QBE Insurance Limited and Suncorp Metway Insurance Limited v Judith Annette Aulich
[2003] ACTCA 16
•19 August 2003
QBE INSURANCE LIMITED and SUNCORP METWAY INSURANCE LIMITED v JUDITH ANNETTE AULICH & ORS
[2003] ACTCA 16 (19 August 2003)
INSURANCE – appeal against successful application to enforce charge on insurance moneys against insurer – Law Reform (Miscellaneous Provisions) Act 1955 (ACT) Pt 8 – when charge attaches – “the event giving rise to the claim” – liability to indemnify the insured – “claims made and notified” policies – “unlimited retroactive cover” by insurance policy.
Law Reform (Miscellaneous Provisions) Act 1955 (ACT), ss 25(1), 26(3)
Supreme Court Act 1933 (ACT), s 37E(4)
Andjelkovic v AFG Insurances Ltd (1980) 31 ACTR 17
AFG Insurances Ltd v Andjelkovic (1981) 54 FLR 398
Independent Wool Dumpers Pty Limited v American International Underwriters (NZ) Limited & Ors (1993) 7 ANZ Insurance Cases 61-152
Capita Financial Group Ltd v Triden Properties Ltd (Supreme Court of New South Wales, 6 September 1993, unreported)
National Mutual Property Services (Australia) Pty Ltd and Others v Citibank Savings Ltd and Others (1996) 138 ALR 409
FAI General Insurance Co Ltd v McSweeney and Others (1997) 73 FCR 379
Schipp v Cameron and Others [1999] NSWSC 997
Southern Cross Exploration NL v Fire and All Risks Insurance Co. Ltd (No. 2) (1990) 21 NSWLR 200
S & B Pty Ltd v Podobnik (1994) 53 FCR 380
Dousi v Colgate (1987) 9 NSWLR 374
Little v State of Victoria [1998] 4 VR 596
Johnson Tiles Pty Ltd v Esso Australia Ltd (No. 4) [2001] 113 FCR 42
Triden Properties Ltd v Capita Financial Group Ltd (NSWCA; 15 November 1995; unreported).
NPManettas v Underwriters at Lloyds (1993) 7 ANZ Ins Cas ¶ 61-180
ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
No. ACTCA 21 - 2002
No. SC 832 of 2000
Judges: Higgins CJ, Gray and Wilcox JJ
Court of Appeal of the Australian Capital Territory
Date: 19 August 2003
IN THE SUPREME COURT OF THE ) No. ACTCA 21 - 2002
) No. SC 832 of 2000
AUSTRALIAN CAPITAL TERRITORY )
)
COURT OF APPEAL )
ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:QBE INSURANCE LIMITED ACN 000 157 899
First Applicant
AND:SUNCORP METWAY INSURANCE LIMITED ACN 075 695 966
Second Applicant
AND:JUDITH ANNETTE AULICH & ORS
Respondents
ORDER
Judges: Higgins CJ, Gray and Wilcox JJ
Date: 19 August 2003
Place: Canberra
THE COURT ORDERS THAT:
The application for leave to appeal be dismissed with costs.
IN THE SUPREME COURT OF THE ) No. ACTCA 21 - 2002
) No. SC 832 of 2000
AUSTRALIAN CAPITAL TERRITORY )
)
COURT OF APPEAL )
ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:QBE INSURANCE LIMITED ACN 000 157 899
First Applicant
AND:SUNCORP METWAY INSURANCE LIMITED ACN 075 695 966
Second Applicant
AND:JUDITH ANNETTE AULICH & ORS
Respondents
Judges: Higgins CJ, Gray and Wilcox JJ
Date: 19 August 2003
Place: Canberra
REASONS FOR JUDGMENT
THE COURT:
This is an application for leave to appeal, so far as leave may be required, against a decision of Miles CJ given on 24 June 2002. The application is made by QBE Insurance Limited and Suncorp Metway Insurance Limited (“the insurers”).
The application before Miles CJ arose out of an application on behalf of 176 plaintiffs, the respondents to this application, for leave, under s 26(3) of the Law Reform (Miscellaneous Provisions) Act 1955 (“the Act”), to enforce against the insurers a policy of insurance held by a financial advisor, Taxinvest Australia Pty Ltd (Taxinvest) which allegedly gave negligent advice to the respondents.
