Body Corporate No 195843 v North Shore City Council [The Grange] HC Auckland Civ-2006-404-1055
[2010] NZHC 2459
•16 November 2010
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2006-404-1055
BETWEEN BODY CORPORATE NO. 195843
First Plaintiff
ANDDAVID GLEN WILLIAMS & OTHERS Second Plaintiffs
AND NORTH SHORE CITY COUNCIL
First Defendant/Sixteenth Third Party/Sixth
Fifth Party
ANDTARADALE PROPERTIES LIMITED (DISCONTINUED)
Second Defendant
ANDSTANLEY POWLEY ARCHITECTS LIMITED
Third Defendant/Seventh Fourth
Party/Seventh Fifth Party
Hearing: 28 October 2010
Counsel: P Grimshaw and G Beresford for the Plaintiffs
D MacRae for the Seventh Defendant/Third Third Party/Ninth Fourth
Party
D Heaney SC and K P Perry for First Defendant/Sixteenth Third
Party/Sixth Fifth partyT Weston QC and R Samuel for Eighth Defendant/Fourth Third
Party/Sixth Fourth Party
Judgment: 16 November 2010
RESERVED JUDGMENT OF ELLIS J
This judgment was delivered by me on 16 November 2010
At 4.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors: Grimshaw & Co, Auckland
Morgan Coakle, Auckland
Counsel: Heaney & Co, Auckland
T Weston QC, Auckland
BODY CORPORATE NO. 195843 And Anor V NORTH SHORE CITY COUNCIL And Ors HC AK CIV-
2006-404-1055 [29 October 2010]
ANDELLERSLIE PARK HOLDINGS LIMITED (FORMERLY MACRENNIE CONSTRUCTIONS LIMITED) (STRUCK OFF)
Fourth Defendant
ANDROWABA HOLDINGS LIMITED (FORMERLY TERRACON HOLDINGS LIMITED) (STRUCK OFF)
Fifth Defendant/First Third Party
ANDCENTREWAY 28A LIMITED (FORMERLY R & R PAINTERS LIMITED)
Sixth Defendant/Second Third Party/Eighth
Fourth Party/Eighth Fifth Party
AND WATTYL NZ LIMITED
Seven Defendant/Third Third Party/Ninth
Fourth Party
AND VERO INSURANCE NZ LIMITED
Eighth Defendant/Fourth Third Party/Sixth
Fourth Party
ANDQBE (INSURANCE) INTERNATIONAL LIMITED
Ninth Defendant/Eighth Third
Party/Seventeenth Fourth Party
ANDTHE ATTORNEY-GENERAL AS SUCCESSOR TO THE ASSETS AND LIABILITIES OF THE BUILDING INDUSTRY AUTHORITY
Fifth Third Party
AND RONALD WILLIAM SMITH
Sixth Third Party/Tenth Fourth Party/Third
Fifth Party
ANDEQUUS INDUSTRIES LIMITED Seventh Third Party/Eleventh Fourth Party/Fourth Fifth Party
AND AUCKLAND CIVIL LIMITED
Ninth Third Party/Fourth Fourth Party
ANDELECTRICAL SYSTEMS LIMITED Tenth Third Party/Fifth Fourth Party/Twelfth Fourth Party/Ninth Fifth Party
AND908322 LIMITED (FORMERLY STRAIGHTLINE ROOFING)
Eleventh Third Party/Thirteenth Fourth
Party/Fifth Fifth Party
AND WAYNE SYME
First Fourth Party/First Fifth
Party/Fourteenth Fourth Party
AND BWPL LIMITED
Second Fourth Party/Second Fifth
Party/Fifteenth Fourth Party
ANDDARYN PETER MCDONALD Third Fourth Party
[1] Vero Insurance NZ Limited is presently named as the eighth defendant/fourth third party and sixth fourth party in the leaky building claim related to a property in Albany that is (in the leaky building jurisprudence at least) commonly referred to as “The Grange”.
[2] Vero’s involvement in the claim arises by virtue of its role as the insurer of various other potential parties to the litigation that are insolvent or have gone into liquidation. One of these was Progressive Building Systems Limited (“Progressive”), the company that provided Eterpan cladding for the Grange complex and which, following its liquidation, has now been struck off the Companies Register.
[3] The claim has recently been set down and is scheduled to be heard in
February 2011. It is presently estimated that the trial will take some four months.
[4] Just after setting down Vero filed an application to have the claim against it insofar as it related to Progressive struck out. Because of this timing, leave to bring the application is required in terms of r 7.18(2) of the High Court Rules. While leave was opposed by the other parties to the application, the substantive issues on the strike out were fully addressed by counsel in submissions and, in light of that and the
conclusions I have reached on those issues, it is appropriate to grant leave under r 7.18(2) in order that I can address the merits of the argument.
[5] The sole ground for the application to strike out is that leave was neither sought nor granted to join Vero (qua Progressive) to the proceeding as required by s 9(4) of the Law Reform Act 1936. Vero contends that failure to apply for leave renders the claim against it a nullity and, in turn, that the time bar would operate to prevent leave now being sought and a fresh claim filed. The time bar issue is touched upon again in paragraphs [36] to [39] below.
[6] The plaintiffs, for their part, submit in the first instance that leave was in fact granted by Associate Judge Faire on 14 June 2007 to join Vero as a defendant. That is disputed by Vero.
[7] The Council and Wattyl (being the other parties that Vero says were required to apply under s 9(4)) both accept that leave was neither sought nor obtained by it in relation to their joinder of Vero as fourth third party and sixth fourth party respectively. The Council and Wattyl say (and the plaintiffs say in the alternative) that the effect of failure to obtain leave under s 9(4) is not that the proceeding is a nullity. Rather, it is a procedural irregularity that can be cured nunc pro tunc; by seeking and obtaining leave retrospectively.
