Teros Pty Ltd v Countrywide Home Loans Ltd T/as Countrywide Credit
[2002] WASC 87
•19 APRIL 2002
| JURISDICTION | : | SUPREME COURT OF WESTERN AUSTRALIA IN CHAMBERS |
| CITATION | : | TEROS PTY LTD -v- COUNTRYWIDE HOME LOANS LTD T/as COUNTRYWIDE CREDIT & ORS [2002] WASC 87 |
| CORAM | : MASTER SANDERSON | ||
| HEARD | : 10 APRIL 2002 | ||
| DELIVERED | : 19 APRIL 2002 | ||
| FILE NO/S |
| ||
| BETWEEN |
|
AND
COUNTRYWIDE HOME LOANS LTD T/as
COUNTRYWIDE CREDIT (ACN 065 997 551)First Defendant
PETER HAROLD McLERNON
Second Defendant
TIMOTHY JAMES JOHNSON PARKER
Third Defendant
GUARDIAN FUNDS MANAGEMENT LTD
(ACN 009 324 099)Fourth Defendant
HUGH McLERNON
Fifth Defendant
AND
LATROBE HOLDINGS PTY LTD
(ACN 009 324 403)
Third Party
Catchwords:
Practice and procedure - Application for leave to issue fourth and fifth party notices - Turns on own facts
Legislation:
Nil
Result:
Leave granted Notices issued
Category: B
[2002] WASC 87
Representation:
Counsel:
| Plaintiff | : | No appearance |
| First Defendant | : | Mr C D Belyea |
| Second Defendant | : | Mr C D Belyea |
| Third Defendant | : | Mr C D Belyea |
| Fourth Defendant | : | Mr C D Belyea |
| Fifth Defendant | : | Mr C D Belyea |
| Third Party | : | No appearance |
| Proposed Fourth Party | : | Mr D R Goodman |
| Proposed Fifth Party | : | No appearance |
Solicitors:
| Plaintiff | : | No appearance |
| First Defendant | : | Clayton Utz |
| Second Defendant | : | Clayton Utz |
| Third Defendant | : | Clayton Utz |
| Fourth Defendant | : | Clayton Utz |
| Fifth Defendant | : | Clayton Utz |
| Third Party | : | No appearance |
Proposed Fourth Party : Freehills
| Proposed Fifth Party | : | No appearance |
Case(s) referred to in judgment(s):
FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (1999) 153
FLR 448
John Connell Holdings Pty Ltd v Mercantile Mutuals Holding Ltd (1999) 10
ANZ Ins Cas 61-454
[2002] WASC 87
Case(s) also cited:
Andrews v Nominal Defendant [1963] NSWR 359
CA & MEC McInally Nominees Pty Ltd v HTW Valuers (Brisbane) Pty Ltd
[2001] QSC 388
Corti v Rodwell [1985] VR 287
FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA
38
Greentree v FAI General Insurance Co Ltd, unreported; SCt of NSW; 50042/95;
23 July 1996
Heitman v Guardian Assurance Co Ltd (1992) 7 ANZ Ins Cas 61-107
Munro, Brice & Co War Risks Association Ltd [1918] 1 KB 78
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Skandia Insurance Co Ltd v Skoljarev [1979] 142 CLR 375
[2002] WASC 87
MASTER SANDERSON
MASTER SANDERSON: This is an application by all defendants to join QBE Insurance Ltd ("QBE") and St Paul International Insurance Co Ltd as fourth and fifth party respectively to these proceedings. The application is brought under O 19 but it has not been brought in conformity with the Rules.