Sections 25 and 26 of the Act permits direct recourse against an insurer in the circumstances therein set out:
25Amount of liability to be charge on insurance moneys payable against that liability
(1)If a person (in this part called the insured) has entered into a contract of insurance by which he or she is indemnified against liability to pay any damages or compensation, the amount of his or her liability is, on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of the liability may not then have been determined, a charge on all insurance moneys that are or may become payable in respect of that liability.
(2) If, on the happening of the event giving rise to the claim for damages or compensation, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is taken to have commenced not later than the happening of that event, the provisions of subsection (1) apply notwithstanding the winding-up.
(3) Every charge created by this section has priority over all other charges affecting the insurance moneys, and where the same insurance moneys are subject to 2 or more charges by virtue of this section those charges have priority between themselves in the order of the dates of the events out of which the liability arose, or, if the charges arise out of events happening on the same date, they rank equally between themselves.
26 Enforcement of charge
(1)Subject to subsection (2), a charge created by this part is enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured.
(2) In respect of any such action and of the judgment given in any such action the parties have, to the extent of the charge, the same rights and liabilities, and the court has the same powers, as if the action were against the insured.
(3) Except where section 25 (2) applies, no such action shall be commenced in any court except with the leave of that court, and leave shall not be granted where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim have been taken.
(4) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.
The nature of the requirement for leave is not controversial. As Miles CJ noted, it was described by Blackburn CJ in Andjelkovic v AFG Insurances Ltd (1980) 31 ACTR 17, at 24, as follows:
The main purpose of the provision requiring leave to commence the statutory action is to prevent the substitution of a statutory claim for a claim against the insured where the latter is available and will apparently be effective. Leave may also be refused where the applicant’s claim is unarguable, that is, where the applicant’s contention, that the statutory conditions for the vesting in him of a right of action have been fulfilled, could not possibly succeed. But if on such an issue there is an argument in the applicant’s favour which could be seriously put, then in my opinion, on the proper construction of the Ordinance, leave should be granted and the issue should be determined in the action in any available way.
That passage was quoted, with apparent approval, by the Full Court of the Federal Court on appeal from Blackburn CJ: see AFG Insurances Ltd v Andjelkovic (1981) 54 FLR 398 at 399-400.
In the present case, it is not disputed that the plaintiffs have an arguable case that Taxinvest advised them negligently to their subsequent financial detriment. Nor is it disputed that there is a real likelihood that Taxinvest would be unable to satisfy the claims made by the respondents. The critical issue is identification of the “event giving rise to the claim for damages”, within the meaning of s 25(1) of the Act. In particular, whether the word “event” refers to the allegedly negligent acts and omissions of Taxinvest, or to the suffering of damage as a result of those acts and omissions.
Before Miles CJ the insurers contended:
… that the happening of the event giving rise to the claim for damages by the plaintiffs under s 25(1) of the Act is the conduct of the insured which ultimately gives rise to the liability, and not the occurrence of the last event necessary for the cause of action of the third party against the insured to have accrued. On that basis the conduct in question in the present case being the alleged negligent advice which, according to the facts propounded, occurred before the policy issued and it is further submitted on behalf of the defendants in general terms that s 25(1) of the Act does not apply when the “event” occurred before the issue of a policy such as the one in question. Such a policy is apparently known in the insurance world as a “claims made and notified” policy.
His Honour considered that Independent Wool Dumpers Pty Limited v American International Underwriters (NZ) Limited & Ors (1993) 7 ANZ Insurance Cases 61-152 and Capita Financial Group Ltd v Triden Properties Ltd (Supreme Court of New South Wales, 6 September 1993, unreported) are authority for the proposition that “the event” to which s 25(1) of the Act applies is that event which gives rise to the claim for damages for which the insured is to be indemnified by the insurer. Thus “the event” happened only when the cause of action against the insured was allegedly complete; that is, when loss or damage was suffered as a result of the advice. On that basis, it was arguable that “the event” happened at a time when there was in place an insurance policy arguably entitling Taxinvest to indemnity by the insurers and, hence, subject to a statutory charge in favour of the respondents.
