Sciacca v Langshaw Valuations Pty Ltd

[2013] NSWSC 1285

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Sciacca v Langshaw Valuations Pty Ltd [2013] NSWSC 1285

Hearing dates:

5 September 2013

Decision date:

10 September 2013

Jurisdiction:

Common Law

Before:

Adamson J

Decision:

(1) Dismiss the third defendant's amended notice of motion filed on 12 July 2013.

(2) Unless any party makes a written application for costs within seven days, order the third defendant to pay the plaintiff's costs of the motion.

Catchwords:

INSURANCE- construction of s 601AG Corporations Act 2001 (Cth)

Legislation Cited:

- Acts Interpretation Act 1901 (Cth), s 15AA
- Company Law Review Bill 1997 (Cth)
- Corporations Act 1989 (Cth), s 574
- Corporations Act 2001 (Cth), s 601AD(1), s 601AD(1A), s 601AD(2) s 601AG, s 601AG(a), s 601AG(b), s 601AH(2)(b), s 601AH(3), 601AH(5)
- Law Reform (Miscellaneous Provisions) Act 1946, s 6(4)
- Workers' Compensation Act 1990 (Qld), s 186
- Workers' Compensation Act 1987, s 151D

Cases Cited:

- Almario v Allianz Australia Workers Compensation (NSW) Insurance Ltd [2005] NSWCA 19; 62 NSWLR 148
- CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; 187 CLR 384
- Krstevska v ACN 010 505 012 Pty Ltd [2001] NSWSC 1093
- La Trobe Capital & Mortgage Corporation Ltd v REA Australasia Pty Ltd [2007] NSWSC 652
- Leerdam & Anor v Noori & Ors [2009] NSWCA 90
- Mercer v Allianz Australia Insurance Ltd [2013] TASSC 11; 273 FLR 459
- Murdock v Lipman [2012] NSWSC 983
- Network Ten Pty Ltd v TCN Channel Nine Pty Ltd [2004] HCA 14; 218 CLR 273
- Newcastle City Council v GIO General Ltd [1997] HCA 53; 191 CLR 85
- Pagnon v Workcover Queensland [2000] QCA 421; 2 Qd R 492
- Stone v ACN 000 337 940 Pty Ltd [2008] NSWSC 1058
- The Owners- Strata Plan No. 50530 v Walter Construction Group Limited (in liquidation) [2007] NSWCA 124
- Tzaidas v Child [2009] NSWSC 465; 74 NSWLR 208

Category:

Interlocutory applications

Parties:

Frank Sciacca (First Plaintiff)
Maura Spresian (Second Plaintiff)
Rosie Iannelli (Third Plaintiff)
Vero Insurance Ltd (Third Defendant)

Representation:

Counsel:
HWM Stitt (First-Third Plaintiffs)
DA Lloyd (Third Defendant)
Solicitors:
WKA Legal (First-Third Plaintiffs)
Kennedys Lawyers (Third Defendant)

File Number(s):

2011/90522

Publication restriction:

Nil

Judgment

Introduction

1. By amended notice of motion filed on 12 July 2013, the third defendant, Vero Insurance Limited (Vero), seeks summary dismissal of the plaintiffs' claim against it.

1. The registered proprietors of a property at Wahroonga granted a second mortgage to the plaintiffs to secure a loan of $490,000 advanced by the plaintiffs. Upon sale of the property, the plaintiffs suffered a loss, in respect of which they claim damages from each of the 14 defendants to these proceedings.

1. Integrity Mortgage Professionals Pty Limited (IMP), the third defendant's insured, acted as the finance broker on the transaction pursuant to which the loan was made and the second mortgage granted. The basis of the plaintiffs' claim against Vero by reason of the alleged acts and omissions of IMP is set out below.

1. IMP took out professional indemnity insurance cover with Vero. It held a claims-made policy that was operative between 31 May 2007 and 31 May 2008 (the Policy). IMP was deregistered on 18 April 2009. The first written claim to Vero, which was made by the plaintiffs, was made on 21 April 2011.

1. The plaintiffs claim against Vero is based on s 601AG of the Corporations Act 2001 (Cth) (the Act) which provided:

Claims against insurers of deregistered company

A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if:

(a) the company had a liability to the person; and

(b) the insurance contract covered that liability immediately before deregistration.

