Nguyen v Hiotis and City of Charles Sturt No. Scgrg-98-1281

NGUYEN V HIOTIS AND ANOR

[2000] SASC 260

1................ JUDGE BURLEY......... The plaintiff has by application dated 28 March 2000 applied for leave to join QBE Insurance Ltd as a third defendant in this action and to amend the statement of claim accordingly.

I shall refer to QBE Insurance Ltd as “the respondent”. The respondent is the insurer of the first defendant as appears from a copy letter dated 6 May 1999 from the respondent to the first defendant, which is Exhibit KFG1 to the affidavit of Mr Gilchrist sworn on 29 May 2000. The relevant part of the letter is as follows:-
“Dear Sir
Re: Liability Policy No. AD0923488CLI
We refer to your claim for indemnity in respect of Supreme Court proceedings issued against you by one M. Nguyen, being action number 1281/1998.
We have now completed our investigations which disclose that crowd control activities comprised part of your business.
We note that before the inception of cover and renewal you advised that the business did not engage in such activities.
We consider that your misrepresentation was made fraudulently and hereby avoid the policy from its inception pursuant to section 28(2) of the Insurance Contracts Act 1984.
If contrary to our position your misrepresentation was not made fraudulently, then our liability in respect of your claim would in any event be reduced to nil pursuant to section 28(3) of the said Act as cover would not have been granted if the true position had been represented.”
The statement of claim against the second defendant has been struck out: see Judgment No [2000] SASC 88. But the pleading still stands in relation to the first defendant. It is common ground that the first defendant is bankrupt and would not be able to satisfy any judgment that the plaintiff might obtain against him.
In his statement of claim the plaintiff alleges that he was assaulted on 7 October 1995 outside the Woodville Town Hall by a group of thirteen to twenty men. He was severely injured and has been rendered a paraplegic.
Immediately prior to the assault the plaintiff had attended a fashion parade at the Woodville Town Hall. The plaintiff alleges that the first defendant carried on business as a security firm in South Australia and had been hired to provide security at the Woodville Town Hall during the fashion parade. The plaintiff says that during the assault his partner sought assistance from security guards present at the Woodville Town Hall on two occasions during the assault. It is alleged that the requests for help were ignored. When a third request for assistance was made one of the security guards is alleged to have said “leave them alone”. The pleading does not state whether the remark was made to the attackers or to the plaintiff’s partner.
In pleading negligence in relation to the first defendant, it is not clear whether it is alleged by the plaintiff that the first defendant was actually in attendance at the Woodville Town Hall and that he, along with other security guards, failed to respond to requests for assistance or whether the plaintiff relies upon the first defendant being vicariously liable for the actions of his employees. Be that as it may, it is alleged that the injuries sustained by the plaintiff “were caused by the negligence and breach of the duty of care of the first or second defendants or either of them”. There then follows a series of allegations of negligence against the first defendant.
The plaintiff wishes to join the respondent to test the question of whether or not the respondent is liable to indemnify the first defendant for any damages that the plaintiff may recover against the first defendant. Mr Tilmouth QC, counsel for the plaintiff, stated during the course of his submissions that if the respondent is joined as a third defendant the plaintiff will then seek discovery from the respondent of all documentation relating to any insurance between the first defendant and the third defendant material to the matters in question in this action and it is further envisaged that the Court will be asked to direct that the issue of whether or not the respondent is liable to indemnify the first defendant be tried as a preliminary point.
The plaintiff relied upon the decision of the Full Court in JN Taylor Holdings Limited (In Liquidation) and Anor v Bond and Ors (1993) 59 SASR 432. It was not disputed by the defendant that the Court has jurisdiction to make an order for the joinder of the respondent even though the plaintiff may only seek declaratory relief against the respondent. It was submitted that as a matter of discretion, the Court should not make the order sought. The nature of the discretion was referred to by King CJ in JN Taylor Holdings where his Honour said at 436:
“The proposition that there is no limit to the jurisdiction of the court to grant declaratory relief would be an incomplete and misleading statement of the true position unless there be added the further proposition that there are circumstances which are so contra-indicative to the exercise of the discretion in favour of the grant of declaratory relief that the existence of those circumstances would lead almost inevitably to the exercise of the discretion against the making of a declaration. Examples of such decisively contra-indicative circumstances can be found in the cases. A declaration will not be made except in matters ‘which have a real legal context, and to the determination of which the Court’s procedure is apt’: Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation [[1977] 1 NSWLR 43] per Hutley JA at 61. There must be some person who has a true interest in opposing the declaration. The question raised must not be purely theoretical. 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: Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438, per Lord Dunedin at 448. That interest may exist although the apprehended impact on the plaintiff may be no more than a future possibility: Hordern-Richmond Ltd v Duncan [1947] 1 KB 545. If, however, the determination of the question could not affect the plaintiff’s legal rights or commercial or personal interests now or in the future, that is to say would ‘produce no foreseeable consequences for the parties’ (Gardner v Dairy Industry Authority (1977) 52 ALJR 180 at 188, per Mason J), see generally Ainsworth v Criminal Justice Commission [(1992) 175 CLR 564] at 581-582, the declaration would almost certainly be refused.”
JN Taylor Holdings Ltd involved a case where one of the defendants was bankrupt but was said to be covered by a policy of insurance. Reference was made to Section 117 of the Bankruptcy Act 1966 (Cth) which provides that “the right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall ... be paid in full ... to the third party to whom it has been incurred”. In the affidavit supporting the application for joinder of the insurer it was said that the trustee in bankruptcy of the bankrupt defendant agreed with the plaintiffs to assign to the plaintiffs the right to be indemnified pursuant to the policy subject to the consent of the insurer, but the insurer wrongfully refused to consent.
The case seemed to have been argued on the basis that the consent of the insurer was necessary. It was a matter of necessity in the circumstances of that case because the trustee in bankruptcy, apparently, was only prepared to assign the right to indemnity if the insurer consented to the assignment. It follows that the Full Court in JN Taylor Holdings Ltd exercised the discretion to permit joinder of the insurer in that context. It does not follow from that case that an assignment of the right to indemnity requires the consent of the insurer: see generally “MacGillivray on Insurance Law”, 9th edn, pp 487-492 and Sutton, “Insurance Law in Australia”, 2nd edn, para 2.78.
Because JN Taylor Holdings Ltd was argued on the basis referred to above, the Court took into account, in the exercise of its discretion, the position between the plaintiff and the Trustee in Bankruptcy as to the enforcement of whatever rights the Trustee in Bankruptcy had under Section 117 of the Bankruptcy Act. King CJ said at 437:
“By virtue of that section, if the trustee in bankruptcy were to obtain payment of moneys from the insurer in consequence of a judgment against the defendant directors, those moneys would not be divisible among the creditors but would be payable to the plaintiffs. In order to obtain satisfaction in that way, it might be necessary for the plaintiffs to make the non-bankrupt directors bankrupt and, having provided a proper indemnity for costs to the trustee in bankruptcy, to institute and prosecute in the trustee’s name an action against the insurer.”
His Honour later said at 438:
“... 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.”
As I understand it, the passage just quoted was central to the plaintiff’s case on the application before me.
Mr Besanko QC, counsel for the respondent, relied upon Beneficial Finance Corporation Ltd v Price Waterhouse (1996) 68 SASR 19 and Glenmont Investments Pty Ltd and Others v Lend Lease Insurance Ltd (1999) 74 SASR 152. In the former, Perry J, as a member of the Full Court, had occasion to comment upon JN Taylor Holdings Ltd. In the case before the Full Court, the insurer had not denied liability and his Honour thought that that was a valid point of distinction (at 36). His Honour said (at 37):
“The JN Taylor case was unusual in that there were overlapping questions of fact. The insurer had denied liability upon the basis that the conduct of the defendant directors was such as to disentitle them to indemnity. The same conduct would need to be scrutinised to determine whether the plaintiff’s claim against the directors should succeed.”
