RDDT a Vivopharm Company Pty Ltd v CGU Insurance Limited
[2018] VCC 791
•7 June 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-18-01527
| RDDT a Vivopharm Company Pty Ltd | Applicant |
| v | |
| CGU Insurance Limited | Respondent |
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JUDGE: | Lewitan | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 May 2018 | |
DATE OF JUDGMENT: | 7 June 2018 | |
CASE MAY BE CITED AS: | RDDT a Vivopharm Company Pty Ltd v CGU Insurance Limited | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 791 | |
REASONS FOR RULING
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Subject: Rule 32.05 or 32.06 application for discovery from prospective defendant
Cases Cited: CGU Insurance Limited v Blakely [2016] 259 CLR 339
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | J J Rudd | Wotton & Kearney |
| For the Respondent | J F Richardson | Meridian Lawyers |
HER HONOUR:
1 The applicant, RDDT a Vivopharm Company Pty Ltd (RDDT), agreed to conduct a vaccine toxicology study for Vaxxas Pty Ltd (Vaxxas) in 2015. For the purpose of carrying out the study, RDDT sourced rabbits from Stephen and Jocelyn Hurrell (the Hurrells). By reason of the rabbits’ poor health, the study could not be completed. Vaxxas issued proceedings against RDDT in mid 2017 (the 2017 proceeding) claiming loss and damage associated with the failure to carry out the study. On 29 August 2017 RDDT filed a Third Party Notice against the Hurrells (the third party proceeding). RDDT settled the primary claim but maintains the third party claim in the 2017 proceeding in contract and tort against the Hurrells for loss and damage associated with the supply of the rabbits.
2 The first attempt of service on the Hurrells was unsuccessful as the proceedings were returned undelivered. The second attempt at service was successful.
3 On 25 October 2017 the applicant’s solicitors received an email from CGU Insurance Limited (CGU) indicating that CGU was the liability insurer of Stephen Hurrell.[1] The email stated that “we are currently making enquiries regarding the circumstances which give rise to this claim and we will advise our position upon completion of those enquiries.” The email was marked “without prejudice” but no privilege has been claimed as to the contents of that email.
[1] Exhibit RMS-3 to affidavit made by Robin Maurice Shute on 11 April 2018 (Shute’s first affidavit).
4 A Notice of Appearance was filed by Meridian Lawyers as solicitors for the Hurrells on 8 November 2017. For approximately five months, CGU took carriage of the 2017 proceeding on behalf of the Hurrells, in its capacity as their liability insurer.
5 On 30 January 2018 the solicitor for RDDT, Robin Maurice Shute, forwarded a letter to Meridian Lawyers threatening to enter judgment if a defence was not served.[2]
[2] Shute’s first affidavit, para 19.
6 On 2 February 2018 Meridian Lawyers forwarded an email to Mr Shute indicating that CGU had declined indemnity to the Hurrells.
7 On 2 February 2018 Mr Shute wrote to Meridian Lawyers seeking a copy of the Policy, the Schedule and all relevant correspondence to enable RDDT’s solicitors to investigate the basis on which the insurer declines liability under the policy.[3]
[3] Shute’s first affidavit, para 21.
8 On 19 February 2018 Meridian Lawyers indicated the documents would not be produced.[4]
[4] Shute’s first affidavit, para 23.
9 On 20 February 2018 Mr Shute received a letter from Meridian Lawyers dated 16 February 2018 enclosing a Notice of Solicitor Ceasing to Act.[5] The Notice stated that the last known address and the address for service of the third parties is Piper Farms, 351 Glen Logan Road, Cowra New South Wales. Meridian Lawyers did not obtain leave to file the Notice of Solicitor Ceasing to Act. Rule 20.03(3)(a) of the County Court Civil Procedure Rules 2008 (the Rules) provides that except by leave of the court a solicitor shall not file a notice that the solicitor has ceased to act where the address of the party in the notice is outside Victoria.
[5] Shute’ first affidavit, para 22.
10 From November 2017 to February 2018, Meridian Lawyers were on the record taking carriage of the claim as solicitors for CGU. This is after Meridian Lawyers had acknowledged that CGU were the liability insurers of the third parties. Counsel for RDDT submits that the necessary inference is that the policy of insurance prima facie responded to this claim.
11 On 13 March 2018 Mr Shute wrote to Stephen Hurrell asking for a copy of the Policy and documents in relation to the denial of liability by CGU .[6] The letter was returned as undelivered.
[6] Shute’s first affidavit, exhibit RMS-6.