1. By reason of IMP's deregistration, the plaintiffs cannot make a claim against, or sue, IMP since it no longer exists: s 601AD(1). If the plaintiffs were to apply successfully for IMP's reinstatement, IMP would be taken to have continued in existence as if it had not been deregistered: s 601AH(5). However, such order for reinstatement would only be made if the plaintiffs were persons aggrieved by the deregistration and it was just to order reinstatement: s 601AH(2)(b). The plaintiffs would not be aggrieved by the deregistration if they could sue Vero direct under s 601AG. Nor would it be just to order reinstatement in those circumstances.

1. Vero's claim for summary dismissal depends on the construction of s 601AG of the Act. Vero accepted, for the purposes of this application, that the company, IMP, had a liability to the plaintiffs for the purposes of s 601AG(a) of the Act. Accordingly, the determination of this application depends on whether the insurance contract "covered that liability immediately before deregistration" within the meaning of s 601AG(b) of the Act.

1. As against Vero, the plaintiffs plead the existence of the Policy and its relevant term. They allege the making of the claim on 21 April 2011 and its notification to Vero on 27 April 2011. The pleading also alleges:

[41] At all material times, IMP had a duty or obligation and liability (within the meaning of s 601AG of the Act) to the plaintiffs in respect of the matters herein pleaded which duty or obligation and liability was covered (within the meaning of s 601AG of the Act) by the IMP Policy.

[42] In the premises, these proceedings are brought against the third defendant pursuant to s 601AG of the Act.

[43] IMP's duty or obligation and liability to the plaintiffs arose by reason of the facts, matters and circumstances alleged hereunder, in breach of contract, negligence and in contravention of the Trade Practices Act.

[44] Pursuant to s 601AG of the Act, the plaintiffs are entitled to recover from the third defendant the amount that would have been payable to IMP by the third defendant, under the IMP Policy between the third defendant and IMP.

1. The insuring clause in the Policy provided:

The Insurer will indemnify the Insured against liability at law for compensation and claimant's costs and expenses of any Claim or Claims first made against the Insured and notified to the Insurer during the Period of Insurance resulting from any civil liability resulting from the conduct of the Professional Services but not in respect of any such Claim or Claims resulting from any act, error or omission occurring or committed prior to the Retroactive Date.

1. The period of cover in the Policy Schedule is expressed to be:

"From 4.00 pm 31 May 2007 to 4.00 pm 31 May 2008."

Summary of the parties' submissions

1. Mr Lloyd, who appeared for Vero, submitted that the proceedings ought be summarily dismissed. He contended that there was no relevant issue of fact. Although he accepted that there was an issue as to the identity of the particular documents that comprised the Policy, he submitted that the issue was not germane to the legal issue since the clauses relevant to the determination of this application were identical in the two documents said to constitute the Policy. To make good that point, Mr Lloyd made submissions by reference to the version of the Policy for which the plaintiffs contended.

1. Mr Lloyd relied on the following passage from Leerdam & Anor v Noori & Ors [2009] NSWCA 90 with particular emphasis on the portion italicised below. Macfarlan JA, Spigelman CJ and Allsop P agreeing, said of summary dismissal at [75]:

Such a course should only be taken in a clear case. Descriptions of the test to be applied have included such phrases as "so obviously untenable that it cannot possibly succeed" and "manifestly groundless" (General Steel Industries Incv Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129). Particular caution is required where factual questions are involved as it is difficult to predict in advance of a final hearing the precise manner in which the evidence will unfold. Whilst caution is also required where, as here, the application turns on questions of law and there is no reasonable prospect that deficiencies in what is pleaded will be able to be cured by amendment, opportunities to summarily dismiss or strike out claims will arise more frequently.

[Emphasis added.]

1. Vero sought summary dismissal of the plaintiffs' claim on the basis that the claim depended on s 601AG and that it was not applicable as a matter of law.

1. Vero submitted that, whatever may have been IMP's liability to the plaintiffs, there was no insurance contract which "covered" that liability immediately before its deregistration, for two reasons:

(1)   the claims-made Policy expired on 31 May 2008 so no insurance cover was extant as at the date of deregistration; and

(2)   there was no claim notified to Vero on or before 18 January 2009 which would make the Policy respond and therefore Vero had no obligation to indemnify IMP prior to its deregistration.

