Registrar-General of New South Wales v LawCover Insurance Pty Ltd

[2014] NSWCA 241

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Registrar-General of New South Wales v LawCover Insurance Pty Ltd [2014] NSWCA 241

Hearing dates:

24 June 2014

Decision date:

25 July 2014

Before:

Bathurst CJ at [1];
Basten JA at [2];
Meagher JA at [17]

Decision:

(1) Grant leave to appeal.

(2) Direct that the Notice of Appeal filed and served on 6 November 2013 stand as the notice of appeal and dispense with any requirement that the applicant/appellant file and serve a further notice of appeal.

(3) Appeal dismissed.

(4) Applicant/appellant pay the respondent's costs of the application for leave to appeal and of the appeal.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

REAL PROPERTY - Torrens Assurance Fund - Registrar-General sought leave to enforce charge said to arise under Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6, on insurance moneys payable by insurer of solicitor whose conduct contributed to loss which was the subject of claim on Fund - nature of Registrar-General's right of subrogation under Real Property Act 1900 (NSW), s 133(2) - Registrar-General entitled to advantage of every right of claimant on Fund against any person in relation to claimant's "compensable loss" - claimant had no right of action against insurer under s 6(4) because "happening of the event giving rise to claim for damages or compensation" pre-dated making of relevant contract of insurance - accordingly no right to enforce statutory charge to which Registrar-General could be subrogated

Legislation Cited:

Civil Liability Act 2002 (NSW), Part 4
Interpretation Act 1987 (NSW), ss 34, 35
Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6
Legal Practitioners Act 1898 (NSW), s 61
Legal Profession Act 1987 (NSW), s 90A
Legal Profession Act 2004 (NSW), s 448
Professional Standards Act 1994 (NSW)
Property, Stock and Business Agents Act 2002 (NSW), s 177
Real Property (Compensation) Amendment Act 1992 (NSW), s 3
Real Property Act 1900 (NSW), ss 128, 129, 129A, 132, 133, 133A
Real Property Amendment (Compensation) Act 2000 (NSW)
Real Property and Conveyancing Legislation Amendment Act 2009 (NSW)
Statute Law (Miscellaneous Provisions) Act 2002 (NSW)
Supreme Court Act 1970 (NSW), s 101
Travel Agents Act 1986 (NSW), s 40

Cases Cited:

Bailey v NSW Medical Defence Union Ltd [1995] HCA 28; 184 CLR 399
Castellain v Preston (1883) 11 QBD 380
Chubb Insurance Company of Australia Ltd v Moore [2013] NSWCA 212; 302 ALR 101
Energize Fitness Pty Ltd v Vero Insurance Ltd [2012] NSWCA 213
Esso Petroleum Ltd v Hall Russell & Co [1989] 1 AC 643
Gill v The Registrar-General (Supreme Court of New South Wales, Young J, 4 December 1991, unrep)
Law Society of New South Wales v Bruce (1996) 40 NSWLR 77
Pedulla v Panetta [2011] NSWSC 1386
Registrar-General (NSW) v Behn [1981] HCA 36; 148 CLR 562
Registrar-General v Gill [1994] NSWCA 261
Simpson & Co v Thomson (1877) 3 App Cas 279
Sydney Turf Club v Crowley [1971] 1 NSWLR 724
The Owners - Strata Plan 50530 v Walter Construction Group Ltd (in liq) [2007] NSWCA 124; 14 ANZ Ins Cas 61-734
Theresa Nadia Pedulla v Fernando Rene Panetta & Ors [2011] NSWSC 1386

Texts Cited:

Mitchell and Watterson, Subrogation Law and Practice (Oxford University Press 2007)

Category:

Principal judgment

Parties:

Registrar-General of New South Wales (Appellant)
LawCover Insurance Pty Ltd (Respondent)

Representation:

Counsel:
GA Sirtes SC, H Altan (Appellant)
SR Donaldson SC, PA Horvath (Respondent)
Solicitors:
Land & Property Information Legal Services (Appellant)
DLA Piper Australia (Respondent)

File Number(s):

2013/335136

 Decision under appeal 

Jurisdiction:

9111

Citation:

Registrar-General of New South Wales v LawCover [2013] NSWSC 1471

Date of Decision:

2013-10-09 00:00:00

Before:

Harrison J

File Number(s):

2012/384918

Judgment

1. BATHURST CJ: I agree with Meagher JA.

1. BASTEN JA: The Real Property Act 1900 (NSW) provides for transfer of title to land by registration of a transfer. On occasion, that system can cause a person to suffer loss or damage, for example where a person is deprived of land as a consequence of fraud. There is a statutory Fund created under the Real Property Act from which compensation is payable. A person with a claim for compensation may bring proceedings against the Registrar-General. That officer has a statutory right of subrogation to any rights and remedies the claimant may have against third parties with respect to the loss.

1. Ms Pedulla, a registered owner of land at North Curl Curl, lost her title through the fraud of her brother and his partner, later his wife ("the Panettas"). The fraudulent transfers were effected by a solicitor, Mr Lewis Yee. Before Ms Pedulla became aware of the fraud, the land was mortgaged and later sold.

1. On 1 July 2011, Ms Pedulla commenced proceedings against the fraudsters and the Registrar-General. On 12 August 2011 the Registrar-General joined Mr Yee, claiming damages pursuant to a right of subrogation in respect of the rights and remedies of Ms Pedulla against Mr Yee. On 2 September 2011 Ms Pedulla amended her claim to include a claim against Mr Yee.

1. From 1 July 2011, Mr Yee had a professional indemnity insurance policy with LawCover Insurance Pty Ltd. It was a "claims made" policy which would respond to a claim against Mr Yee made after it commenced, even though the events giving rise to the claim pre-dated 1 July 2011. However, the policy did not indemnify Mr Yee with respect to a claim arising from "any dishonest or fraudulent act or omission" by him.