12 Since Meridian Lawyers ceased to act, the Hurrells have not appointed replacement solicitors and have not actively defended the third party proceeding.
The application
13 By originating motion and summons filed 11 April 2018, RDDT seeks the following documents from CGU by way of preliminary discovery:
(a) the policy of insurance and policy schedule issued by CGU to the Hurrells pertaining to the claim made by the Hurrells in respect of the 2017 proceeding;
(b) communications from CGU to the Hurrells declining indemnity under the policy with respect to the claim; and
(c) the investigation carried out by CGU leading to the decision to decline the claim.
14 Rule 32.05 of the Rules is headed “Discovery from prospective defendant” and provides:
Where-
(a)there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;
(b) after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and
(c) there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had in that person’s possession any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision-
the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).
15 Rule 32.06 of the Rules is headed “Party an applicant” and provides:
Rule 32.05, with any necessary modification, shall apply where –
(a) the applicant is a party to a proceeding; and
(b)there is reasonable cause to believe that the applicant has or may have the right to obtain against a person who is not a party relief which the applicant could properly have claimed in the proceeding had the person been a party.
16 Rule 32.08 of the Rules provides that an originating motion or a summons relating to an application under r32.05 or r32.06 respectively shall be supported by an affidavit stating the facts on which the application is made and specifying or describing the documents or any class of documents in respect of which the order is sought.
17 While this application has been brought under r32.05, I have heard submissions from the parties that have led me to form the view that it would have been more appropriate to have the summons filed in the extant proceeding under r32.06. In this case the third party proceeding against the Hurrells has already been commenced. The procedure under r32.06 allows a party in an extant proceeding to apply for discovery against a person who is not a party. Where allowed, discovery under r32.06 assists an applicant in determining whether the person should be added as a party to the extant proceeding. The parties were in agreement that the summons ought to have been brought in the extant proceeding, rather than by way of originating motion.
18 Under r1.14 the Court must endeavour to ensure that all questions in a proceeding are effectively, completely, promptly and economically determined. This reflects the Court’s case management principles, which recognise that, while the Court is primarily concerned with the resolution of the controversy between the parties, reaching a just resolution necessarily involves a consideration of the resources of the Court and undue delay and uncertainty that may be imposed on other litigants where proceedings are not conducted in a timely and cost-effective manner.
19 Subject to the submissions of counsel, I propose to order that the applicant has leave to issue and file the summons dated 11 April 2018 in the third party proceedings. I propose to order that the originating motion dated 11 April 2018 between the applicant and the respondent be discontinued with no order as to costs.
Relevant legal principles
20 The principles relevant to the application of the corresponding rule of the Supreme Court were summarised in Orora Ltd v Asahi Holdings (Australia)
Pty Ltd.[7] They include:
[7] [2015] VSC 749, [31].
“(a)The rule should be construed benevolently, because it is intended to assist an applicant who does not have sufficient, precise information to commence a proceeding, and to prevent the bringing of speculative suits.[8] This is also consistent with modern case management principles in the Civil Procedure Act 2010.[9] (emphasis mine)
[8]Beston Parks Management Pty Ltd v Sexton [2008] VSC 392, [52] (Beston Parks).
[9]Grocon Constructors (Vic) Pty Ltd v Biosciences Research Centre Pty Ltd [2014] VSC 204, [58].
(b)The rule ‘must be given the fullest scope its language will reasonably allow.’[10]
[10]Beston Parks [2008] VSC 392, [52].
(c)The applicant need not identify a cause of action precisely. It is sufficient to identify facts which may reasonably give rise to a right to obtain relief.[11]
[11] Ibid, [53].
(d)A ‘flimsy foundation’ or ‘mere hunch’ is insufficient to constitute a reasonable cause of action.[12]
[12] Ibid.
(e)‘An applicant does not have to prove that there will be, only that there may be, a real benefit from making the order.’[13]
[13] Ibid. See also Optiver Australia v Tibra Trading Pty Ltd [2008] FCAFC 133, [47]-[48].
(f)‘The benefit may be the drawing of an appropriate pleading with proper particulars and the avoidance of substantial amendment after discovery, or, alternatively, the possible avoidance of unnecessary and fruitless litigation.’[14]
(g)The benefit may be ‘to determine the extent of the respondent’s breach and the likely quantum of any damages award.’[15]
(h)The ‘reasonable cause to believe’ requirement is primarily concerned with whether, as an objective fact, an applicant has sufficient information to decide whether to commence proceedings. So, an application cannot succeed if the applicant has sufficient information (assessed objectively), but where the inability to determine whether to commence proceedings arises, for example, due to an overly indecisive or cautious nature.[16]
(i)If the applicant has decided to commence proceedings, it will be fatal to the application.[17]
(j)‘The existence and content of legal advice has no bearing on the question of whether the test in r32.05 has been made out.’[18]
(k)The rule is a discretionary one.[19]”
(a)Does RDDT have reasonable cause to believe that it has or may have the right to obtain relief in the Court from CGU?