1. Vero submitted that s 601AG(b) required the plaintiffs to establish that Vero "owed a liability to pay an amount to IMP immediately before deregistration" and that it could not do so, no claim having been made or notified until April 2011. It further submitted that it was necessary that IMP have a cause of action against Vero that had already accrued prior to deregistration and that it could not establish such a cause of action since no claim was made until April 2011. It further contended that no claim could ever be made against IMP because it was, at the relevant time, April 2011, already deregistered.

1. Vero accepted, for the purposes of this application, that, but for the deregistration, it could not have obtained summary dismissal of the plaintiffs' claim. It accepted that whether Vero was liable to indemnify the insured in respect of the plaintiffs' claim would in that event have been an issue to be tried. It accepted that the construction for which it contended would have the result that s 601AG had not fulfilled its evident purpose of putting Vero in the same position as IMP would have been in but for its deregistration, but contended that such a result was required by the wording of s 601AG.

1. Vero relied on The Owners- Strata Plan No. 50530 v Walter Construction Group Limited (in liquidation) [2007] NSWCA 124 (Walter Construction) in which the Court of Appeal construed s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (the 1946 Act) in a way that was anomalous and gave rise to distinctions for which there was no rationale (per Hodgson JA at [35]) because it considered that the words of the section did not permit of a more sensible construction.

1. Vero submitted that there was an important distinction to be drawn between occurrence-based policies and claims-made policies. Mr Lloyd contended that, in the former case, the liability of the insured to the claimant would coincide with the liability of the insurer to the insured and that as long as the relevant event occurred prior to deregistration of the insured, the claimant could use s 601AG to bring proceedings directly against the insurer. However, in the latter case the liability of the insured to the claimant could precede the liability of the insurer to the insured by a substantial period. Vero contended that because the liability of the insurer to the insured did not depend on an occurrence, but rather on the making of a claim, it was understandable that Parliament effectively distinguished between occurrence-based policies on the one hand, in respect of which the s 601AG route would be available, and claims-made policies on the other hand, in respect of which a claimant would be required to seek reinstatement under s 601AH before commencing proceedings, if the claim had not been made prior to deregistration of the insured.

1. Mr Stitt, who appeared for the plaintiffs, submitted that there were substantial issues of fact about what documents constituted the Policy. He contended that, in those circumstances, it was not appropriate that the plaintiffs' claim be summarily dismissed irrespective of the view I formed of the true construction of s 601AG. However, he made substantive submissions that the construction for which Vero contended was incorrect and that, if I was persuaded to determine the legal question in the course of the application for summary dismissal, I ought determine it in favour of the plaintiffs.

1. The plaintiffs submitted that the Policy continued, although the period of cover was expressed to end, subject to exceptions, on 31 May 2008. They submitted that the words in s 601AG(b) required only that there be an insurance contract in existence immediately prior to deregistration which covered the liability that the insured had to the claimant. They contended that the use of the word "covered" in s 601AG(b) was a broad term which was intended to refer to the type of liability that the insured had to the claimant rather than confine the claimant's right of recovery to situations where the insurer was actually liable to the insured by reason of a claim having been made prior to deregistration.

1. The plaintiffs contended that there was no discernible reason why Parliament would distinguish between occurrence-based policies and claims-made policies and make the s 601AG procedure available to claimants in the former instance and not in the latter. They submitted that a construction which gave rise to such an anomaly ought to be resisted since it was inimical to the purpose of the provision.

1. Mr Stitt submitted that the result in Walter Constructions could be explained by the circumstance that when s 6(4) of the 1946 Act was passed, claims-made policies were much less common and Parliament did not turn its mind to covering such policies in that provision, and has not amended the section since. He contended that s 601AG was inserted into the Act recently when Parliament can be taken to have been aware of the prevalence of claims-made policies and would have specifically drawn a distinction between such policies and occurrence-based policies, had it intended to do so.

