FEDERAL COURT OF AUSTRALIA
Rushleigh Services Pty Ltd v Forge Group Limited (In Liquidation) (Receivers and Managers Appointed) [2018] FCA 26
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Pursuant to r 9.05 of the Federal Court Rules 2011 (Cth) (Rules), Chubb Insurance Australia Limited (ACN 001 642 020), Allianz Australia Insurance Limited (ACN 000 122 850) and Axis Speciality Europe SE (ARBN 131 203 122) be joined to the proceeding as the fourth, fifth and sixth respondents respectively.
2. Pursuant to s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), the applicant have leave to bring or continue the proceeding against the fourth, fifth and sixth respondents.
3. Pursuant to rr 8.21 and 16.53 of the Rules, the applicant have leave to file and serve a further amended originating application and a further amended statement of claim in the form of schedule A and schedule B respectively to the applicant’s interlocutory application filed on 7 July 2017 (Interlocutory Application).
4. The fourth, fifth and sixth respondents pay the applicant’s costs of paragraphs 1 and 2 of the Interlocutory Application.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
MARKOVIC J:
1 Rushleigh Services Pty Ltd (Rushleigh) commenced this proceeding against Forge Group Limited (In Liquidation) (Receivers and Managers Appointed) (Forge) on 23 December 2014. On 21 September 2015 Rushleigh obtained leave to join Peter Geoffrey Hutchinson and David Michael Simpson, both of whom had been directors of Forge, as the second and third respondents respectively to the proceeding.
2 The proceeding is a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth). It has been brought by Rushleigh on its own behalf and on behalf of persons who acquired shares in Forge between 7 March 2012 and 1 November 2013; have entered into a litigation funding agreement with IMF Bentham Limited; and who are alleged to have suffered loss and damage (Group Members).
3 Subsequent to filing its originating application Rushleigh sought a declaration pursuant to s 500(2) of the Corporations Act 2001 (Cth) (Corporations Act) that it have leave, nunc pro tunc, to issue the proceeding against Forge (Leave Application) and an order that the proceeding be transferred pursuant to s 5(4) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) or, alternatively, s 1337H of the Corporations Act to the Supreme Court of New South Wales (NSW Supreme Court) (Transfer Application). Those applications were heard together.
4 On 7 December 2016 the Court made orders, among others, refusing the Leave Application and the Transfer Application: see Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq) (Receivers and Managers Appointed); In the Matter of Forge Group Ltd (In Liq) (Receivers and Managers Appointed) [2016] FCA 1471 (Rushleigh No 1). I return to the Court’s reasons for refusing those applications later in these reasons.
5 By interlocutory application filed on 7 July 2017 Rushleigh now seeks:
(1) an order pursuant to r 9.05 of the Federal Court Rules 2011 (Cth) (Rules) that Chubb Insurance Australia Limited (formerly ACE Insurance Limited) (Chubb), Allianz Australia Insurance Limited (Allianz) and Axis Speciality Europe SE (Axis) be joined to the proceeding as the fourth, fifth and sixth respondents respectively;
(2) leave under s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (Civil Liability (Insurers) Act) to bring or continue the proceeding against Chubb, Allianz and Axis, each an insurer under s 4 of that Act; and
(3) leave under rr 8.21 and 16.53 of the Rules to file and serve a further amended originating application and a further amended statement of claim which, respectively, remove the claims for relief against Forge and substitute claims for relief against Chubb, Allianz and Axis; and plead the proposed claims against Chubb, Allianz and Axis.
6 Chubb, Allianz and Axis (collectively, Insurers) oppose the application that they be joined to the proceeding and the application for a grant of leave under s 5 of the Civil Liability (Insurers) Act. However, assuming that Rushleigh is successful in its application to join them, they do not oppose its application for leave to file the further amended originating application and further amended statement of claim.
7 Messrs Hutchinson and Simpson appeared at the hearing of the application but did not wish to be heard and made no submissions.
background facts
Forge
8 Forge was a public company which provided engineering, procurement, construction, project management and maintenance services for the resources, oil and gas and power sectors. It had operations in Australia, West Africa and the United States of America.
9 On 28 November 2013 Forge announced to the market a profit write-down for the financial year ending 30 June 2014 associated with unbudgeted cost increases in relation to two power projects and a net cash outlay of $45 million to complete both projects. By the close of trade on that day Forge’s share price had fallen 84% from its closing price on 1 November 2013, the last day on which its securities traded prior to the announcement.
10 On 11 February 2014 the directors of Forge resolved to appoint Martin Jones, Andrew Saker and Ben Johnson of Ferrier Hodgson as voluntary administrators of Forge pursuant to s 436A of the Corporations Act (Administrators). On 18 March 2014 the Administrators were appointed as joint and several liquidators of Forge pursuant to ss 446A and 499 of the Corporations Act. Mr Saker subsequently retired as a liquidator of Forge and its subsidiaries, leaving Messrs Jones and Johnson as joint and several liquidators (Liquidators).
11 On 29 August 2014 Forge was removed from official quotation on the Australian Stock Exchange (ASX).
The Insurers
12 Chubb, Allianz and Axis are Forge’s primary and excess layer insurers.
Chubb
13 Chubb is the primary insurer. It issued a directors and officers liability insurance policy bearing number 05CH007330 to Forge for the period from 30 June 2013 to 30 June 2014 with a limit of liability in the aggregate for all loss of $20 million (Chubb Policy). The Chubb Policy is a claims made policy.
14 The Chubb Policy provides indemnity for claims made against directors and officers. Clause 1 relevantly provides:
1. Insuring Agreement
A. The Insurer will pay to or on behalf of the Insured all Loss, except where the Company has paid such Loss, resulting from a Claim first made against an Insured during the Policy Period or Discovery Period, if applicable.
15 By Endorsement Number 4 titled “Entity Cover for Securities Claims Endorsement excluding North America” the Chubb Policy provides indemnity for securities claims made against Forge. Clause 1D of that endorsement provides:
The Insuring Agreement is extended by adding the following:
D. The Insurer will pay to or on behalf of the Company all Loss resulting from any Securities Claim first made against the Company after the Effective Date and during the Policy Period (or Discovery Period if applicable) for any Wrongful Act committed by the Company.