1. Under the Real Property Act, Ms Pedulla was entitled to compensation from the Fund, having been deprived of her land as a consequence of fraud: s 129(1)(e). There was, however, an exception where the loss was a consequence of "any fraudulent, wilful or negligent act or omission by any solicitor" which was compensable under a professional indemnity policy: s 129(2)(b). Broadly speaking, if LawCover was liable, the Fund was not. (It was assumed that the exception applied even if there were others who were party to the fraud, a point noted further below.) In Ms Pedulla's proceedings, the Registrar-General set out to establish that Mr Yee had been negligent and that he was covered by indemnity insurance.

1. The Registrar-General failed in defending those proceedings, Pembroke J (the first trial judge) concluding that Mr Yee had been dishonest: Pedulla v Panetta [2011] NSWSC 1386 at [2]-[5] and [32](i). (Pembroke J said at [30] that "it is not in fact necessary for me to make a finding in this case that Mr Yee's conduct was dishonest", because he merely needed to find that the Registrar-General had not established that Mr Yee was not dishonest.) In the result, Mr Yee's indemnity insurance would not have responded to any claim against him, with the further result that the Fund did not escape liability for compensation under s 129(2): Pedulla v Panetta [2011] NSWSC 1386 at [34]. LawCover was not a party to those proceedings. The Registrar-General did not appeal from that judgment.

1. Undeterred by the failure to establish the liability of LawCover in Ms Pedulla's proceedings, on 28 March 2013 the Registrar-General sought leave to commence proceedings against LawCover on the basis that, as Mr Yee's insurer, it was responsible for any liability of Mr Yee to Ms Pedulla. Although the finding in the first proceeding that the policy did not respond did not preclude the Registrar-General making a claim against Mr Yee's insurer, it highlighted the implausibility of success. This was noted by Harrison J in the second proceedings (from which the present application for leave to appeal is brought), namely Registrar-General of New South Wales v LawCover [2013] NSWSC 1471. Harrison J noted at [56]:

"If the Registrar-General succeeds in establishing that such cover is available it will simultaneously establish that Ms Pedulla's loss was not a loss in relation to which compensation was payable: s 129(2). The original court proceedings were not therefore commenced in relation to Ms Pedulla's compensable loss, with the result that there can be no subrogation in accordance with s 133(2) [of the Real Property Act] and no charge capable of enforcement at the suit of the Registrar-General. In short, if the policy responds, the loss is not a compensable loss."

1. These proceedings, however, failed for an additional reason. In order to claim directly against Mr Yee's insurer, the Registrar-General required leave to bring proceedings pursuant to s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ("the 1946 Act"). It was no longer in dispute that Ms Pedulla had a claim against Mr Yee; indeed, she had a judgment against him in the first proceeding. However, that which was enforceable against LawCover was not Ms Pedulla's right to recover her loss from Mr Yee, or the Registrar-General's right by way of subrogation to her claim, nor was it Mr Yee's right to indemnity; rather, an action against the insurer under s 6(4), was to enforce the "charge" on insurance moneys created by s 6(1). (The section is set out below at [19].)

1. That charge arose "on the happening of the event giving rise to a claim for damages or compensation" for which the policy provided indemnity. It has been held that such a charge cannot arise before the policy granting indemnity comes into existence: The Owners - Strata Plan 50530 v Walter Construction Group Ltd (In liq) [2007] NSWCA 124; 14 ANZ Ins Cas 61,734 at [30] (Hodgson JA); Chubb Insurance Company of Australia Ltd v Moore [2013] NSWCA 212; 302 ALR 101 at [57] (Emmett JA and Ball J, Bathurst CJ, Beazley P and Macfarlan JA agreeing). That analysis was not challenged in the present case. It follows that s 6 is not engaged in relation to a claim to which a "claims made" policy responds, if the events giving rise to the claim occurred before the commencement of the policy.

1. Thus, the Registrar-General had to establish more than a right to which Mr Yee's policy responded. That policy related to claims made after 1 July 2011. The Registrar-General, pursuant to a statutory right of subrogation, had brought a claim against Mr Yee in the first proceedings by cross-claim filed on 12 August 2011. Ms Pedulla made a claim in her own right against Mr Yee in September 2011. However, the events giving rise to the claims occurred before the claims were made.

1. It is true that, under s 133 of the Real Property Act, subrogation does not occur until either the administrative procedures provided by the Act or court proceedings are commenced against the Registrar-General, but it remains the fact that the rights and remedies to which the Registrar-General is subrogated are those of the claimant in relation to that loss: s 133(2). The statutory subrogation extends to rights and remedies against the professional indemnity insurer, LawCover, but the Registrar-General is in no better position than the claimant against the Fund, Ms Pedulla. The liability of the Fund did not arise when a claim was made against it: it arose when Ms Pedulla suffered compensable loss within the meaning of s 129. Until a claim was made, the Registrar-General, on behalf of the Fund, may not have known the facts giving rise to its liability, and therefore the rights against Mr Yee, but that knowledge was not an event giving rise to the claim against Mr Yee. The relevant events occurred prior to the commencement of the policy and, in accordance with current authority, no charge arose under s 6(1) which was enforceable against LawCover under s 6(4). Accordingly, Harrison J was correct in dismissing the Registrar-General's summons seeking leave to proceed against LawCover under s 6(4).

1. Although the Registrar-General initially commenced proceedings by filing and serving a notice of appeal, he also filed a summons seeking leave to appeal. By the time of the hearing in this Court, the Registrar-General accepted that leave was required, the judgment of Harrison J being interlocutory: Supreme Court Act 1970 (NSW), s 101(2)(e). That position should be accepted and the notice of appeal, when filed, was incompetent.