Reasons

The modern approach to statutory interpretation

1. Both parties relied on authorities in support of their submissions that s 601AG ought be construed in a particular way. Before considering the authorities referred to, I propose to consider the words of the section, its legislative history and the purpose for which it was enacted in accordance with the so-called modern approach to statutory interpretation: Network Ten Pty Ltd v TCN Channel Nine Pty Ltd [2004] HCA 14; 218 CLR 273 at [11] per McHugh ACJ, Gummow and Hayne JJ; Newcastle City Council v GIO General Ltd [1997] HCA 53; 191 CLR 85 at 112 per McHugh J. This approach was summarised in the following oft-cited passage in CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; 187 CLR 384 at 408 per Brennan CJ, Dawson, Toohey and Gummow JJ:

Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd, if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.

[Footnotes omitted.]

1. Section 601AG is contained within Chapter 5A of the Act, which makes provision for deregistration transfer of registration of companies. Chapter 5A relevantly provides that a company ceases to exist on deregistration: s 601AD(1) and that all property held beneficially vests in ASIC and all property held on trust vests in the Commonwealth: s 601AD(1A) and (2).

1. Section 601AH makes provision for reinstatement of companies that have been deregistered, either by ASIC if ASIC is satisfied that the company should not have been deregistered: s 601AH(1); or by the Court if an application is made by a person aggrieved by the deregistration or by a former liquidator of the company and the Court is satisfied that it is just that the company's registration be reinstated. In either event, the Court or ASIC, as the case may be, may validate anything done in the period from deregistration until reinstatement: s 601AH(3). If a company is reinstated, it is taken to have continued in existence as if it had not been deregistered: s 601AH(5).

1. Section 601AG was inserted into the principal Act by the Company Law Review Bill 1997 (the 1997 Bill). It took effect on 1 July 1998. At the time the 1997 Bill was passed the Corporations Act 1989 already contained s 574, which was substantially, and for present purposes relevantly, the same as the section that become s 601AH, although it, too, was amended in the 1997 Bill. The Explanatory Memorandum to the 1997 Bill said, of the new s 601AG:

Third party rights against insured deregistered companies

15.22 At present, a person wishing to make a claim against a deregistered company may need to apply to a court for the reinstatement of the company in order to bring an action against it. The Bill enables a person to proceed directly against the insurer of a company that is deregistered, without seeking the company's reinstatement (Bill, s 601AG). Comparable rights have previously been provided in other legislation, for example, section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).

15.23 The Bill enables a third party to recover directly from the insurer of the deregistered company an amount payable under their contract of insurance if 2 preconditions are met:

(a)   the deregistered company had a liability to the third party;

(b)   the insurance contract covered that liability (Bill s 601AG)."

1. The evident purpose of s 610AG is to obviate the need for a claimant who wishes to make a claim against a corporate insured which has become deregistered to apply for the insured to be reinstated for the sole purpose of having the insurer act for the corporate insured by subrogation. In other words, the section is designed to put the claimants in the position they would have been in, but for the insured's deregistration.

1. The purpose of the two limbs of s 601AG(1) would, in this context, appear to be to allow direct recovery against the insurer in circumstances where: first, the insured had a liability to the claimant (that being a precondition to the insurer's liability to the insured); and secondly, the insured's liability to the claimant was a liability that was covered by the policy. This would have the effect of putting the claimants in the same position in which they would have been but for the deregistration.

1. This purpose was articulated in the following terms by Ipp JA, Hodgson JA and Hunt AJA agreeing, in Almario v Allianz Australia Workers Compensation (NSW) Insurance Ltd [2005] NSWCA 19; 62 NSWLR 148 (Almario) at [34]:

In my view, the purpose of the legislature in inserting s 601AG in the Corporations Act is to require the insurer of a deregistered company to stand in the shoes of the company to the extent necessary to allow creditors of the company to recover from the insurer whatever amounts they were entitled, by force of law, to recover from the company had it not been deregistered. This

purpose is discernible from the section as a whole and the Explanatory Memorandum. The notion that a person may "recover" from the insurer of a deregistered company "an amount that was payable" supports this inference. These words convey the idea of a creditor being entitled to recover that which was payable to him or her. Paragraph (a) of s 601AG is not inconsistent with this idea.

