western Australia and cited the following:
If the delay is not unnecessary, the court may grant leave if the claim against the third party is not frivolous, but it will not consider the merits of the plaintiff's claim.
He contended the standard of whether or not leave should be granted to bring the proposed claim against the third party is whether the claim is not frivolous and it is not appropriate to consider the merits of the claim. Whilst I think there is some merit in the arguments raised by the second and fourth defendants, I am not persuaded that the claim sought to be brought by the first defendant against them can be said to be frivolous. It would seem to me that the success or otherwise of the first defendant's claim may well depend upon the facts proved.
As to the delay in bringing this application, counsel for the first defendant submitted that it is not unusual for contribution claims as between defendants who are all providing discovery to await to be informed by that discovery before the claims are made. It is accepted that there were some materials available to the first defendant. It is submitted that it is a somewhat unusual situation where the first defendant will either seek contributions against the second and fourth defendants or, if the action is brought to an end by a dismissal or by leave to discontinue it, then the first defendant would seek to bring the second and fourth defendants back into the action so to speak by way of third party proceedings. It is submitted there is no material prejudice as there is no identified material delay.
The second and fourth defendants contend that the purported explanation for delay as contained in par 24 of Mr Child's affidavit which reads:
The First Defendant intended to review its position with respect to the Second, Third and Fourth Defendants after discovery.
is inadequate as:
(1)in October 2005, the fourth defendant fully cooperated with the first defendant in providing documents to the first defendant and gave an interview to the first defendant's solicitors;
(2)the first defendant, without the benefit of discovery from the second, third and fourth defendants, has assessed the merits of third party proceedings and seeks leave to issue those proceedings;
(3)discovery provided by the plaintiff is comprehensive and contains documents provided by the insurer.
Whilst I understand the purport of those submissions, the delay by the first defendant would not seem to be unreasonable if this action had progressed in the usual way. In the circumstances of this case it would not seem to me to be unreasonable to wait until full discovery had been given before a decision in relation to a possible contribution or third party claim was made. However, the plaintiff and some of the defendants entered into negotiations which have resulted in the orders being sought by the plaintiff. Given that scenario, the first defendant had need to act with some haste. I am of the view, when one takes into consideration the whole circumstances of this case, the reason for the delay proffered by the first defendant could not be said to be unreasonable.

Conclusion

To the extent that it is necessary, I am of the view that in the circumstances of this case, it is appropriate to make orders in terms of those sought by the first defendant, having been persuaded that the proposed claim is not frivolous and the first defendant should be given an opportunity to pursue it. I am satisfied with the explanation for the delay and although there may be some prejudice to the other parties to the action, to deny the first defendant this opportunity would far outweigh any prejudice that may be suffered by them.
As to the plaintiff's application, I do not consider orders in those terms should be made at this juncture and consider it appropriate to defer such orders until the issue of liability between the parties is determined, as is suggested in the decision of James Hardie & Co Pty Ltd v Saltsam Pty Ltd.

[2007] WASC 316

20 December 2007