FEDERAL COURT OF AUSTRALIA

May v Vero Insurance Limited [2012] FCA 727

THE COURT ORDERS THAT:

1.    Pursuant to Rule 16.21 of the Federal Court Rules 2011, the Applicant’s Amended Statement of Claim and Further Amended Statement of Claim be struck out on the ground that the pleadings constitute an abuse of the process of the Court.

2.    The Applicant pay the costs of the Respondent.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    Before the Court is an interlocutory application brought by the respondent (‘Vero’) for an order that judgment be entered in favour of Vero pursuant to r 26.01(1) of the Federal Court Rules 2011 (‘the Rules’). Vero claims that the applicant has no reasonable prospect of successfully prosecuting the proceedings; that the proceedings are frivolous and/or vexatious; that no reasonable cause of action was disclosed and that the proceedings are an abuse of the process of the Court.

2    It is necessary to refer to the history of the proceedings and associated proceedings before turning to the subject matter of the interlocutory application.

FACTS

3    Vero is registered by APRA as an Authorised Insurer pursuant to s 12 of the Insurance Act 1973 (Cth) (‘the Act’). As such, Vero is authorised to conduct new or renewal insurance business in Australia. The respondent to the interlocutory application (who is the applicant in these proceedings and who shall be referred to hereafter as ‘Mr May’) was at all relevant times one of the directors of a company known as Belltree Constructions Pty Limited (‘Belltree’), a now deregistered company. Belltree was engaged in the construction industry which included domestic building work.

4    In 1989 the New South Wales government enacted legislation to regulate home builders. Such legislation required a builder to enter into a policy of insurance with an insurer to indemnify home owners in respect of any claims made for breach of statutory warranties given for building works and for incomplete work resulting from the death, disappearance or insolvency of the builder under his building contract with the home owner. Vero was an insurer who carried on the business of a Home Owners Warranty Insurer pursuant to the Act.

5    In consideration of Vero providing Home Owners Warranty Insurance to Belltree, Mr May signed documents together described as a Group Trading Agreement on 29 September and 4 October 2005 by which he undertook to pay Vero on demand all amounts paid by Vero pursuant to any claim made under any policy or certificate of warranty insurance issued by Vero (‘the indemnity’).

6    Claims were made by three home owners in respect of work carried out on residential buildings by Belltree and in consequence Vero was required to pay the sum of $362,076.27 for such claims. These claims arose out of Certificates of Insurance provided by Vero to Belltree numbered 372590, 73058502 and 311383. The claims made by the building owners and the amounts paid by Vero are not disputed.

7    On 26 November 2009 Belltree was ordered to be wound up by the Supreme Court of New South Wales in proceedings 3524 of 2009 resulting from proceedings by one of the claimants. Thereafter Vero claimed the amount paid by it to the claimants from Mr May pursuant to the indemnity he had provided.

DISTRICT COURT PROCEEDINGS

8    On 6 December 2011 Vero commenced proceedings with file number 2011/394410 in the District Court of New South Wales (‘the District Court proceedings’) against Mr May claiming the amount of $362,076.27 pursuant to his indemnity. On 3 January 2012 Mr May filed a defence in the District Court which asserted that the indemnity was not a personal guarantee and that such indemnity was invalid.

9    Simultaneous with the filing of his defence Mr May filed a Notice of Motion seeking two orders. The grounds relied upon by Mr May are set out verbatim:

1.    To Strike out the Statement of Claim By Vero Insurance As the insurance policy being Home owner Warranty insurance is illegal, as it required the Builder to be the re insurer and therefore this doesn’t comply with the Insurance Act of 1973.

2.    Or in the Alternative transfer the proceedings to the Federal Court, for determination of the above.

10    In support of his motion Mr May swore an affidavit on 24 January 2012 for a transfer of the proceedings to the Federal Court of Australia, stating his understanding that since the insurance provided by Vero was not restricted to New South Wales alone the Federal Court had jurisdiction to hear his claim.

11    The Notice of Motion brought by Mr May was dismissed on 3 February 2012 since the District Court possessed no jurisdiction to transfer the proceedings before it to this Court.