1. The construction for which the plaintiffs contended advances the purpose of s 601AG since it effectively puts Vero in the position IMP would have been but for its deregistration. It is to be preferred for that reason, as long as the plain words of the section do not render it unavailable: s 15AA of the Acts Interpretation Act 1901 (Cth).

Authorities on the interpretation of s 601AG of the Act

1. Neither Vero nor the plaintiffs submitted that I was bound by authority to construe s 601AG in either of the ways contended for. Nonetheless both counsel referred me to decisions which bore on the question, to which I shall now turn.

1. In Pagnon v Workcover Queensland [2000] QCA 421; 2 Qd R 492 (Pagnon), the Queensland Court of Appeal considered the time limits that applied when a worker brought proceedings against the Workers Compensation Board under s 186 of the Workers' Compensation Act 1990 (Qld) because his employer had been deregistered. McPherson JA, with whom Thomas JA agreed, referred to s 601AH and to the new provision, s 601AG. His Honour identified the legislative policy at [17] as being:

"to "short-cut" the need to reinstate the company, and to do so by enabling the ultimate recipient of the insurance proceeds to sue the insurer direct where the company has been dissolved, without imposing the additional trouble and expense of first applying to have it reinstated."

1. In Pagnon, McPherson JA observed that it appeared that the insurance policy covered the liability existing immediately before deregistration. Vero sought to distinguish Pagnon on the basis that it concerned an occurrence-based policy rather than, as in the present application, a claims-made policy and submitted that s 601AG was available in the former case only because the event that made the insured liable to the claimant coincided with the event that made the insurer liable to the insured and therefore the first and second limbs of s 601AG could be satisfied.

1. I do not regard Pagnon of assistance in determining this application, beyond the Court's identification of the purpose of the provision, which is not controversial. Although s 601AG was referred to, it was not material to the decision.

Cases where s 601AG was directly in issue

1. In Almario, the Court of Appeal decided that a worker who sued his employer's insurer under s 601AG was entitled to seek an extension of time under s 151D of the Workers Compensation Act 1987. It held that the effect of s 601AG was to deem the insurer to stand in the shoes of the employer and the worker would have the right to apply for such extension had he sued his employer directly and had his employer not been deregistered. It identified the purpose of the provision in the passage extracted above and construed s 601AG in a way that advanced the purpose.

1. The method of construction adopted and its effect in Almario appears from this passage per Ipp JA, Hodgson JA and Hunt AJA agreeing:

[40] I accept that the wording of s 601AG differs in significant respects from s 6. In particular, the phrase "as if ", in s 6(4) is not used in s 601AG. Nevertheless, the basic concept underlying the two different statutory provisions is the same, as the Explanatory Memorandum correctly recognises.

[41] In my view, s 601AG should not be textually construed. Rather, it should be construed so that the opening words read: "A person may recover from the insurer of a company that is de-registered (as if the insurer was the deregistered company) an amount that was payable to the company under the insurance contract. ... ".

[42] On such a construction, it would be open to the insurer to rely on the three year limit in s 151D(2). It would also be open to a person claiming under s 601AG to seek from the court (as against the insured), in an application under s 151D(2), an extension of the three-year period referred to in the latter section.

[43] Construing s 601AG in this way accords with a purposive construction of the statute. Such a construction avoids the anomalies to which I have referred and gives rise to an equitable result. A textual construction of s 601AG, not encompassing the assimilation of other legislation that provides for the time barring of remedies together with a means of extending the time limits in

question, would result in the anomalies I have described and the concomitant inequities.

1. The passage on which the parties relied for the present application is as follows (per Ipp JA, Hodgson JA and Hunt A-JA agreeing):

[19] Section 601AG creates a new cause of action. The action is not a claim for damages. It is for an amount that was payable to the deregistered company under the relevant insurance contract. A claim in terms of s 601AG is subject to two conditions, namely, proof that the deregistered company "had a liability" to the person claiming and that the insurance contract covered that

liability immediately before deregistration.

[20] The two conditions are expressed in the past tense. The inference is that the time for determining whether the deregistered company had a liability to the person claiming, and whether the insurance contract covered that liability, is "immediately before deregistration" (being the phrase qualifying condition (b)). This was not disputed.

