Nguyen v QBE Insurance Ltd - [2007] SASC 454

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
NGUYEN v QBE INSURANCE LTD
[2007] SASC 454
Judgment of The Honourable Justice Duggan
20 December 2007
INSURANCE - GENERAL - INTEREST ON INSURANCE MONEY
Right to indemnity under insurance policy assigned to plaintiff - whether plaintiff entitled to interest on the judgment sum pursuant to s 57 of Insurance Contracts Act 1987 (Cth) - whether statutory right to interest is assignable - consideration of purpose of s 57 - assignment of rights independently of the Act - whether compound interest can be awarded.
Held: interest on the judgment sum to be determined in accordance with s 57 of the Act. Application for compound interest refused.
Bankruptcy Act 1966 s 117(1); Insurance Contracts Act 1987 (Cth) s 57; Supreme Court Act 1935 s 30C, s 114, referred to.
Hungerfords v Walker (1989) 171 CLR 125; State Government Insurance Commission v Lane (1997) 68 SASR 257, distinguished.
Bankstown Football Club v CIC Insurance Limited (unreported, NSW SC 16 December 1993), discussed.

NGUYEN v QBE INSURANCE LTD
[2007] SASC 454
Civil

DUGGAN J. The facts of this matter are set out in my reasons for decision on the substantive issues. [1]
[1] [2007] SASC 320.
The plaintiff was severely injured on 7 October 1995 when he was set upon by a group of attackers outside the Woodville Town Hall. He commenced proceedings for damages for breach of duty of care and negligence against Mr Hiotis, the proprietor of a security firm which provided security for a function being held in the town hall at the time of the incident. On 24 July 2001 judgment was entered by default in favour of the plaintiff against Mr Hiotis for damages to be assessed. Damages were subsequently assessed and, on 30 July 2002, Bleby J entered judgment for the plaintiff in the sum of $2,823,700.00 including interest to the date of judgment.
At the time of the incident Mr Hiotis was insured under a public liability policy issued by the defendant in the present matter, QBE Insurance Ltd (QBE). Mr Hiotis was declared bankrupt on 28 April 1999 and, pursuant to s 117(1) of the Bankruptcy Act 1966, his right to indemnity under the policy vested in the Official Trustee in Bankruptcy.
By deed of assignment dated 5 May 2005 the Official Trustee in Bankruptcy assigned to the plaintiff the whole of the right of Mr Hiotis to indemnity under the policy.
In the present proceedings the plaintiff sought a declaration that QBE was required to indemnify the estate of Mr Hiotis in respect of the claim made against him in the first action and that the right of Mr Hiotis to indemnity by QBE had been validly assigned to the plaintiff.
On 31 August 2007 I held that QBE was required to indemnify the estate of Mr Hiotis and that the plaintiff was entitled to recover against QBE the damages awarded to him in the action against Mr Hiotis. As part of the reasoning leading to that conclusion, I held that the right to indemnity had been validly assigned to the plaintiff.
These reasons relate to the issues of interest and costs which were argued after delivery of judgment on the substantive issues.
Interest
The plaintiff has argued that he is entitled to interest on the judgment sum of $2,823,700.00 pursuant to s 57 of the Insurance Contracts Act 1987 (Cth) (“the Act”) which provides as follows:
Interest on claims
(1)Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section.
(2)The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days:
(a)the day on which the payment is made;
(b)the day on which the payment is sent by post to the person to whom it is payable.
(3)     The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations.
(4)     This section applies to the exclusion of any other law that would otherwise apply.
(5)     In subsection (4):
law means:
(a)     a statutory law of the Commonwealth, a State or a Territory; or
(b)     a rule of common law or equity.
QBE submits that interest should be awarded pursuant to ss 30C and 114 of the Supreme Court Act 1935. However, if the plaintiff’s argument as to the applicability of s 57 is correct, s 57(4) would exclude an award of interest pursuant to the Supreme Court Act.
According to the argument for the plaintiff, he is “a person” within the meaning of s 57(1) to whom an insurer (QBE) is liable to pay an amount under a contract of insurance, the right having been assigned to him under the deed of assignment.
