NSW Medical Defence Union v Crawford- Bailey v NSW Medical Defence Union

[1994] HCATrans 134

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
              Sydney        No S106 of 1994

B e t w e e n -

NSW MEDICAL DEFENCE UNION LIMITED

Applicant

and

MAXWELL DUNCAN CRAWFORD

Respondent

Office of the Registry
              Sydney        No S153 of 1994

B e t w e e n -

MARJORIE JOCELYN BAILEY (as
  executrix of the state of the
  late DR HARRY R. BAILEY)

Applicant

and

NEW SOUTH WALES MEDICAL DEFENCE
  UNION LIMITED

Respondent

Applications for special leave to

appeal

BRENNAN J
DAWSON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON THURSDAY, 8 DECEMBER 1994, AT 9.55 AM

Copyright in the High Court of Australia

___________________

MR P.G. HELY, QC:   If the Court pleases, in the first  of those matters I appear for the applicant and I appear for the respondent in the second.  (instructed by Blake Dawson Waldron)

MR R.W.R. PARKER, QC:   If the Court pleases, I appear with my learned friends, MR P.W. BATES and MR M. CAMPBELL, for the respondent Crawford in the first application.  (instructed by Teakle Ormsby & Associates)  (Mr Bates did not appear in Court)

MR P.L.G. BRERETON:   May it please the Court, I appear with my learned friend, MR M.K. MEEK, for the applicant in the second application.  (instructed by Stewart Cuddy & Mockler)

BRENNAN J:   Yes, Mr Hely.  The question in this matter might be, Mr Hely, are you in favour of special leave in one or both or neither?

MR HELY:   I am in favour of special leave in the first.  Our submissions are opposed to special leave in the second, upon the basis that what is involved is a question of principle - it is not a question of principle that the application of settled principle in the facts but I have to confront a difficulty.  The difficulty is that in the first appeal it would be open to Mr Parker, as of right, by notice of contention, to raise the issue which is sought to be raised by cross appeal.  In those circumstances Your Honours may consider that unless the cross appeal is obviously doomed to

failure there would be some injustice in permitting Mr Parker to argue that point but denying that opportunity to my learned friend.  I hope that puts our position with sufficient clarity and it is a sufficiently direct response to Your Honour’s question.

BRENNAN J:   It would rather seem to lead to a conclusion we should grant special leave in both matters. 

MR HELY:   Yes, it would.

BRENNAN J:   Perhaps if we hear what the other counsel have to say.

MR HELY:   If the Court pleases.

BRENNAN J:   Mr Parker.

MR PARKER:   Your Honours, we would wish to put before you the three tests why, in the first matter, special leave should be refused:  the first is that it is not a matter of public importance; the second is that it cannot be an appropriate vehicle; and thirdly that the issues of law are not attended by sufficient doubt to grant special leave.  There was a fourth special reason relating to the circumstances of the passage of this case that I will need to allude to. 

Let me deal then with the first point of it not being a matter of public importance.  We would say that Mr Crawford’s case, all the relevant facts occurred before the change of articles.  So that in this case, Crawford was Dr Bailey’s patient; the event occurred on and after Christmas Day 1973; it was accepted that Dr Bailey was then a member of the New South Wales Medical Defence Union and he advised the New South Wales Medical Defence Union of the claim.  Proceedings for the extension of time were instituted in 1980 and were defended, itself, by the New South Wales Medical Defence Union until 1985 after the change of articles and it was not until after Dr Bailey died, in 1985, that the Medical Defence Union decided not to continue to support him. 

BRENNAN J:   Mr Parker, where does one find the terms of the instrument which imposes the liability to pay upon the Defence Union?

MR PARKER:   At page 270 of the old articles.  We pick them up from the judgment of Mr Justice Enderby.  The reason is that the Act, the old articles and the new articles were within short compass. 

BRENNAN J:   Page 270, is it.