1. For these reasons, and the reasons given by Meagher JA the orders proposed by Meagher JA should be made.

1. Before leaving the matter, two further points should be noted, which were not the subject of submissions. First, the nature of the claims against Mr Yee in the first proceedings were not fully analysed. Both Ms Pedulla and the Registrar-General obtained judgments against Mr Yee. (It is difficult to make sense of the separate orders recorded in JusticeLink on 2 December and 9 December 2011, but that may be put to one side.) As the Registrar-General purported to sue pursuant to a statutory subrogation to Ms Pedulla's rights, there should not have been two separate judgments against Mr Yee. The error presumably arose because the Registrar-General failed to bring the cross-claim against Mr Yee, as should have been done, in Ms Pedulla's name.

1. The second point relates to the assumption that the compensable loss for the purposes of s 129 was a single indivisible amount for which the Fund was wholly liable or not liable at all. The first judgment proceeded on a basis inconsistent with that assumption, namely that liability was to be apportioned between the Panettas and Mr Yee, pursuant to Pt 4 of the Civil Liability Act 2002 (NSW). Mr Yee's proportionate liability was assessed at 30%. In the event nothing turns on this point and it may well have been addressed in the statement of claim filed by the Registrar-General on 12 December 2012, which was not before this Court.

1. MEAGHER JA: Proceedings were brought against the Registrar-General under Division 4 of Part 14 of the Real Property Act 1900 (NSW) to recover compensation payable out of the Torrens Assurance Fund (Fund). The claimant in those proceedings, Ms Pedulla, suffered loss and damage as a result of the operation of that Act, by being deprived of her ownership of land as a consequence of fraud. She also made a claim in negligence against a solicitor, Mr Lewis Yee, in respect of that loss or damage. The respondent (LawCover) insured Mr Yee under a policy of professional indemnity insurance.

1. Section 133(2) of the Real Property Act provides:

"If administrative proceedings or court proceedings are commenced in relation to a claimant's compensable loss, the Registrar-General is subrogated to the claimant in respect of the claimant's rights and remedies against any person in relation to that loss."

1. The Registrar-General sought leave pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) to commence proceedings against LawCover, as Mr Yee's insurer, to recover compensation payable from the Fund to Ms Pedulla. Section 6 relevantly provides:

"6 (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.

...

(3) Every charge created by this section shall have priority over all other charges affecting the said insurance moneys, and where the same insurance moneys are subject to two or more charges by virtue of this Part those charges shall have priority between themselves in the order of the dates of the event out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves.

(4) Every such charge as aforesaid shall be 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; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:

Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case 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.

..."

1. The primary judge (Harrison J) dismissed the Registrar-General's application: Registrar-General of New South Wales v LawCover [2013] NSWSC 1471. His Honour did so on two bases. The first was that the "event giving rise to the claim for damages or compensation" within s 6(1) was the transfer of Ms Pedulla's property to an innocent third party which occurred in late April 2011, that is before the contract of insurance between LawCover and Mr Yee was made. If that was the relevant "event" within s 6(1), the Registrar-General accepted that no statutory charge could be created by s 6: see The Owners - Strata Plan 50530 v Walter Construction Group Ltd (in liq) [2007] NSWCA 124; 14 ANZ Ins Cas 61-734 (Hodgson JA, Giles and Tobias JJA agreeing); followed by this Court (Emmett JA and Ball J, Bathurst CJ, Beazley P and Macfarlan JA agreeing) in Chubb Insurance Company of Australia Ltd v Moore [2013] NSWCA 212; 302 ALR 101. The second basis was that the Registrar-General's case, which depended upon it being subrogated to a claim to which the LawCover policy responded, was not fairly arguable. That was because, if there was cover under the policy, the Registrar-General had no right of subrogation as there could be no "compensable loss" within ss 128(1) and 129 of the Real Property Act.

1. The Registrar-General seeks leave to appeal from that decision and its draft notice of appeal challenges each of the bases upon which the primary judge rejected its application. As to the first, it is argued (by ground 1) that the "event" giving rise to the Registrar-General's "claim for damages or compensation" against Mr Yee was the commencement by Ms Pedulla of proceedings against the Registrar-General in relation to her compensable loss. That enlivened the right of subrogation under s 133(2) and occurred on 1 July 2011, which was after the contract of insurance was made. As to the second, it is argued (by grounds 2 and 3) that, contrary to the holding of the primary judge at [54], there was no "inescapable inconsistency" between the Registrar-General establishing that the LawCover policy responded to Ms Pedulla's claim and the existence of its right of subrogation.

1. The questions as to the construction of the provisions of Part 14 of the Real Property Act and of s 6 raised by the proposed grounds of appeal are of general application and importance. For that reason the Registrar-General should be granted leave to appeal on the grounds contained in its Notice of Appeal filed without leave on 6 November 2013. Before addressing the questions which arise in the appeal, it is necessary to say something more about the circumstances leading to the Registrar-General's application for leave to proceed against LawCover.

Background

1. In 1986, on the death of her husband, Ms Pedulla became the sole registered proprietor of a property at North Curl Curl. In around 2004 she moved to Sicily and later to Italy where she lived until at least 2009. Between July 2006 and February 2007 Mr Yee, purporting at times to act as Ms Pedulla's solicitor, assisted Ms Pedulla's brother, Fernando Panetta, and his partner or wife, Anna Lam, to obtain the fraudulent transfer of title to the property to Mr Panetta. He later caused Ms Lam to become a joint owner of the property. In March 2011, Mr Panetta and Ms Lam sold the property for $3.8m. That sale was completed on 27 or 29 April 2011.