Section 57 was included in the Act as part of the recommendations of the Report of The Law Reform Commission on Insurance Contracts [2]. It was stated in the Report that there had been complaints of delayed payments by insurance companies. It was noted that some delays occurred for which no reasonable explanation could be found. As a result, the Report recommended that a statutory obligation should be imposed on the insurers to pay interest from the date on which a claim for indemnity should reasonably have been paid.
[2] ALRC 20.
Although the usual application of the section is in relation to cases where the insurer is liable to pay an insured, the use of the expression “a person” widens the category of those entitled to payment. It will be noted that s 57(1) applies also to the situation where an insurer is “liable to pay to a person … an amount … under this Act”. Examples of this category of persons who are entitled to payments by an insurer but who are not insured with the insurer, are to be found in ss 48, 48A, 49 and 51 of the Act. These sections employ the expression “a person” in contradistinction to “the insured”.
In my view, a person in the position of the plaintiff comes within the literal meaning of s 57(1) in that he is “a person” who is entitled to payment “under a contract of insurance”.
I am also of the view that the circumstances in the present case come within the purpose of s 57 which is to provide for interest in cases where there has been an unreasonable delay in meeting obligations under a contract of insurance. It is clear from the statutory examples of liability to parties other than the insurer referred to above that the section has a broader scope than that argued for by QBE.
In support of its argument that s 57 did not apply to the circumstances of the present case, counsel for QBE argued that the right to interest under s 57 could not be assigned.
If my interpretation of the section is correct, the plaintiff’s right to the payment of interest under s 57 arises by reason of the assignment of the right to indemnity and the fact that Mr Hiotis is liable for damages. The right is not based on an assignment of the right to interest under s 57. It occurs by reason of an assignment of rights independently of the Act, which bring the plaintiff within the description of a person who is entitled to claim interest under the section.
For these reasons I am of the view that interest on the judgment sum awarded to the plaintiff is to be determined in accordance with s 57 of the Act.
The next step is to decide when interest should commence to run. Section 57(2) provides that interest is to commence as from the day on which it became unreasonable for the insurer to withhold payment.
The plaintiff argues that the appropriate date is 30 July 2002 when Bleby J gave his reasons for decision on the assessment of damages. QBE argues that, if s 57 is applicable, the starting point for interest should be the date of the deed of assignment, namely, 5 May 2005.
In Bankstown Football Club v CIC Insurance Limited [3] Cole J commented on s 57(2) in the following passage:
In my view s 57 is directed to a determination of the point of time at which empirically it can be stated that it was unreasonable to decline to make a payment. The decision is not to be determined simply by a determination of whether or not there was a bona fide dispute regarding the entitlement to payment. It is rather to be determined by a finding as to whether or not there was liability.
If there was liability found and the insurer to pay, then the presumption must be that the insurer ought be deemed to know of that obligation as ultimately determined, even though it may bona fide have held a different view at all times prior to determination, at least at the first instance level, in relation to the question of liability.
A reasonable period is to be given to the insurer to investigate and determine its position. But if it adopts an incorrect position in relation to its obligation to pay under the policy, that, in my view, does not mean that simply because that incorrect position is adopted on a bona fide basis, it becomes reasonable for the insurer to decline to pay the sums otherwise due. That seems to be the correct interpretation of s 57(2), particularly in circumstances of s 57(1) of the Act, where an insurer is liable to pay a person an amount under a contract of insurance.
[3] (Unreported, NSW SC 16 December 1993).
This decision has been followed in a number of cases [4].
[4] Max Hams & Anor v CGU Insurance Limited [2002] NSWSC 843; HIH Casualty & General Insurance Limited v Insurance Australia (No 2) [2006] VSC 128; Diosdado Sayseng v Kellogg Superannuation Pty Ltd v Anor [2007] NSWSC 857.
The plaintiff issued proceedings against Hiotis on 11 September 1998. It is apparent that at some time before 6 May 1999 Hiotis claimed indemnity under the policy. On 6 May 1999 QBE wrote to Hiotis in the following terms:
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 plaintiff attempted to join QBE as a defendant in the proceedings against Hiotis. He did so for the purpose of obtaining a declaration that QBE was required to indemnify Hiotis. A master refused the application for joinder and an appeal by the plaintiff to a single judge of this court was dismissed.