Having cited from the passage of the judgment of King CJ, his Honour went on to say:-
“The decision in JN Taylor Holdings must be confined to its special facts, and in particular the fact that not only was there in that case a denial of liability on the part of the insurer, but the facts and circumstances relevant to the grounds upon which liability were denied were more or less co-extensive with the factual inquiry which would be necessary in order to dispose of the issues [raised] as between the parties in that case other than the insurer.”
In Beneficial Finance Corporation v Price Waterhouse both Perry and Lander JJ referred to the decision of the Victorian Court of Appeal in CE Heath Casualty and General Insurance Ltd v Pyramid Building Society (In Liquidation), an unreported decision published on 23 October 1996, Judgment No 6930. In that case Ormiston JA said (at 22):-
“I confess to having the gravest doubts whether, even for the purpose of resolving all issues raised in the added paragraphs, the need to have the appellants bound in relation to claims under ‘claims-made’ professional indemnity policies would be of any great practical significance. It is of so little practical significance that, apart from the JN Taylor group of cases, it has never in the past been thought necessary to join insurers as defendants (as contrasted with their joinder as third parties) for that purpose, for in practical terms proof of liability in the action automatically leads to an obligation to indemnify under an applicable policy, unless the insured has been in breach of one of the conditions of the policy.”
The Full Court also had occasion to consider the decision of JN Taylor Holdings Ltd in Glenmont Investments v Lend Lease Insurance (supra). In that case the insurer had been joined as a defendant but during the trial it was announced that the insurer and insured had resolved their differences and that the insurer would indemnify the insured according to the terms of the policy. The trial Judge was asked to strike out the claim by the plaintiff against the insurer but he refused to do so. On appeal, the Full Court held that the pleadings against the insurer should have been struck out by the trial Judge because, among other things, the insurer accepted that it was liable under the policy. That point of distinction precluded the application of the principles enunciated in JN Taylor Holdings Ltd.
It was submitted by Mr Besanko QC, counsel for the respondent, that the effect of Beneficial Finance and Glenmont Investments was to impose a substantial limit upon the exercise of the discretion to join an insurer as a defendant. I disagree with that contention. Those two cases merely state that where an insurer does not refuse to indemnify the insured, it would normally not be necessary to join the insurer as a defendant.
In order to establish a case for joinder of the insurer based on JN Taylor Holdings, the plaintiff must establish that there has been a denial of liability on the part of the insurer and that the facts relating to the question of liability between the plaintiff and the first defendant are substantially the facts which also need to be taken into account in determining whether or not the insurer is liable to indemnify the first defendant. It is not in dispute that the insurer has denied liability. The only remaining matter is whether or not there are facts common to the claim and the insurance question. I think it is in relation to this second point that the plaintiff’s case must fail. The plaintiff has not been able to establish that there are overlapping facts. The plaintiff wishes to have the respondent joined as a defendant and then to obtain discovery from that defendant relating to policy questions. That process may or may not make the plaintiff aware of the factual basis upon which the question of the insurer’s liability under the policy will be determined. The fact that the plaintiff needs discovery from the respondent must inevitably mean that the plaintiff does not now know what that factual basis for refusing to indemnify is, and, if that is the case, the plaintiff cannot argue that facts material to the question of liability between the plaintiff and the first defendant are also material to the question of the liability of the respondent to indemnify the first defendant. In the absence of the plaintiff being able to make out that aspect of the application, it seems to me that the application must inevitably fail.
For the above reasons the plaintiff’s application for joinder of the respondent as a third defendant must be dismissed. I will hear the parties as to costs.

[2000] SASC 260

9 August 2000