1. Mr Yee was insured by LawCover under a contract of insurance issued for the period from 1 July 2011 to 30 June 2012. By cl 4, that policy insured Mr Yee against "civil liability for a claim that: (a) arises from the provision of legal services by the law practice in Australia or elsewhere; and (b) is first made against the insured during the period of insurance". The policy defined "claim" to mean a "demand for, or an assertion of a right to, compensation or damages" and "legal services" as "work done, or business transacted, in the ordinary course of carrying on the business of a lawyer in private practice in Australia": see cl 41(a), (j). The policy did not contain any provision excluding claims in respect of legal services provided, or arising out of acts or omissions occurring, before 1 July 2011.

1. On 1 July 2011, Ms Pedulla commenced proceedings against Mr Panetta and Ms Lam and against the Registrar-General. She sought damages for fraud from Mr Panetta and Ms Lam and compensation from the Fund. The following provisions in Part 14 of the Real Property Act were relevant to that claim to recover compensation:

"128 (1) In this Part:

...

compensable loss means loss or damage of the kind referred to in s 129(1), other than loss or damage of the kind referred to in s 129(2).

...

compensation means compensation from the Torrens Assurance Fund to which a person is entitled under s 129

...

professional indemnity insurer means an insurer, scheme or fund (whether or not established by or under any Act or law) by or from which claims are payable, being claims made by persons sustaining loss or damage owing to any fraudulent, wilful or negligent act or omission by a person carrying on business in a particular profession, trade or calling.

...

129 (1) Any person who suffers loss or damage as a result of the operation of this Act in respect of any land, where the loss or damage arises from:

...

(e) the person having been deprived of the land, or of any estate or interest in the land, as a consequence of fraud, ...

is entitled to payment of compensation from the Torrens Assurance Fund.

(2) Compensation is not payable in relation to any loss or damage suffered by any person:

(a) to the extent to which the loss or damage is a consequence of any act or omission by that person, or

(b) to the extent to which the loss or damage:

(i) is a consequence of any fraudulent, wilful or negligent act or omission by any solicitor, licensed conveyancer, real estate agent or information broker, and

(ii) is compensable under an indemnity given by a professional indemnity insurer,

..."

1. Section 129A imposes limits on the amount of compensation recoverable from the Fund "in relation to loss or damage suffered by a person as a result of the person being deprived of land or any estate or interest in land". That limit is "the market value of the land at the date on which compensation is awarded to that person plus any legal, valuation or other professional costs reasonably incurred by the person in making the claim".

1. On 12 August 2011 the Registrar-General, by cross-claim, joined Mr Yee as a party to the proceedings. Section 133(4) of the Real Property Act provides:

"The Registrar-General may join any person in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate."

1. By that cross-claim the Registrar-General sought a declaration that Ms Pedulla's loss or damage was suffered in consequence of the fraudulent or negligent act or omission of Mr Yee and was compensable under an indemnity given by LawCover to Mr Yee. If such a declaration was made, Ms Pedulla was not entitled to compensation from the Fund because of the terms of s 129(2)(b) of the Real Property Act. In the alternative, the Registrar-General sought damages from Mr Yee, on the basis that it was subrogated to Ms Pedulla's cause of action against Mr Yee for negligence. The cross-claim did not make clear, as it should have, that judgment on that claim was sought in favour of Ms Pedulla.

1. In September 2011, Ms Pedulla amended her statement of claim to join Mr Yee as fourth defendant. The claim against him was for damages for negligence whilst purporting to act as her solicitor. LawCover was not sought to be joined as a party to the proceedings. However, it engaged solicitors and counsel to defend the claims made against Mr Yee by Ms Pedulla and by the Registrar-General.

1. The proceedings were heard by Pembroke J and judgment was given on 25 November 2011: Pedulla v Panetta [2011] NSWSC 1386. Mr Panetta and Ms Lam were ordered to account to Ms Pedulla for the moneys received by them on the sale of the property and to pay compensation, which was later agreed at $3.8m plus consequential losses, being a liability for stamp duty which Ms Pedulla would not otherwise have incurred and the cost of rental accommodation. As against the Registrar-General, Ms Pedulla was held to be entitled to compensation from the Fund in the amount of $3.8m plus legal, valuation and other professional costs as agreed or assessed: [2011] NSWSC 1386 at [44], [46], [68].

1. His Honour rejected the Registrar-General's argument that it was not liable to pay compensation to Ms Pedulla because Mr Yee was entitled to an indemnity under the LawCover policy. Clause 27 of that policy excluded any liability to indemnify if the claims against the insured arose "whether directly or indirectly, from any dishonest or fraudulent act or omission" of the insured. The Registrar-General did not establish that the dishonesty exclusion did not apply: [2011] NSWSC 1386 at [26], [30]; and did not appeal from the decision that Ms Pedulla was entitled to compensation from the Fund.

1. His Honour then addressed the claims made against Mr Yee. He held that Mr Yee was negligent and that his negligence was a necessary condition of the occurrence of Ms Pedulla's loss: [2011] NSWSC 1386 at [54]-[58]. He apportioned responsibility for that loss as between Mr Yee on the one hand and Mr Panetta and Ms Lam on the other on the basis that Ms Pedulla's claim was an apportionable claim and that they were concurrent wrongdoers within the meaning of Part 4 of the Civil Liability Act 2002 (NSW). Pembroke J concluded that Mr Yee's liability as a concurrent wrongdoer was limited to 30 per cent of the loss or damage suffered by Ms Pedulla. Those conclusions were also applied to the Registrar-General's claim made by way of subrogation.

