Aulich & Ors v QBE Insurance Ltd & Suncorp Metway Insurance Ltd [2002] ACTSC 61 (24 June 2002)

Last Updated: 27 June 2002

JUDITH ANNETTE AULICH AND OTHERS v QBE INSURANCE LIMITED AND SUNCORP METWAY INSURANCE LIMITED [2002] ACTSC 61 (24 June 2002)

CATCHWORDS

INSURANCE - application to enforce charge on insurance moneys against insurer - Law Reform (Miscellaneous Provisions) Act 1955, Pt 8 - when charge attaches - whether charge may attach before issue of insurance policy.

Law Reform (Miscellaneous Provisions) Act 1955, ss 25, 26, 27

Andjelkovic v AFG Insurances Ltd (1980) 31 ACTR 17

AFG Insurances Ltd v Andjelkovic [1981] FCA 104; (1981) 54 FLR 398

Manettas v Underwriters at Lloyds (1993) 7 ANZ Insurances Cases 61-180

Independent Wool Dumpers Pty Ltd v American International Underwriters (NZ) Limited & Ors (1993) 7 ANZ Insurance Cases 61-152

Capita Financial Group Ltd v Triden Properties Ltd (unreported Supreme Court of New South Wales, 6 September 1993)

National Mutual Property Services (Australia) Pty Ltd and Others v Citibank Savings Ltd and Others (1996) 138 ALR 409

FAI General Insurance Co Ltd v McSweeney and Others (1997) 73 FCR 379

Schipp v Cameron and Others [1999] NSWSC 997

No. SC 832 of 2000

Judge: Miles CJ

Supreme Court of the ACT

Date: 24 June 2002

IN THE SUPREME COURT OF THE )

) No. SC 832 of 2000

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: JUDITH ANNETTE AULICH AND OTHERS

Plaintiffs

AND: QBE INSURANCE LIMITED

(ACN 000 157 899)

First Defendant

AND: SUNCORP METWAY INSURANCE LIMITED (ACN 075 695 966)

Second Defendant

ORDER

Judge: Miles CJ

Date: 24 June 2002

Place: Canberra

THE COURT ORDERS THAT:

1. Leave be granted to the plaintiffs to sue the defendants in accordance with these reasons.

2. The parties bring in short minutes within 14 days.

1. This is an application under s 26(3) of the Law Reform (Miscellaneous Provisions) Act 1955 (the Act) for leave to enforce against an insurer a charge created by Pt 8 of the Act.

2. The relevant provisions of the Act are as follows:

"25 Amount of liability to be charge on insurance moneys payable against that liability

(1) If a person (in this part called the insured) has entered into a contract of insurance by which he or she is indemnified against liability to pay any damages or compensation, the amount of his or her liability is, on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of the liability may not then have been determined, a charge on all insurance moneys that are or may become payable in respect of that liability.

(2) If, on the happening of the event giving rise to the claim for damages or compensation, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is taken to have commenced not later than the happening of that event, the provisions of subsection (1) apply notwithstanding the winding-up.

(3) Every charge created by this section has priority over all other charges affecting the insurance moneys, and where the same insurance moneys are subject to 2 or more charges by virtue of this section those charges have priority between themselves in the order of the dates of the events out of which the liability arose, or, if the charges arise out of events happening on the same date, they rank equally between themselves.

26 Enforcement of charge

(1) Subject to subsection (2), a charge created by this part 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.

(2) In respect of any such action and of the judgment given in any such action the parties have, to the extent of the charge, the same rights and liabilities, and the court has the same powers, as if the action were against the insured.

(3) Except where section 25 (2) applies, no such action shall be commenced in any court except with the leave of that court, and leave shall not be granted 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.

(4) 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.

27 Protection of insurer

(1) Notwithstanding anything in this part, a payment made by an insurer under the contract of insurance without actual notice of the existence of a charge under this section is, to the extent of that payment, a valid discharge to the insurer.

(2) An insurer is not liable under this part for any greater sum than that fixed by the contract of insurance between the insurer and the insured."

3. Provisions like (if not identical to) these originated in New Zealand and have been enacted in New South Wales, but apparently not elsewhere in Australia. Counsel informed me that they have not been enacted in the United Kingdom where the legislative approach has been different.

4. The nature of requirement for leave under s 26(3) was described by Blackburn CJ in Andjelkovic v AFG Insurances Ltd (1980) 31 ACTR 17 at 24 as follows:

"The main purpose of the provision requiring leave to commence the statutory action is to prevent the substitution of a statutory claim for a claim against the insured where the latter is available and will apparently be effective. Leave may also be refused where the applicant's claim is unarguable, that is, where the applicant's contention, that the statutory conditions for the vesting in him of a right of action have been fulfilled, could not possibly succeed. But if on such an issue there is an argument in the applicant's favour which could be seriously put, then in my opinion, on the proper construction of the Ordinance, leave should be granted and the issue should be determined in the action in any available way."

5. On appeal a Full Court of the Federal Court of Australia quoted the above passage with apparent approval in AFG Insurances Ltd v Andjelkovic [1981] FCA 104; (1981) 54 FLR 398 at 399-400, see below at [24].

