Nguyen v QBE Insurance Ltd - [2007] SASC 320

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
NGUYEN v QBE INSURANCE LTD
[2007] SASC 320
Judgment of The Honourable Justice Duggan
31 August 2007
INSURANCE - GENERAL - POLICIES OF INSURANCE - CONSTRUCTION
Plaintiff seriously injured in course of an attack upon him outside a hall - alleged that security guards on duty at function in hall failed to provide plaintiff assistance during attack - action for breach of duty of care against proprietor of security firm (the insured) - default judgment entered against insured and damages for personal injuries assessed - insured declared bankrupt subsequent to default judgment - pursuant to s 117(1) of Bankruptcy Act 1966 (Cth) right of bankrupt to indemnity under insurance policy vests in trustee in bankruptcy - assignment by Official Trustee in Bankruptcy to plaintiff of the insured's right of indemnity under liability insurance policy - whether default judgment established liability under indemnity clause - whether liability in respect of bodily injury happening as a result of an occurrence in connection with the insured's business.
Held: plaintiff entitled to recover against the defendant insurance company damages awarded to him in previous action against insured.
Bankruptcy Act 1966 s 117(1); Third Parties (Rights Against Insurers) Act 1930 s 1, referred to.
Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association Ltd [1985] 2 All ER 395; Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465, applied.
GIO Australia Ltd v P Ward Civil Engineering Pty Ltd & Anor (2000) 11 ANZ Insurances Cases 61-467; GIO General Ltd v Newcastle City Council [1996] 38 NSWLR 558, distinguished.

ESTOPPEL - ESTOPPEL IN PAIS
Defendant advised court during interlocutory stages of action that liability denied on a particular basis and no other ground – subsequent amendment of proceedings to raise other grounds – whether defendant’s conduct gave rise to estoppel.
Sargent v ASL Developments (1974) 131 CLR 634; The Commonwealth of Australia v Verwayen (1990) 170 CLR 394; Grundt v Great Boulder Gold Mines Ltd (1937) 59 CLR 641; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, applied.

NGUYEN v QBE INSURANCE LTD
[2007] SASC 320
Civil

DUGGAN J. On 7 October 1995 the plaintiff was severely injured in an attack outside the Woodville Town Hall as he left a function in the building. The town hall is situated on Woodville Road. During the attack the plaintiff was stabbed with a knife and was rendered paraplegic.
The organisers of the function at the town hall contracted with Mr Angelo Hiotis to provide security for the function. Mr Hiotis engaged a number of employees to act as security guards for the occasion. There is some doubt on the evidence as to how many guards were engaged, but there were at least four including Mr Hiotis.
The plaintiff attended the function with a group of friends and they sat at a table in the main hall. While sitting there, they became conscious of another group, some of whom sat at their table. Some members of the plaintiff’s group became concerned about the attitude exhibited by some members of the other group and the plaintiff and his friends decided to leave. As they walked out of the hall and towards the main foyer members of the other group followed them.
There is a conflict on the evidence as to what happened when the plaintiff and his group left the town hall and went out onto the footpath. The plaintiff is Vietnamese and, according to his version, he was confronted by a Vietnamese man as he, the plaintiff, turned right after leaving the foyer and stepping onto the footpath. He said the man produced a knife and a struggle ensued. The two men ended up at the side of Woodville Road and others joined in the altercation. The fighting continued out onto the middle of Woodville Road and, at some stage in the course of the struggle, the plaintiff was stabbed.
Two young women who were in the plaintiff’s group gave evidence that they were yelling and screaming continuously from the time the scuffle commenced. They said they sought help from some of the security guards on three occasions during the scuffle. They said that on the first occasion two security guards were standing on the footpath just outside the entrance doors. On the other two occasions they approached the guards inside the foyer. They said on the first two occasions the guards refused to come to the assistance of the plaintiff.
Mr Hiotis and one of his guards on duty in the foyer at the time of the incident dispute this evidence. They claim that there was only one request for assistance and that, although they did not attempt to break up the struggle, they arranged for the police and ambulance to attend after observing that the plaintiff had been stabbed.
The first action
The plaintiff issued proceedings (“the first action”) against Mr Hiotis and the City of Charles Sturt on 11 September 1998. The claim against the second defendant was discontinued in due course.
The plaintiff claimed that his injuries were caused by the negligence and breach of duty of care of Mr Hiotis and his employees. The particulars of negligence alleged included failure to intervene in the attack and provide assistance to the plaintiff.
Mr Hiotis was declared bankrupt on 28 April 1999 and the Official Trustee in Bankruptcy was appointed trustee of his estate. On 24 July 2001 judgment was entered by default in favour of the plaintiff against Mr Hiotis for damages to be assessed. An assessment of damages took place and judgment was entered for the plaintiff in the sum of $2,823,700.00 including interest. Mr Hiotis was ordered to pay the costs of the plaintiff.