1. His Honour directed the entry of separate judgments against Mr Yee, one in favour of Ms Pedulla equal to 30 per cent of her claim, which was only for the consequential losses, and the other in favour of the Registrar-General for 30 per cent of the amount of the compensable loss recoverable from the Fund, as limited by s 129A. The total amount of those judgments was then said to be subject to the limitation on liability imposed by the Professional Standards Act 1994 (NSW): [2011] NSWSC 1386 at [46], [68]. In directing the entry of separate judgments, his Honour must be taken to have proceeded on the basis that by s 133(2) and (4) the Registrar-General acquired an independent cause of action against Mr Yee which it could enforce in its own name. For the reasons which appear below, these provisions do not have that effect or consequence. There was only one cause of action in negligence against Mr Yee and that was the action of Ms Pedulla. The fact that the Registrar-General was subrogated to that right of action did not enable it to bring an independent action against Mr Yee or obtain judgment against him in its own name. Judgment should have been entered in Ms Pedulla's favour for the full amount of her loss, including any "compensable loss", recoverable by way of damages from Mr Yee.

Was there a charge under s 6(1) which the Registrar-General was entitled to enforce?

The statutory "charge" created by s 6

1. The nature of the statutory "charge" created by s 6 is discussed at some length in the joint judgment of McHugh and Gummow JJ (with whom Brennan CJ, Deane and Dawson JJ agreed) in Bailey v NSW Medical Defence Union Ltd [1995] HCA 28; 184 CLR 399 at 445-450. In The Owners - Strata Plan 50530, at [24], Hodgson JA summarised the propositions supported by that discussion as follows:

"(1) Although s 6 uses the term 'charge', what it creates is a statutory right which does not fall neatly into existing legal or equitable categories.

(2) The charge arises (or descends) on the happening of the 'event' referred to in s 6(1) (and it is clear, and common ground, that this event is whatever completes the relevant cause of action).

(3) The relevant contract of insurance is that as it stood when the charge descended, unaffected by subsequent mutual or unilateral action otherwise than pursuant to that contract or the general law as it operates on that contract.

(4) The phrase in s 6(1) 'insurance moneys that ... may become payable' is apt to deal with the situation where, whilst the charge has descended, there is as yet no sum which could be identified as payable by the insurer to the insured."

1. In The Owners - Strata Plan 50530, this Court held that a charge under s 6 does not arise where the relevant contract of insurance is not in existence at the time of the happening of the "event giving rise to the claim for damages or compensation". In the language of s 6(1), that contract is the one under which the proposed defendant is insured against its liability to pay damages or compensation to the party seeking to enforce the charge. That decision was followed in Chubb v Moore. Although the Court expressed doubts as to whether the conclusion on that issue was the preferable view, it was not satisfied that it was plainly wrong.

1. In The Owners - Strata Plan 50530, Hodgson JA also observed, at [30], that the relevant "event" was "whatever completes the cause of action against the insured". The same construction was adopted by Emmett JA and Ball J in Chubb v Moore at [57]:

"The reference in s 6(1) to 'the happening of the event giving rise to the claim for damages or compensation' should be construed as a reference to the moment when the liability arises, rather than to a later time when the claim based on that liability is made. That is to say, it should be construed as referring to 'the happening of the event giving rise to the liability to pay damages or compensation'. The charge comes into existence on the happening of the event that gives rise to the liability to pay damages or compensation, not when the claim for damages or compensation that that liability may prompt is made. The claim for damages or compensation will ordinarily be made some time after the liability arises."

1. There may be a difference between the event on the happening of which a cause of action arises and the event which gives rise to that liability, particularly in relation to a claimed tortious liability. The decisions referred to above hold that the event referred to in s 6(1) is of the former kind. That is so notwithstanding the language of subsection 6(3) which, when addressing the question of priority as between competing charges and claims for damages or compensation, does so by reference to the "dates of the events out of which the liability arose". The difference between these two kinds of event is not relevant in this case because the Registrar-General concedes that the event giving rise to Mr Yee's liability in negligence to Ms Pedulla, and the event which completed the relevant cause of action, occurred before 1 July 2011 when the contract of insurance was taken to have been made.

The primary judge's reasoning as to the relevant "event"

1. The primary judge (Harrison J) held that s 133(2) did not create an independent entitlement on the part of the Registrar-General to recover losses from a wrongdoer that are sustained by having to pay compensation from the Fund. He continued: [2013] NSWSC 1471 at [32]:

"The Real Property Act does not alter the general law principles that the rights and remedies acquired by or granted to the Registrar-General pursuant to s 133 are Ms Pedulla's rights to which the Registrar-General is subrogated. They are not the Registrar-General's rights. It is accordingly inaccurate and misleading to refer to the Registrar-General's "right" to sue Mr Yee or the Registrar-General's 'cause of action' against him accruing at any particular time."

1. His Honour then addressed when it was that the "event" giving rise to Ms Pedulla's claim for damages or compensation against Mr Yee occurred and concluded that event occurred no later than April or May 2011 when the property was transferred to an innocent third party for value: [36], [40].

The nature of the Registrar-General's right of subrogation

1. The expressions "cannot be subrogated" and "is subrogated" are used in ss 133(1) and (2) in relation to subsisting rights. In subsection (1) the right is the claimant's right to seek compensation from the Fund. In subsection (2) the rights are those of the party claiming compensation as against any other person in relation to the loss or damage which is the subject of that claim. This context makes plain that "subrogated" is used in each subsection in its well understood legal sense and describes the process "by which one party is deemed to have been substituted for another, so that he can acquire and enforce the other's rights against a third party for his own benefit. It is often said that a subrogated claimant 'stands in the shoes' of the party whose rights he is deemed to have acquired": Mitchell and Watterson, Subrogation Law and Practice (Oxford University Press 2007) at [1.01].