6. The facts alleged by the plaintiffs and which may be taken for the purposes of the present application to be supported by evidence are as follows.

7. Before 20 March 1988 Tax Invest gave financial advice to the plaintiffs. Acting on that advice the plaintiffs made payments to a Geoffrey Dexter by way of loan and for investment in a scheme run by The Wattle Group which was under the control of Geoffrey Dexter (the scheme). Tax Invest took out a professional indemnity policy (the policy) with the defendants which was effective from 20 March 1998 for a period of 12 months.

8. Until 27 March 1998 the plaintiffs received from Geoffrey Dexter or from The Wattle Group or both interest on their investments by way of either a monthly cheque or a statement showing that the interest had been received and had been reinvested in the scheme.

9. On 27 March 1998, the Supreme Court of Queensland issued an injunction restraining Geoffrey Dexter from continuing to manage or operate the scheme. Until that date the plaintiffs had no reason to believe that Geoffrey Dexter or The Wattle Group were not in a position to repay the monies lent.

10. On 28 May 1998, Geoffrey Dexter was made bankrupt and recovery of the monies lent by the plaintiffs became impossible.

11. On 11 June 1998, solicitors for one of the plaintiffs informed Tax Invest of the client's intention to sue and suggested that the matter be referred to Tax Invest's insurer.

12. Subsequently, solicitors for the defendants informed solicitors for some of the plaintiffs of the existence of the policy. On 10 March 2000, the plaintiffs commenced proceedings against Tax Invest in this Court (No SC 152 of 2000). On 6 October 2000 the plaintiffs obtained interlocutory judgment for damages to be assessed. On 5 December 2000 the originating application in this matter was filed on behalf of some 173 plaintiffs.

13. It is properly conceded that the plaintiffs have an arguable claim against Tax Invest, that Tax Invest had a policy in place with the defendants which "responded" to the claim and that there is a real possibility that Tax Invest will be unable to satisfy that claim. Although the liability of Tax Invest for negligent advice is denied by the present defendants, the further concession is properly made for the purposes of the present application that Tax Invest is entitled to be indemnified by the defendants against its liability to the plaintiffs.

14. It is submitted on behalf of the defendants that the happening of the event giving rise to the claim for damages by the plaintiffs under s 25(1) of the Act is the conduct of the insured which ultimately gives rise to the liability, and not the occurrence of the last event necessary for the cause of action of the third party against the insured to have accrued. On that basis the conduct in question in the present case being the alleged negligent advice which, according to the facts propounded, occurred before the policy issued and it is further submitted on behalf of the defendants in general terms that s 25(1) of the Act does not apply when the "event" occurred before the issue of a policy such as the one in question. Such a policy is apparently known in the insurance world as a "claims made and notified" policy.

15. Consistent with the remarks of Blackburn CJ quoted above, it is not necessary to decide now, as a matter of law, whether either of these submissions should be accepted. It is sufficient for the purpose of deciding whether leave should be granted, that the contrary view is arguable.

16. It is true that there is judicial authority to support both submissions but, in my view, there is also authority which favours rejection.

17. Authority for the proposition that the "event" is the conduct of the assured which ultimately gives rise to the liability for which the assured is indemnified is to be found in Manettas v Underwriters at Lloyds (1993) 7 ANZ Insurances Cases 61-180 at 78, 031-32. In that case, an action for damages against allegedly negligent solicitors, not dissimilar to the present case, Cole J held that the event giving rise to the claim for damages was the occurrence of the allegedly negligent acts and omissions of the defendants, and not the date on which damage resulting from such acts and omission was allegedly first suffered. In Independent Wool Dumpers Pty Ltd v American International Underwriters (NZ) Limited & Ors (1993) 7 ANZ Insurance Cases 61-152, Thomas J in the High Court of New Zealand held that the "happening of the event giving rise to the claim for damages" is not a reference to the third party's cause of action against the insured and held further that those words are to be restricted to the event which gives rise to the claim for damages for which the insured is indemnified.

18. However, in Capita Financial Group Ltd v Triden Properties Ltd (unreported Supreme Court of New South Wales, 6 September 1993) Cole J acknowledged that he had moved from his approach in Manettas and held that the happening of the event which gives rise to the claim for damages is the event which makes the cause of action complete, thereby "giving rise" to the claim for damages.

19. The decision of Cole J was upheld in the Court of Appeal. Sheller JA, with whom Clarke and Powell JJA agreed, referred with apparent approval to the judgment of Thomas J in Independent Wool Dumpers, but the question of the exact point of time at which there is a happening of the event giving rise to the claim for damages within the meaning of the legislation did not fall for consideration.

20. On the allied question whether s 25(1) of the Act applies only to "claims made and notified" policies of insurance which are effective before the happening of the event giving rise to the liability of the insurer to the insured, again, there is conflicting judicial authority.