16 Definitions are found in cl 3. Relevantly:
(1) cl 3.12 provides that “Insured” means “a natural person who was, now is or becomes during the Policy Period”, among other things, “a Director or Officer”;
(2) cl 3.7 defines “Director or Officer” to mean, among other things, “a director or officer of the Company including the equivalent position in any other jurisdiction”; and
(3) cl 3.18 defines “Non-Indemnifiable Loss” as follows:
Non-Indemnifiable Loss means Loss where a Company is unable to indemnify an Insured due to:
(a) legal prohibition; or
(b) a prohibition in the Articles of Association, charter, bylaws, contract or similar documents of such Company; or
(c) insolvency under the Corporations Act 2001 (Cth) or the equivalent law in any other jurisdiction.
17 It is common ground that Messrs Hutchinson and Simpson were each a “Director” of Forge and that their liability to Rushleigh, assuming it is established, would be “Non-Indemnifiable Loss” for the purposes of the Chubb Policy.
18 Clause 5.4 of the Chubb Policy is headed “Conduct of Proceedings”. It sets out how a proceeding against the Insured is to be conducted as between the Insured and the Insurer. Subclause (f) provides:
The Company and each Insured must give the Insurer and any representatives appointed by the Insurer all information they reasonably require, and fully co-operate and assist in the conduct of any investigation into any claim under this Policy.
19 Clause 5.12 sets out the priority regime for payments under the policy. It provides:
The Insurer shall:
(a) first pay Non-Indemnifiable Loss; and
(b) then pay Loss paid by the Company on behalf of an Insured; and
(c) if additional cover is provided to the Company by endorsement to this Policy, other Loss incurred by the Company.
The insolvency or bankruptcy of any Company shall not relieve the Insurer of any of its obligations to prioritise payment of Loss under this Policy.
20 By letter dated 8 October 2014 (Chubb October Letter) the solicitors for Chubb confirmed that Forge was entitled to indemnity under the Chubb Policy for the claim the subject of this proceeding, subject to the following conditions:
(a) indemnity is subject to all the terms and conditions and exclusions of the Policy;
(b) indemnity is granted subject to a general reservation of rights under the Policy and at law. This reservation includes, but is not limited to:
(i) a specific and express reservation of rights in respect of a deliberately dishonest or deliberately fraudulent acts or omissions by your Client (see section 2 below);
(ii) a specific and express reservation of rights in relation to any fraudulent non-disclosure or misrepresentation by your Client (see section 3 below);
(c) indemnity is granted on the basis of information presently known to [Chubb] and [Chubb] reserves its rights, under the Policy and at law, to withdraw the grant of indemnity should information come to its knowledge subsequent to the granting of indemnity which would allow [Chubb] to refuse indemnity; and
(d) your Client will continue to fully co-operate and assist [Chubb] with respect to the conduct of any investigation into the Claim and will not do anything to prejudice [Chubb]’s position in relation to the Claim.
21 By letters dated 8 October 2014 and 15 September 2015 Chubb notified the solicitors for Messrs Simpson and Hutchinson that their clients were entitled to indemnity in relation to the claims the subject of this proceeding. In each case the entitlement to indemnity was subject to the conditions included in the Chubb October Letter.
The Excess Layer Policies: Allianz and Axis
22 Allianz and Axis have each provided excess layer policies to Forge. Allianz issued a directors and officers liability insurance policy number 99 0003088 PLP as an excess policy (Allianz Excess Policy) and Axis issued a directors and officers liability insurance policy number DOL-342775 as an excess policy (Axis Excess Policy).
23 Clause 1 of the Allianz Excess Policy is titled “Insuring Clause”. It relevantly provides that Allianz agrees to insure the Insured on the same terms as the Primary Policy except as specifically set out in the Allianz Excess Policy and any attached endorsement. Clause 10 defines the “Insured” as “each person or entity insured under the Primary Policy or identified in Item 2 of the Schedule”. It defines “Primary Policy” as “the policy identified in Item 5(a) of the Schedule”, which is the Chubb Policy. Item 2 of the schedule nominates Forge as the Insured and item 4 provides the limits of liability as $20 million in excess of $20 million.
24 The Axis Excess Policy is in the same terms as the Allianz Excess Policy save that item 4 of the schedule thereto provides the limits of liability as $10 million in excess of $40 million.
25 In their letter dated 28 June 2017 the solicitors for the Insurers confirmed that, to the extent that Mr Simpson or Mr Hutchinson made a claim in respect of this proceeding under the Allianz Excess Policy or the Axis Excess Policy, indemnity was granted on the same basis as that granted by Chubb under the Chubb Policy and subject to the same general and specific reservations set out in the Chubb October Letter.
An estimate of the Insurers’ costs
26 John Kirk Hunter Edmond, a partner of Clyde & Co LLC, the solicitors for the Insurers, has set out the categories of work in respect of which the Insurers say that they will be required to incur legal costs in the event that they are joined to the proceeding. Those categories are:
(1) preparation of a defence in answer to the further amended statement of claim and any amendments to that defence;
(2) undertaking an investigation and analysis of facts that may be relevant to the claims made in the further amended statement of claim, including a review of relevant documents;
(3) preparation of lay witness evidence, which is likely to involve at least three witness statements;
(4) preparation of expert evidence;
(5) review, preparation and production of discovery;
(6) review and consideration of the applicant’s and other respondents’ discovery;
(7) preparation for and attendance at directions hearings and interlocutory applications;
(8) preparation of documents for tender and input into the preparation of a court book;
(9) general preparation for trial;
(10) attendance at trial; and
(11) general case management.
27 Mr Edmond also says that, insofar as any discovery is concerned, he does not currently have access to the books and records of Forge, which he understands are in the possession of the Liquidators and Forge’s receivers and managers. Mr Edmond notes that one of the Liquidators, Mr Jones, swore an affidavit on 8 February 2016 in this proceeding in which he estimated that the cost of undertaking discovery would likely be approximately $2 million. Mr Edmond’s view is that, because his firm is not familiar with Forge’s books and records, its costs of undertaking the discovery process will be higher than the estimate provided by Mr Jones.