[8] The plaintiffs, the Council and Wattyl further contend that by virtue of Vero’s active participation in the litigation for the last three years Vero has waived, or is estopped by their conduct from, relying on the failure to obtain leave. However if Vero is correct in its “nullity” analysis there can (Vero says) be no such estoppel or waiver.
Proposed approach
[9] At the outset it seems appropriate to record that I have difficulty with the concept of “nullity” in the present context. I accept that there are decisions, including a number relating to statutory provisions that are materially identical to s 9, that have approached the matter in this jurisdictional way. But as Brennan CJ said in
Emanuele v Australian Securities Commission1 (a case that involved consideration of the consequences of a failure to obtain leave under a provision in the Australian Corporations Law:
It is a false dichotomy to divide all statutory provisions affecting the commencement of legal proceedings into provisions that deny jurisdiction and provisions that are procedural. Whatever may be the position in courts of inferior jurisdiction, it is not the true dichotomy in courts of superior jurisdiction where an order made in proceedings irregularly commenced or conducted will not be held to be a nullity though it might be set aside ex debito justitiae on the application of a person with a sufficient interest.
[10] I note that the New Zealand Court of Appeal has recently expressed similar reservations as to the continuing helpfulness of the notion of nullity in Attorney- General v Howard2 and Crown Health Financing Agency v P.3
[11] On that basis it seems to me that both the nature of the s 9 leave requirement and the consequences of failing to obtain leave depend simply on the proper interpretation of s 9 in general and s 9(4) in particular. In that respect I endorse and shall attempt to apply the “general approach to statutory leave requirements” set out by Kirby J in Emanuele. Notably, Kirby J’s judgment was prepared after the other members of the Court had divided 2:2 on whether the failure to obtain leave in that case could be cured nunc pro tunc. Ultimately Kirby J agreed with Dawson and Toohey JJ that, on a proper interpretation of the relevant provision, it could. At 146
– 148 of his judgment he said:
A number of general propositions may be stated which assist in the construction of a provision such as s 459P:
1. The fundamental task of the Court is to give effect to the purpose of Parliament as expressed in the language of its enactment. This is sometimes explained in terms of finding the will of Parliament, although other authorities reject this formulation as a misleading fiction. The point to be made is that the task is basically the familiar one of giving meaning to ambiguous legislation. The clearer the words and the fewer the ambiguities, the simpler is the task of the court whose fidelity is always to the legislative text, properly understood.
2. In performing the task of construction, a court will seek to ascertain the purpose to which the provision was directed. It will endeavour, so far as the language of the enactment permits it, to avoid a construction which would
1 Emanuele v Australian Securities Commission (1997) 188 CLR 114 at 124.
2 Attorney-General v Howard [2010] NZCA 58 at [114] and [169].
3 Crown Health Financing Agency v P [2009] 2 NZLR 149 (CA) at [72].
result in such inconvenient outcomes that the legislation would miss its apparent target and fail to achieve its obvious objectives. It is for this reason that a court will not examine the words of the provision in isolation. Instead, an attempt is made to understand the words in the context of the enactment as a whole, the legislative history of the provision in question, the terms of similar or different provisions elsewhere in the Act and in any available documentation which throws light upon the suggested ambiguities. It is both permissible, and often helpful, to look to the consequences which would flow if one construction were favoured rather than another. If the result would be such inconvenience as to produce a "total failure" of the legislation and substantial injustice, it will more readily be inferred that the alternative construction should be adopted upon the hypothesis of Parliamentary rationality and good sense.
3. A feature of the administration of justice in more recent times has been a general disfavour towards procedural rigidities and a preference for a somewhat more flexible approach to statutory preconditions where these are of a procedural character. In Woods v Bate, McHugh JA (with the concurrence of Hope JA) said:
"In recent times the courts have shown great reluctance to invalidate an act done pursuant to a statutory provision because of the failure to comply with an antecedent condition. Speaking generally, I think that, at the present time, the proper approach is to regard a statutory requirement, expressed in positive language, as directory unless the purpose of the provision can only be achieved by invalidating the result of any departure from it, irrespective of the circumstances or resulting injustice.”
This approach to statutory preconditions is evident in a number of cases decided since Woods v Bate. However, particularly in relation to statutory preconditions in the context of criminal procedure, a more stringent approach is commonly taken, and strict adherence to statutory conditions is more often insisted upon.
4. Statutory provisions for a grant of leave by a court before a step is taken which affects the rights of parties are not uncommon. Accordingly, a long series of decisions is available in which courts have had to consider problems analogous to the present one. The leave requirement was overlooked. Orders were nonetheless made. An attempt was then made retrospectively by orders nunc pro tunc, to cure the want of leave. It is difficult, if not impossible, to reconcile all of the decisions on this and analogous questions. A classic illustration of the debate can be seen in conflicting decisions on the same point of the Courts of Appeal of New South Wales and of the Northern Territory.
In the former case, upon which the appellants strongly relied in this Court, as in the Full Federal Court, Glass JA (with the concurrence of Moffitt P and Samuels JA) said, writing of the requirement in the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6(4), to obtain leave of the Court to commence an action directly against an insurer:
"There is no question of strict or substantial compliance. The action is commenced with leave or it is not. If it is commenced without leave, the proceeding is either a complete nullity or else it remains
valid irrespective of whether or not leave is subsequently granted or else it continues in a state of suspended validity which will come to an end if leave is not obtained within an unspecified time. I can see nothing to support the attribution of a legislative intention of the two last-mentioned kinds. In my view the legislative intention properly to be garnered from the terms of sub-s (4) and its place in the framework of s 6 is that a failure to obtain the leave of the Court in advance invalidates the action and renders it incapable of being revived by leave retrospectively given."