At the time of the stabbing incident Mr Hiotis was insured under a policy entered into with the defendant in the present action whereby the defendant provided cover for legal liability incurred by Mr Hiotis by way of compensation in respect of bodily injury and property damage happening as a result of an occurrence in connection with the business of Mr Hiotis.
I have said that Mr Hiotis was declared bankrupt on 28 April 1999. On 28 March 2000 the plaintiff filed an application in the first action to join the defendant as a defendant in that action. The purpose of the plaintiff in doing so was to seek a determination from the court that the defendant was liable to indemnify Mr Hiotis in relation to damages which might be awarded in favour of the plaintiff against Mr Hiotis in that action.
The defendant opposed the plaintiff’s application for joinder and a master of this court dismissed the application. The plaintiff unsuccessfully appealed to a single judge and subsequently to the Full Court against the dismissal of the application for joinder. The appeals were unsuccessful.
The deed of assignment
Section 117(1) of the Bankruptcy Act 1966 provides as follows:
(1)     Where:
(a)     a bankrupt is or was insured under a contract of insurance against liabilities to third parties; and
(b)     a liability against which he or she is or was so insured has been incurred (whether before or after he or she became a bankrupt);
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, if the liability has not already been satisfied, be paid in full forthwith to the third party to whom it has been incurred.
By deed of assignment made on 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 issued by the defendant. The defendant does not challenge the efficacy of the deed of assignment.
The present action
In the present proceedings the plaintiff seeks a declaration that the defendant was required to indemnify the estate of Mr Hiotis in respect of the claim against him in the first action. A declaration is also sought that the Official Trustee in Bankruptcy validly assigned to the plaintiff the right of Mr Hiotis to indemnity by the defendant. The plaintiff seeks an order that the defendant pay to the plaintiff the sum awarded to the plaintiff in the first action plus interest.
The effect of the default judgment
The first submission of the defendant is that a default judgment cannot create a liability which will give rise to indemnity under the policy. It is further submitted that, even if the default judgment can give rise to a liability for the purposes of the contract of insurance, the circumstances of the incident which resulted in personal injury to the plaintiff did not occur as a result of an occurrence in connection with the business of Mr Hiotis as required in order to give rise to indemnity under the terms of the policy.
The indemnity provided in section 1 of the policy is as follows:
QBE will pay to or on behalf of The Insured all sums which The Insured shall become legally liable to pay by way of compensation (excluding punitive or exemplary damages) in respect of:-
(a) bodily injury (which expression includes death and illness)
(b) property damage (which expression includes loss of property)
happening during the Period of Insurance as a result of an Occurrence in connection with The Business.
As stated above, the defendant’s first argument addresses the phrase “legally liable to pay”. According to the argument, the policy provides an indemnity only in those cases where liability is established by a judgment entered after a trial or following an informed settlement. It is argued that, for the purposes of the policy, a default judgment which is never final cannot be equated with a final judgment.
In my view, this argument must be rejected. Any differences which might exist between a default judgment and a judgment entered after a trial of the issues are irrelevant for the purposes of the indemnity clause in the contract of insurance.
The consideration that a default judgment can be set aside does not alter the fact that, until set aside, it is enforceable in the same manner as a judgment obtained after a trial or by consent.
The policy indemnifies the insured against sums which the insured becomes legally liable to pay. There can be no doubt that the effect of the default judgment in the present case was to create a legal liability to pay which remains in existence. “Legally liable” is not defined in the policy, but the ordinary meaning of the phrase must include legal liability resulting from the entry of a default judgment.
There is support for the plaintiff’s case on this issue in the judgment of Bingham J in Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association Ltd[1]. The plaintiffs commenced an action against contractors who had negligently installed machinery owned by the plaintiffs. The contractors were insured under a policy which indemnified them against sums which they might become legally liable to pay as damages in respect of accidental damage to property. By the time the action was commenced the contracting company was in liquidation. The plaintiffs obtained a default judgment against the company. They then took action against the insurers pursuant to s 1 of the Third Parties (Rights Against Insurers) Act 1930 under which the rights of an insured in liquidation were transferred to the third party to whom liability was incurred.
[1] [1985] 2 All ER 395.
The main issue in the case was whether the insured could rely on an alleged failure by the contractors to give sufficient notice to the insurers of the original action. However, in the course of his judgment Bingham J said[2]:
The first question which logically arises is whether the claim which the plaintiffs make falls within the cover extended by the insurers’ policy. There is no doubt that a judgment was obtained by the plaintiffs against the insured and the sum of that judgment is accordingly a sum which the insured are legally liable to pay as damages. It is furthermore, as the evidence before me establishes, a sum which they are legally liable to pay as damages in respect of loss of and incidental damage to property. It appears to me that prima facie the claim is one falling within the policy.
[2] At 399.