1. The plaintiffs relied on Almario in support of their contention that the words "immediately before deregistration" required a temporal connection only between the insurance contract and the period before deregistration but did not require that a claim be either made or notified before deregistration. Vero relied on Almario in support of its submission that, if the relevant policy was a claims-made policy, unless the insured had made a claim on the insurer prior to its deregistration, the insurer could not be liable to the insured before the latter's deregistration and, accordingly, that s 601AG(b) could not be satisfied and the insurer could not be sued directly under s 601AG.

1. In my view, the guidance that Almario provides to the determination of the present application is that it identified the purpose of s 601AG and read the provision so as to advance the purpose identified. In so doing, In referring to the wording of the provision in the past tense, Ipp JA did not express a view, and ought not be taken to have expressed a view, on the competing contentions in the present case.

1. The gloss on s 601AG placed by the Court in Almario at [41] favours the construction for which the plaintiff's contended. If s 601AG is read as if it included the words "as if the insurer was the deregistered company" it does not matter that the claim was made and notified at a time when the insured company was deregistered.

1. In Tzaidas v Child [2009] NSWSC 465; 74 NSWLR 208 (Tzaidas), three plaintiffs sued two doctors and a corporation that operated a hospital, which was later deregistered. The doctors filed cross-claims against the hospital's insurer, CGU. They argued that, before its deregistration, the hospital corporation had a liability for contribution or indemnity as a joint tortfeasor. McCallum J held that, for the purposes of s 601AG, "liability" was not confined to a liability that was ascertained, crystallised or determinate immediately before deregistration, but that it could include a liability that was then potential, contingent or inchoate. The doctors were permitted to sue the hospital's insurer directly pursuant to s 601AG because the hospital corporation "had a liability" to the doctors within the meaning of s 601AG(a) immediately before its deregistration.

1. Although the decision in Tzaidas required s 601AG(a) rather than (b), to be construed in order to answer the separate question, the meaning of (b) arose for consideration in the course of the doctors' applications for leave to amend. The test was, in this context, whether the doctors had an arguable case aganst CGU. CGU argued that the policy did not cover the liability and therefore s 601AG(b) could not be met. The claims-made policy provided indemnity against:

"any Claims including all legal costs and expenses for which the insured shall become legally liable to the Claimant"

1. CGU contended that the phrase "which the insured shall become legally liable" was a reference to amounts for which the hospital's liability has been established by judgment, award or settlement. It submitted, accordingly, that the insurance policy did not cover any liability of the hospital immediately before deregistration. The doctors submitted that to construe s 601AG(b) in that way would leave the section with little operation. They submitted that the words "covered that liability" was a reference to the scope of the policy and the question to be answered was whether the risk fell within the scope of the policy. McCallum J accepted the doctors' submission and said:

[45] In my view, that accords with the ordinary meaning of that phrase. The doctors cited the example of an insurance policy which insures against loss caused by fire, which may be said to have "covered" the insured against that risk whether or not any fire in fact occurred during the relevant period. Similarly, the owner of a motor vehicle is "covered" by his compulsory third party policy before and after any accident and even if there is no accident.

[46] For present purposes, it is sufficient to indicate that, in my view, it is reasonably arguable that, if the hospital is found to have had a liability to the doctors and the doctors establish that the policy, properly interpreted, responds to that liability, the doctors will have shown that the policy "covered that liability" immediately before deregistration of the hospital.

1. Vero sought to distinguish Tzaidas on the basis in that case that the hospital had notified CGU of a claim prior to its deregistration and therefore the principal issue on which it contended s 601AG does not apply in the present case did not arise for consideration.

1. The plaintiffs submitted that McCallum J's construction of s 601AG(b) was correct and that I should follow it. They said that all that they were required to establish in the instant case was that the policy covered claims for professional negligence in the relevant period and that that had been established.

1. Section 601AG was also considered by McCallum J in Murdock v Lipman [2012] NSWSC 983 (Murdock) in which an injured worker sought to bring proceedings against the insurer of his deregistered employer, Deno's Hire Pty Limited, as third defendant, and also sought an extension of the limitation period against all three defendants. Her Honour applied what was said in Almario and granted the extensions of time. The insurer was treated as standing in the shoes of the insured for this purpose. What was decided in Murdock does not bear on the matter to be determined in the present application, beyond the statements of principle derived from Almario. Section 601AG was considered in a similar context by Blow CJ in Mercer v Allianz Australia Insurance Ltd [2013] TASSC 11; 273 FLR 45911 who applied Almario and Murdock.