28 More generally, Mr Edmond estimates based on his experience that, if the Insurers are joined to the proceeding, the costs incurred by them will be greater than the costs that would have been incurred by Forge. Mr Edmond estimates that the Insurers’ likely costs, based on the categories of work identified by him, would be approximately $5.7 million.
29 Timothy Michael Luke Finney, a director of Phi Finney McDonald Pty Limited, the solicitors for Rushleigh, has responded to Mr Edmond’s evidence concerning the Insurers’ likely costs. He gives the following evidence:
(1) based on his experience and consistent with the terms pursuant to which the Insurers have indemnified the defence costs of Messrs Simpson and Hutchinson, the Insurers and their legal representatives exercise a substantial and meaningful level of oversight over the work performed and costs incurred by the indemnified parties and their legal representatives in connection with the proceeding;
(2) that being so, it would ordinarily be the case that the respondents, and the Insurers if they were joined, would be able to achieve considerable efficiencies by coordinating their work, including by allocating common work among the different legal teams to prevent duplication;
(3) the approach referred to in the preceding subparagraph is not reflected in Mr Edmond’s affidavit and, in particular, in his description of the work. In Mr Finney’s opinion, several of the items of work appear to be costs that could be substantially reduced or eliminated if Messrs Simpson and Hutchinson and the Insurers were to work together or in a coordinated way. An example given by Mr Finney is the requirement for expert evidence, which he says would be unlikely to be relevant solely to the claims against the Insurers. Mr Finney says that it is unlikely that the joinder of the Insurers would lead to those costs being incurred because they would likely be incurred by the existing respondents and indemnified by the Insurers in any event;
(4) the claims against Messrs Hutchinson and Simpson and the Insurers arise from the same factual background. Mr Finney expects that, in defending the claims against Messrs Hutchinson and Simpson, the Insurers will need to engage with many of the same factual matters and allegations of misconduct as if they were involved in litigation;
(5) there may be costs that would otherwise be incurred by the Insurers that will not need to be incurred if the Insurers are joined. For example, the costs of what is described by Mr Edmond as “coverage/monitoring” will not be incurred by the Insurers if they are parties;
(6) there are no set-offs in the list of work or the costs calculations undertaken by Mr Edmond for savings in work and costs that the Insurers will derive, or likely derive, if they are joined; and
(7) the estimate of discovery costs given by Mr Edmond is excessive. Mr Finney says that the vast majority of the estimate in Mr Jones affidavit was related to the fact that most of the documents were in hard-copy, rather than in electronic form, making the review process more time intensive.
Supreme Court of New South Wales Proceeding Number 2017/00237882
30 On 4 August 2017 proceeding number 2017/00237882 was commenced by Forge in the NSW Supreme Court against 17 defendants, including the Insurers, who are named as the fourteenth, fifteenth and sixteenth defendants (Liquidators’ Proceeding). Messrs Hutchinson and Simpson are also named as defendants to that proceeding.
31 I was not taken to the detail of the pleading but was informed by senior counsel appearing for the Insurers that, as at the date of the hearing of the application before me, the NSW Supreme Court had not granted leave to Forge to proceed against the Insurers in the Liquidators’ Proceeding. I was also informed by senior counsel for the Insurers that, while the claims made in the Liquidators’ Proceeding and this proceeding were different, they arise out of the same underlying transactions.
the proposed claim against the insurers
32 As noted above at [5], if it is successful in its application to join the Insurers, Forge seeks leave to file a further amended originating application and a further amended statement of claim. The amendments to the further amended originating application remove the claims for relief against Forge and add claims for relief against the Insurers. Among other things, the amendments to the further amended statement of claim add the claims made against the Insurers.
33 In summary, it is alleged that Forge:
(1) engaged in misleading or deceptive conduct in contravention of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), s 1041H of the Corporations Act or s 18 of the Australian Consumer Law (ACL);
(2) further, or in the alternative, made representations that it knew or ought reasonably to have known were false in a material particular or materially misleading in contravention of s 1041E of the Corporations Act; and
(3) further, or in the alternative, contravened s 674(2) of the Corporations Act by failing to disclose certain information to the ASX.
34 As against Messrs Hutchinson and Simpson, claims are made that they each engaged in misleading or deceptive conduct in contravention of s 12DA of the ASIC Act, s 1041H of the Corporations Act or s 18 of the ACL; and that they were each involved, within the meaning of s 79 of the Corporations Act, in the contravention by Forge of s 674(2) of the Corporations Act and thereby contravened s 674(2A) of that Act.
35 Chubb, Allianz and Axis are introduced at paragraphs 7A, 7B and 7C of the proposed further amended statement of claim. The claims against them are set out in section RA. There it is alleged that Forge's liability to Rushleigh and the Group Members as set out in the further amended statement of claim is a liability in relation to which Forge is entitled to be indemnified by Chubb, within the terms of the Chubb Policy. It is alleged that the liability is thus an insured liability of Forge, as an “insured person”, owed to Rushleigh and the Group Members as “claimants”, within the meaning of s 4(1) of the Civil Liability (Insurers) Act. It is further alleged that, by reason of ss 4(1) and 4(2) of the Civil Liability (Insurers) Act, Rushleigh and the Group Members, as claimants, may recover from Chubb, as insurer, the amount of indemnity payable by Chubb pursuant to the Chubb Policy in respect of the liability of Forge, as an insured person, to Rushleigh and the Group Members.
36 Similar claims are made in relation to the Allianz Excess Policy and the Axis Excess Policy insofar as the recoveries from Chubb, in the case of Allianz, and Chubb and Allianz, in the case of Axis, are insufficient to satisfy the claims of Rushleigh and the Group Members.
statutory framework and relevant legal principles
37 Section 4 of the Civil Liability (Insurers) Act provides:
4 Claimant may recover from insurer in certain circumstances
(1) If an insured person has an insured liability to a person (the claimant), the claimant may, subject to this Act, recover the amount of the insured liability from the insurer in proceedings before a court.
(2) The amount of the insured liability is the amount of indemnity (if any) payable pursuant to the terms of the contract of insurance in respect of the insured person’s liability to the claimant.