I do not regard the decision in GIO Australia Ltd v P Ward Civil Engineering Pty Ltd & Anor[3] which was referred to by Mr McNamara QC, for the defendant, as relevant for present purposes. The passage relied upon by him[4] of the judgment is concerned with the interpretation of the insurance policy under consideration and throws no light on the general effect of a default judgment.
[3] (2000) 11 ANZ Insurance Cases 61-467.
[4] ibid at [12].
I also disagree with the submission that the general rule that a judgment is not binding on a person who is not a party to the proceedings in which it was given[5] is of relevance to the present case. The plaintiff does not rely on the judgment to prove a finding of negligence. Reliance is placed on it to establish a circumstance, namely, the legal liability of the insured, which is a necessary requirement for indemnity under the insurance policy. The situation would be different if the indemnity clause required a finding that Mr Hiotis was negligent.[6]   For these reasons I am of the view that, as a result of the default judgment and the order made on the assessment of damages, Mr Hiotis incurred a legal liability to pay the amount of the damages by way of compensation.
[5]    Forstaff Adelaide Pty Ltd v Hills Industries Ltd [2006] SASC 88 at [13].
[6]    Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd [2005] WASCA 106 at [5].
The indemnity clause
Under the policy, the legal liability to pay by way of compensation must be in respect of bodily injury. If I am correct in the view which I have expressed about the issue of legal liability to pay, there can be no controversy about the fact that the liability was in respect of bodily injury which occurred during the period of insurance.
Next, the indemnity clause requires that the bodily injury happened “as a result of an Occurrence in connection with The Business”[7]. Before dealing with the issues raised by this requirement, it is convenient to make findings as to the factual background against which the requirements for indemnity are to be considered.
[7] Section 1 of the Policy of Insurance.
Mr Hiotis gave evidence that he was approached by the organiser of the function to provide security for it. At that time Mr Hiotis carried on business as a sole trader under the name “APS Security”. He employed between 10 and 20 personnel.
There is a large public hall in the town hall building which once served as a cinema. There is a stage in the hall and, on the occasion of the function, the area which formally comprised the stalls of the cinema was set up with tables and chairs and an area cleared for dancing.
During discussions which took place prior to the function Mr Hiotis and the organiser discussed what security would be necessary. One of the activities to take place during the function was a fashion parade. Mr Hiotis said in evidence that the organiser wanted security for the models who were to parade on stage and he also wanted guards to check tickets in the foyer from patrons who had purchased them.
Mr Hiotis could not remember how many guards eventually attended. He said that he and another guard who gave evidence, Mr Marinus, took up positions in the front foyer which opens out onto the footpath adjacent to Woodville Road through a series of six front doors. There is a canopy overhanging the footpath which extends from the doors to about halfway to the kerb at the eastern side of Woodville Road.
Mr Hiotis said none of the guards sold tickets at the function, but they were positioned in the vicinity of two ticket boxes located on either side of the foyer. I accept the evidence that it was the function of the security guards in the foyer to check tickets, but not to sell them. The latter task was undertaken by a ticket seller in each ticket box.
The plaintiff and two members of his group gave evidence.
The plaintiff, who was 20 years of age at the time of the stabbing, said that he went to the hall with a group of five friends. They arrived in the early evening. They moved into the main hall and sat at one of the tables. Some members of another group, two of whom were known to the plaintiff, sat at the same table.
The plaintiff said the demeanour of some of the members of the other group made him feel uncomfortable and, after being in the hall for approximately 20 minutes, he and his group decided to leave.
He said they walked from the hall, through a drinks area and then into the foyer. He walked through one of the entrance doors onto the footpath, turned right and then heard his name called out.
According to the plaintiff, the man who called out his name then took a knife from under his jacket. The plaintiff grabbed the hand in which the man was holding the knife. There was a struggle in front of the glass doors for what the plaintiff described as “a very long time” and one of the plaintiff’s friends by the name of Viet came in to help him. Others also joined in the struggle.
The plaintiff said he was being kicked and punched and he let go of the man’s hand. He said it was then that he was stabbed. He fell to the ground and was told by others that there was a knife sticking in his back. His evidence is somewhat vague as to the stages of the struggle and where he was when he realised he had been stabbed.
There were two sisters in the plaintiff’s group, Nhung Tran and Thao Tran. Nhung said in evidence that when their group walked outside she saw a man standing on the footpath leaning against one of the entrance doors. He called out to the plaintiff and asked if he wanted a fight. The plaintiff said “No, I’m going home”. The man, who she knows as Phuong, went over to the plaintiff and started struggling with him. They were still under the canopy. She said that she and her sister started to yell and scream. She said she saw four security guards in the foyer looking outside. The guards did not react.
Nhung said that when she looked back in the direction of the plaintiff she saw that he was struggling with Phuong. They were in front of the entrance doors and struggled into the middle of the area covered by the canopy. Nhung said she and her sister were screaming for help. They were calling out “There’s a fight” and “Help us”. Viet had joined in the struggle by this time. The witness said that eventually the struggle moved to the kerb. Others joined in the fight there. Nhung said she and her sister then ran towards the guards, two of whom were standing inside the doors looking out towards the footpath, and another two were standing outside the glass doors under the canopy.