1. Section133(1) prevents an insurer from being "subrogated" to its insured claimant's rights against the Fund. The nature of the subrogation there referred to was described by Mason JA (as the later Chief Justice then was) in Sydney Turf Club v Crowley [1971] 1 NSWLR 724 at 734:

"Where an insurer is subrogated to the rights of the insured against a third party, the insurer does not acquire an independent cause of action in his own right. He succeeds to the insured's cause of action against the third party, in this case a right of action on the policy issued by the Jockey Club. That right of action remains in all respects unaltered; it is brought in the name of the insured and it is subject to all the defences which would be available if the action had been brought by the insured for his own benefit."

1. A fairly comprehensive statement to the same effect is that of Lord Goff of Chieveley in Esso Petroleum Ltd v Hall Russell & Co [1989] 1 AC 643 at 663:

"In normal cases, as for example under contracts of insurance, the insurer will on payment request the assured to sign a letter of subrogation, authorising the insurer to proceed in the name of the assured against any wrongdoer who has caused the relevant damage to the assured. If the assured refuses to give any such authority, in theory the insurer can bring proceedings to compel him to do so. But nowadays the insurer can short-circuit this cumbrous process by bringing an action against both the assured and the third party in which (1) he claims an order that the assured shall authorise him to proceed against the third party in the name of the assured and (2) he seeks to proceed (so authorised) against the third party. But it must not be thought that, because this convenient method of proceeding now exists, the insurer can without more proceed in his own name against the third party. He has no right to do so, so long as the right of action he is seeking to enforce is the right of action of the assured. Only if that right of action is assigned to him by the assured can he proceed directly against the third party in his own name."

1. The right of action to which the indemnifier is subrogated must be asserted in the name of the person indemnified. It follows that if that person is also the person who caused the damage, there is no right which may be asserted by way of subrogation: Simpson & Co v Thomson (1877) 3 App Cas 279 at 284. It is not uncommon for statutory schemes, which establish funds from which applicants can be paid compensation for loss, to confer rights of subrogation on the fund or its administrator. See, for example, s 448 of the Legal Profession Act 2004 (NSW); s 177 of the Property, Stock and Business Agents Act 2002 (NSW); and s 40 of the Travel Agents Act 1986 (NSW). Examples of similar English statutory provisions are given in Subrogation Law and Practice at [10.197]-[10.206].

1. Some of these statutes (for example s 448(4) of the Legal Profession Act and s 177(4) of the Property, Stock and Business Agents Act) contain express provisions enabling a party to exercise the rights to which it is subrogated "in its own name or in the name of the claimant". In the absence of such a provision the party having the benefit of the right of subrogation cannot exercise or enforce the relevant rights in its own name in an action to which the claimant has not also been made a party.

1. Section 133(4) (see [27] above) is not a provision enabling the subrogated party to bring an action against the third party in its own name, without also joining the claimant on the Fund as a party. That subsection is concerned only with the circumstance that existing court proceedings have been brought against the Registrar-General in accordance with s 132. If the Registrar-General forms the "opinion" that the claimant has an action against any other person in respect of the compensable loss which is the subject of those proceedings, it may "join" that person as a party to them. That provision enables the Registrar-General to exercise the right of subrogation in that way before there has been a judgment awarding compensation or a payment made from the Fund. It does not at that or any other time enable the Registrar-General to enforce the right of action in its own name in separate proceedings and without the claimant also being joined as a party in the manner described by Lord Goff in Esso Petroleum.

1. Reference to the history of these provisions confirms that they bear the ordinary meaning conveyed by the text. The right of subrogation of the Registrar-General was first conferred by s 128 of the Real Property Act: see s 3 of the Real Property (Compensation) Amendment Act 1992 (NSW). At that time, ss 126 and 127 created statutory rights of action in persons who had been deprived of land in consequence of fraud, error, omission or misdescription or through any omission, mistake or misfeasance of the Registrar-General: Registrar-General (NSW) v Behn [1981] HCA 36; 148 CLR 562. Those rights of action lay against an individual whose activities led to a deprivation of land or against the Registrar-General. The damages recoverable against the Registrar-General were to be paid from the Fund: s 129. Section 128(1) provided that a "professional indemnity insurer" could not be subrogated to the rights or remedies of a person having a claim against the Fund or the Registrar-General.

1. That section was enacted following the decision in Gill v The Registrar-General (Supreme Court of New South Wales, Young J, 4 December 1991, unrep) which held that the Fidelity Fund of the Law Society of New South Wales was subrogated by s 61 of the Legal Practitioner's Act 1898 (NSW) to Mrs Gill's claim against the Registrar-General for compensation under s 127 of the Real Property Act. A professional indemnity insurer as defined by s 128(4) included an insurer as well as a "scheme or fund (whether or not established by or under any Act or law) by or from which claims are payable". Section 128(2) provided that on the payment of damages in accordance with a judgment in an action brought under s 126 or s 127, the Registrar-General was subrogated to the rights and remedies of the plaintiff against persons including "any professional indemnity insurer". There was at that time no provision conferring any right of subrogation on the Registrar-General before payment from the Fund or which enabled it to join other parties to the proceedings for compensation brought against it.

1. The Real Property Amendment (Compensation) Act 2000 (NSW) by s 3, Schedule 1, Item [12], introduced the current forms of Parts 13 and 14 of the Real Property Act. Section 133, as first enacted, adopted much of the language of the earlier s 128 and provided:

"(1) A professional indemnity insurer cannot be subrogated to any other person in respect of that other person's right to claim compensation from the Torrens Assurance Fund in relation to compensable loss.

(2) If administrative proceedings or court proceedings are commenced in relation to a claimant's compensable loss, the Registrar-General is subrogated to the claimant in respect of the claimant's rights and remedies in relation to that loss:

(a) against any person against whom the claimant has a cause of action in respect of that loss and

(b) against any relevant professional indemnity insurer.

...