Cases where the availability of s 601AG was considered in the course of an application for reinstatement under s 601AH

1. In Stone v ACN 000 337 940 Pty Ltd [2008] NSWSC 1058 (Stone) the plaintiff sought an order for reinstatement of his employer pursuant to s 601AH in order to continue proceedings in the Dust Diseases Tribunal which he had commenced against his deregistered employer. The defendant opposed reinstatement on the basis that the plaintiff could sue the employer's insurer direct under s 601AG and therefore the plaintiff was not aggrieved by the deregistration and it was not just to order reinstatement. The employer's policy of insurance was an occurrence-based policy.

1. Barrett J decided that, since the terms of the insurance policy were not in evidence and it was not clear whether an insurance contract subsisted to cover the whole of any relevant part of the plaintiff's employment, he was unable to conclude that the plaintiff could rely on s 601AG. In these circumstances, his Honour decided that the plaintiff was a person aggrieved and that it was just to order the defendant to be reinstated.

1. Vero relied on the following passage in Stone at [14]:

Whether the two conditions specified in s 601AG are satisfied at the time of deregistration in a particular case will depend, in the case of an action for damages, on both the time at which the relevant cause of action for damages became complete and the terms of the relevant insurance policy. It may be that, as in Orica Ltd v CGU Insurance Ltd [2003] NSWCA 331; (2003) 59 NSWLR 15, insurance will respond only when a cause of action completed by damage arises.

1. In my view, where Barrett J referred to the time at which the relevant cause of action for damages became complete, his Honour was referring to the question whether there was any liability of the insured to the company which was covered by the insurance contract, which is an antecedent question relevant to satisfaction of the second limb. If the insurance contract did not cover the period of the plaintiff's employment then it could not have covered the liability which the employer had to the plaintiff since it was an occurrence-based policy. This was the matter addressed by his Honour in the passage referred to above.

1. The relevance of Stone to the present application is that it illustrates the need for s 601AG and s 601AH to be read together. Section 601AH is the wider remedy. Section 601AG is a narrower provision which obviates the need to use s 601AH to the extent of its operation. It was the Court's inability to be satisfied on the evidence that the plaintiff in Stone fell within s 601AG, that persuaded Barrett J to reinstate the defendant.

1. Vero sought to distinguish Stone on the basis that it concerned an occurrence-based policy rather than, as in the present case, a claims-made policy. I do not consider the distinction to have been material to the decision.

1. In Krstevska v ACN 010 505 012 Pty Ltd [2001] NSWSC 1093 (Krstevska) the plaintiff made an application under s 601AH rather than s 601AG. Campbell J decided that it would be just to reinstate the company rather than require the plaintiff to establish the matters required to be proved in an application under s 601AG. His Honour adverted to, but did not determine, the true construction of s 601AG and said at [20]:

"Using section 601AG imposes on a plaintiff the burden of assessing and proving not only that the company has a liability, but also that the company's insurance contract is one which responds to that liability. There will be cases where it should not be difficult for a plaintiff to assert and prove that the company's insurance policy will respond to the liability. However, on the evidence before me I could not be confident that Ms Krstevska could, in fact, readily assert and prove that, or that it would be appropriate for the Court to expect her to have been able to assert and prove it."

1. It appears from the passage set out above that Campbell J considered the words in s 601AG(b) "the insurance contract covered that liability" to mean "the company's insurance policy will respond to that liability". However, since there was no need for his Honour to consider whether a claims-made insurance policy "covers" or "responds to" an insured's liability to a claimant before a claim is made I do not consider that assistance can be gained from Krstevska to resolve the present application.