The fight was starting to move out towards the median strip on Woodville Road. The witness said she and her sister ran to the two guards standing outside and asked for help, but the guards did not respond and continued to watch the fight. The sisters returned to the fight, which had moved to the other side of Woodville Road and saw another four or five people join the fight.
Nhung gave evidence that at this point, she and her sister ran, yelling and screaming, to the two security guards who had remained in the foyer.
Nhung said that when she ran into the foyer one of the guards was eating chips and he said to the other guard “Not to worry, leave them alone”. The sisters ran back outside. At this point the witness said she saw the plaintiff on the ground with a knife in his back. She went back to the guards and asked for help again. She told them her friend was dying. One of the guards then came out and went to the aid of the plaintiff.

Thao said in evidence that as they left through the front entrance a man called out the name of the plaintiff. She then saw that he had a knife in his hand and the struggle between this man and the plaintiff commenced.
The witness said she and her sister screamed and turned to the security guards for help. Some of the guards were inside looking out, but they did nothing.
The fight was now taking place in the middle of the canopy area. The group who were fighting then moved towards the kerb. Viet joined in and the witness and her sister continued calling out for help. Others joined in the fight at this stage. Thao said that two guards had come out onto the footpath and she and her sister called them to help. They did not respond.
When Thao turned around again she saw the fight was now on the far carriageway of Woodville Road. She said she and her sister then ran into the foyer and asked the other guards for help. One said “Just leave them there”. He seemed to be talking to the other guards. Thao said she and her sister ran back onto the road and saw that the plaintiff had a knife in his back.
Mr Hiotis was called by the defendant. He said that there were no guards on duty just inside the front doors. He said he and Mr Marinus were positioned inside the foyer behind a table or tables which prevented access except through a gap on either side. He said he and Mr Marinus checked the tickets after patrons had purchased them. He said two guards were also positioned in the vicinity of the stage in the main hall.
Mr Hiotis said that his first knowledge of a fight outside the hall was when a young Asian girl ran into the foyer. She screamed out that there was a fight and he and Mr Marinus hesitated for a time. He said he was concerned about leaving the women in the booths with the takings, but one of them said it was alright for him to go and he and Mr Marinus walked outside.
He said when he went outside he saw fighting taking place in the middle of Woodville Road. He radioed for the police and told Mr Marinus that they should not get involved because there were too many taking part in the fight. Mr Hiotis said that soon after one of the group in the melee fell to the ground and the others ran off. He went over and saw that the man had been stabbed. He then radioed for an ambulance. Mr Hiotis said that at no stage did he see two other security guards standing outside on the footpath in front of the doors.
Mr Marinus said in evidence that he was on duty with Mr Hiotis in the foyer. He explained that the role he and Mr Hiotis were performing was to collect tickets and make sure that everyone paid before being allowed to enter. He said that another employee by the name of Maris also performed duties similar to those which he was performing. He said he was aware of other guards being stationed in the main hall.
The witness said that at one stage during the night a young Vietnamese girl came into the foyer and said there was going to be a fight. He said he walked out underneath the canopy and he thought Mr Hiotis was with him. He said he saw a man walking on the road on the other side of the median strip of Woodville Road and a large number of men were converging on him. Mr Hiotis was about to run over to the group when Mr Marinus took him by the shoulder and told him not to go because there were too many. After about 30 seconds the group started to disperse. At this time he and Mr Hiotis ran over and started to separate some of them. It was then that he saw the man he had seen previously. He saw the knife in the man’s back. Mr Marinus said that when the fight started Mr Hiotis was in the foyer and it is possible that Maris was there also.
Although the evidence as to the events of the evening is of some relevance in providing the factual background against which to consider the issues in the case, I do not regard it as necessary to resolve all aspects of the conflicting versions which I have set out above.
Both parties agreed that the question whether there was sufficient evidence before me to establish a breach of duty of care was not an issue for decision in this case. On the plaintiff’s case, the legal liability relied upon by him was established in the previous proceedings. The further question whether the circumstances answer to the other requirements of the indemnity clause does not require resolution of the competing versions which emerge from the evidence.
Generally speaking, I prefer the evidence of Mr Hiotis and Mr Marinus to that of the plaintiff and the Tran sisters. Understandably, the plaintiff went through a frightening experience which happened quickly and caused him great pain. I accept that he was attacked almost as soon as he left the premises and while he was on the footpath a few steps from the front doors. He stressed that the fight in this location lasted for a long time, but other evidence suggests that it moved fairly quickly to the kerb and then further out into Woodville Road.
There is no doubt that the Tran sisters sought help from the security guards and I accept that while the fight was going on they were screaming out. However, I also accept the denials of Mr Hiotis and Mr Marinus that there were three attempts to get them to assist. I accept the evidence that their aid was sought on one occasion and that they responded in the manner described by them in their evidence.