(3) In proceedings brought by a claimant against an insurer under this section, the insurer stands in the place of the insured person as if the proceedings were proceedings to recover damages, compensation or costs from the insured person. Accordingly (but subject to this Act), the parties have the same rights and liabilities, and the court has the same powers, as if the proceedings were proceedings brought against the insured person.
(4) This section does not entitle a claimant to recover any amount from a re-insurer under a contract or arrangement for re-insurance
38 The term “court” is defined in s 3(1) to mean “a court or tribunal of New South Wales”. It was common ground between the parties that, pursuant to s 79 of the Judiciary Act 1903 (Cth), the Civil Liability (Insurers) Act would be binding on and could be applied by this Court in the circumstances of this case: see Hopkins (as trustee for the Hopkins Superannuation Fund) v AECOM Australia Pty Ltd (No 4) (2015) 328 ALR 1; [2015] FCA 307 (AECOM) at [41]-[43], where Nicholas J reached that conclusion in relation to s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (LRMP Act), which was repealed upon the commencement of the Civil Liability (Insurers) Act. In Rushleigh No 1 at [94] Foster J favoured the view expressed in AECOM over a contrary view expressed in Chubb Insurance Company of Australia Ltd v Moore (2013) 302 ALR 101; [2013] NSWCA 212 (Chubb Insurance v Moore).
39 Section 5 of the Civil Liability (Insurers) Act provides that proceedings may not be brought or continued against an insurer under s 4 except with leave of the court in which the proceedings are to be, or have been, commenced. Such an application may be made before or after the proceedings have been commenced. Section 5(3) provides that a court may grant or refuse an application for leave subject to s 5(4), which provides that leave must be refused if the insurer can establish that it is entitled to disclaim liability under the contract of insurance or under any Act or law.
40 Finally, s 6(1) provides that a proceeding to recover an amount from the insurer under s 4 must be commenced within the same limitation period that applies under the Limitation Act 1969 (NSW) or other Act to the claimant’s cause of action against the insured person in respect of the insured liability.
41 No arguments relying on ss 5(4) or 6(1) arise in this application.
42 The Civil Liability (Insurers) Act commenced on 1 June 2017. The explanatory note to the Civil Liability (Third Party Claims Against Insurers) Bill 2017 (NSW) (Bill) provides that the object of the Bill is to give effect to the recommendations of the NSW Law Reform Commission in Report 143: Third party claims on insurance money (NSWLRC Report), which resulted from a review of s 6 of the LRMP Act. The NSWLRC Report provides at paragraphs 4.24-4.25:
4.24 Proceedings can be instituted against the insurer before any of the matters listed at Recommendation 1(a)-(c) have been finally established, but only with leave of the court in which the proceedings are instituted. The court's discretion to grant leave remains at large, subject to Recommendation 2(3).
4.25 It is our intention that the court's general discretion to grant leave will continue to be exercised under these proposed provisions in the same way that it is exercised under the existing s 6.
(footnotes omitted)
43 It was common ground that cases dealing with s 6 of the LRMP Act apply equally to s 5 of the Civil Liability (Insurers) Act.
44 Bede Polding College v Limit (No 3) Limited and Anor [2008] NSWSC 887 (Bede Polding College) concerned an application pursuant to s 6(4) of the LRMP Act for leave to commence an action against an insurer. The court approached the question of leave on the basis that the plaintiff had to show three things: first, that there was an arguable case against the insured; secondly, that there was an arguable case that the policy responds; and, thirdly, that there was a real possibility that, if judgment were obtained, the insured would not be able to meet it: at [6].
45 There is no dispute in the present application that the three requirements identified in Bede Polding College are met. That is, there is an arguable case against Forge; there is an arguable case that the insurance policies respond to the claim against Forge; and there is a real possibility that if judgment is obtained then Forge will not be able to meet it.
46 In Opes Prime Stockbroking Ltd (In Liq) (Scheme Administrators Appointed) v Stevens [2014] NSWSC 659 (Opes Prime) the court considered, among other things, an application by the plaintiffs (Opes Prime) for leave under s 6 of the LRMP Act to enforce the charge created by s 6(1) of that Act against the insurer, QBE, which provided directors and officers liability cover to two directors, Messrs Stevens and Gillooly, and to join QBE as the third defendant to the proceeding for that purpose. Opes Prime submitted that leave should be granted under s 6(4) of the LRMP Act if it established the three conditions referred to at [44] above, which it submitted it did: at [14]-[15].
47 At [16] the court identified the real question for determination to be whether satisfaction of those three conditions was sufficient for the grant of leave. In submitting that it was, Opes Prime relied on the decision in Bede Polding College at [6]. After noting that that decision had been cited with approval in a number of subsequent cases, Ball J said at [17] that the decision in Bede Polding College and cases that have followed it should not be read as holding that satisfaction of the three conditions gives rise to an entitlement to join an insurer, but that s 6(4) of the LRMP Act confers a discretion. His Honour continued at [17]-[19] as follows:
17 … There are no restrictions imposed by the legislation on the exercise of that discretion except of, course, the requirement that leave not be granted where the Court is satisfied that the insurer is entitled to disclaim liability. However, the discretion must be exercised for the purpose for which it has been granted. That purpose has been put in various ways, but it is generally accepted that the purpose of the discretion is to ensure that insurers are not exposed unnecessarily to claims against them: see Oswald v Bailey (1987) 11 NSWLR 715 at 725 per Kirby P; Tzaidas v Child [2004] NSWCA 252; (2004) 61 NSWLR 18 at [17] per Giles JA.
18 Generally, where leave is sought, that is because there are difficulties in pursuing the claim against the insured or the insurer has denied liability. In those cases, the question whether the insurer should be exposed to proceedings against it will usually be answered by considering whether the 3 matters identified by Grove J are satisfied. For example, in Bede Polding College itself, the defendant had entered into administration, the business no longer traded and the former principals of the business were deceased. In those circumstances, it was not unreasonable to expose the insurer to proceedings against it if the plaintiff had an arguable claim and it was arguable that the insurer was liable to indemnify the defendants in respect of it.