[14] Ibid.
[15]St George Bank v Rabo Australia Ltd (2004) 211 ALR 147, 154.
[16]Beston Parks [2008] VSC 392, [54].
[17] Ibid [56].
[18] Ibid [64].
[19]United Energy Limited v Energy Risk Management Pty Ltd [1998] VSC 133 [25].
21 The “reasonable cause to believe” requirement is primarily concerned with whether, as an objective fact, an applicant has sufficient information to decide whether to commence proceedings. [20]
[20]Beston Parks [55].
22 In Australian Gift and Homewares Association Limited v Melbourne Convention and Exhibition Trust (Ruling No.1)[21] Derham AsJ stated that the following principles are relevant to the first question.
[21] [2014] VSC 481.
“(a) The plaintiff is not required to show that it has a prima facie case that it has a right to relief; [22]
[22]Plzen Pty Ltd v P & O Wharf Management Pty Ltd [2007] VSC 38, [17(e)].
(b) It is not necessary to show precisely what cause of action the plaintiff may have; such a requirement would defeat the object of the rule;[23]
[23]Beston Parks [2008] VSC 392, [53].
(c) Rather, it need only be shown that the facts are such that it may reasonably be believed that the plaintiff may have a right to obtain relief;[24] and
(d) The test for determining whether the plaintiff has ‘reasonable cause to believe’ is an objective test.[25]”
[24] Ibid.
[25]Plzen Pty Ltd v P & O Wharf Management Pty Ltd [2007] VSC 318, [17(c)].
23 In its written submissions, CGU submitted that the applicant must put on evidence of its subjective belief that it has a right to relief. Counsel for CGU, Mr Richardson, did not pursue that submission.
24 In Schmidt v Won[26] Ormiston JA stated that “the rule … should be construed benevolently because its intention was both to assist claimants without sufficient, precise information to launch an action and to prevent the bringing of speculative suits.” Ormiston JA said although it may be possible to reject the application itself as in effect an abuse of process, “Neither the appellant’s present application nor her proposed action can yet be so characterised.”[27]
[26] [1998] 3 VR 435, 445.
[27] Ibid.
25 The applicant relied on CGU Insurance Limited v Blakeley (CGU v Blakeley).[28] In that case the liquidators of a company commenced proceedings in the Supreme Court of Victoria against three former directors of company A and another company (Crewe Sharp), which was alleged to have been a director of company A. The liquidators sought to join the insurer and obtain a declaration that the insurers were liable to indemnify Crewe Sharp and one of the former directors, Mr Crewe, in respect of any judgment obtained by the liquidators. The insurers demurred on the basis that there being no claim made against the insurer by Crewe Sharp or Mr Crewe, there was no justiciable controversy between the insurer and the liquidator.
[28] (2016) 259 CLR 339.
26 The High Court held that the liquidators were entitled to declaratory relief against CGU. The liquidators’ claim was based upon the legal consequence created by s562 of the Corporations Act 2001 (Corporations Act) and, more contingently, s117 of the Bankruptcy Act 1986 (Bankruptcy Act) bringing into existence in favour of the liquidators a right to the proceeds of the insurance policy payable to Crewe Sharp and Mr Crewe in respect of their liability to company A. The High Court held that the interest upon which the liquidators’ claim for declaratory relief was based and the insurer’s denial of liability under the insurance policy were sufficient to constitute a justiciable controversy between the liquidators and the insurer.
27 The respondent does not dispute the Court’s ability to make the relevant declarations.
28 Mr Richardson submitted that before the applicant can establish that it has a right to obtain declaratory relief against the respondent, the applicant must establish that the Hurrells would not be able to meet a judgment debt such that s117 of the Bankruptcy Act would apply. The respondent submitted that this evidence is a predicate to the applicant’s claim for relief against CGU. In CGU v Blakeley the evidence was that Mr Crewe’s net assets were about $1 million. Although Mr Crewe was not a bankrupt, the undisputed evidence was that his limited assets would be insufficient to cover the liquidator’s claim of $14.5 million. The High Court in CGU v Blakeley was concerned with a joinder application and not an application for preliminary discovery.