2 Generally speaking, an application for leave to issue a third party
notice is brought ex parte: see r 2(1). However, the Court may direct a summons for leave be issued. In this case no direction was made that a summons be issued but the defendants nonetheless followed this course. At the hearing of the application counsel for QBE appeared and opposed the granting of leave to issue the fourth party notice against his client, at least with respect to the second, third and fifth defendants. No objection was raised to the application by the first defendant. Although the defendants did not adopt the procedure set out in O 19, it is not difficult to see why they approached the application in the way they did. The proposed fourth and fifth parties are the insurers of the defendants under a professional indemnity policy. Although the proposed parties have disputed their liability under the policy, the defendants have kept them informed of the proceedings brought by the plaintiff. Over a period of time discussions have been held between the solicitors for the defendants and the solic itors for the proposed parties in an attempt to reach agreement about the provision by the proposed parties of an indemnity to the defendants against the plaintiff's claim. No agreement has been possible. That being the case, the defendants took the view that if an application was to be made to join the proposed parties to the proceedings, then the proposed parties ought be given the chance to be heard. As I have said, the approach adopted by the defendants was entirely reasonable and understandable.
3 O 19 gives no indication of when and in what circumstances the
Court will order that the summons be served. What is clear is that the mere issue of a third party notice does not deprive a third party of the right to have the proceedings brought against it summarily determined. The Court can refuse to make directions on a third party notice under r 4(4): see Seaman Civil Procedure Western Australia, par 19.4.3. Further, the Court has the power to set aside a third party notice at any time under r 6. This rule gives a third party the option of seeking the equivalent of summary judgment afforded to a defendant under O 16.
4 It is clear then that it is open to a third party against whom a notice
has issued to apply to the Court to have the notice set aside. As the only party who was opposed to the issue of the proposed notices was before the
[2002] WASC 87
MASTER SANDERSON
Court, it seemed appropriate to deal with the application, rather than make orders and allow the proposed parties to bring a summons under r 6, or challenge the making of directions under r 4(4). Counsel for the defendants and for QBE were content to deal with the matter in this way.
5 The plaintiff's claim against the defendants can be summarised in this
way. The first defendant was at all material times in the business of providing private mortgage funding and management. The fourth defendant was in the same business and was the holder of a security dealer's licence. The second and fifth defendants were directors of the first and fourth defendants. The third defendant was the manager of the first defendant. The statement of claim alleges that the first and fourth defendants together arranged for the plaintiff to invest in a company known as Cape Cottages Pty Ltd. It is alleged that certain representations were made by the defendants about various matters in relation to the investment and as a consequence the plaintiff invested a substantial sum of money. There was subsequently default by the borrower on the mortgages in which the plaintiff invested and as a consequence, the plaintiff says, it has suffered loss and damage. A variety of relief is claimed in the statement of claim pursuant to the Corporations Law, the Trade Practices Act and the breach of various duties. It is fair to say that this is yet another claim arising out of the unhappy history of private mortgage lending.
6 In the course of its business the first defendant took out what is
described as a "Professional Indemnity Insurance Policy Civil Liability" with QBE. A copy of that policy appears as annexure "HM31" to the affidavit of the fifth defendant, sworn 19 March 2002 and filed in support of this application. The policy is what is known as a "claims made" policy. That is to say, QBE agrees to indemnify the insured against any claims which are made during the period of the insurance. Further, the policy is extended to include claims notified to the insurer during that period: see cl 1.1.
"Insured" is defined in the policy as follows (cl 7.6):
"(a)
the person, persons, partnership, company, corporation or other entity specified as the Insured in the Schedule including their predecessors in business; and
(b)
any person who is, during the Period of Cover, a principal, partner, director or Employee of the Insured; and
[2002] WASC 87
MASTER SANDERSON
(c) any former principals, partners, directors or Employees of the Insured."
8 The second, third and fifth defendants were at all material times
either directors or employees of the first defendant. On behalf of QBE it was submitted that the effect of cl 7.6(b) is that each of the second, third and fifth defendants fall within the definition of "insured" in their own right. This is an important aspect of the submissions made by counsel for QBE and I will return to the point later in these reasons.
The term "Claim" is defined by cl 7.1 of the policy in the following
terms:
"(a) the receipt by the Insured of any written or verbal notice of demand for compensation made by a third party against the Insured. (b) any writ, statement of claim, summons, application or other originating legal or arbitral process, cross-claim, counterclaim or third or similar party notice served upon the Insured."