(4) The Registrar-General may join any person as co-defendant in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate."

1. The definition of "professional indemnity insurer" remained the same. The principal amendment made was to bring forward the time at which the Registrar-General was subrogated, so as to enable that right to be exercised in the court proceedings brought for compensation. The language of subsection 133(4) made clear that the right conferred by that provision was not a right to exercise and enforce, in the Registrar-General's name, the rights and remedies to which it was subrogated.

1. Subsection 133(4) was amended by s 3, Schedule 1, Item 24[5] of the Statute Law (Miscellaneous Provisions) Act 2002 (NSW) by omitting the words "as co-defendant". The Explanatory note to that amendment said:

"Joining of parties

Court proceedings for compensation in respect of a compensable loss under Part 14 of the Act are taken against the Registrar-General as nominal defendant. The Registrar-General is subrogated to the claimant in respect of the claimant's rights against any person against whom the claimant has a cause of action in respect of the loss. Section 133(4) of the Act provides that the Registrar-General 'may join any person as co-defendant in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate'. However, it may be more appropriate for the Registrar-General (standing in the shoes of the claimant) to file a cross-claim against the party to be joined. To permit this, Item [5] of the proposed amendments removes the words 'as defendant' from s 133(4)."

1. When interpreting s 133(4), reference may be made to that note to confirm that its meaning is the ordinary meaning conveyed by the text: see ss 34, 35 of the Interpretation Act 1987 (NSW). The description of the Registrar-General as "standing in the shoes of the claimant" confirms that in joining a third party to proceedings the Registrar-General is not exercising some independent right of action or proceeding in its own name against the third party. The notion of standing in the shoes of the claimant conveys, adopting the language of Brett LJ in Castellain v Preston (1883) 11 QBD 380 at 388, that the Registrar-General "is entitled to the advantage of every right of the [claimant], whether such right consists in contract, fulfilled or unfulfilled, or in remedy for tort capable of being insisted on or already insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable" against any person in relation to the claimant's compensable loss.

1. Subsequently, by the Real Property and Conveyancing Legislation Amendment Act 2009 (NSW), s 129A was introduced: see Schedule 1, Item [16]. Other amendments were also made at that time. Section 133(1) was amended by deleting the words "professional indemnity" so that it applied to all insurers: Schedule 1, Item [24]; and s 133(2) was amended, as was explained in the Second Reading Speech by the Parliamentary Secretary, Mr Collier (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 25 March 2009 at 13772), to make clear:

"... that the Registrar-General may also claim against any person against whom the compensated person would have a claim in relation to the loss and not just persons who caused or contributed to the fraud. This includes, for example, claims in negligence, claims pursuant to any contractual indemnity and claims on insurance. The Bill will amend the Act to allow the Registrar-General to recover any payment of compensation from a claimant who has received a further payment on account of the compensable loss from another source. This provision ensures that a person who has suffered loss does not double-dip and receives only what he or she is entitled to."

1. The provision allowing the Registrar-General to recover compensation paid to a claimant is s 133A. It was introduced by Schedule 1, Item [28]. That section provides:

"133A (1) If a claimant:

(a) receives a payment from the Torrens Assurance Fund in respect of the claim, and

(b) receives or recovers from another source or sources a payment on account of the compensable loss, and

(c) there is a surplus after deducting the amount of the compensable loss from the total amount received or recovered by the claimant from both or all sources,

the amount of the surplus is a debt payable by the claimant to the Torrens Assurance Fund.

(2) However, the amount payable by the claimant cannot exceed the amount the claimant received from the Torrens Assurance Fund in respect of the claim."

1. As Giles CJ CommD (as his Honour then was) observed in Law Society of New South Wales v Bruce (1996) 40 NSWLR 77 at 85, in relation to equivalent provisions in the Legal Profession Act 1987, it is desirable that provisions such as these be construed to achieve the same end as the equitable principles relating to subrogation, so as to avoid the unconscionable result of double recovery (or double-dipping to use the expression adopted in the Second Reading Speech) by the person who has claimed on the Fund.

1. The Registrar-General submits that the right it acquired by subrogation under s 133(2) is "a statutory right of action entitling [it] to pursue a party for negligence so as to recover the 'compensable loss' paid to a claimant". It contends that its cause of action against Mr Yee pursuant to that subsection "is not Mrs Pedulla's cause of action against Mr Yee, but rather the Registrar-General's own cause of action for Mrs Pedulla's compensable loss".

1. These submissions must be rejected. The rights and remedies which the Registrar-General is entitled to enforce by subrogation include Ms Pedulla's cause of action against Mr Yee which is subject to all of the defences available to him. The loss or damage which may be recovered by the enforcement of that right is the loss or damage suffered by Ms Pedulla. The right of subrogation is "in relation to" the claimant's "compensable loss" (s 133(2)). It passes to the Registrar-General the benefit of the exercise of the claimant's rights against third parties that are available to diminish that loss and the right to have them exercised for that purpose. If their exercise results in the claimant receiving or recovering amounts on account of the compensable loss (including in that calculation the amount received from the Fund) which exceed the amount of that loss, the Registrar-General is entitled, as against the claimant, to retain or recover (under s 133A) the excess up to the amount received from the Fund.

1. Except in circumstances where the Registrar-General enforces those rights in the compensation proceedings brought by the claimant, it must do so in separate proceedings brought in the claimant's name or in which the claimant has been joined as a party. The two propositions upon which the Registrar-General's arguments proceed - that it acquired an independent cause of action against Mr Yee in its own right and that its subrogated action is to recover the amount for which it is liable to Ms Pedulla - find no support in the language of the statute and do not accord with what is meant by being "subrogated" to another person's rights and remedies.