I return then to the indemnity clause.
The defendant contends that, even if the plaintiff can establish the existence of a legal liability to pay compensation so as to meet the first requirement of the indemnity provision, it has not been proved that such liability comes within the further requirements for indemnity.
The defendant places particular emphasis on the phrase in Section 1 of the policy “happening during the Period of Insurance as a result of an Occurrence in connection with The Business”. “Occurrence” is defined in the definition section of the policy as meaning “an event, including continuous or repeated exposure to substantially the same general conditions, which result (sic) in bodily injury or property damage neither expected nor intended from the standpoint of The Insured”.
It goes without saying that the characterisation of a circumstance or circumstances as the “occurrence” for the purposes of the policy must depend upon the facts of the particular case and little is to be gained from comparing one case with another unless the circumstances are very similar. It is for this reason that the case of GIO General Ltd v Newcastle City Council[8] relied upon by counsel for the defendant is of no assistance for present purposes.
[8] [1996] 38 NSWLR 558.
In determining what is the relevant “occurrence” or “event” it is important to bear in mind the nature and purpose of a policy of liability insurance. The issue as to what is an “occurrence” for the purposes of the indemnity clause must be considered in the context of legal liability.
“Occurrence” is used in the policy to refer to the incident or event which (in the circumstances of the present case) led to bodily injury. Section 1 of the policy refers to “bodily injury …. happening … as a result of an Occurrence”.
Furthermore, the definition of “Occurrence” speaks of –
An event … which results in bodily injury.
It is clear from the policy, therefore, that the occurrence is an event which precedes bodily injury.
The statement of claim in the first action alleged that the plaintiff’s injuries were caused by the negligence of Mr Hiotis in failing to intervene in the altercation so as to adequately protect the plaintiff as a patron attending the function. As I have pointed out, the issue of negligence per se does not arise in this case, but the plaintiff was claiming damages for negligence by omission in circumstances where it was claimed there was a duty to act.[9]
[9] cf. The Council of the Shire of Sutherland v Heyman & Anor (1985) 157 CLR 424 at 443.
It is to be expected that most of the claims for indemnity under s 1 of the policy would arise in the context of liability for negligence. The definition of “occurrence” excludes the intentional infliction of bodily injury.
When considered in this context it is my view that the “occurrence” in the present case is properly regarded as the failure to intervene in the altercation so as to protect the plaintiff. This was the basis of the liability of Mr Hiotis alleged by the plaintiff and, in my view, these circumstances answer to the meaning of an “occurrence” within the policy.
If the failure to act in these circumstances can be regarded as the relevant occurrence it poses no difficulty to say that it was an occurrence “in connection with” the business of Mr Hiotis. The words “in connection with” have a wide scope[10]. In Our Town FM Pty Ltd v Australian Broadcasting Tribunal[11] Wilcox J said:
The words “in connection with” have a wide connotation, requiring merely a relation between one thing and another. They do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v Miller (1985) 8 FCR 153 at 154 160 and 163. They may be used to describe a relationship with a contemplated future even: see Koppen v Commissioner for Community Relations (1986) 11 FCR 360 at 364; Johnson v Johnson [1952] P 47 at 50–51. In the latter case the United Kingdom Court of Appeal applied a decision of the British Columbia Court of Appeal, Re Nanaimo Community Hotel Ltd [1945] 3 DLR 225, in which the question was whether a particular court, which was given “jurisdiction to hear and determine all questions that may arise in connection with any assessment made under this Act”, had jurisdiction to deal with a matter which preceded the issue of an assessment. The trial judge held that it did, that the phrase “in connection with” covered matters leading up to, or which might lead up to an assessment. He said (at 639):
One of the very generally accepted meanings of “connection” is “relation between things one of which is bound up with or involved in another”; or, again “having to do with”. The words include matters occurring prior to as we well as subsequent to or consequent upon so long as they are related to the principal thing. The phrase “having to do with” perhaps gives as good a suggestion of the meaning as could be had.
[10] Re AMP United Insurances Limited (1996) 1 ANZ Insurance Cases 61-326; Ffrench v Sestili [2007] SASC 241.
[11] (1987) 16 FCR 465, at 479-480.
It is apparent from the statement of claim in the first action and the evidence which has been led as to the events on the evening in the course of the present hearing that the allegation of a duty to act in the circumstances is based upon the fact that Mr Hiotis was acting at the relevant time in the course of his business as a security guard.
I accept the evidence of Mr Hiotis that he was not asked by the event organiser to attend to security outside the premises. However, this consideration cannot detract from the consequences of the default judgment in establishing the element of legal liability required by the indemnity clause. Nor does it constitute an impediment to the reasoning that the liability relates to an occurrence in connection with the business. It may have had some significance if the issue of whether there was a duty of care was relevant to the present proceedings.