This approach has been followed several times. However it was rejected by a single judge in the Supreme Court of the Australian Capital Territory. It was unanimously disavowed by the Court of Appeal of the Northern Territory. Care must therefore be exercised in the use of analogies drawn from different legislation, having different purposes. The most that a study of these cases will show is that minds can differ in deriving the legislative purpose where Parliament has omitted expressly to provide for a consequence of default in obtaining leave. Even historical patterns must be studied with care. The focus should remain, from first to last, upon the statutory language containing the leave requirement, understood in its context and having regard to its apparent purposes.
(Citations omitted).
[12] It is notable that the “debate” and conflicting decisions to which Kirby J refers in this passage related to the interpretation of Australian equivalents to s 9(4). Because the origins and content of the Australian provisions at issue in those decisions are materially the same as s 9(4) those cases assumed some significance in argument before me. Unsurprisingly, the “former case” quoted above by Kirby J (in which the leave requirement was found to be mandatory, and failure to obtain it, fatal) was heavily relied upon by Mr Weston: National Mutual Fire Insurance Co
Ltd v the Commonwealth.4 Equally predictably the Northern Territory and ACT
cases were called in aid by Mr Heaney and Mr Grimshaw: Ceric v CE Heath Underwriting & Insurance (Australia) Pty Ltd5 and Dixon v Royal Insurance Australia Ltd.6
[13] Because of the common content and origin of the statutory provisions at issue in the three Australian cases just mentioned I accept that they might be of some assistance in the task in which I am presently engaged. That said, however, there are
other Australian cases that contain more thorough and helpful analyses of the
4 National Mutual Fire Insurance Co Ltd v the Commonwealth [1981] 1 NSWLR 400.
5 Ceric v CE Heath Underwriting & Insurance (Australia) Pty Ltd (1994) 4 NTLR 135.
6 Dixon v Royal Insurance Australia Ltd (1991) 105 ACTR 1.
relevant provisions and I refer to them below. In general terms (and with the greatest respect) I have not found the reasons given in any of the three cases above particularly persuasive in either direction. And to the extent that they appear to proceed on the basis of the “false dichotomy” rejected in Emanuele (as to which see Ceric in particular) their authority is necessarily further limited.
[14] Because I consider that the answer in the present case lies in the proper interpretation of s 9 itself it follows that I also accept Mr Weston’s submission that care must be taken in referring to other decisions involving differently worded leave provisions. Although it may be possible to discern from such cases a general trend (noted in the Wood decision) towards a more liberal construction of such provisions, I have not otherwise found it useful to consider in any detail (for example) decisions given in the context of mental health legislation where very specific, and different,
policy considerations seem to me to arise.7
[15] I turn now to the task of interpreting section 9 itself.
The purpose and meaning of s 9 and of the leave requirement
[16] Section 9 has not been amended since its enactment in 1936. It provides:
Amount of liability to be charge on insurance money payable against that liability
(1) If any person (hereinafter in this Part of this Act referred to as the insured) has, whether before or after the passing of this Act, entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his 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 money that is or may become payable in respect of that liability.
(2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured has died insolvent or is bankrupt or, in the case of a corporation, is being wound up, or if any subsequent bankruptcy or winding up of the insured is deemed to have commenced not later than the happening of that event, the provisions of the last
preceding subsection shall apply notwithstanding the insolvency, bankruptcy, or winding up of the insured.
(3) Every charge created by this section shall have priority over all other charges affecting the said insurance money, and where the same insurance money is subject to 2 or more charges by virtue of this Part of this Act those charges shall have priority between themselves in the order of the dates of the events 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) of this section apply, no such action shall be commenced in any Court except with the leave of that Court.
(5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.
(6) Any payment made by an insurer under the contract of insurance without actual notice of the existence of any such charge shall to the extent of that payment be a valid discharge to the insurer, notwithstanding anything in this Part of this Act contained.
(7) No insurer shall be liable under this Part of this Act for any sum beyond the limits fixed by the contract of insurance between himself and the insured.
[17] As the title of the Law Reform Act makes clear, the object of s 9 is reformatory. The purpose, obvious on the face of the provision, is to provide a means of redress against the insurer of a person responsible for an event giving rise to a claim for damages or compensation (the insured) in circumstances where proceedings against the insured cannot be maintained. But for the operation of the section, the plaintiff would be left in the position that liability which might otherwise have been established against the insured, in respect of which the insured would at the relevant time have enjoyed appropriate insurance cover, could not result in an enforceable verdict to allow the plaintiff to recover the damages from the insurer. The insurer would receive a windfall; the plaintiff would receive nothing.
[18] As Kirby J said in another decision,8 this time in relation to an Australian equivalent of s 9, s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW):
The passage of the Act in 1946 was, as its short title suggests, designed to achieve a significant and novel measure of law reform. This Court should not, therefore, approach the construction of the Act as a Chancery judge of the nineteenth century might unravel a problem of an estate tail. To the full extent that the language of the Act permits the achievement of its purpose, the Court should give effect to that purpose and not frustrate it. The Court has previously held that the section should not be construed narrowly but should receive a construction, supported by the words, which achieves the purpose of Parliament of protecting those who are intended to have its benefit: see Oswald v Bailey (1987) 11 NSWLR 715 at 717, 723. Clearly, the purpose of allowing direct access to the insurance fund notionally created at the moment of the cause of action by the descent of the statutory (charge) is to ensure that enforcement of the plaintiff's entitlements is not frustrated, as otherwise it would be: see National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400 at 401, 403; Spain v Metropolitan Meat Industry Board [1971] 1 NSWLR 91 at 97 and Oswald v Bailey at 726.