MR PARKER:   Of the book, is the old articles.  57 is the right - the right is given in the old articles under Article 57.  It says, in 57(2):

The Union shall indemnify each member or the personal representatives of a deceased member in respect of any legal liability for damages or costs arising from any claim or claims which may by made upon him or them arising out of any act or omission -

and what I have been saying to Your Honours is that all those facts arose before the change of articles when the New South Wales Medical Defence Union, then an admitted insurer, turned itself into a non-insurer.  What I am seeking to say to Your Honours is this, that in the cases that follow this case, and there are over a hundred of them waiting presently in the New South Wales Supreme Court, they involve facts which in many respects are different from these, in this respect, that the claims have been made after Dr Bailey’s death and after the Medical Defence Union turned itself into a non-insurance company. 

So we would say that by reason of those very facts themselves, this is a case which would not necessarily give guidance to all the other cases or nor is it by reason of its peculiar circumstances likely to be of public importance.  But this is a second point we place under what might be called public importance:  the insurance policy here of the New South Wales Medical Defence Union, under the old articles, before 1982, were very peculiar indeed.  I confirm the admission by the Medical Defence Union that before 1982 there was a policy of insurance in existence but it is a contract of a very special kind.

Mr Justice Mahoney refers to the peculiar nature of the indemnity granted.  He says it differs from a contract of ordinary form and it may be that that was why Mr Justice Mahoney, if you like, formulated the judgment in the way he did.  What we wish to say, under this second limb of no public importance, is the fact that on that subject this cannot give guidance to what might be called insurance companies who adopt a more common form. 

Secondly, I then turn to the question, the unique features of this case and they are summarised, if I may say so, best in the judgment of Mr Justice Sheller in the first judgment at page 83 and following.  There are four steps to them, Your Honours. 

Before 1977, Article 60, which is the discretionary provision subsequent to Article 57, only operated if the particular person had been expelled.  That is at the bottom of Mr Justice Sheller’s judgment at the bottom of page 83.  Afterwards, between that date and 1982, it stood in the condition, at the middle of page 83.  Then, if you go over to the position in 1982, you see at page 86 there is a reference to what happened after - the 1982 amendment is set out at the top of 86 and what they did, that is to say they did not support Dr Bailey on 3 October 1985, is set out at page 86.  At page 100 is the other resolution that was taken; on 16 August 1990 they passed a resolution under the old articles purporting to confirm what had been done.  This was the subject, if you like, of this part of the judgment.

But the important thing to say, Your Honours, is that all these events that occurred after 1982, that is to say their resolution not to support Dr Bailey and the decision made by the MDU on 16 August 1990, were made as a non-insurance company.  What would ordinarily happen in a case where one looked at section 6 is that the insurance company status of the insurer would remain throughout the transaction.  We have a situation here that after Dr Bailey had become a member of the insurance company and after it had been accepted and after the tort had occurred they turned themselves into a non-insurance company, continued to support him; after he died they then declined to continue assistance.

In that collocation of peculiar circumstances, we submit strongly that this is not an appropriate vehicle ‑ ‑ ‑

McHUGH J:   But why not?  The facts that you have been talking about, Mr Parker, have got nothing whatever to do with the question of principle that is involved in this case which concerns the construction of section 6.

MR PARKER:   That is right, Your Honour.

McHUGH J:   Does it operate so that an insurer may be liable even though the insurer would not be liable to the insured?  That is your argument. 

MR PARKER:   That is right.

McHUGH J:   That is a fundamental question of principle and it does not matter whether they turn themselves into a non-insurance company a year later or two years later or what; the question of principle remains.

MR PARKER:   I agree, but it is unlikely, as I have explained under this heading, a unique feature, it is unlikely to ever occur again. 

McHUGH J:   It may be on the particular facts but the principle ‑ ‑ ‑

MR PARKER:   That is what I am seeking to emphasise.

McHUGH J:   I know, but that does not affect the general principle.  If you accept Justice Kirby’s view of section 6, then insurers are liable notwithstanding that they are not liable to their insured.  If you accept Justice Mahoney’s view and the view that this Court expressed, rather strongly, in the special leave application of Mannix, then you get the opposite result.

MR PARKER:   But, Your Honour, in Mannix, was a question of disclaimer under the second ‑ ‑ ‑

McHUGH J:   I appreciate it is a question of disclaimer but these are, with respect, distinctions, really, without a difference, Mr Parker.