The next question was whether leave ought to be granted in this case.
Miles CJ considered that National Mutual Property Services (Australia) Pty Ltd and Others v Citibank Savings Ltd and Others (1996) 138 ALR 409; FAI General Insurance Co Ltd v McSweeney and Others (1997) 73 FCR 379 and Schipp v Cameron and Others [1999] NSWSC 997 were authority for the proposition that the Court had power to grant leave once plaintiffs demonstrated an arguable case that they were entitled to enforce that indemnity.
Counsel for the insurers invited Miles CJ to hold it was not in the interests of justice for leave to be granted upon the basis of the plaintiffs merely showing an arguable case for enforcement of the charge; the Court ought immediately to decide all issues concerning the operation of the charge and the plaintiffs’ entitlement to enforce it. In other words, as Miles CJ understood the submission, “leave should not be granted unless the Court would be satisfied on the ordinary civil onus that there is a charge which the plaintiffs are entitled to enforce”.
Miles CJ rejected counsel’s invitation, holding it was inconsistent with Andjelkovic.
THE APPEAL REQUIRES LEAVE
The insurers contend, though not forcefully, that leave to appeal is not required. However, recognising it is arguable that the order granting leave was interlocutory (s 37E(4) Supreme Court Act 1933 (ACT)), they also seek leave.
It is not true to say that all interlocutory orders fail finally to dispose of the proceeding. See, for example, Southern Cross Exploration NL v Fire and All Risks Insurance Co. Ltd (No. 2) (1990) 21 NSWLR 200 (self-executing order for dismissal of a suit); S & B Pty Ltd v Podobnik (1994) 53 FCR 380 (appeal from grant of extension of time to sue); Dousi v Colgate (1987) 9 NSWLR 374 (appeal from refusal of extension of time to sue). Nonetheless, all orders that do not finally dispose of the proceeding are interlocutory orders.
There is no doubt that an order granting leave to commence proceedings is interlocutory. Such an order does not dispose of the proceeding. It does not matter that, if leave were refused, the proceeding could not continue.
Leave to appeal should be given if there is doubt about the correctness of the order: see Little v State of Victoria [1998] 4 VR 596; Johnson Tiles Pty Ltd v Esso Australia Ltd (No. 4) [2001] 113 FCR 42.
WAS THERE DOUBT AS TO THE DECISION TO GRANT LEAVE?
The insurers contend “the event” giving rise to the claim is the conduct of Taxinvest in giving negligent advice; Miles CJ should not have accepted that the event was the completion, by the suffering of loss, of the plaintiffs’ causes of action against Taxinvest.
Counsel for the insurers acknowledge that the decision of Cole J in Capita Financial Group Ltd v Triden Properties Ltd (supra) is adverse to their contention. His Honour, construing a similar provision to s 25(1) of the Act, said at [80]:
… the interpretation contended for involves a misconception of the expression “is indemnified”. In using that expression the draftsman, in my view, did not intend to imply that all conditions or requirements necessary to enable one to say that a claim against the insured immediately upon the happening of the event giving rise to the claim for damages against the insured would succeed because it was covered by an activated policy of insurance at that instant in time. That which was being addressed was the existence of a policy which gave cover in respect of the liability which would attach to the insured on the happening of the event giving rise to his liability to a third party. There may be conditions to be fulfilled before the insured could successfully claim against the insurer. The legislature was directing its attention to the nature of the policy of insurance held by the insured, rather than to the question whether at the instant upon which the event giving rise to the insured's liability to a third party arose, the insured was simultaneously entitled to be indemnified by the insurer. The expression “by which he is indemnified against liability to pay any damages or compensation” is descriptive of the contract of insurance in that it describes a type of cover of indemnity which would respond to a happening of the type which in fact occurred and pursuant to which the insured would be liable to a third party. That is, in my view, made tolerably clear by the use of the words “that are or may become payable in respect of that liability”. Those words indicate that there may either be an existing liability under the insurance policy upon the insurer to give indemnity in respect of the event which occurred creating a liability in the insured to a third party, or there may be a liability which would arise in the future upon the insurer to pay moneys upon the happening of a subsequent event such as, for example, the making of a claim under a claims made policy.