I have said that the default judgment was entered on 24 July 2001 for damages to be assessed. Bleby J published his judgment on 30 July 2002 when he entered judgment for the plaintiff against Hiotis in the amount previously referred to. On the same day the plaintiff’s solicitors wrote to QBE’s solicitors enclosing a copy of the judgment.
As at this date QBE had denied liability under the policy and was aware of the fact that a default judgment had been issued against its insured. QBE was further aware of the judgment sum awarded to the plaintiff. The insurer made no attempt to indemnify the estate of Hiotis which, by that stage, had vested in the Official Trustee in Bankruptcy. The rights to that indemnity were subsequently assigned to the plaintiff. In my view, it is not to the point that the assignment took place subsequently. This transferred the right to indemnity, but the obligation to indemnify existed previously. When the court gave judgment on the amount of the damages due to the plaintiff, there was no need for further investigation by QBE and it was not reasonable at this stage to withhold payment.
I will order that interest be payable for a period commencing on 31 July 2002.
Mr Morcombe QC, for the plaintiff, has submitted that an award of compound interest is appropriate. He made it clear that this was not in the nature of a claim for compensation for loss of use of money in accordance with the principle discussed in Hungerfords v Walker[5].
[5] (1989) 171 CLR 125.
Section 57(3) provides that the rate of interest is as prescribed by the regulations. The regulations make no reference to compound interest. In my view an award on the basis of compound interest is not available under these provisions.
Even if it is within the court’s discretion to order that compound interest be paid pursuant to s 57, I do not think any basis has been made out for such an award in this case. There is no evidence before me on this aspect.[6] I have simply been referred to the long and difficult history of the case to the present time.
[6] See the discussion by Gzell J in Dumitrov v SC Johnson & Son Superannuation Pty Ltd& Anor(No 2) [2007] NSWSC 42 at 22f.
I will order simple interest at the daily rate prescribed by regulation.
Costs
The plaintiff’s counsel has applied for costs to be paid on an indemnity basis. In my view, there is no reason to depart from the usual rule that costs are to be paid on a party and party basis. The plaintiff relies on the following comments made by Debelle J in State Government Insurance Commission v Lane[7]:
In this action, the plaintiffs were suing to enforce their entitlement to an indemnity under the insurance policy. That fact, standing alone, may not be sufficient to justify the order. However, some support for the order of the trial judge may be found in the fact that, had the plaintiffs treated the defendant’s denial of liability to indemnify as a repudiation of the contract, they could have recovered as damages their costs on a solicitor and client basis: Pictorial Machinery Ltd v Nicolls[8]; Schleimer v Brisbane Stevedoring Pty Ltd[9].
The reasons for the order made by the trial judge are not before this Court. The defendant is unable to point to a manifest error of injustice. I do not think there is any reason to interfere with the exercise of the trial judge of his discretion as to costs.
[7] (1997) 68 SASR 257 at 265.
[8] (1940) 67 L1 R 524;
[9] [1969] Qd R 46 at 67.
The decision goes no further than to point out that no error had been established in the exercise of the trial judge’s discretion to award costs on a solicitor and client basis. Debelle J’s cautious remarks about the possible basis for the trial judge’s order, namely, that it was open to the plaintiff to treat the defendant’s denial of liability to indemnity as repudiation of the contract do not appear applicable to the present case.
I propose to award the plaintiff the costs of the action on a party and party basis.
QBE has submitted that the costs due to the plaintiff should be offset by the fact that the plaintiff was unsuccessful on some issues in the case, namely, the claims of waiver, estoppel and election. The plaintiff was substantially successful and I think it inappropriate to order that his lack of success on some issues should sound in costs. It is not as though those issues involved the calling of a significant amount of additional evidence.
Finally, QBE claims to be entitled to the costs of an adjourned hearing which took place on 2 July 2007. The case was set down for hearing on that day. When the matter was called on an extensive discussion took place about the issues in the case. This culminated in counsel for the plaintiff requesting an adjournment to 16 July 2007 in order to amend the statement of claim and take further instructions. The adjournment was not opposed by counsel for the defendant.
The adjournment was granted as a concession to the plaintiff and I accept the argument of counsel for QBE that his client should be awarded the costs of the adjourned hearing along with other costs thrown away as a result of the adjournment.
In view of the fluctuations in the daily rate of interest under the Act, it was agreed that I should publish these reasons and invite the parties to prepare draft orders based on my rulings.