29 The respondent submitted that the evidence does not demonstrate that the Hurrells would not be able to meet a judgment debt. Mr Richardson submitted that the possible bankruptcy of the Hurrells in this case was hypothetical and therefore the applicant has not established that it has the right to obtain a declaration against CGU based on the operation of s117 of the Bankruptcy Act.
30 The respondent submitted that in these circumstances there is no reasonable cause to believe that the applicant has or may have the right to obtain relief by way of a declaration against CGU.
31 I do not accept the respondent’s submission that there is not a reasonable cause to believe that the applicant has the right to obtain a declaration against CGU because the applicant’s right is contingent and hypothetical in the circumstances of this case. The object of joining the insurer is to ensure that questions of liability are determined concurrently. In this case the insurer notified the applicant that it was the liability insurer in October 2017. Its solicitors Meridian Lawyers came on the record and proceeded to deal with the claim for some 5 or 6 months before coming off the record. Those facts enable the Court to conclude that there is reasonable cause to believe that the applicant may have a right to obtain relief of the kind articulated in CGU v Blakely. On an application for preliminary discovery, the applicant does not need to demonstrate an actual cause of action. It is enough for the Court to infer that there is a right to relief.
32 The applicant submitted that the impecuniosity of the Hurrells is not determinative of this application as a matter of substance and law. The applicant submitted that Mr Crewe in CGU v Blakeley was in the same position as the Hurrells. Mr Crewe’s interest was contingent in CGU v Blakeley. As in CGU v Blakeley, a trustee in bankruptcy only has jurisdiction once the person is bankrupt. Although he has no interest until that occurs, the High Court said that the liquidators in that case had a real interest for the purpose of declaratory relief.
33 As stated by the plurality in CGU v Blakeley:[29]
The interest upon which the claim for declaratory relief is based and CGU’s denial of liability under the policy are sufficient to constitute a justiciable controversy between the Akron liquidators and CGU involving a question arising under a law of the Commonwealth. Because of these statutory provisions, it is the Akron liquidators who stand to benefit (to the exclusion of Crewe Sharp and Mr Crewe) from the making of the declaration sought. It would be distinctly to ignore this reality if the liquidators’ interest in this regard could be defeated by reason of inaction on the part of Crewe Sharp and Mr Crewe against CGU given that the statutory provisions themselves deprive Crewe Sharp and Mr Crewe of all incentive to pursue a claim under the policy.
[29] (2016) 259 CLR 339, [67].
34 In any event there is evidence which would lead to a reasonable inference that the Hurrells would not be able to meet a judgment made against them in the third party proceeding. The Hurrells are facing a claim for $160,000 plus interest and costs. The Hurrells have not actively defended the third party proceedings and are not taking an active role in the proceedings. The Hurrells have never acknowledged or otherwise dealt with the third party proceedings other than when their insurer’s solicitors took carriage of the proceedings for 5 or 6 months. The Hurrells have not appointed new solicitors. The applicant submits that it is open for the Court to infer that the Hurrells do not have a great deal of assets to satisfy a judgment.
35 In United Energy Limited v Risk Management Pty Ltd Gillard J made the following observations: [30]
[30] [1998] VSC 133, [28] – [32].
The mischief which the rule seeks to address is the avoidance of a situation where a prospective plaintiff does not have all the relevant documentation to enable him and his advisers to make a decision whether he has a good cause of action or not, but nevertheless issues a proceeding and subsequently gains access to relevant documents in the possession of the opposing party, only to find he does not have a cause of action.
Often in the past a proceeding was instituted in the expectation that the plaintiff had a good cause of action postponing a final decision as to the merits until all the discovery and inspection steps were completed.
If it turned out upon a proper consideration of all relevant documents that the plaintiff did not have a cause of action, it causes, inter alia, much anguish, soul searching and results in wasted legal costs and time. It does nothing for the administration of justice that the party has to go down that path to determine whether he has a good cause of action.
The object of the rule is to avoid that undesirable situation occurring and to enable a prospective plaintiff to see the relevant documents which the prospective defendant has or has had in his possession in order to make an informed decision as to whether he has a good cause of action.
It is clear from the wording of the rule that the applicant does not have to show that he does have a good cause of action before he can obtain his order, and indeed to require him to do so would defeat the very object of the rule.
36 I am satisfied that there is reasonable cause to believe that the applicant may have the right to obtain relief against CGU.
(b) Has RDDT made all reasonable enquiries?
37 The respondent submitted that it is the applicant’s obligation to exhaust the searches for the predicate for the applicant’s claim. The respondent submits that other than demanding the documents from the respondent, the applicant has not identified any inquiry beyond one letter to the Hurrells, which was apparently returned, thus not fulfilling the reasonable inquiries prerequisite.