The view which I have expressed is consistent with the intent of the legislature as expressed by the Attorney General in the second reading speech (Hansard 20 March 1946, in particular page 2809-10). It was there made clear that the purpose of s6(1) was to confer upon a third party with a claim against an insured a right of action against the insurer so as to defeat any collusive arrangement between the insurer and the insured whereby the insurer might pay moneys to the insured in circumstances where the insured might dissipate those funds so that, effectively, the third party had no real prospect of recovering moneys to which it otherwise was entitled . The Attorney General said: “This is remedied by CL6 which has the effect, where a person is insured, of making the amount of his liability to a plaintiff, on the happening of an event giving rise to a claim for damages or compensation, a charge on the moneys payable under the insurance policy.”
The critical notion is that the person was insured, not that under the terms of the insurance policy moneys were immediately payable at the time of the happening of the event giving rise to the claim for damages.
An appeal to the Court of Appeal was dismissed – see Triden Properties Ltd v Capita Financial Group Ltd (NSWCA; 15 November 1995; unreported). Sheller JA, in delivering reasons with which Clarke and Powell JJA concurred, rejected the contention that the expression “on the happening of the event giving rise to the claim for damages”, in s 6(1) of the New South Wales equivalent Act, was not a reference to “the occurrence which last occurs in order to complete the cause of action”; in that case, manifestation of latent defects in building work.
Sheller JA thought Cole J correctly stated the effect of s 6(1). Sheller JA said at [61]:
… the event s 6(1) refers to is the event which triggers the insured’s right to claim an indemnity from his or her insurer.
Sheller JA distinguished an earlier inconsistent decision of Cole J, NPManettas v Underwriters at Lloyds (1993) 7 ANZ Ins Cas ¶ 61-180.
There appears to be no authority supporting the argument that “the event” referred to in s 25(1) of the Act is the giving of the negligent advice, rather than the suffering of consequential loss.
In the present case, there may be a factual issue as to when the plaintiffs’ losses occurred. The losses may have occurred, as the insurers suggest, at the moment the plaintiffs’ funds were invested; in which case it would seem the insurance policy does not cover the claims. However, the plaintiffs suggest that the losses occurred upon the failure of the Wattle Group (the subject of the invested funds) and the bankruptcy of its principal. Those events occurred, it appears, on 28 March 1998, during the currency of the insurance policy. The circumstance that there is a factual issue concerning the date of the relevant “event” does not assist the applicants. The principle referred to in Andjelkovic v AFG Insurances Ltd (supra) remains applicable.
Taxinvest’s Professional Indemnity Insurance Policy indemnified it (per Cl 1.1):
… against legal liability for any Claim for compensation first made against the Insured during the Period of Cover and which is notified to THE INSURERS during the Period of Cover in respect of any civil liability whatsoever and howsoever incurred …
In contrast with the Independent Wool Dumpers case, the policy confers “Unlimited Retroactive Cover”. Clause 1.4(a) provides:
Unless a Retroactive Date is specified in the Schedule, this Policy shall provide cover in respect of acts, error or omissions committed (or alleged to have been committed) irrespective of when such acts, errors or omissions were committed (or were alleged to have been committed).
No “Retroactive Date” was specified in the Schedule.
The period of cover was “4.00 pm 20 March 1998 to 4.00 pm 31 March 1999”. The claims were notified on behalf of the respondents in June 1998. It follows that, assuming the insurers had no grounds to disclaim liability, as to which they would bear the onus of proof, a right to indemnity arose when the claims were notified.
In fact the applicants do claim to be entitled to disclaim liability, by reason of various alleged non-disclosures. Whether or not those grounds are valid will depend on the evidence to be adduced at trial.
In our view, Miles CJ was right to conclude that leave should be granted to enforce the charge which arguably arises pursuant to s 25(1) of the Act. The application for leave to appeal should be dismissed with costs.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.
Associate:
Date: 19 August 2003
Counsel for the Applicants: Mr G Gibson QC
Solicitor for the Applicants: Clayton Utz Solicitors
Counsel for the Respondent: Mr T Martin SC
Solicitor for the Respondent: Meyer Clapham Lawyers
Date of hearing: 20 February 2003
Date of judgment: 19 August 2003
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