FEDERAL COURT PROCEEDINGS

12    On 7 March 2012 Mr May filed an originating application in this Court seeking the following relief:

1.    A Declaration that the Respondent Vero Insurance Limited, has breached the rules of the Insurance act 1987 Section 9 Section 11A and Section 34A [sic]

2.    A Declaration that an offence has been committed under section 6.1 of the criminal code for Breaching the Insurance Act 1987

3.    A Declaration That the Respondent Vero Insurance Limited. Conduct Is unconscionable within the meaning of the unwritten law, The ASIC Act, or the Trade practices Act 1974/Competition and Consumer Act 2010

13    A Statement of Claim was simultaneously filed which raised one ground purporting to be the substance of his claim as follows:

3.    It was a prerequisite in obtaining Builders warranty Insurance that a group trading agreement, a Bank Guarantee or a Group trading agreement, was to be signed, this I submit is reinsurance which is illegal.

14    Beneath such paragraph was a claim, unparticularised, for $1 million in damages. It states:

4.    The applicant claims $1,000.000.00 as damages, as a result of the practices of Vero Limited in breaching the conditions of the Insurance Act 1987 as they were in a position of market power where the builder was unable to commence work without, Home warranty insurance for work valued at over $12,000.00 they were able to restrict and govern what work could be undertaken, whilst requesting a guarantee which amounted to reinsurance. [sic]

15    On 7 March 2012 Mr May also filed with the same proceedings an interlocutory application seeking an order that the District Court proceedings be transferred to this Court and making similar allegations as previously referred to, namely that the insurance effected by Vero breached the Act and it was accordingly void.

16    In his affidavit in support of his interlocutory application which was sworn 7 March 2012 Mr May claims that Vero engaged in unconscionable conduct ‘within the meaning of the Trade Practice Act 1987 and the Consumer Act 2010’ [sic] and asserts that the jurisdiction of this Court is the appropriate jurisdiction. Such affidavit refers to the Commonwealth of Australia Constitution Act (‘the Constitution’), and to an inquiry conducted by the Victorian Parliament and attaches extracts from an inquiry apparently conducted in Victoria into insurance in the housing industry generally.

17    These proceedings came before the Court on 4 April 2012 when the Court noted that Mr May said that he regarded the Act as unconstitutional. Mr May was ordered to file an Amended Statement of Claim stating precisely the facts and circumstances relied upon including the alleged breaches of any statute and a statement of the issues to be determined. On 27 April 2012 an Amended Statement of Claim was filed by Mr May.

18    In a letter to Mr May dated 10 May 2012 Vero’s solicitors referred to the Amended Statement of Claim and foreshadowed a strikeout motion. Subsequently a document entitled ‘Amended Statement of Claim 16/5/2012’ was prepared. It appears it has not been filed but it has been signed by Mr May.

19    The proceedings came before the Court for a directions hearing on 17 May 2012 when the Court made orders granting leave to the applicant to file the Second Further Amended Statement of Claim and directing that an affidavit be filed stating precisely the grounds upon which Mr May relied to support his claim. Orders were also made concerning Vero’s foreshadowed strikeout motion.

CONSIDERATION

20    Mr May’s defence to the proceedings raised in the District Court contains matters which are identical to the matters which he seeks to raise in his claim before this Court.

21    Mr May’s claims as pleaded fall into various categories. The first claim alleges that the undertaking is invalid. Two reasons are advanced by Mr May for such invalidity. First, he claims that the indemnity constitutes a form of reinsurance by him for Vero and since he was not licensed to carry out insurance business in Australia the indemnity is invalid because it constitutes a breach of s 9 of the Act which lays down requirements of conducting an insurance business with which he did not comply. Alternatively, it is submitted that the indemnity was provided after various beaches of the then Trade Practices Act 1974 (Cth) (‘the Trade Practices Act’), as amended, had occurred.

22    A second category of claim concerns the conduct of Vero. A declaration is sought that Vero has breached certain sections of the Act and that Vero’s conduct in requiring an indemnity was ‘illegal’. It appears that Mr May also submits that the requiring of such indemnities thereby negatived Vero’s authorisation to act as an insurer.

23    As a third claim, Mr May submits that Vero ‘breached the Corporations Act 2001, s 180’. The facts relied upon to support such assertion relates to an announcement that Mr May claims was made by Vero. The announcement stated that Vero had settled 10,000 claims. Mr May claims this is untrue. Lastly, Mr May seeks a declaration that ‘an offence has been committed under section 6.1 of the Criminal Code because of Vero’s claimed breaches of the Act and of the Corporations Act 2001’.