MR PARKER:   I am only seeking to emphasise that which I am sure will be agreed.

McHUGH J:   I appreciate that.

MR PARKER:   Because of the unique features of this case, it is not an appropriate vehicle.  Let me go now to the third proposition.

BRENNAN J:   Is your proposition this, that you have a contractual right de hors the statute to the benefit of the insured’s claim?

MR PARKER:   Mr Crawford has not, Your Honour, because he was Bailey’s patient but we say Dr Bailey had.

BRENNAN J:   So you have got to rely upon the statute?

MR PARKER:   No, we do it both ways, Your Honour.  We say that we have an action on the statute under section 6 and, in addition to that, we say we have the ‑ if it be put on the special articles then we have that derivative right which cannot be changed.  In other words, as Mr Hely rightly pointed out, we would seek to rely on that if required.

McHUGH J:   Exactly, but your case stands or falls on section 6 so far as Mr Hely’s special leave application is concerned?

MR PARKER:   Here, Your Honour, yes.

McHUGH J:   That is a question of fundamental principle.

MR PARKER:   Yes, but, Your Honour, this is the other aspect.  Mr Hely was very right to draw the Court’s attention to it.  The respondent here can succeed, not only under section 6 but under special contract.

McHUGH J:   Exactly, and that is why we suggested to Mr Hely at the start that special leave should be granted in both cases.

MR PARKER:   Your Honour, what we would wish to say under that special heading is because of the special unique circumstances which I have shortly tried to explain to the Court is that any statement that the Court will make on this matter of section 6 must necessarily be referred to those facts and, therefore, this cannot be an appropriate vehicle.

McHUGH J:   That cannot be right, Mr Parker, with respect.  It is a question what section 6 means.  You have got to construe it first before you start applying it to any facts.

MR PARKER:   That is true, Your Honour.

McHUGH J:   Depending on how you construe it will affect not only this case but numerous other cases.

MR PARKER:   That is right.  Your Honours, the third way that we would seek to put it is to say that this case is not attended with sufficient doubt to permit the application to be made ‑ ‑ ‑

McHUGH J:   ‑ ‑ ‑ more bold submissions that has been ‑ ‑ ‑

MR PARKER:   Your Honour, let me put it this way.

McHUGH J:   You have the Court of Appeal hopelessly divided among themselves and you say it is not attended with sufficient doubt.

MR PARKER:   Your Honour, the fact of the matter is that two differently constituted Courts of Appeal have come to a decision in favour of the plaintiff by different ways.  We would submit, in those circumstances, that that particular fact itself must give weight to the suggestion that we make that because the Court of Appeal has, on two occasions, differently constituted, on primarily the same facts, come to that view ‑ ‑ ‑

McHUGH J:   Had they come to that view?  In the first, I thought, Justice Priestley just simply said the special contract point was arguable.

MR PARKER:   He did say that, Your Honour, but it was fully argued before him and the facts were not changed in the final appeal.  We would submit, on that basis, Your Honours, that one view that the Court might take of this is the fact that, two Courts of Appeal having come by different routes to the same conclusion, in the circumstances it is a matter of discretion that it should not grant special leave.

McHUGH J:   Is your problem not this that you have  Justice Sheller found for you on one point but does not deal with the other point; Justice Kirby finds for you on one point but is against you on Justice Sheller’s point; Justice Mahoney is against you on all points and you have these other cases, Mannix, which arguably is quite inconsistent with what Justice Kirby decided.

MR PARKER:   Your Honour, I have explained.  I think, we can make the distinction there and I am bound to say this, that viewed as a matter of disclaimer, the High Court was right to dismiss the leave application made in McMillan v Mannix but construed as a disclaimer case it bears not at all on the case which you have before you.

Finally, Your Honours, I would put this submission to you, if I may, and that is this - I call it special discretionary ground.  Of the events which have occurred in this case, we would submit that the Court would be reluctant to grant special leave here when this litigation has been proceeding for more than 10 years, it involves a tort which occurred 21 years ago.  The plaintiff is caught up as, to use the Gill v Walton decision, in the tragic now notorious occurrences known as the Chelmsford Hospital case.  It would involve a situation where, through all that passage of litigation, the plaintiff has finally been successful.  There have been two judgments of Mr Justice Yeldham; one judgment to the Court of Appeal; leave to this Court by special leave refused; a long hearing before Mr Justice Enderby; and then three judgments of the Court of Appeal in New South Wales.  In those circumstances, that must be a very powerful reason discretionary why after that long period of time there should be an end to this litigation.  Those are our submissions.