19 The question, however, in each case must be whether it is reasonable for the insurer to be joined, and that question will not always be answered by the 3 conditions identified by Grove J. As Simpson J said in Gorczynski v W & FT Osmo Pty Ltd [2009] NSWSC 693; (2009) 258 ALR 189 at [60]:
...the grant of leave under s 6(4) nevertheless remains discretionary, and may be refused for other proper reasons. Ordinarily, for example, leave would not be granted where it could clearly be seen that a claim was, by reason of limitation of actions legislation, statute-barred. It may not be granted where the insurer was able to demonstrate irreparable prejudice.
48 At [20] Ball J concluded that there was no utility in joining QBE to the proceeding because it had admitted liability to indemnify Messrs Stevens and Gillooly in respect of the claim brought by Opes Prime. His Honour noted that the admission was qualified, but not in a way that suggested that, for the purpose of determining its liability under the policy, QBE would not be bound by the outcome of the proceeding. His Honour also noted that there was a real possibility that, if judgment were obtained, Messrs Stevens and Gillooly would not be able to meet it, but that that possibility was not affected if QBE were joined because there was no suggestion that, if Opes Prime were not permitted to enforce its charge, some other claimant would obtain priority in respect of the monies payable by QBE. Ball J concluded that the only advantage of giving leave to Opes Prime to proceed against QBE was that it might protect its position in the event that circumstances changed. In his Honour’s opinion, that did not provide an adequate ground to grant leave.
the decsion in rusheligh nO 1
49 In Rushleigh No 1 Foster J determined the Leave Application and the Transfer Application.
50 In addressing the Leave Application Foster J summarised Rushleigh’s claims against Forge made in its amended statement of claim and noted that allegations of a similar kind were made against Messrs Hutchinson and Simpson. At [29]-[33] his Honour relevantly said:
29 It is correct to say, as Rushleigh does, that the allegations made in the ASOC against Forge are not precisely the same as those made in that pleading against Mr Hutchinson and Mr Simpson. They are, in truth, however, substantially the same. Moreover, given the particulars of the false representations and contravening conduct provided in the ASOC, it is very likely that, if Forge were to be found liable to Rushleigh, both Mr Hutchinson and Mr Simpson will also be found liable to Rushleigh. …
30 The views which I have expressed at [29] above are, of necessity, preliminary. I have looked at the likely working out of this situation as between Forge and its directors only for the purpose of considering and determining whether there is any utility in granting to Rushleigh leave to proceed against Forge, and for no other purpose.
31 In par 8 of its Written Submissions dated 23 December 2015 filed in support of its transfer application, Rushleigh said that, if its transfer application is successful, it intends to amend its claim, including so as to seek declaratory relief under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (LRMPA) against Ace Insurance Limited (ACE) which was the insurer under the Forge directors and officers policy for the relevant period (viz 2013-2014) (the D&O policy).
32 The D&O policy is a claims made policy. Excess layers are provided by Allianz Australia Insurance Limited (Allianz) and Axis Speciality Europe SE (Axis).
33 By the time of the second hearing before me, Rushleigh had decided not to apply to amend the ASOC and its Amended Originating Application filed in this Court. Its preferred course was to effect an amendment to its claims after this proceeding is transferred to the Supreme Court. To this end, Rushleigh placed before the Court a draft of a Summons and Commercial List Statement which it proposes to seek leave to file in the Supreme Court if the matter is transferred to that Court. The defendants named in that draft are Forge, Mr Hutchinson, Mr Simpson, ACE, Allianz and Axis.
34 In its draft Commercial List Statement, Rushleigh claims a declaration that the liability of Forge, Mr Hutchinson and Mr Simpson to Rushleigh and the group members (as defined) is a charge on all insurance monies that are or may become payable to Forge, Mr Hutchinson and Mr Simpson (including, in particular, under the D&O policy) and an order that the insurers pay the charged monies to Rushleigh and the group members. That claim is supported by a more detailed exposition of the basis of the claim later in the draft.
51 Foster J observed that the “forensic landscape” had changed substantially since the time of the hearing of the application. One change noted by his Honour was that Messrs Hutchinson and Simpson had been joined as defendants to the proceeding, which had effectively removed the priorities argument in respect of payments under the Chubb Policy from the contest as to whether leave to proceed against Forge should be granted. His Honour observed at [40] that it was clear that the Liquidators had not secured funding to sue the directors of Forge and that it was very unlikely that they would ever be in a position to mount such a case.
52 Rushleigh contended before Foster J that there was a serious question to be tried in respect of the claims made in its amended statement of claim and that the balance of convenience favoured the grant of leave. In relation to the latter issue it was common ground that the Chubb Policy responded to Rushleigh’s claims against Forge.
53 Among other things, Forge submitted that Rushleigh’s proposal to join the Insurers provided a direct pathway to the proceeds of the Chubb Policy and was a reason for refusing leave to proceed against Forge itself. At [62] Foster J noted that, in response, Rushleigh had made “the curious submission that there was no certainty that those insurers would actually be joined as parties to this proceeding and that, in any event, no application to join those insurers had yet been made”. Rushleigh also submitted that if the Insurers were joined to the proceeding then Forge could drop out of the proceeding and leave the defence of Rushleigh’s claims to the Insurers. At [63] his Honour said that, in circumstances where Rushleigh had not taken any steps to progress the joinder of the Insurers and had in fact taken the position that it would not do so, its submissions should be rejected.
54 At [64] Foster J considered Rushleigh’s submission that, if it were confined to the proof of debt process, there was the potential for inconsistent findings to be made by different judges of this Court in relation to the same subject matter in the event that it lodged an appeal from the proof of debt process. His Honour rejected that submission, finding that, in circumstances where the Liquidators were unlikely to initiate a proof of debt process because there was no point in doing so, the potential for inconsistent findings was entirely speculative. At [68] his Honour said:
As the authorities make clear, a claimant should proceed by way of lodgment of a proof of debt unless he or she can demonstrate that there is some good reason why departure from that procedure is justified in the case of the particular claim in dispute. The Court must guard against permitting claims to be agitated by way of ordinary litigation against a company in liquidation because of the very real prospect that allowing such a course will needlessly diminish the assets of the company in liquidation.