1. In La Trobe Capital & Mortgage Corporation Ltd v REA Australasia Pty Ltd [2007] NSWSC 652 (La Trobe) the plaintiff applied to reinstate the defendant, a valuer, under s 601AH for the purposes of making a claim for damages on the basis of an allegedly negligent valuation made on 22 June 2002. The defendant was insured under a claims-made policy for the period from 14 December 2002 to 14 December 2003. The plaintiff purported to make a claim on 17 October 2003 but it was argued that it sent the letter to the wrong company. Nonetheless the defendant's insurer was notified of the plaintiff's claim. The defendant was deregistered on 1 November 2003.

1. A former director of the defendant opposed its reinstatement on the basis that s 601AG applied and therefore reinstatement under s 601AH ought be refused. He submitted that either the letter of 17 October 2003 was a claim, or, if it were not, notification of the claim could not amount to a Reported Circumstance within the meaning of the policy. White J found that it was arguable that the forwarding of the letter to the insurer might constitute a report that could give rise to a liability of the insurer. His Honour decided that it was just that the defendant be reinstated in order that the plaintiff could put itself in a position where it could more readily make a claim on the insurance proceeds.

1. In La Trobe White J did not directly consider the construction of s 601AG although his Honour addressed the argument made by the opponent to reinstatement which could, if determined, have given rise to the question whether s 601AG was capable of applying. I do not consider that what his Honour said about the making of a claim ought fairly be read as requiring that a claim be made before a company is deregistered before s 601AG applies.

Conclusion

1. I respectfully adopt McCallum J's interpretation of s 601AG(b) in Tzaidas. In my view the words "the insurance policy covered that liability" mean no more than that the risk that ensued was one with was within the scope of the policy. I read the section as requiring that the liability of the insured to the claimant fall within the cover provided by the Policy, as distinct from requiring that the insurer be liable to the insured prior to the deregistration by reason of a claim having been made prior to that time, that would trigger the insured's right to indemnity under the Policy.

1. This requires, in my view, a construction of the Policy and an examination of the plaintiffs' claim to determine whether the liability created by the claim falls within the Policy. In the present case, the risk to IMP was the risk of a claim being made against it for damages for professional negligence, breach of contract and damages for misleading or deceptive conduct. This risk was covered by the Policy which was a claims-made policy for professional indemnity insurance.

1. Vero has conceded that IMP had a liability to the plaintiffs for the purposes of s 601AG(a). It has also accepted that, but for the deregistration of IMP, IMP would have been entitled to be indemnified by Vero, subject to any relevant exclusions and other issues to be tried, since the risk fell within the scope of the policy. But for the insured's deregistration, the plaintiffs would have been able to sue IMP, which would presumably have made a claim against Vero. On the assumption, which Vero accepted for the purposes of this application, that IMP had a liability to the plaintiffs, Vero would have either conducted these proceedings on behalf of IMP by reason of its right of subrogation, or, if it had declined indemnity, IMP would have had to defend itself in these proceedings, but could have cross-claimed against Vero.

1. This construction is also consistent with the purpose of s 601AG identified above since it permits the plaintiffs to place Vero in the position of IMP and obviates the need for the plaintiffs to apply for IMP's reinstatement solely in order to bring a claim and proceedings against it, to which Vero would be subrogated. In order to fulfil the purpose of the section, there does not appear to be any reason why Parliament intended to provide for proceedings to be brought against the insurer only in circumstances where the insured had a cause of action against its insurer prior to deregistration by reason of a prior claim having been made.

1. Accordingly, in my view, the plaintiff's have established that they are entitled to sue Vero under s 601AG.

1. Had I not been persuaded that the plaintiffs were entitled to rely on s 601AG to sue Vero directly, I would have been required to consider whether there was any relevant factual issue that made summary dismissal inappropriate. Since I propose, for the reasons given above, to dismiss Vero's notice of motion, it is not necessary to explore any factual issues relating to the documents that constitute the Policy any further. In any event Mr Lloyd persuaded me that the contending policy documents were materially identical for the purposes of considering whether the risk was covered by the Policy.

Orders

1. I make the following orders:

(1)   Dismiss the third defendant's amended notice of motion filed on 12 July 2013.

(2)   Unless any party makes a written application for costs within seven days, order the third defendant to pay the plaintiff's costs of the motion.

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Amendments

23 September 2013 - Slip rule

Amended paragraphs: [3], [40] and [62]

Decision last updated: 10 March 2014