BRENNAN J:   Mr Brereton.

MR BRERETON:   My it please the Court.  I do not seek to deter the Court from granting special leave in the application by the Medical Defence Union in the first application.  It is in connection with that that my submission is that as a matter of justice, as well as a matter of special leave, my client ought to be permitted to argue the special contracts point which will inevitably arise in the appeal consequent upon any grant of leave to the Defence Union in its application.

Two threads of reasoning underpin the judgment of the Court of Appeal in favour of Mr Crawford.  The first of those strands is that of Mr Justice Kirby which is founded wholly and solely upon section 6.  The other strand of reasoning is that of Mr Justice Sheller which is founded exclusively on the special contract point.

The judgment of the Court of Appeal might be upheld in this Court on either or both of those grounds.  If it is upheld on the grounds adopted by His Honour Mr Justice Sheller, then my client, the estate, is entitled to succeed on its cross claim against the Medical Defence Union. 

Although that is the practical approach, in addition to that, matters of principle arise in connection with the special contracts issue.  It is not, as my learned friend, Mr Hely, foreshadowed, merely a question of the application of settled principle to facts.  The issue which arises goes to the very distinction of a special contract from a deemed contract.  The real issue in the case, so far as the special contract is concerned, is what makes a special contract. 

Mr Justice Kirby thought that because Dr Bailey’s contract was not unique to him but was similar to or identical to that enjoyed by other doctors with the Defence Union, that it could not, therefore, be a special contract.  Mr Justice Mahoney thought that because the rights conferred on Dr Bailey were derived primarily from the articles, that it could not be a special contract.

BRENNAN J:   Is that not a question about the validity of the resolution to alter the articles in the case of Dr Bailey?

MR BRERETON:   The validity of the resolution to alter the articles was impugned before Mr Justice Enderby at first instance and further argued in the appeal.  It has not been raised in the special leave application but were an appeal to follow it may be raised in an appeal.

BRENNAN J:   By whom?

MR BRERETON:   Certainly by me. 

McHUGH J:   There are concurrent findings of fact about it, are there?

MR BRERETON:   In the Court of Appeal, there are concurrent findings that there was not sufficient - or that mala fides was not established.  Granted, there may be some difficulties on that issue.  If I can just return to the special contract issue itself, against that ‑ ‑ ‑

McHUGH J:   Just remind me about - did Justice Enderby hold that the power was properly exercised?  I forget.

MR BRERETON:   Justice Enderby made some fairly stringent observations about it.

McHUGH J:   Yes, I know he was very critical.

MR BRERETON:   But it is not clear that he held that it had not been properly exercised.  I would not advance the proposition that he had affirmatively held that there had not been a valid exercise of the powers.

McHUGH J:   He was very critical of the conduct of ‑ ‑ ‑

MR BRERETON:   His Honour dealt with it on the basis of the section 6 argument and the special contract argument and did not need to deal with the other issues.  On the special contract issue, Mr Justice Sheller took the view which we would urge on this Court and which was substantially identical to that adopted by Mr Justice Priestley in the earlier case.

Our submission is that the true distinction is not whether the contract is unique, as Mr Justice Kirby would have had it, nor whether it arises primarily from the articles as Mr Justice Mahoney put, but whether there is an actual contract between the shareholder and the company as distinct from the contract which is deemed by the relevant companies legislation.  That is made clear in a passage in Mr Justice Priestley’s judgment in Oswald v Bailey, by Mr Justice Isaac in this Court in Herron v Port Huon, and by the Chief Justice of New Zealand, Mr Justice Miles, in Eltham Co-operative, all of which have been referred to in the written outline.

Those cases make clear that the true distinction has nothing to do with whether every member of the company has a similar right as against the company but whether they have a true actual contract as distinct from something that is simply deemed by operation of the articles.  Neither of the judges who were in the majority on this issue in the Court of Appeal applied that test.