[19] His Honour then went on to put the provision in historical context “so that its purpose will be understood” (at 424–425):
The passage of the Act accompanied the substantial growth of personal injury litigation which, in turn, accompanied the advent of the motor car and the development of modern factories and dangerous working conditions. This growth began in Australia in the 1930's, was stimulated by the decision in Donoghue v Stevenson [1932] AC 562 and increased appreciably in the 1940's and thereafter. The growth of the liability of persons and corporations in negligence gave rise to a consequential growth in the underwriting of liability insurance. This was clearly beneficial both to the insurance industry receiving the premiums and to the plaintiffs who, proving negligence, could then be assured of the recovery of damages from the insurer indemnifying the wrongdoer, where recovery might otherwise have been problematical. Such recovery postulated the entry of judgment against the wrongdoer who would then be indemnified by the insurer. Normally the insurer had, by subrogation, controlled the litigation. These simple truths about the social realities in which the Act was intended to operate should be remembered by the court as it approaches the construction of the words designed to give effect to its purposes.
People die, corporations are wound up, insureds disappear and other mishaps occur which present the problems which the Act was designed, by s 6, to overcome. The scheme of the section is clear enough. It is to permit the plaintiff, in the specified circumstances, to bypass the insured and to proceed directly against the insurer. The mechanics of the scheme are also
comparatively simple. There is to be a notional “charge” on the insurance moneys immediately on the happening of the event giving rise to the claim for damages or compensation. That charge can then be enforced in the same court as that in which the plaintiff would have sued the insured. In such action, “to the extent of the charge”, the parties are to have: “… the same rights and liabilities … as if the action were against the insured.”
[20] The legislative history of the New Zealand provision was set out in more detail in the judgment of McHugh and Gummow JJ in the High Court’s decision in Bailey v NSW Medical Defence Union Ltd.9 Having noted that the equivalent NSW provision was derived from the New Zealand s 9 the joint judgment traces the history of that section back to s 42 of the Workers' Compensation Act 1908 (NZ), which provided:
(1) When any employer has entered into a contract with any insurer for an indemnity in respect of any liability to pay compensation or damages to any worker, or to the representative or dependants of any worker, in respect of any accident, then in the event of the employer dying insolvent, or becoming bankrupt, or making a composition or arrangement with his creditors, or, if the employer is a body corporate, in the event of that body corporate having commenced to be wound up, the amount of that liability, whether already determined or not, shall be a charge upon all insurance moneys which are or may become payable in respect of that liability, or which would be or become payable in respect thereof had no such insolvency, bankruptcy, composition, arrangement, or winding-up taken place.
(2) The said charge shall have priority over all other charges or claims affecting the said insurance-moneys, and where the same insurance- moneys are subject to two or more charges by virtue of this Act those charges shall have priority between themselves in the order of the dates of the accidents out of which the liability arose, and if two or more accidents happen to different workers on the same day the charges arising out of these accidents shall rank equally between themselves.
(3) Such a charge shall be enforceable by way of an action against the insurer by the worker or the representative or dependants of the worker in the same manner and in the same Court as if the action was against the employer for compensation under this Act or for damages, as the case may be; 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 power, as if the action was against the employer.
(4) Such an action may be brought although judgment has been already recovered against the employer for compensation or damages in respect of the same matter.
9 Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399 (HC).
(5) This section does not apply when a body corporate is wound up voluntarily merely for the purposes of reconstruction or amalgamation with another body corporate.
(6) Any payment made by an insurer under the contract of insurance without actual notice of the existence of any such charge shall to the extent of that payment be a valid discharge to the insurer, notwithstanding anything in this section contained.
(7) No insurer shall be liable under this section for any sum beyond the limits fixed by the contract of insurance as between himself and the employer.
[21] The Bailey judgment then notes that the 1908 statute was repealed by s 69 of the Workers' Compensation Act 1922 which replaced s 42 with s 48 which was in the same terms. It goes on to say that a similar provision was subsequently to be found in s 10 of the Motor-vehicles Insurance (Third-party Risks) Act 1928 (NZ), subsection (1) of which stated:
In the event of an owner dying insolvent or making a composition or arrangement with his creditors, or, if the owner is a body corporate, in the event of proceedings being commenced for winding-up that body corporate, after the happening of an accident giving rise to a claim for damages in respect of which the owner is indemnified by a contract of insurance under this Act, or in the event of an owner being bankrupt at the time of such accident or thereafter becoming bankrupt, the amount of the owner's liability, whether already determined or not, shall be a charge on all insurance-moneys which are or may become payable in accordance with this Act in respect of that liability, or which would be or become payable in respect thereof had no such insolvency, bankruptcy, composition, arrangement, or winding-up taken place.
[22] The balance of the section followed subsections (2)–(7) of s 48 of the
Workers' Compensation Act 1922.
[23] As noted in Bailey it was against this historical background that the more general s 9 was enacted. Section 10 of that Act repealed s 48 of the 1922 Act and s 10 of the 1928 Act. Their place was taken by s 9. McHugh and Gummow JJ quote from the New Zealand Attorney-General’s speech in relation to the 1936 Bill in the Parliamentary Debates where he said:
Part III [which contains s 9] simply consolidates some existing provisions, which provide that where there is wrong perpetrated by a person who is insured the injured person can have a lien on the insurance-moneys. That already exists in the law in respect of the Workers Compensation Act, and also there are provisions in the Motor-vehicles Insurance (Third-party Risks)
Act in relation to the matter. There was no provision of that sort in regard to the Deaths by Accidents Compensation Act, and instead of making a third provision the Law Draftsman thought it better to consolidate them all and to make a general rule, which he has done in Part III to cover all cases of that description.
[24] This history outlined above makes it clear that while s 9 as a whole has
(somewhat) more ancient origins, the s 9(4) leave requirement was first introduced in
1936. It thus coincided with the extension of the statutory charge which, under the earlier provisions (which s 9 replaced), had been limited to insurance money payable to insolvent or bankrupt employers and vehicle owners. Under the new s 9 the charge potentially applied to create a charge over any insurance money that was payable in relation to the liability of any person, regardless of the context in which liability might arise and (on the face of s 9(1)) regardless of whether that person was insolvent or bankrupt.