55 At [69] Foster J concluded that it was highly unlikely that, at the conclusion of the liquidation of Forge, there would be any return to the general body of unsecured creditors. His Honour said that, although there was an insurance policy that responded to Rushleigh’s claims against Forge, there was virtually no prospect that any part of the sum insured under that policy would be paid to Rushleigh pursuant to the indemnity granted by the Insurers under that policy to Forge. His Honour noted that, although in theory there was a possibility that Rushleigh could succeed against Forge but not against Mr Hutchinson or Mr Simpson, that was not likely and, in any event, Rushleigh could access such part of the proceeds of the Chubb Policy as would be available to it if it were successful in the proceeding against Forge through the proof of debt process.
56 In relation to the Transfer Application, Rushleigh submitted before Foster J that the claims made by the plaintiffs in a proceeding filed in the NSW Supreme Court, referred to as the “Swiss Re proceeding”, if successful, would likely exhaust the amount available under the Chubb Policy and the excess layers of insurance. Rushleigh further submitted that there was a real risk that if the proceeding were not transferred to the NSW Supreme Court to be determined at the same time as the Swiss Re proceeding then the claims made by it in this proceeding would be rendered nugatory and that such an outcome would be contrary to the interests of justice. Rushleigh also submitted that the transfer of the proceeding to the NSW Supreme Court would remove any doubt about whether Rushleigh and the Group Members could assert a claim under s 6 of the LRMP Act in this proceeding.
57 In relation to the latter submission Foster J held, relying on and preferring the reasoning of Nicholas J in AECOM over the reasoning in Chubb Insurance v Moore on that issue, that it was not plain or beyond argument that the applicability of s 6 of the LRMP Act could not be litigated in this Court: at [94]. As to the former submissions, Foster J was not persuaded that there was any real likelihood that the NSW Supreme Court would case manage the Swiss Re proceeding and this proceeding, if it were transferred, in such a manner as to provide the outcome desired by Rushleigh, namely, judgment in its favour at the same time as judgment being delivered in the Swiss Re proceeding. His Honour noted that there was little overlap between the two proceedings and no particular reason why the NSW Supreme Court would accede to Rushleigh’s case management proposals or hear the two proceedings together: at [95].
58 Finally, in disposing of the Transfer Application his Honour said at [97]-[98]:
97 There is no evidence before me as to the likely attitude which the insurers would take to a claim made against them by Rushleigh in this proceeding based upon s 6 of the LRMPA. I do not see why I should assume that the insurers would argue that this Court has no jurisdiction to determine such a claim based upon the reasoning of the Court of Appeal in Chubb. It is not immediately apparent to me why the insurers would necessarily wish to argue that this Court has no jurisdiction in respect of such a claim. Notwithstanding indications given from time to time that Rushleigh proposes to bring a claim against the insurers pursuant to s 6 of the LRMPA, it has not yet done so. It seems to me that it has eschewed doing so in this Court in order to avoid cutting out the ground from under its arguments in support of the transfer order claimed by it.
98 Finally, even if everything which Rushleigh has submitted in relation to the transfer application were to be accepted, at the moment I see no reason why it could not start a separate proceeding in the Supreme Court of NSW in which it would claim all necessary relief in relation to the insurance issues that it presently sees may arise in due course. While this is not a desirable course, it is one that is nonetheless available to Rushleigh. Adopting such a course would avoid the need to transfer the entire existing proceeding to the Supreme Court simply because of the apparent s 6 of the LRMPA problem.
consideration
59 As noted at [45] above, it was common ground between the parties, and I accept, that the three considerations identified in Bede Polding College are satisfied. The issue between the parties is whether the facts of the case warrant an exercise of the Court’s discretion in favour of Rushleigh to grant leave to proceed pursuant to s 5 of the Civil Liability (Insurers) Act.
60 The Insurers submitted that the Court would not exercise its discretion to grant leave for three reasons: first, because if leave were granted then they would suffer irreparable prejudice; secondly, because there is no utility in joining the Insurers as parties; and, thirdly, the joinder of the Insurers to overcome the consequences of the decision in Rushleigh No 1 is not a proper basis for the exercise of the discretion. Having considered each of those grounds, they do not, either singly or cumulatively, persuade me to decline to exercise my discretion to join the Insurers and grant leave to proceed against them. On the contrary, I have come to the view that I should exercise my discretion in favour of Rushleigh and make orders pursuant to s 5 of the Civil Liability (Insurers) Act granting leave to proceed against the Insurers. My reasons follow.
Prejudice
61 The Insurers submitted that, if leave to proceed were granted pursuant to s 5 of the Civil Liability (Insurers) Act, they would suffer irreparable prejudice: first, because of the cost they would incur in defending the proceeding; and, secondly, because of the forensic disadvantage to them which arises because they are strangers to Forge.
62 The Insurers submitted that, while the cost of the proceeding was not a determinative factor, it was a relevant matter to be taken into account in the exercise of the discretion. They accepted that they would bear the cost of Forge’s defence of the proceeding in any event, but submitted that it was the additional cost that they would incur, because they are strangers to the proceeding, that caused the prejudice. The Insurers contended that it was inevitable that it would take them longer to become familiar with the factual matrix and contemporaneous communications and that it would thus be relatively more costly for them, as opposed to Forge or the Liquidators, to defend the proceeding.
63 The Insurers submitted that the purpose of the Civil Liability (Insurers) Act is to put an insurer in the position of its insured, referring to paragraph 0.9 of the NSWLRC Report, where it states that “[o]ur recommendations do not increase the liability of insurers. Like the current s 6, the new provision should ensure that an insurer is not liable for more than the insurer would have been liable to pay under the insurance contract”; and to the second reading speech to the Bill made on 3 May 2017, where it was said that the Bill would “not increase the current liability of insurers”.
64 The Insurers submitted that on any view the costs of defending the proceeding will be significant. They contended that Mr Edmond provides his best estimate of those costs and that, even if that figure is reduced through efficiencies, it will still be a large amount. While accepting that there is an inherent unreliability in cost estimates, the Insurers noted that, just as an estimate can be reduced through efficiencies and cooperation between parties, so too can unexpected events result in an increase. They submitted that, whatever the estimate, the costs would be high and the Insurers’ costs of defending the proceeding would be substantially higher than the costs incurred by Forge if it defended the proceeding because they are strangers to the underlying facts and circumstances.