McHUGH J:   What about the point that, even assuming that there is a separate contract, nevertheless it incorporates the relevant terms of the article?

MR BRERETON:   There are two answers to that:  the first is we necessarily accept that Article 60 is part of any special contract.  As a matter of construction there is a debate over its proper construction and Mr Justice Sheller held that, properly construed, it did not have the effect of enlivening any discretion in this case.  Mr Justice Mahoney adopted a different construction of that article.  Mr Justice Kirby never dealt with the point.  So there are two conflicting views on the proper construction of Article 60.

If I were the only applicant in this Court, I might well be met with the answer, “Well, we’re dealing with the question of construction of articles of a company”, but on the facts of this case, it arises in the context when the construction of that article may well bear on 100 other pieces of litigation, apparently, on foot in New South Wales and where there are strongly arguable competing views as to its construction left unresolved by the Court of Appeal. 

BRENNAN J:   Mr Brereton, if you were to succeed, either on the special contract basis or by impugning the validity of the resolution to amend the articles, would section 6 arise?

MR BRERETON:   It would still arise on Mr Justice Kirby’s approach, yes, Your Honour.  Mr Justice Sheller’s reasoning ‑ ‑ ‑

BRENNAN J:   It would arise on his approach, if you wanted to take that approach but would it be necessary to take that approach or would you simply say, “Well, there’s an existing liability on which the charge operates”?

MR BRERETON:   If one adopted Mr Justice Sheller’s approach alone, then it would be unnecessary to consider the correctness of Mr Justice Kirby’s approach.  The other answer to Your Honour Justice McHugh’s question is that, both at first instance and in the Court of Appeal and despite statements by His Honour Mr Justice Mahoney to the contrary in His Honour’s judgment, it was argued, it was pleaded and argued that the resolution purporting to exercise the power under Article 60 to the kind of indemnity to the estate was purporting to exercise a discretion which had long since been waived.  Mr Justice Enderby did not have to deal with it.  Mr Justice Mahoney did not deal with it, taking the view that it had not been argued below but that, with respect, was an incorrect view, as I think is conceded on the part of the Defence Union. 

So that is the second answer, that by an elapse of some 10 years, since the occasion for its exercise arose, it had been waived and there are two authorities which support the view that such rights can be lost by waiver in the context of directors’ rights to decline to register shares.  The Australian authority is a judgment of Mr Justice McLelland in Bodalla v Dairy Farmers Co‑operative, and the English authority is Re Swadale Cleaners, both are judgments of the Court of Appeal.  Both of those support the view that discretionary rights of directors to decline to register shares in proprietary companies can be lost if not exercised within a reasonable time.  Our contention on that issue is that 10 years is more than a reasonable time to exercise any discretion which arose under Article 60 in this case.  Those are our submissions.

MR PARKER:   Your Honours, may I just assist the Court by making, I believe, a correction to something, a misconception that might have arisen, and that is the question of the impeaching of the resolution.  Crawford did not impeach the resolution changing the articles on

the ground of fraud, in 1982, but we did say that it was a fraud on the power, in 1990, to attempt to do so and it was that with which Mr Justice Enderby agreed below.  So in the exchange that flowed the Bench and Mr Brereton I did perceive there might have been some lack of clarity as to how that actually occurred below and I make that statement, I hope, to make it clear what occurred.

BRENNAN J:   Mr Hely, if the case against you should be resolved in favour of your opponents on a contractual basis, that is statutory contract or special contract ‑ ‑ ‑

MR HELY:   That, with respect, cannot happen.  Mr Parker is not a party to any contract.  He is the representative of the injured worker.  His rights, if he has any, come from section 6.  It may be, and probably would be, germane to the resolution of the section 6 questions to take into account whether there was or was not a special contract.  In point of access to the Medical Defence Union, Mr Parker’s route is through section 6 and through no other gateway. 

McHUGH J:   That may be so but could not the Court come to this conclusion and say, “Because of the special contract it doesn’t matter what the construction of section 6 is, Mr Parker wins”?