[25] In that historical context the exemption from leave for cases falling within s 9(2) becomes somewhat more explicable because leave had not been required under the previously existing law where a charge was created only where the insured was insolvent, bankrupt or being wound up. Section 9(2) thus generally preserves that historical position, although with the addition of a temporal limitation that did not previously exist.10 In any event it is apparent that it was the new breadth of s 9(1) that gave rise to the requirement for leave.
[26] Further reference to the 1936 Parliamentary Debates reveals that the requirement for leave was in fact added by the Statutes Revision Committee during its consideration of the Bill. The member for Auckland East, Frederick Schramm, who was the Chairman of that Committee, said:
The provisions in Part III, relating to charges on insurance-moneys, are also an improvement on the existing law. They give the right to sue the insurance company. Perhaps that is a drastic alteration of the law; but so that no injury should be done - so that no advantage should be taken of the provisions of the Bill - the Committee inserted a provision to the effect that no action should be commenced against the insurance company as the defendant in such cases except by the leave of the Court, and in those cases, of course, the Court would be guided by what is right and proper; and if it was necessary to sue the insurance company and that was the only way of securing the
10 Which appears to have been the basis for the appellant’s submissions in Campbell v Mutual Life and Citizens Fire and General Insurance Company (New Zealand) Ltd [1971] NZLR 240.
damages, the Court then, of course, would grant the leave. As the Bill originally stood there was no such provisions, but after mature consideration by the Committee, and after hearing evidence, it was thought necessary to add that safeguard, so that the insurance companies would have a right to be heard in all cases where actions might be commenced against them. No damage could be done by the insertion of that provision. It met the approval of all members of the Committee.
[27] And fellow Committee member William Endean (the Member for Parnell)
elucidated upon the Committee’s thinking in the following way:
Now, the Attorney-General explained that clause, but I have pointed out to him a slight error in the drafting of the Bill. If honourable members will look at the proposed proviso to subclause (5) they will see that it says “Provided also that no such action shall be commenced in any Court except with the leave of that Court.” I submit that those lines should come in after the proviso to subclause (4). I think I raised this point in the Statutes Revision Committee. It is well known in the profession that as soon as a jury realizes that an insurance company is liable, by way of indemnity, to indemnify the defendant it becomes perverse and shuts its eyes to the real evidence and gives a verdict actuated by sympathy. We felt that there should be some protection in this matter, and that the leave of the Court should be obtained. If the Judge does not feel that the insurance company should be added, he should have the right to refuse to join that insurance company.
[28] At this juncture, the following points can be noted.
[29] Firstly, it appears that the drafters of the leave provision considered that in granting leave the Court would be guided by what was “right and proper”. Rectitude and propriety in this context seem to have been concerned primarily with the idea that, notwithstanding the breadth of s 9(1), insurance companies would only be sued where there was no available remedy against the insured. That is the way the provision has been applied both here and in Australia where the practice has been to refuse leave to proceed against an insurer wherever the insured is a viable defendant
– see for example Campbell v Mutual Life and Citizens Fire and General Insurance
Company (New Zealand) Ltd;11 Andjelkovic v AFG Insurance Ltd;12 Dixon v Royal
Insurance Australia Ltd.13 Thus the Court performs a gatekeeper function.
11 Campbell v Mutual Life and Citizens Fire and General Insurance Company (New Zealand) Ltd
[1971] NZLR 240.
12 Andjelkovic v AFG Insurance Ltd (1980) 47 FLR 348, 355-356.
13 Dixon v Royal Insurance Australia Ltd [1991] FCA 662; (1991-92) 105 ALR 1, 8.
[30] It is difficult to see how Mr Endean’s concern – that joining a “deep pocket” insurance company might cause a jury to find in favour of a plaintiff, regardless of the legal merits – would have been able to be addressed by a Court when considering whether to grant leave. In any event, the possibility of the provision having such a “perverse” effect obviously no longer represents a live issue.
[31] Next, it seems that it was thought that an insurance company would be heard on any application for leave. That was also Mr Weston’s position before me. Notwithstanding submissions by Mr Grimshaw and Mr Heaney to the effect that, by analogy with applications for joinder of a defendant under the High Court Rules, no such rights to notice or to be heard exist, I consider that Mr Weston’s position is correct. As well as being consistent with the evidence as to parliamentary intent it is consistent with the conclusions I have reached as to the content of the leave requirement itself.
[32] As to that content, I have already noted the established position that leave will not be granted unless there is no available remedy against the insured. Such cases will not be limited to those involving an insured’s insolvency (whether at the time of the relevant event or subsequently) but may extend to those where the insured has died or disappeared. There may well be others.
[33] In terms of further matters that may be relevant to the grant of leave, the equivalent Australian provisions are more forthcoming than s 9(4). In fact, as the High Court observed in Bailey, the only difference between the NSW provision and New Zealand’s s 9 is the increased specificity as to those matters in subsection (4). At 448–449 of their judgment McHugh and Gummow JJ said:
It is now possible to come to the central issue of construction of s 6 which arises on this appeal. It is necessary first to turn to the text of the last sentence in s 6(4). This states:
"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."
This provision is not directing the court that leave be denied only in a case where it is satisfied both of entitlement to disclaim liability and that
necessary steps have been taken to establish entitlement to do so. Leave may be refused in other cases but must be refused in these cases. What the sentence does suggest is that, if there is an entitlement to disclaim, there may be no moneys which are or may become payable in respect of the liability of the insurer to the insured and thus nothing upon which the charge specified in s 6(1) can operate.
The phrase in s 6(4) is "the insurer is entitled under the terms of the contract of insurance to disclaim liability". A clear example of such entitlement would be a disclaimer under the general law right to rescind for non- disclosure. Another instance would be the exercise of the right to avoid the contract of insurance given the insurer in certain cases of non-disclosure and misrepresentation by s 28 of the Insurance Contracts Act 1984 (Cth).