65 In relation to the forensic disadvantage said to arise because they are strangers to the proceeding, the Insurers relied on the Liquidators’ Proceeding. They submitted that in that proceeding the Liquidators make claims that, at least, traverse the same underlying subject matter as the claims made in this proceeding. They said that their joinder to this proceeding would require full, frank and open cooperation with someone with whom they are “at war” in relation to, essentially, the same issues.
66 The Insurers contended that it could not be assumed that the Liquidators would cooperate and that, even if it were accepted that cl 5.4(f) of the Chubb Policy provided a contractual right that enabled the Insurers to cut through any dispute with Forge, it may be that they would need to commence proceedings seeking relief by way of a mandatory injunction or specific performance. The Insurers submitted that this was not the sort of free and unfettered cooperation that the Court could assume would minimise any prejudice that they might suffer because they are strangers to the relevant facts and circumstances. The Insurers also contended, based on the “detailed” pleading filed in the Liquidators’ Proceeding, that the Liquidators have a sufficient understanding of the underlying circumstances.
67 The two bases upon which the Insurers contend that they will suffer irreparable prejudice if I grant leave to join them to the proceeding are interconnected. They both arise because, in the Insurers’ submission, they are strangers to Forge.
68 I turn first to the prejudice said to arise because of the cost of the proceeding. As this submission was developed in argument it became apparent that the Insurers’ real complaint concerned the prejudice that would be suffered by reason of the additional, as opposed to total, cost that would be incurred because they are strangers to Forge and to the facts and circumstances underlying this proceeding. That the Insurers’ argument could only extend to additional costs is evident from the terms of the Chubb Policy, which apply equally to the Allianz Excess Policy and the Axis Excess Policy, where “Loss” is defined to include “Defence Costs”, being the “reasonable legal and other professional fees, costs and expenses incurred by an Insured … to defend or settle or appeal a Claim”. That is, the Insurers would be liable in any event for Forge’s costs of defending the proceeding.
69 While I accept that the cost of defending a proceeding such as this will be significant, Mr Edmond’s evidence is of limited utility. Insofar as he provides an estimate, Mr Edmond does not expose the rationale or assumptions underlying his calculation of the estimate. Further, and perhaps more critically, he does not, with one exception, identify the additional cost that the Insurers say they would incur by reason of a grant of leave to proceed against them. The exception is in relation to discovery, where Mr Edmond refers to Mr Jones’ evidence in his affidavit sworn on 8 February 2016 and opines that, in undertaking essentially the same discovery process, the Insurers’ costs would be higher because their solicitors are not familiar with the books and records of Forge. Mr Jones’ estimate for the discovery process was $2 million while Mr Edmond’s estimate is $2.2 million.
70 Clause 5.4(f) of the Chubb Policy, which applies equally to the Allianz Excess Policy and the Axis Excess Policy, requires Forge to give the Insurers all information they reasonably require and to fully cooperate and assist in the conduct of any investigation into any claim under the policies. That is, Forge has a contractual obligation to assist the Insurers. The clause must have been intended to ensure that the Insurers receive full assistance and cooperation, such that an insured would not only assist an insurer to investigate and consider a claim made under a policy but would assist an insurer joined to a proceeding to defend a claim, as in the circumstances contemplated by this application. The obligation to assist should have the practical result, among other things, of minimising any additional costs.
71 In any event, it is difficult to see how the additional cost that the Insurers say they will incur could be relevantly prejudicial. It must always be the case that an insurer will know less about the underlying facts, matters and circumstances giving rise to a claim than the insured. An insurer will always be a third party or stranger to the insured. That being so, if the additional cost that an insurer might incur in defending a claim because it is a third party is a relevant factor, it could undermine the intent behind the Civil Liability (Insurers) Act. Accordingly, if it is a factor in the exercise of the discretion, a matter about which I think there must be some doubt, then it is not one that would carry significant weight in a balancing exercise.
72 The Insurers’ reliance on paragraph 0.9 of the NSWLRC Report is misplaced. The reference there to ensuring that an insurer is not liable for more than it would have been liable to pay under the insurance contract does not, in my opinion, include reference to additional costs that might be incurred by an insurer in defending a proceeding because of its status as an insurer. Rather, it is a reference to ensuring that the insurer’s liability, if joined to a proceeding, is limited to the liability it would otherwise have had under the relevant insurance contract. That position is reflected in s 4(2) of the Civil Liability (Insurers) Act.
73 If, on the other hand, the additional cost incurred by the Insurers is a relevant discretionary factor then I accept Rushleigh’s submission that it is a weak one in the circumstances of this case. Putting to one side the gap in the evidence of additional cost, the following factors lead to that conclusion:
(1) Rushleigh is proceeding against Messrs Hutchinson and Simpson in any event and, as a result, the Insurers are, and no doubt will remain, participants in a practical sense in the proceeding. As Rushleigh pointed out, that position can be contrasted with an “all or nothing” situation in which an insurer would be compelled to incur substantial costs in defending a proceeding that would not be brought if leave to proceed were denied;
(2) in order to prove the claims against Messrs Hutchinson and Simpson in relation to their involvement in Forge’s contraventions of s 674 of the Corporations Act, Rushleigh will need to prove most elements of the claims against Forge. As a result, the cost of that part of the proceeding will be incurred regardless of whether Forge or the Insurers are parties; and
(3) in defending some of the claims against them, Messrs Hutchinson and Simpson may seek to attack the primary claims of contravention against Forge. That cost, which would in any event be incurred by the directors, would be shifted to the Insurers if they were joined. It would not be an additional cost.
74 The second way in which the Insurers say that they will suffer prejudice is the forensic disadvantage said to arise because they are strangers to the proceeding. As noted above, cl 5.4(f) of the Chubb Policy requires Forge to cooperate with the Insurers. The commencement of the Liquidators’ Proceeding does not relieve Forge of that obligation and there was no evidence before me that Forge would not cooperate as required by cl 5.4(f). Further, even if I were to accept that the existence of the Liquidators’ Proceeding might mean that the obligation to cooperate would be affected, as at the date of hearing of the application there had been no grant of leave to proceed against the Insurers in the Liquidators’ Proceeding. As I have already observed, an insurer will always be a stranger to a proceeding when joined as a result of a successful application made pursuant to the Civil Liability (Insurers) Act. In that respect they will always suffer a degree of forensic disadvantage. That is one reason why clauses like cl 5.4(f) are included in insurance contracts.