It follows that, in my view, the legal liability was incurred by Mr Hiotis in respect of bodily injury happening during the period of insurance as a result of an occurrence in connection with his business.
I am of the view that the conditions required by the indemnity clause have been established and that the assignment of rights entitles the plaintiff to an order that the defendant pay the amount of the damages awarded in the first action to the plaintiff.
Election
In view of this conclusion it is unnecessary for the plaintiff to rely on the issues of election and estoppel pleaded in the statement of claim. However, as these matters were argued, it is appropriate that I should state my views in relation to them.
It is pleaded in the statement of claim that the defendant is prevented by the common law doctrine of election from avoiding the policy on the ground that the relevant events were not such as to come within the indemnity clause.
The factual basis relied upon by the plaintiff for the purposes of this argument is not in dispute.
The plaintiff sought to join the defendant as a defendant in the earlier action for negligence against Mr Hiotis. The defendant resisted the application and, on 9 August 2000, a master dismissed it. The plaintiff appealed against this decision and the appeal was heard by Martin J.
Earlier, the defendant had written to Mr Hiotis purporting to avoid the policy. Mr Hiotis was advised of this in a letter from the defendant dated 6 May 1999. The letter stated:
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.
Counsel for the defendant advised the master and Martin J that the defendant intended to restrict itself to this ground in denying indemnity under the policy. Martin J referred to the intimation in his judgment and appears to have taken it into account in upholding the refusal of the master to permit the joinder of the offender.
Prior to the present trial, the defendant advised the plaintiff that it was abandoning the argument outlined in its letter to Mr Hiotis of 6 May 1999. The issues which have been relied upon by the defendant at trial are identified in these reasons.
In a case in which the doctrine of election is applicable it may preclude a party from exercising a legal right. The circumstances in which the doctrine will arise were explained by Mason J in Sargent v ASL Developments[12]:
A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, ie when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach – in each instance the alternative right to insist on performance creates a right of election.
[12] (1974) 131 CLR 634 at 655.
In my view the short answer to the argument on election is that the rights under consideration are not inconsistent, but simply alternative avenues for challenging the plaintiff’s claim for indemnity. The rationale for common law election is that neither right or remedy may be enjoyed without the extinction of the other.[13]
[13] Meagher, Gummow and Lehane, Equity Doctrines and Remedies (3^rd ed) at 3905.
This is not the present case. The defendant is entitled to argue that it can avoid the contract of insurance by reason of fraudulent misrepresentation and, if not successful, to claim that the circumstances do not come within the wording of the indemnity clause in any event.
Estoppel
The facts upon which the issue of election are based are relevant also to the plea of estoppel. It is pleaded in the statement of claim that, at all material times from 10 October 2000, the plaintiff assumed that the only basis upon which the defendant denied that it was liable to indemnify arose by reason of fraudulent misrepresentation.
It is pleaded that the plaintiff was induced to adopt this assumption by reason of the terms of the letter of 6 May 1999, the defendant’s opposition to be joined as a defendant in the first action and the statements by counsel for the defendant on the appeal heard by Martin J.
It is claimed that, acting in reliance upon this assumption, the plaintiff obtained the default judgment against Mr Hiotis, proceeded with the assessment of damages, entered into the deed of assignment with the Official Trustee in Bankruptcy, commenced the present action and incurred liability for legal costs and disbursements in undertaking the legal proceedings referred to in this paragraph along with the costs of the assignment.
It is further pleaded that the defendant was aware that the plaintiff was undertaking the actions referred to above and did not take any action to advise the plaintiff that the assumption held by him was incorrect.
The following chronology records the dates on which the more important events relevant to this issue took place.
11 September 1998             Plaintiff issues proceedings against Mr Hiotis.
28 April 1999  Mr Hiotis declared bankrupt.
6 May 1999Defendant writes to Mr Hiotis advising that indemnity is denied by reason of fraudulent misrepresentation.
10 October 2000                 Hearing against refusal to permit joinder of the defendant in the previous action. The court advised that the sole ground for refusing indemnity is the alleged fraudulent misrepresentation.
24 July 2001  Default judgment for damages to be assessed.
30 July 2002  Reasons for judgment on assessment of damages.
19 March 2003  Plaintiff advised through a letter to his solicitors of additional reasons for refusing indemnity.
5 May 2005Deed of assignment from Official Trustee in Bankruptcy to the plaintiff.
5 May 2005Present proceedings commenced.
When referring to the nature of estoppel by conduct in The Commonwealth of Australia v Verwayen[14] Deane J described the essence of the doctrine as follows:
The central principle of the doctrine is that the law will not permit an unconscionable – or, more, accurately, unconscientious – departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party’s detriment if the assumption be not adhered to for the purposes of the litigation.
[14] (1990) 170 CLR 394 at 444.