However, the terms of s 6(4) of the Law Reform Act are apt to include more than avoidance by reason of some vitiating factor in the formation of the contract of insurance. For example, in McMillan v Mannix, a provision of the policy of insurance required the co-operation of the insured in the event of a claim; such co-operation was a condition precedent to liability and breach of it was a basis for disclaiming liability. It was true that the relevant event, failure to co-operate in the event of a claim, occurred only after, in the terms of s 6(1), "the happening of the event giving rise to the claim for damages or compensation". Nevertheless, the entitlement to disclaim liability was conferred by the contract as it stood at the earlier date, albeit the entitlement became exercisable only after the happening of a later event. In McMillan v Mannix, the New South Wales Court of Appeal, by majority, held, correctly in our view, that there were no insurance moneys which were or might become payable in the sense of s 6(1) of the Law Reform Act.
(Citations omitted).
[34] The stipulation that is made express in s 6(4) is, in my view, implicit in s 9(4). That is because (as the High Court stated) if there is a clear entitlement on the part of an insurer to disclaim under the terms of the contract of insurance then there can be no “insurance money which is or may become payable” in terms of s 9(1); once such an entitlement was established, no statutory charge over the money would exist. Thus it follows that an application for leave might well involve an inquiry into the existence of any clear basis for avoiding or disclaiming the policy. In that sense s 9(4) can be said not only to contemplate a gatekeeper role for the Court but also the performance of a more active supervisory or superintendent function.
[35] A further specific matter potentially relevant to the exercise of the leave discretion was identified in a number of the Australian cases. Kirby J was (on a
number of occasions, and prior to his elevation to the High Court) one of the proponents of this additional criterion. He put it in this way in Grimson:14
To prevent injustice to the insurer by a gross delay in the enforcement of the action based on the statutory charge which certainly arose at that time, the bringing of an action by the plaintiff against the insurer is controlled by the proviso which Parliament has enacted affording a gateway through which the plaintiff must pass to commence the action on the “charge”.15
[36] Because the discretion to grant leave was regarded as being the more flexible and thus fairer means of protecting insurers against gross delays in bringing proceedings, the relevant Courts also found that the limitation period for proceedings against insurers under subsection (4) did not start to run until the grant of leave. In that respect Kirby J said (at 425–426):
The construction of s 6 of the Act must be decided by reference to the possibility that a plaintiff may be only one day outside the limitation period, and although the plaintiff had pursued an action against the insured with relentless diligence, the insured was wound up or, if a person, died. Two constructions of the section are then available. The one is that the plaintiff is then completely denied the beneficial operation of the section, although Parliament did not, in terms, so provide. The other (which I prefer) is that the benefit of the section remains available to the plaintiff but only if the court, in exercising its discretion at the gateway of leave, decides that, in all the circumstances, leave should be granted.
[37] This view has, however, been subsequently rejected in Australia.16 Although it seems the issue remains open in New Zealand,17 Kirby J’s reasoning was not pressed upon me by any of the parties to the present application. It was submitted that the better view was that “tentatively” expressed by Hardie Boys J in FAI (NZ) General Insurance v Blundell & Brown18 (and now accepted in Australia) where he said:
... because the section puts the insurer in the place of the insured, there is much to be said for the view that time ceases to run once an action has been commenced in respect of the happening from which the liability of them both arises. For what then follows under the section is enforcement of the charge that the happening has brought into being ...
14 Above at n 8 at 425.
15 Similar views were expressed in New South Wales Medical Defence Union Ltd v Crawford (1993)
31 NSWLR 469.
16 Kinzett v McCourt (1999) 46 NSWLR 32 (CA) at 50–51.
17 For authority that the choice is still regarded as open, see UEB Packaging v QBE Insurance
(International) Ltd [1998] 2 NZLR 64 (CA) at 70-71.
18 FAI (NZ) General Insurance v Blundell & Brown [1994] 1 NZLR 11 at 20.
[38] The wider concerns to which the alternative approach gave rise were set out by the NSW Court of Appeal (sitting with a bench of 5) in Kinzett v McCourt:19
“... The need for leave was no doubt intended to protect insurers against excessive direct action, but, ... as the law presently stands it operates to give insurers an open ended exposure to action by the third parties. In a real way it does not protect them, but increases their exposure, at least theoretically beyond their exposure to their insureds.”
The implication of the majority reasoning in New South Wales Medical Defence Union Ltd v Crawford is that no statute of limitations is effective with respect to any aspect of intercourse covered by policies of liability insurance. The only effective control is the exercise of an unconfined discretion by the Courts to refuse leave. Even in 1946 when the Law Reform Act was passed, this was an extraordinary consequence. At that time the Statute of Limitations of 1623 (Imp) was still in force in New South Wales. The practical implications of effectively excluding liability insurance from all statutory limitations is of even greater significance today. But the Act must be construed in accordance with the intention of parliament in 1946.
The judiciary cannot be indifferent to the economic consequences of its decisions. Insurance premiums for liability policies are, in substance, a form of taxation (sometimes compulsory but ubiquitous even when voluntary) imposed by the judiciary as an arm of the state. For many decades, there has been a seemingly inexorable increase in that form of taxation by a series of judicial decisions, on substantive and procedural law. I do not believe that this process should be given the further impetus implicit in the replacement, of precise statutory periods of limitation, by an unconfined discretion, in every area of intercourse, both personal and commercial, in which liability insurance exists. The language which Parliament chose in 1946 would have to be extraordinarily compelling to conclude that it intended to replace longstanding statutory provisions, which implement a public policy of great significance, with an unconfined judicial discretion in a significant field of insurance.
[39] As I have already noted, if the limitation period did not begin running until the grant of leave, then the length of time taken to bring proceedings against an insurer (and the reasons therefor) would necessarily become a factor that was very relevant to the exercise of the leave discretion. However it seems to me that the approach in Kinzett and of Hardie Boys J in Blundell & Brown is to be preferred and therefore I do not consider that delay is likely to be material to the determination of applications for leave under s 9(4). I note that the alternative (“Kirby J”) view would not, in any event, assist Vero in the present case because its application would mean that even if the present claim against it was held to be a nullity due to the absence of leave, there would be no statute bar operating to prevent a fresh application for leave.
