FEDERAL COURT OF AUSTRALIA

Australian Pipe & Tube Pty Ltd v QBE Insurance (Australia) Limited [2015] FCA 1135

THE COURT ORDERS THAT:

1.    The first applicant be granted leave to commence and continue proceedings against Independent Tube Mills Pty Ltd (in liquidation) (ITM) pursuant to s 500(2) of the Corporations Act 2001 (Cth).

2.    Further to paragraph 1, ITM be joined as a respondent pursuant to r 9.05 of the Federal Court Rules 2011 (Cth).

3.    The first applicant have leave to file an amended originating application and statement of claim by 30 October 2015.

4.    The first respondent file a defence by 13 November 2015.

5.    The first applicant file a reply, if any, within 14 days after being served with the defence.

6.    The first applicant and first respondent are directed to attend and participate in a mediation to be conducted at Melbourne to be completed by 29 February 2016.

7.    The mediator is to be selected by the parties and further:

(a)    The mediator is to be provided with a copy of the pleadings;

(b)    The period of the mediation is fixed at a maximum of one day and may extend beyond that period only with the authorisation of the parties; and

(c)    The first applicant and first respondent are to share the costs of mediation.

8.    If the proceedings are not resolved prior to or at such mediation, then the parties are to consult with each other to prepare a timetable for the conduct of the proceeding.

9.    The title to this proceeding be amended to remove ITM as the second applicant and to name and describe it as the second respondent.

10.    Further, the title to this proceeding be amended to redescribe the first applicant as the applicant.

11.    There be a further directions hearing in this matter at 9.30am on 18 March 2016.

12.    Costs reserved.

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

REASONS FOR JUDGMENT

1    By an interlocutory application dated 20 October 2015, the first applicant (APT) has sought orders that:

(a)    APT be given leave to commence and continue proceedings against Independent Tube Mills Pty Ltd (in liquidation) (ITM) pursuant to s 500(2) of the Corporations Act 2001 (Cth) (the Act); and

(b)    pursuant to r 9.05 of the Federal Court Rules 2011 (Cth), ITM be joined as a respondent, and that the application and statement of claim be amended accordingly.

2    ITM, which is presently the second applicant, has discontinued its claim against the present respondent (QBE).

3    In summary, APT alleges in the principal proceeding the following matters:

(a)    ITM suffered losses as a result of diminished functionality of a steel tube mill;

(b)    ITM operated this mill at a purpose built facility in Ravenhall, Victoria;

(c)    Such diminished functionality arose from defects in a concrete slab on which the mill sat;

(d)    QBE granted ITM indemnity under the relevant QBE insurance policy (the Policy) on 1 May 2013;

(e)    QBE paid $1 million to ITM to settle the “Material Damage” component of ITM’s insurance claim;

(f)    QBE paid $3.8 million to ITM in partial settlement of the “Business Interruption” component of ITM’s insurance claim;

(g)    In May 2014, ITM assigned the benefit of the Policy and any recoveries or entitlements to any recoveries to APT, notice of which assignment was given to QBE in August 2014;

(h)    In breach of the Policy, QBE has refused to indemnify ITM/APT for the balance of the “Business Interruption” component of the insurance claim; and

(i)    As a result of that breach, APT has suffered loss and damage. The present damages claim is in excess of $10 million.

4    The claim against QBE depends in part on an assignment of rights pursuant to or under the Policy to which ITM is the named insured. That assignment was made under a deed to which ITM and APT are parties dated 16 May 2014.

5    On 1 July 2014, ITM became subject to a creditors’ voluntary winding up by virtue of a resolution passed on 1 July 2014. In August 2014, as I have said, notice of the assignment was given to QBE. Normally such a notice would have been sufficient to convert the equitable assignment into a legal assignment (s 134 of the Property Law Act 1958 (Vic)). But as the liquidation of the assignor commenced before the notice, the legal interest was not validly assigned by the operation of the subsequent notice per se. Accordingly, notwithstanding the notice, the assignment continued only to be effective in equity.

6    APT accepts that the relevant assignment is an equitable assignment only. Accordingly, the joinder of ITM to the proceeding as a respondent is necessary now that ITM has discontinued its own claim. I agree; see One.Tel (in liq) v Watson [2009] NSWCA 282 at [111]; CGU Insurance Limited v One.Tel Limited (in liquidation) (2010) 242 CLR 174 at [28] and Weddell v JA Pearce & Major [1988] 1 Ch 26 at [40].

7    The proposed joinder is necessary to ensure that all matters in dispute are effectually and completely determined and adjudicated upon (see r 9.05 of the Federal Court Rules 2011 (Cth)). Ordinarily, an applicant for joinder must show an arguable case against the party proposed to be joined, at least to the level of being able to resist an application for summary judgment. But in the present case APT does not seek to separately claim against ITM. The question of whether there is an arguable case against the proposed party does not arise. The joinder is for a different purpose. It is to ensure that the assignor is joined where there is only an equitable assignment so that QBE is not at risk of a suit by the legal owner (ITM) of the chose in action.