10 It is not entirely clear from the evidence when the defendants became
aware that there was a prospect of a claim being made against them. Nor is it entirely clear how much the defendants knew about any potential claim. Appearing as annexure "HM16" to the fifth defendant's affidavit is a copy of a facsimile sent from the first defendant to its insurance brokers and dated 7 September 1999. Relevantly, that letter reads as follows:
"We hereby notify you of a possible claim against our Professional Indemnity Insurance, as stated above. We have had no indication of any liability on our behalf and as such, this notification is a formality, at this point.
The matter relates to a Mortgage Loan provided to Cape
Cottages Pty Ltd.The mortgage has gone into default and we are in the process of recovering the investors funds."
11 The broker forwarded this facsimile on to QBE. When it was
received by QBE they sent to the brokers a "claim form". The claim form was completed and returned by the first defendant to their brokers under cover of a letter of 18 October 1999 (see annexure "HM20"). Part of the
[2002] WASC 87
MASTER SANDERSON
claim form seeks "Details of Claim or Circumstance". There then follows a series of questions and space is provided to allow the insured to respond. The questions and responses in this section are as follows:
"6. What is the precise nature of the claim (ie the Claimant's allegations) or the fact or circumstance that might give rise to a claim? Countrywide advanced investors funds secured by mortgages relying on licensed valuers opinion as to the property being able for strata-subdivision (sic). To date, have applied for strata-subdivision but has been refused.
7. On what date did you first become aware of the claim or of such fact or circumstance?
June 99
8. On what date was the claim or intimation of a claim first made against you?
No claim or intimation to date."
12 Although it is not expressly stated in the evidence, what happened is
reasonably clear. The first defendant arranged for investments to be made on behalf of the plaintiff and others in a property development being undertaken by Cape Cottages Pty Ltd. The development was dependent upon subdivisional approval being obtained. By about June 1999 it became clear that subdivisional approval had not been obtained and the project was in difficulty. By September 1999 the first defendant was aware of the difficulty and thought it prudent to notify its insurers. At the time the notification was made to QBE no claim had been made by the plaintiff or anyone else against the first defendant. The first defendant could see trouble on the horizon and acted out of an abundance of caution.
13 QBE says that the second, third and fifth defendant have no right of
action under the policy for two reasons. First, they were persons who fell within the definition of "Insured" under the policy and it was therefore necessary for each of them to give QBE notice of a claim in their own right. Notice given by the first defendant was not enough. Secondly, it is said that no-one, including the first defendant, notified any circumstances which might give rise to a claim against the defendants. It is said that cl 5.2 of the policy embodies three conditions. First, the insured becoming aware of any fact or circumstance that might give rise to a
[2002] WASC 87
MASTER SANDERSON
claim under the policy. Second, the insured electing to give notice in writing to QBE of such fact or circumstance. Thirdly, that a claim must subsequently arise out of the circumstance.
14 I have concluded that the proposed party notices should issue, it is
therefore inappropriate that I say too much about matters raised by QBE. These are matters which will be dealt with at trial and I should not deal in detail with the issues. That would be to usurp the function of the trial Judge. But I should, nonetheless, state briefly why I am of the view that the notices should issue.
15 In my view it is arguable that in giving notice as it did, the first
defendant was acting as agent for the second, third and fifth defendants. In reaching that conclusion I am mindful of the decision of the Queensland Court of Appeal in John Connell Holdings Pty Ltd v Mercantile Mutuals Holding Ltd (1999) 10 ANZ Ins Cas 61-454. In my view there are important differences between that case and this one. Without undertaking a detailed analysis of that decision, it is sufficient if I say that I am satisfied that the position of the second, third and fifth defendants in this case is arguably distinguishable from the John Connell Holdings case.
16 In relation to the notification issue, I am satisfied that it is arguable
that the defendants were in possession of sufficient information to allow for notification under cl 5.2. The question of when an insured has sufficient information to require notification was an issue considered by the Queensland Court of Appeal in FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (1999) 153 FLR 448. Derrington J discusses the matter in some detail (see 453 - 455). This question had ceased to be an issue when the matter reached the High Court. In my view it is at least arguable that as at September 1999, the defendants were in possession of sufficient information which justified a notification under cl 5.2
17 In all the circumstances then I am satisfied that the notices should
issue. I will hear from the parties as to the precise form of order and as to
costs.
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