[40] It seems to me that the following conclusions appear to me to emerge from the above analysis.
[41] First, like many other leave provisions, s 9(4) appears mandatory in its terms: “no such action shall be commenced ... except with ... leave”. There is also merit in Mr Weston’s submission that because s 9 creates a novel right that was not previously known to the law, it should be more strictly construed. More particularly, the argument that such a construction gives rise to a denial of a plaintiff’s access to justice necessarily has less force where, but for s 9, a plaintiff would not be able to proceed directly against an insurer at all.
[42] Secondly, it seems to me that the legislative intention is that the Court is to perform some kind of gatekeeper/supervisory role and, as the discussion above indicates, there are potentially quite substantive matters that may fall to be considered when exercising that function. The grant of leave is not intended to be automatic and it does not involve a rubber stamping exercise. There is in my view a signal difference between (for example) an application for leave to proceed under s 9(4) and (for example) an application for the joinder of a defendant under r 4.56. In Emanuele Kirby J put the argument in this way:
Unless an approach of strictness is adopted with respect to the requirement of leave before the application may proceed, the prior supervision of the court, which Parliament clearly envisaged in the specified cases, would be illusory. Prior consideration of whether a prima facie case could be established could never adequately be undertaken retrospectively. Effectively, the legislative requirement at the gateway would be lost. Instead, a court would be obliged to consider the matter, as here, entangled in the inevitable inconvenience which would follow a refusal to afford relief nunc pro tunc. Courts should not be put in this position. ...
Whatever the perceived merits of the particular case, it was urged that the Court should declare and uphold the strict construction of s 459P for the good administration of the Law. A "loose" construction of the section, condoning non-compliance with the Law to solve an oversight in a particular case, was less desirable than that a strict construction should be adopted which gave effect to the deliberate introduction of a requirement for leave, to be sought and obtained before the application, not after orders of winding up were made.20
[43] I confess that that position is not without attraction. However Kirby J eventually rejected it in the Emanuele case. And equally, there are a number of features that militate against the adoption of such an absolutist approach here.
[44] First, because s 9(2) and (4) make it clear that leave to proceed against an insurer is not required in all s 9 cases, it is difficult to see leave as fundamental to the right to proceed. And notwithstanding my conclusions as to the substantive content of the leave requirement there is no obvious and inevitable prejudice to an insurer where proceedings have been commenced without leave. In this respect it is perhaps telling that Mr Weston did not seek to rely on any specific actual harm that has flowed to Vero as a result of the non-compliance presently at issue. To the extent the “good administration of the Law” is nonetheless jeopardised by a party’s disregard of the leave requirement, that is a matter that can be taken into account when determining whether any nunc pro tunc application should be granted.
[45] Secondly, s 9 is both remedial and reformatory and should therefore be liberally interpreted in a way that is most likely to achieve the objects of its enactment. The general trend against strict construction also supports such an approach. As Kirby J said in Emanuele at 152–153:
It is trite to say, but worth repeating, that the power of a court, such as the Federal Court, to correct obvious slips by orders in appropriate cases nunc pro tunc is one granted by legislation and the rules and implied in the express powers of the Court to avoid injustice. There is a reason for the tendency in the series of cases cited by McHugh JA in Woods v Bate and in other cases to like effect, for the reluctance of courts in recent times to invalidate acts done pursuant to a statutory provision because of a failure to comply with a prior procedural condition. Courts today are less patient with meritless technicalities. They recognise the inconvenience that can attend an overly strict requirement of conformity to procedural preconditions. In the morass of modern legislation, it is easy enough, even for skilled and diligent legal practitioners (still more lay persons who must conform to the law) to slip in complying with statutory requirements.
(Citations omitted).
[46] Thirdly, if the failure to obtain leave is not seen in jurisdictional terms (which in my view it should not be) it becomes much more difficult to contend that the Court should not be able to grant leave retrospectively, if justice requires it. The Court having that ability is also consistent with what I have found to be the purpose
of the leave requirement, namely to facilitate or encourage superintendence of the claim by the Court. And the fact that (notwithstanding the absence of leave) the present proceedings have in fact been actively managed (superintended) by the Court since their inception some four years ago also serves to emphasise that the object of the leave requirement has not been defeated by the failure to obtain prior leave.
[47] For the above reasons, and on balance, I consider that failure to obtain leave is capable of cure by the Court if and when an appropriate retrospective application is made and if justice so requires. In so concluding I merely record that the fact that similar or materially identical issues have divided higher Courts and troubled greater minds than my own speaks for itself in terms of the difficulty of the issue.
[48] I also wish to make it clear that notwithstanding the view I have formed the failure to obtain leave is not to be condoned as a trivial or incidental matter. It seems to me to be plainly desirable both from the parties’ perspectives and from the Court’s that issues that are ancillary to the core factual and legal matrix of a leaky building claim (such as the interpretation and application of an insurance contract) be ventilated separately if possible, and resolved prior to trial.
Did the plaintiffs obtain leave to join Vero as a defendant?
[49] In order to determine whether the plaintiffs are correct in their contention that leave was, in any event, granted by Associate Judge Faire to join Vero as a defendant in terms of s 9(4) it is necessary to set out something of the relevant procedural history. That history was helpfully summarised by the plaintiffs through the affidavit of Rita Morar dated 15 October 2010. The steps outlined in the affidavit are not disputed by Vero. Rather, it is their import that is a matter of debate.
[50] The plaintiffs’ claim was originally filed in March 2006. The only named defendants at that point were North Shore City Council, Taradale Properties Limited, Stan Powley Architects Limited and MacRennie Constructions Limited. As with all leaky building cases, however, the spectre of multiple parties, cross-claims and third party claims hung over the proceedings from the outset.