The operation of the doctrine was described by Dixon J in Grundt v Great Boulder Gold Mines Ltd[15]:
One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption. In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment. His action or inaction must be such that, if the assumption upon which he proceeded were shown to be wrong and an inconsistent state of affairs were accepted as the foundation of the rights and duties of himself and the opposite party, the consequence would be to make his original act or failure to act a source of prejudice.
[15] (1937) 59 CLR 641 at 674.

The elements of the doctrine were also summarised by Brennan J in Waltons Stores (Interstate) Ltd v Maher[16]:
In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.[17]
[16] (1988) 164 CLR 387 at 428.
[17] The relevant cases are collected by Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1.
There is no doubt that, at an early stage in the relationship between the plaintiff and the defendant, the defendant made a clear and unambiguous representation to the court in the presence of the plaintiff’s legal representatives that it proposed to restrict its justification for denying indemnity to the alleged fraudulent misrepresentation of the insured. This distinguishes the case from the situation described by Deane J in Verwayen at 447:
In the ordinary case where a party to litigation amends a pleading to raise a new defence or to assert a new claim, questions of estoppel do not arise. The effect of earlier pleadings will be merely to reflect the particular party’s then intentions in relation to the conduct of the action and the other party will not be justified in assuming that subsequent amendment will not be made. Nor, in such a case, will amendment of the pleadings and subsequent conduct of the proceedings on the basis of the amendment give rise to any suggestion of unconscionable conduct on the part of the amending party. It will involve no more than the exercise of the right to seek to raise additional matters of claim or defence in accordance with the procedures laid down for that purpose.
Furthermore, the defendant gained an advantage by intimating that its defence was to be put on this restricted basis.
I think the inference can be drawn that the plaintiff proceeded on the assumption that the defence would be conducted in the manner announced to the court and that it was the intention of the defendant that the court and the plaintiff should act on that assumption.
However, the next step is to determine what the plaintiff did on the basis of the assumption and whether he acted to his detriment by relying on it.
In paragraph 20 of the statement of claim the plaintiff pleads:
The Plaintiff, acting in reliance upon that assumption:
20.1obtained the Interlocutory Judgment as pleaded in paragraph 4 above;
20.2undertook a trial for the assessment of damages against Mr Hiotis on 11, 12 and 13 June 2002 before the Honourable Justice Bleby of this Court;
20.3obtained the Damages Judgment as pleaded in paragraph 4 above;
20.4arranged, and entered into a deed, for the assignment of Mr Hiotis’ right to indemnity under the Policy from the Trustee to him on 5 May 2005 as pleaded in paragraph 8 above;
20.5commenced this action against the Defendant on 5 May 2005; and
20.6incurred a liability for legal costs and disbursements in undertaking the actions pleaded in paragraphs 20.1, 20.2, 20.4 and 20.5 above.
I am unable to find that the actions pleaded in paragraph 20 took place in reliance on the assumption previously referred to. Irrespective of the nature of the challenge by the defendant, these were necessary steps for the plaintiff to take in order to pursue its remedy against Mr Hiotis. There could be no legal liability as required by the indemnity clause without a judgment against Mr Hiotis and an assessment of damages. It was also necessary for Mr Hiotis’ right to indemnity under the policy to be assigned to the plaintiff before action could be taken against the present defendant.
The detriment relied upon by the plaintiff is particularised in paragraph 29 of the statement of claim. It is pleaded that the plaintiff:
29.1incurred a liability for legal costs and disbursements in undertaking the actions pleaded in paragraphs 20.1, 20.2, 20.4 and 20.5;
29.2allowed this action to proceed to trial without taking any steps to bring it to a conclusion, whether by way of settlement or withdrawal; and
29.3has experienced stress, inconvenience and anxiety, and undertook effort in relation to this action, which would, or alternatively may, be rendered futile if the Defendant were not held to the assumption pleaded in paragraph 18 above;
29.4is now unable to locate Paul Lodge, a witness to the events of 7 October 1995 and who was available to give evidence in 2000 and 2001.
As has been pointed out, the steps referred to in paragraph 20 of the statement of claim were necessary in order for the plaintiff to recover from the defendant. There is no detriment involved in taking these steps which would have to be taken in any event.
The circumstances pleaded in sub-paragraphs 29.2 and 29.3 of the statement of claim appear to have been derived from Verwayen. Before commenting on them it is appropriate to refer briefly to that case. The plaintiff claimed damages for injuries sustained in the Voyager disaster in 1964. He commenced an action in negligence against the Commonwealth in 1984. Despite earlier official statements that it did not intend to deny liability or plead the statute of limitations, the Commonwealth obtained leave in 1986 to deny liability and plead the statute. Mason CJ, Brennan and McHugh JJ held that the Commonwealth was not estopped from denying liability. Deane and Dawson JJ upheld the claim for estoppel. Toohey and Gaudron JJ found for the plaintiff, but on other grounds.