1. In Registrar-General v Gill [1994] NSWCA 261, this Court considered the meaning of the subrogation provisions in s 61 of the Legal Practitioners Act (the later equivalent provisions being s 90A of the Legal Profession Act 1987 and s 448 of the Legal Profession Act 2004). That section provided that the Law Society "shall be subrogated, to the extent of the payment, to all the rights and remedies of the claimant against the solicitor" and that the Society should be "at liberty to exercise those rights and remedies in its own name or in the name of the claimant". One question that arose on appeal was whether the claimant's receipt of the payment from the Fidelity Fund meant that she had not suffered any damage which might be recoverable against the solicitor. In relation to the operation of s 61, the Court (Gleeson CJ and Priestley JA, Mahoney JA agreeing) observed at p 5:

"... the section provides that, when monies are paid out of the fund in settlement of the client's claim, the Law Society shall be subrogated to all such rights and remedies. The statute does not treat the payment as destroying the rights and remedies, or discharging the obligation of the person against whom they might have existed. On the contrary, s 61(2) spells out the consequences of the subrogation which is effected by s 61(1). The Law Society is then able to exercise those rights and remedies in its own name, or the name of the claimant, and monies recovered in the exercise of those rights and remedies are to be used to replenish the Fidelity Fund. What is effected is, in substance, a statutory assignment to the Law Society of the rights and remedies which the client had at the time of payment out of the fund."

This passage makes clear that the subject matter of the right of subrogation is the rights and remedies of the claimant against the third party and not some independent or "hybrid" right as contended for by the Registrar-General in this case.

The Registrar-General's right to enforce by subrogation a statutory charge arising under s 6(1)

1. The rights to which the Registrar-General was subrogated on the commencement of the claim against it for compensation were, by s 133(2), Ms Pedulla's rights and remedies "against any person" in relation to her compensable loss. Those rights and remedies would include any right she had to enforce a statutory charge arising under s 6(1) of the Law Reform (Miscellaneous Provisions) Act in respect of any insurance moneys payable in relation to Mr Yee's liability to pay damages for "compensable loss". That right, like any other to which the Registrar-General was subrogated, would have to be enforced in the proceedings in which the claim for compensable loss was made or in other proceedings commenced in Ms Pedulla's name or in which she was joined as a party.

1. Whether Ms Pedulla had a right to enforce a statutory charge in respect of her claim for damages or compensation against Mr Yee depended upon s 6(1) being satisfied in relation to Mr Yee's claimed liability to pay any damages or compensation to her. That claim was one for damages or compensation as a result of a negligent breach of duty. The "event" within s 6(1) giving rise to that claim occurred before 1 July 2011. It follows that there was no statutory charge in favour of Ms Pedulla which might have been enforced by proceedings against LawCover brought by the Registrar-General by way of subrogation.

1. The primary judge was correct to refuse leave to the Registrar-General to commence an action directly against LawCover. His Honour also would have been justified in refusing the Registrar-General leave to bring that action because it was not properly constituted. Ms Pedulla should have been joined as a party or the proceedings brought in her name. Had that occurred there could have been no sensible debate as to whether the "event" in s 6(1) had occurred before the contract of insurance was made.

Whether the Registrar-General had an arguable case against Mr Yee and LawCover

1. The decision of this Court in Energize Fitness Pty Ltd v Vero Insurance Ltd [2012] NSWCA 213 at [48], [49], [52]-[56] (Campbell JA, Allsop P and Meagher JA agreeing) confirms that on an application for leave to bring proceedings under s 6(4) it is for the applicant to demonstrate an arguable case as against the insured and an arguable case that the policy responds. These questions can only arise on an application for leave if it is also fairly arguable that there is a statutory charge under s 6(1) which can be enforced under s 6(4). It is not sufficient that there be an arguable case that the policy responds if, as is the position in this case, the policy was not in existence at the time of the happening of the event giving rise to the claim for damages within s 6(1).

1. Here Ms Pedulla had established that Mr Yee was liable in negligence and had an arguable case that the policy responded. But because the contract of insurance was made after that liability arose, Ms Pedulla had no right to bring an action under s 6(4) because there was no "charge as aforesaid". It followed that the Registrar-General, which was subrogated to her rights in relation to the loss for which Mr Yee was liable, could not bring such an action by way of subrogation.

1. In response to an argument made on behalf of LawCover, the primary judge nevertheless considered whether the Registrar-General had an arguable case against LawCover. He did so on the basis that the Registrar-General asserted an independent right of action against Mr Yee which entitled it to recover the amount of the "compensable loss". The primary judge concluded that the Registrar-General did not have a fairly arguable case against LawCover on that basis. The statutory right of action claimed by the Registrar-General only arose under s 133(2) if LawCover was not liable to indemnify Mr Yee in respect of Ms Pedulla's claim: see s 129(2)(b). If LawCover was liable, Ms Pedulla's loss or damage was not "compensable loss": see s 128(1), definition "compensable loss". Accordingly, the only circumstance in which the Registrar-General could succeed against LawCover was one in which there was no right of subrogation: [2013] NSWSC 1471 at [54]-[57].

1. It is not necessary or useful to consider any further this alternative argument of LawCover. Its premise, that the Registrar-General has an independent statutory right of action entitling it to recover loss or damage direct from Mr Yee, is untenable.

Conclusion

1. The orders I propose are:

(1)   Grant leave to appeal.

(2)   Direct that the Notice of Appeal filed and served on 6 November 2013 stand as the notice of appeal and dispense with any requirement that the applicant/appellant file and serve a further notice of appeal.

(3)   Appeal dismissed.

(4)   Applicant/appellant pay the respondent's costs of the application for leave to appeal and of the appeal.

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Amendments

20 November 2014 - Energise should read Energize

Amended paragraphs: 62

Decision last updated: 20 November 2014