24    Vero has made several submissions in response to the allegations raised by Mr May. Such submissions have pointed out certain perceived shortcomings in some of the pleadings raised by Mr May, especially in relation to his allegations of breaches of the Trade Practices Act and his claims under the Act, the Criminal Code Act 1995 (Cth) and the Corporations Act 2001 (Cth) (‘the Corporations Act’).

25    In respect of the Trade Practices Act claims, Vero maintains that the sections under which Mr May is claiming relief cannot succeed. For example, his claim under s 52 cannot succeed because s 51AF excludes that section from operation in relation to financial services, which includes ‘a contract of insurance’.

26    As to the claim under s 180 of the Corporations Act, Vero submits that such section provides a statutory remedy to a limited class of persons and that the applicant does not fall within such class. Accordingly Vero submits such course of action is also doomed.

27    Quite apart from the issues arising under the pleadings, Vero submits that all of the issues which Mr May seeks to raise in proceedings before this Court could and should have been raised in Mr May’s defence in the District Court. The District Court proceedings have reached a stage where there is a callover to take place imminently for the allocation of a hearing date. Vero submits these proceedings are vexatious because Mr May has the opportunity to raise all of these issues in the District Court.

28    Mr May informed the Court that he commenced these proceedings in the belief that the Federal Court of Australia possessed exclusive jurisdiction over disputes arising under the Act. He referred the Court to s 51(xiv) of the Constitution which vests power in the Commonwealth Parliament to legislate with respect to insurance.

FINDING

29    The Constitution vests power in the Commonwealth Parliament to legislate with respect to the enumerated subject matters contained in s 51, but it does not follow that matters arising under any statute enacted by such Parliament can only be dealt with in Federal Courts. Furthermore, s 51(xiv) does not establish an exclusive power on the part of the Commonwealth to legislate in this area.

30    The Act does not indicate any intention that matters arising under it can only be legislated in such Courts. Further, s 86(2) of the Trade Practices Act expressly invests state Courts with jurisdiction in matters arising under various provisions of that Act, including Part IVA. The matters sought to be raised by Mr May under the Trade Practices Act all arise under such part. Accordingly there is no legal reason why all of the matters agitated by Mr May could not be raised in the District Court proceedings.

31    Significantly, on 11 April 2012, five weeks after Mr May filed his proceedings in this Court, Mr May filed an amended defence to the District Court proceedings. Mr May’s amended defence is voluminous and raises the same potential issues which he seeks to advance in this Court.

32    It follows from the above that there has been a duplication of jurisdictions for precisely the same matter. In the United Kingdom, using the Court’s process ‘for a purpose or in a way significantly different from its ordinary and proper use’ has been found to be an abuse of process: see Attorney General v Barker [2011] 1 FLR 759 per Lord Bingham CJ. In Henry v Henry (1996) 185 CLR 571, the majority of the High Court (Dawson, Gaudron, McHugh and Gummow JJ) said at 591:

It is prima facie vexatious and oppressive, in the strict sense of those terms, to commence a second or subsequent action in the courts of this country if an action is already pending with respect to the matter in issue. [Footnotes omitted]

33    For other examples applying the same principle see Moore v Inglis (1976) 9 ALR 509; Logan v Bank of Scotland (No 2) [1906] 1 KB 141 at 150; Slough Estates Ltd v Slough Borough Council [1968] Ch 299 at 314-5.

34    Had there been any limitation upon the jurisdiction of the District Court which would operate to prevent any possible relief being granted to Mr May, the dual proceedings would not be regarded as vexatious. However this is not the case. The Court is satisfied that in these circumstances the proceedings initiated in this Court by Mr May constitute an abuse of process.

35    The Court has referred to the matters of substance raised by Vero relating to the pleadings of Mr May. However since any observation of this Court in relation to those matters may impact upon the proceedings in the District Court, it would not be appropriate for this Court to refer to them. Given that the reason for striking out Mr May’s claim in this Court is not related to the merits of his action, the better course of action for this Court is to strike out Mr May’s Statement of Claim and Amended Statement of Claim pursuant to r 16.21 of the Rules, which states:

16.21 Application to strike out pleadings

(1)    A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading:

(a)     contains scandalous material; or

(b)     contains frivolous or vexatious material; or

(c)    is evasive or ambiguous; or

(d)    is likely to cause prejudice, embarrassment or delay in the proceeding; or

(e)    fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or

(f)    is otherwise an abuse of the process of the Court.

36    The Court will accordingly order that the applicant’s Statement of Claim and Amended Statement of Claim be struck out in their entirety.

Associate:

Dated:    9 July 2012