38 Mr Richardson referred to an affidavit made by Andrew Ray, a senior associate with the solicitors for the respondent, Meridian Lawyers. In that affidavit Mr Ray said that a property search of the Hurrells showed that the Hurrells were the registered proprietors of land at Cowra. The property search indicates that the property was mortgaged to the National Australia Bank Limited. Mr Richardson submitted that the applicant could have issued a subpoena to the mortgagor to determine whether there was equity in this property. Mr Richardson referred to CGU Insurance Ltd v Malaysia International Shipping Corporation Berhad (CGU v Malaysia).[31] However the facts in CGU v Malaysia were different from the facts in this case. In that case the proceeding for preliminary discovery was initiated only a matter of days after instructions were received by the solicitor for CGU.
[31] [2001] FCA 1223.
39 Counsel for the applicant, Mr Rudd, submitted that the construction for which the respondent contends is unduly narrow and is not supported by the text of the rule and the authorities which say that the rule is to be construed benevolently. The rule provides that the applicant must make all reasonable enquiries. It is not a question of “exhaustive enquiries”. To construe the rule in that way would be unduly narrow.
40 In this case the applicant had sought the relevant documents from CGU and the Hurrells. On 13 March 2018 Mr Shute wrote to Stephen Hurrell asking for a copy of the Policy and documents in relation to the denial of indemnity. The letter was addressed to Pipers Farms, 351 Glen Logan Road, Cowra NSW 2794 which was the address for service set out in the Notice of Solicitor Ceasing to Act filed by Meridian Lawyers. The Hurrells have not appointed a new firm of solicitors. The applicant has also asked for the information from CGU which they refused.
41 CGU’s refusal to indemnify the Hurrells is not an issue in the 2017 proceeding so it would not be discoverable by the Hurrells.
42 Further the information sought from the respondent is likely to be of a broader class than anything that the third parties could have produced. The necessary information sought is the Policy, the correspondence passing between CGU and the Hurrells declining indemnity under the Policy with respect to the claim, and the investigation carried out by CGU leading to the decision to decline the claim. The Hurrells may have a copy of the Policy and the correspondence with CGU. They will not have documents relating to the third category of documents.
(c)Does RDDT have reasonable cause to believe that CGU has or is likely to have had in its possession any document relating to the question whether RDDT has the right to obtain the relief and that inspection of the document by RDDT would assist RDDT to make the decision.
43 The documents are critical to an assessment of whether or not the applicant has the right to obtain relief against CGU. Mr Richardson conceded that CGU has the Policy, the relevant correspondence and the documents that might inform the issue about the basis of the decision to decline the claim.
Discretion
44 The respondent submitted that the Court should not exercise its discretion to make an order for preliminary discovery because if the Hurrells do not appear at the trial of the third party proceedings and judgment is entered against them, the Hurrells could apply to set aside the judgment pursuant to r46.08 of the Rules. Mr Richardson submitted that if the judgment were set aside, this could give rise to inconsistent verdicts.
45 This submission presupposes that an application to set aside the judgment would be successful. A material matter in an application to set aside a judgment is the explanation by the Hurrells for not appearing. Given the failure by the Hurrells to participate in the third party proceedings, I do not accept the respondent’s submission that the Court should refuse to order preliminary discovery because the Hurrells may some time in the future apply to set the judgment aside if the Hurrells fail to attend the hearing of the third party proceeding and a judgment is entered against them.
46 In this case the applicant’s right to obtain declaratory relief against CGU would avoid a multiplicity of proceedings. In CGU v Blakeley Nettle J commented upon the Court’s discretion to join CGU as a third party to the proceedings commenced by the liquidators. He stated:[32]
The joinder is designed to overcome the kinds of manoeuvres which are sometimes employed by parties in CGU’s position – to delay and deter the final adjudication of liability – by ensuring that all issues are dealt with at once in the one proceeding in a manner that binds all parties to the proceeding. As the Court of Appeal said, it would disaccord with contemporary imperatives of cost-effective and efficient judicial management of commercial litigation for the Supreme Court not to do as much as it can to ensure that issues which are common to parties are determined once and for all in the one proceeding. That is the purpose of Pt 4.2 of the Civil Procedure Act 2010 (Vic).
[32] (2016) 259 CLR 339, [115].
Conclusion
47 For these reasons I order preliminary discovery of the documents sought by the plaintiff as set out in the above paragraph 13. I will hear from the parties as to the precise form of the orders and costs.
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