21. In the Federal Court of Australia it has been held at first instance that Pt 8 of the Act, with similar provisions elsewhere, applies notwithstanding that the policy of insurance came into existence only after the occurrence of the event giving rise to the claim for damages, whenever that might have been. It was so held by Lindgren J, granting leave, in National Mutual Property Services (Australia) Pty Ltd and Others v Citibank Savings Ltd and Others (1996) 138 ALR 409 and again, refusing leave, in FAI General Insurance Co Ltd v McSweeney and Others (1997) 73 FCR 379. In the former decision Lindgren J said at 418:

"In order for the court to become seized of the discretion to grant leave, it need be satisfied by Citibank only that Citibank is arguably entitled to enforce, by its proposed cross-claim against AHA, the charge provided for in s 6 of the LR (MP) Act: cf AFG Insurances Ltd v Andjelkovic [1981] FCA 104; (1981) 54 FLR 398 (FC) at 399-400; Oswald v Bailey (1987) 11 NSWLR 715 at 734 - 6 (Priestley JA). I decline AHA's invitation to attempt somehow to "determine finally" the Manettas issue on Citibank's motion for leave and I do not regard myself as doing so."

22. In Schipp v Cameron and Others [1999] NSWSC 997, Einstein J determined the substantive proceedings in which Young J had granted leave. After a comprehensive survey of the authorities (to which counsel made reference in the present application but need not be discussed by me) and reference to the Second Reading Speech on 20 March 1946 by the then Attorney-General, Major Martin, his Honour said at [893]:

"In my view, in order for a s 6 statutory charge to arise there must be a contract of insurance on foot when the event giving rise to the claim for damages or compensation occurs. Only then is there property, in the form of a fund of insurance moneys, to which a charge can attach."

23. For a Judge of this Court sitting at first instance, unless there is High Court authority on the subject, a decision of the Court of Appeal or the Full Court of this Court or of the Full Court of the Federal Court of Australia is binding. In the absence of any decision on the subject in any of those courts, decisions of Full Courts of the Supreme Courts of the States or the Northern Territory, or of their Courts of Appeal, will be authorities to which this Court will give full respect. However, I do not think that the decision of the Court of Appeal of New South Wales in Manettas offers a precedent for the purpose in the present matter, since none of the issues for determination in the present application were the subject of precise attention in that decision. Lindgren J, sitting as a single judge of the Federal Court, did not think so either. Of the single judge decisions which were relied upon by the defendant to resist leave being granted, it seems to me that it is only that of Einstein J in Schipp v Cameron and that of Cole J in Manettas (subsequently not adhered to by his Honour) which clearly favour the defendants. The decision of Thomas J in Independent Wool Dumpers does not, in my view, address the precise issues which the defendants submit must be answered adversely to the plaintiffs.

24. Where authority is clear it is in the decision of the Full Court of the Federal Court of Australia in Andjelkovic, reflecting the passage from the judgment of Blackburn CJ below, quoted at the beginning of these reasons. The Full Court said at 400:

"Section 26(3) commands the court not to grant leave in certain circumstances. It is not easy to decide precisely what is embraced in the words which describe the circumstances where the court is not to grant leave. In our opinion the court has a general power to grant leave in all cases which do not fall within the provision that it shall not grant leave and in which it is made to appear by evidence available in the application that there is an arguable case of liability against the insured, being a liability against which the insured is indemnified by a contract of insurance in force at the time of the happening of the event said to give rise to the claim. We accept the relevant test proposed by the respondent which is really the test formulated by the primary judge, namely, has the respondent presented a case which is at least arguable?"

25. In my view, the plaintiffs have clearly an arguable case and the only question remaining is whether the ultimate discretion to grant leave should be exercised.

26. Mr Gibson QC for the defendants submitted that it is not in the interests of justice for leave to be granted simply upon the plaintiffs showing an arguable case for enforcement of a charge under Pt 8 since the Court is in as good a position now on uncontested evidence and agreed facts, to decide the issue of the existence and operation of the charge and of the plaintiffs' entitlement to enforce it, as it would be at a final hearing. Hence, as I understand the submission, leave should not be granted unless the Court would be satisfied on the ordinary civil onus that there is a charge which the plaintiffs are entitled to enforce. However, in my view, the submission is contrary to Andjelkovic and the several decisions which have followed it and must be rejected for that reason. I acknowledge in this respect the considerable amount of effort and research that counsel have put into arguing the present application, for which I am grateful, but no disrespect is intended by my failure to mention, let alone discuss, all the authorities and other material relied upon.

27. Accordingly, the plaintiffs having established an arguable case, and nothing having been shown as to why they should be denied the opportunity to pursue it, leave is granted to them as sought. The parties should bring in short minutes to give effect to this decision within 14 days. Unless the parties wish to submit otherwise, I propose to order that the costs of the application be costs in the cause.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Miles.

Associate:

Date: 24 June 2002

Counsel for the plaintiffs: Mr A S Martin QC with Mr D Mossop

Solicitor for the plaintiffs: Meyer Clapham - Lawyers

Counsel for the defendants: Mr G J Gibson QC with Mr P J Dunning

Solicitor for the defendants: Clayton Utz

Dates of hearing: 28 and 29 May 2002

Date of judgment: 24 June 2002