It is essential to bear in mind when considering the case of Verwayen that the plaintiff was given to understand liability would be admitted. He proceeded on the basis that the only issue was the assessment of damages. Deane J observed that the case was “far removed from the ordinary one”. He said[18]:
It is not suggested that the Commonwealth was other than fully conscious of these possible defences when it induced Mr Verwayen to assume that his action for damages for negligence would proceed against the Commonwealth and be determined on the basis that liability was admitted. With the encouragement of the Commonwealth, there was established between the Commonwealth and Mr Verwayen the relationship of admitted wrongdoer (the Commonwealth) and wronged (Mr Verwayen) for the express common purpose of enabling the expeditious assessment of the amount of compensation which the wrongdoer should pay. On the basis of that assumption and relationship, Mr Verwayen proceeded with the preparation and prosecution of his action. He expended both time and money thereon. Far more important, he subjected himself to the stress, anxiety and inconvenience which were inevitably involved in the pursuit of the proceedings. It was only when the actual hearing was all but due to commence that the Commonwealth sought to depart from the induced assumption and to destroy the whole material relationship between the respondent and itself and the entitlement to just compensation which would result from it.
[18] (1990) 170 CLR at 447.
Dawson J said[19]:
There can be no question that the respondent acted upon the assumption that the appellant would not exercise its right to claim that the action was statute barred. No doubt the respondent was, or could be, compensated by an award of costs for any actual expense incurred as a result of the appellant's failure to plead the statute of limitations at the beginning. But the real detriment to the respondent was that he was induced by the assumption that the appellant would not insist upon the statute to allow the litigation to proceed for more than a year without taking any steps to bring it to a conclusion by way of settlement or, if necessary, withdrawal. Furthermore, as Lord Griffiths observed in Kettemanv Hansel Properties[20], “justice cannot always be measured in terms of money” and the strain of litigation, particularly where that litigation is between a natural person and a defendant with the resources of the Commonwealth, is not to be underestimated. By falsely raising his hopes, the appellant led the respondent to continue with the litigation and forgo any exploration of the possibility of settlement thereby subjecting himself to a prolonged period of stress in an action in which the damages claimed were for, amongst other things, a high level of anxiety and depression. I would hold that the appellant was estopped from insisting upon the statute of limitations, and would observe that the equity raised by the appellant's conduct was such, in my view, that it could only be accounted for by the fulfilment of the assumption upon which the respondent's actions were based; cf. Robertson v. Minister of Pensions[21].
[19] Ibid at 461.
[20] [1987] AC at 220.
[21] [1949] 1 KB 227.
As has been pointed out, in the present case the plaintiff was required to obtain judgment in his favour before he could claim an indemnity. After damages were assessed and before the present proceedings were commenced, the plaintiff was advised through a letter dated 19 March 2003 to his then solicitors from the defendant’s solicitors that the policy was “properly avoided/indemnity refused and that in any event Nguyen would not be entitled to damages from Hiotis/Hiotis’ employees as they were not liable in negligence for Nguyen’s stabbing”. It was alleged in the letter that the plaintiff “was stabbed by a person unrelated to Hiotis or his business well beyond the limits of the venue (Woodville Town Hall) where Hiotis’ employees were engaged”.
The letter continued:
In the circumstances in which Nguyen was stabbed, there is no duty at law requiring Hiotis’s employees to intervene nor, indeed, were there any practical measures available which could have averted this crime.
Accordingly, even if one assumes that the policy remained operative at the time Nguyen was stabbed (which is denied for the reasons canvassed above), then absent any liability attaching to Hiotis or Hiotis’s employees, no liability to indemnify Hiotis pursuant to the policy would arise. Further, our client insurer is not bound either by the default judgment on liability entered against Hiotis or the assessment of damages obtained by Nguyen from Justice Bleby – it not being a party to the proceedings.
This was more than two years before the present proceedings were commenced. It is true that in the period from October 2000 to March 2003 the plaintiff was of the understanding that the defendant’s challenge to indemnity was limited to the alleged fraudulent misrepresentation of Mr Hiotis. However, this was before the plaintiff had acquired the right to sue on the indemnity.
The plaintiff claims in para 29.4 of the statement of claim that he is now unable to locate Paul Lodge, a witness to the events of 7 October 1995 and who was available to give evidence in 2000 and 2001. This is put forward as a detriment suffered by the plaintiff. It is claimed that Mr Lodge was driving past in a vehicle at the time of the fight outside the town hall. An indication of the evidence which Mr Lodge could have given has been put before me in the form of an unsigned statement taken from him and evidence from the solicitor who took the statement. However, it is my view that the evidence which Mr Lodge might have given would not have made a material difference to the strength of the plaintiff’s case.
In my view, the plaintiff did not act on the intimation given to Martin J in such a way as to result in a detriment to the plaintiff relevant to the creation of an estoppel.
For the reasons which I have given, the plaintiff is entitled to an order that the defendant pay the amount of the damages awarded to the plaintiff in the first action.
I will hear the parties as to the orders which should be made.