[51] During 2006 the Court extended time for the joinder of third parties until
30 March 2007.
[52] At the end of March 2007 Auckland City Council filed a third party claim claiming contribution from the first to fifth third parties. Vero as the insurer of Progressive was the fourth third party. As regards the joinder of Vero by the first defendant Council, on 30 March 2007 the Council filed and served a third party notice and claim against Vero. The third party notice was in the standard form and simply notifies Vero that the Council claims against Vero the relief or remedy set out in the statement of claim. The statement of claim refers to the contract of insurance held by Progressive Building Systems Limited with Vero, details the involvement of Progressive in the construction of the units and the Eterpan cladding system and refers to both s 9(1) and s 9(4) of the Law Reform Act.
[53] In terms of the High Court Rules leave to issue the third party notices was neither sought nor required. As I have said, however, it is accepted by the Council that leave under s 9(4) was not obtained.
[54] Then on 30 May 2007 by way of a joint memorandum the plaintiffs sought to join Vero as a defendant to the proceedings. The memorandum simply stated: The plaintiffs seek leave to join the first to fourth third parties as defendants. The reference to the first to fourth third parties related back to the Council’s third party notices. Although not made explicit in the memorandum it seems to me that leave was plainly being sought under the predecessor to r 4.56. No reference was made in the memorandum to the Law Reform Act 1936. The third parties did not themselves sign the memorandum.
[55] On 1 June 2007 Associate Judge Faire issued a minute which stated (inter alia):
In the case of any defendant who the plaintiffs might wish to join I reserve leave to apply by memorandum seeking an urgent telephone conference to deal with that matter.
[56] On 7 June 2007 the plaintiffs filed just such a memorandum. That memorandum recorded:
1. By consent memorandum dated 31 May 2007 signed by counsel for the plaintiffs’ first and second defendants, the plaintiffs sought leave to join the first to fourth third parties as defendants.
2. At the Chambers List hearing on 1 June 2007 His Honour granted leave for the plaintiffs to join the third parties as defendants and to file and serve an amended statement of claim by 8 June 2007. However His Honour’s minute does not explicitly state that leave has been given, only that the plaintiffs are to file and serve an amended statement of claim by 8 June 2007.
3. There was consent to join those parties as defendants by the defendants and no opposition by the third parties. His Honour reserved leave to file memorandum [sic] seeking an urgent telephone conference in case of any further joinder, however counsel surmises that this was intended to deal with further defendants other than those already in the proceeding as third parties.
4. The plaintiffs seek clarification of His Honour’s minute dated
1 June 2007 that leave has been granted to join the third parties as defendants, or alternatively seeks an urgent telephone conference to deal with the same.
[57] By further memorandum dated 13 June 2007 counsel reiterated the plaintiffs’ desire to join the current third parties as defendants to the proceedings (including Vero).
[58] On 14 June 2007 Associate Judge Faire noted the matters raised in the memorandum of 13 June 2007 and recorded:
On the basis that there is consent by the parties I order:
(a) That the plaintiffs be, and is [sic], granted leave to join the following parties as defendants:
...
Vero Insurance NZ Limited;
[59] Later that same day the plaintiffs filed an amended statement of claim. It contained, between paragraphs 52 and 63, their claim against Vero as eighth defendant. Most of those paragraphs refer to the Eterpan cladding system supplied by Progressive and used in the construction of the Grange. Then at paragraphs 58 to
63 it states:
58. The shortcomings in the Eterpan cladding system and literature and
Progressive’s involvement on site have resulted in the defective
cladding system to the buildings which require the need to carry out repairs particularised in paragraph 21 above.
59. As a result of the abovementioned shortcomings the plaintiff has suffered the losses pleaded at paragraph 26 above.
60. Progressive is in liquidation.
61. At all material times Progressive was insured by the eighth defendant under a business plan policy and broad form liability policy no. HOBSP
2856915 (“the policy”). ...
62. Section 9(1) of the Law Reform Act 1936 provides that where any person has entered into a contract of insurance by which he has indemnified against liability to pay any damages for compensation, the amount of this liability shall on the happening of the event giving rise to the claim for damages and compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance money that is or may become payable in respect of that liability.
63. Section 9(4) of the Law Reform Act 1936 provides that every such charge is enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured.
[60] The amended statement of claim was served on Vero on 15 June 2007. Service was acknowledged by Vero’s solicitors on 26 June 2007. Since that date Vero has participated in the proceedings as if properly joined, a matter which potentially assumes some significance in the event that estoppel and waiver become an issue.
[61] On the basis of the foregoing account it seems to me that leave was granted by Associate Judge Faire to join Vero in terms of r 4.56 but not s 9(4). I do not consider that granting leave under the former can properly be regarded as incorporating or implying the grant of leave under the latter for a number of reasons.
[62] First, s 9(4) was not drawn to Judge Faire’s attention. Secondly, no attention was given to what I have said above are the considerations relevant to the grant of leave under s 9(4). The exercise of discretion to join a defendant under r 4.56 is routinely exercised in favour of joinder and does not require the Court to turn its mind to the types of matters that might militate against joinder under s 9(4). Thirdly, Vero did not consent and was not given the opportunity to be heard on the application. For the reasons I have given above I consider that s 9(4) requires
applications for leave to be made on notice and confers on an affected insurance company a right to be heard.
[63] Accordingly, and in light of my conclusions in [47] above, the plaintiffs along with the Council and Wattyl will now need to apply for leave under s 9(4) retrospectively. It also follows that I do not need to consider the issues of waiver or estoppel although they may well be matters relevant to whether leave should now be granted.
[64] Vero’s application for leave to make the present application is granted but its strike out application is dismissed. Leave is granted to Vero to file, if necessary, an amended pleading dealing with the position of Progressive more completely.
[65] The plaintiffs, the Council and Wattyl are entitled to costs on a 2B basis.
Rebecca Ellis J
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