8    In order to join ITM as a respondent, APT requires leave pursuant to s 500(2) of the Act. In dealing with applications of the present type, principles similar to those that govern leave to proceed in a compulsory winding up apply. Generally:

(a)    The purpose of s 500(2) is to prevent a company in liquidation from facing a multiplicity of legal proceedings that are expensive, time consuming and unnecessary.

(b)    A claimant must lodge a proof of debt in the liquidation unless that person can demonstrate a good reason otherwise.

(c)    The discretion under s 500(2) is broad but not absolute.

9    I agree with Gilmour J’s exposition of the relevant factors to be applied as set out in Swaby v Lift Capital Partners Pty Ltd (2009) 72 ACSR 627 at [29]. The factors to be taken into consideration in determining whether to grant leave include:

(a)    the amount and seriousness of the claim;

(b)    the degree and complexity of the legal and factual issues involved;

(c)    the stage to which the proceedings, if commenced, may have progressed;

(d)    whether a cross-claim arises out of the same factual matrix as the claims made in the primary proceedings;

(e)    the risk that the same issues would be re-litigated if the claims were to be the subject of a proof of debt;

(f)    whether the claim has arguable merit;

(g)    whether proceedings are already in motion at the time of liquidation;

(h)    whether the proceedings will result in prejudice to the creditors;

(i)    whether the claim is in the nature of a test case for the interest of a large class of potential claimants;

(j)    whether the grant of leave will unleash an “avalanche of litigation”;

(k)    whether the cost of the trial will be disproportionate to the company’s resources;

(l)    delay; and

(m)    whether pre-trial procedures such as discovery are likely to be required.

10    But the Court should decline to grant leave pursuant to s 500(2) where:

(a)    the proceeding would give some creditors an unfair advantage over others;

(b)    there was no serious question to be tried;

(c)    the company in liquidation would be subjected to a multiplicity of proceedings interfering with the orderly liquidation;

(d)    the claimant asserts liability of a type provable in the liquidation; or

(e)    the claim is too onerous on a liquidator.

11    In the present case, the following factors justify a grant of leave:

(a)    The sole purpose of the proposed joinder is to ensure that any judgment binds ITM thus preventing ITM from pursuing QBE in respect of the same claims. The joinder of the assignor in such cases of an equitable assignment is orthodox.

(b)    Relatedly and accordingly, APT does not seek any relief against ITM. There are no proposed claims against ITM including claims for indemnity, contribution or costs. Moreover, the proposed joinder does not entail claims in respect of which APT could lodge a proof of debt with the liquidators.

(c)    The liquidators have received notice of this application. The liquidators have indicated that they do not object to leave being granted and accordingly the joinder.

(d)    Moreover, although it is not strictly required in the present case due to the purpose for which APT seeks to join ITM, APT has offered the usual undertaking that it will not enforce any judgment against ITM without leave of the Court.

12    In my view, the application should be granted. I will make orders for the grant of leave and the joinder.

13    A further issue was raised concerning whether a separate and preliminary question should be framed and answered concerning the construction of the Policy. There is considerable advantage in insurance cases to the articulation and disposition of such questions at an early stage. I see no good reason why construction questions cannot be dealt with efficiently and expeditiously soon after the first directions hearing in many insurance cases. But the present case was not suitable for such a procedure given that questions of construction would not finally dispose of the case, depending upon how they were answered, or otherwise substantially reduce the scope of the forensic contest concerning the quantification of or applicable limits to the claim.

14    Finally, it is necessary to say something about jurisdiction. Section 39B(1A)(c) of the Judiciary Act 1903 (Cth) is a general conferral of original jurisdiction on this Court. It is to be construed as expansively as the plain meaning of its words can tolerate (cf the different approach to construing words excluding jurisdiction). Limitations and implications not found in the plain meaning are to be eschewed unless unavoidable (see Truthful Endeavour Pty Ltd v Condon (as trustee of the bankrupt estate of Rayhill) (2015) 321 ALR 483 at [50] per Allsop CJ, Katzmann and Gleeson JJ). It is difficult to conceive of a contractual dispute involving an insurance contract that would not involve a matter arising under the Insurance Contracts Act 1984 (Cth). Even if the claim is purely a contractual claim, its boundaries will always be circumscribed by the terms of that Act, whether going to the ambit or existence of cover on the one hand, or the scope of recovery under the contract on the other hand. Any contractual dispute between the parties would necessarily proceed on the foundation of the contract within the statutory matrix. For a matter arising under a federal law, it is not necessary that the proceeding itself be founded on federal law or be a dispute about federal law (Truthful Endeavour at [58]). If it were so founded, it would be such a matter, but the converse proposition, viz if it were not so founded it would not be such a matter, does not follow. But where it was not so founded, one would need to point to some subject matter of the contract, or right, liability or limitation applying to the contract, that existed as a result of federal law. Rightly, no party denies the Court’s jurisdiction in the present case.

15    I will make orders in the terms discussed with counsel.

Associate:

Dated:    23 October 2015