MR HELY:   The Court could come to that conclusion if, firstly, it differed from the majority of the Court of Appeal inviting that there was a special contract and, second, if it differed from the majority of the Court of Appeal as to the proper construction of section 6.

McHUGH J:   But the reason I raise this is because it throws up the question as to whether this case is a suitable vehicle because, depending on what view the judges took, the section 6 point, which is really the only special leave point in the case, might never be reached.

MR HELY:   One has this practical problem - one has a series of practical problems, I suppose.  The first is that under 35A of the Judiciary Act, one of the factors which this Court is required to take into account in considering special leave applications is the need for the High Court, as the ultimate court of review, to settle differences of opinion arising within a court.  It is perfectly clear, we would submit, that there are differences of opinion within the Court of Appeal as to the proper application and construction of section 6 in circumstances such as these. 

Could I give Your Honours a copy of an unreported decision of the Court of Appeal in the Defence Union v Anastassiou, which is another ‑ ‑ ‑

BRENNAN J:   I do not think you need to labour the point that there is a dispute in the Court of Appeal nor to remind us that it is a desirable thing if the High Court can settle the law to do so.  But that makes it more imperative than ever that we take aboard vehicles which necessarily, in the exercise of the ordinary appellate judicial function, will lead to the settlement.  In this case, is it conceivable that two members of the High Court might decide that there is a special contract; two might decide that there is an invalid attempt to amend the articles to exclude those who are already entitled to indemnity; and three only deal - and then dissimilarly - with respect to the construction of section 6?

MR HELY:   Only if two conditions were satisfied:  the first is that the Court ignored the evolution of this case because, as Mr Parker conceded, there was no attack before Mr Justice Enderby nor at any appellate court, concerning the validity of the amendment of the articles.  The issue was:  was there a special contract and not whether the amendment to the articles was in some way invalid?  But, Your Honours, one has this problem, that there are other cases involving this question and one says to oneself, “What is the duty of the trial judge when one of these cases next comes before him?”.  One has the decision of the court for which not only is there no majority but so far as Mr Justice Sheller is concerned he is in a minority.  So that, presumably, the next time the case comes up before a trial judge he has to decide consistently with the decision of the court which would mean he would find for the plaintiff but, presumably, he could not do so upon the basis of Mr Justice Sheller’s views because those views represent a minority of the court.

BRENNAN J:   Would the issues be more suitably confined if special leave were granted to Mr Brereton only?

MR HELY:   No, because that then would leave Mr Parker or perhaps myself out in the cold.  It is conceivable that this Court might endorse the decision of the Court of Appeal.  If that follows then Mr Justice Sheller disappears or that prong of the ultimate result, which is constituted by Mr Justice Sheller’s decision, disappears leaving as the only remaining prong the President with which Mr Justice Mahoney disagrees.

McHUGH J:   The other point is that Mr Brereton has really got no interest in these proceedings unless you succeed on the section 6 point, because at the moment the plaintiff ‑ ‑ ‑

MR HELY:   With respect, that is not quite right because the injured worker has a claim against Dr Bailey in tort.

McHUGH J:   Yes, but he has recovered judgment, against judgment.  Now he wants to enforce it against you.  If he can enforce it against you he does not enforce it against the estate, does he?

MR HELY:   As a practical matter, no.

McHUGH J:   That is what I mean.

MR HELY:   What Your Honour says, in terms of the practicality of the situation, is, with respect, correct.

McHUGH J:   How many other cases are there in the pipeline concerning Dr Bailey where the action is against the Medical Defence Union and liability has been repudiated?

MR HELY:   I think it is of the order of 130, Your Honour; approximately 134.

McHUGH J:   This section 6 point is ‑ ‑ ‑

MR HELY:   The section 6 point arises in all of them.

BRENNAN J:   I think we have heard all we need to hear from you, Mr Hely. 

MR HELY:   If the Court pleases.

BRENNAN J:   Have you anything further to say, Mr Parker, in response to anything that has been said?

MR PARKER:   No, I do not wish to speak on it.

BRENNAN J:   There will be a grant of special leave in both of these matters. 

AT 10.31 AM THE MATTER WAS ADJOURNED SINE DIE