Is there any utility in granting leave?
75 The Insurers submitted that there was no utility in the Court granting leave to Rushleigh to proceed pursuant to s 5 of the Civil Liability (Insurers) Act. They submitted that they had agreed to indemnify Forge and Messrs Simpson and Hutchinson in substantially the same terms as those considered in DSHE Holdings Ltd (receivers and managers appointed) (in liq) v Abboud; National Australia Bank Limited v Abboud [2017] NSWSC 579 (DSHE Holdings). The Insurers further submitted that the fact that Chubb confirmed that Forge was entitled to indemnity under the Chubb Policy on the conditions set out in the Chubb October Letter, combined with the reasons in DSHE Holdings, led to the conclusion that there was no utility in a grant of leave.
76 The Insurers submitted that that position was further supported by the decision in Rushleigh No 1, where Foster J said at [66] that it was “fairly obvious that Forge itself will not secure practical access to the proceeds of the [Chubb Policy] because those proceeds will be exhausted in paying by way of indemnity the liabilities which Rushleigh will (if successful) establish by way of judgment against Messrs Hutchinson and Simpson and those which Swiss Re and QBE will (if successful) establish against the director defendants in the Swiss Re proceeding”. The Insurers contended that, even if that statement is not correct, that would not be a proper basis for exposing them to the prejudice identified.
77 In DSHE Holdings the insurers had confirmed coverage for the directors in respect of the claims made by the plaintiffs subject to certain reservations in substantially the same form as the reservations included in the Chubb October Letter. Stevenson J rejected the plaintiff’s submission that the reservations subject to which an indemnity had been confirmed by the insurers suggested an apprehension on the part of the insurers that one of those reservations might be enlivened, such as to give some utility to a grant of leave under s 6(4) of the LRMP Act: at [33]-[34]. In rejecting that submission Stevenson J said at [39]-[41]:
39 I see the situation as being akin to that described by Ball J in Opes Prime at [20]; namely, that the insurers have admitted liability to indemnify the directors, subject to a qualification, but “not in a way that suggests that, for the purposes of determining its liabilities under the [policies], [the insurers] will not be bound by the outcome of the proceeding”.
40 In his submissions, Mr Giles emphasised that the plaintiffs wish to avoid the multiplicity of proceedings and pointed to the possibility that, if leave were not granted, there may be two rounds of litigation; namely, the current claim by DSHE, NAB and HSBC against the directors and officers, then a later round of litigation between the directors and officers and the insurers.
41 But that is a matter of speculation. It may happen. It may not. There is no reason at the moment to conclude that it will. Currently, there is no insurance controversy for the Court to quell. And I do not think it appropriate to grant leave under s 6(4) “just in case” one arises.
78 A similar conclusion was reached by Ball J in Opes Prime at [20]: see [48] above.
79 As between the Insurers and the insureds there is presently no issue about the grant of indemnity under the relevant policies in relation to the claims brought by Rushleigh. The conditions on which indemnity has been granted are similar to those considered in DSHE Holdings. As was the case in DSHE Holdings, there is no reason to think that the Insurers would refuse indemnity to Messrs Simpson or Hutchinson in relation to any liability they may be found to have in this proceeding.
80 However, the applications for leave under s 6 of the LRMP Act in DSHE Holdings and Opes Prime were made in circumstances where the insureds were active parties to the proceeding. In DSHE Holdings the plaintiffs sought leave to commence the proceeding against the insurers, which provided the primary and excess layers of insurance cover to the former directors and officers, the defendants, each of whom were legally represented, in the proceeding. In Opes Prime the plaintiffs sought leave under s 6 of the LRMP Act to enforce the charge created by s 6(1) of that Act against the insurer, which provided directors and officers liability cover to the defendants, and to join the insurer to the proceeding for that purpose. Again, the defendant directors were active in the proceeding. The finding in each case that there was no utility in a grant of leave was made in those circumstances.
81 In the instant case the circumstances are different. Rushleigh seeks leave to proceed against the Insurers in circumstances where, following the decision in Rushleigh No 1, it cannot proceed against Forge. Thus Forge is not an active participant in the proceeding. In those circumstances, leaving aside the question of availability of funds under the policies, it cannot be said that there is no utility in a grant of leave.
82 The Insurers also submitted that there was no utility in granting leave because of the concerns expressed at [69] of Rushleigh No 1, where Foster J said that, although possible, it was unlikely that Rushleigh could succeed against Forge but not against Mr Hutchinson, Mr Simpson or both of them. The Insurers submitted that if that statement is right then there is no utility in a grant of leave because Rushleigh and the Group Members can obtain relief without exposing the Insurers to the prejudice that they say they will suffer if leave is granted.
83 Foster J’s views expressed at [69] must be read in light of his Honour’s earlier comments at [29]-[30] of Rushleigh No 1: see [50] above. A number of issues arise. First, his Honour’s views were preliminary. They were formed only for the purpose of his consideration of the Leave Application and were not expressed for the purpose of determining whether leave should be granted to proceed against the Insurers.
84 Secondly, there are differences between the claims made against Forge and against Messrs Hutchinson and Simpson in the further amended statement of claim. There is the potential for claims to succeed against Forge but not against Mr Hutchinson, Mr Simpson or both. Examples of how that may arise include:
(1) where claims are made based on representations, the directors could defend the allegations on the basis that it was Forge who made the representations;
(2) where a claim relies on the state of mind of the maker of a representation, for example, an allegation that certain representations were made as to future matters for which the maker of the representation did not have reasonable grounds, the outcome may differ depending upon the state of mind of the maker of the alleged representation; and
(3) in order to succeed against Messrs Hutchinson and Simpson in the claim that they were knowingly involved in Forge’s alleged breach of s 674 of the Corporations Act, Rushleigh must establish that they had actual knowledge of each of the essential integers of Forge’s alleged contravention and that they participated in that contravention. Those matters do not need to be established to establish a breach of s 674 by Forge.
85 For those reasons the Insurers cannot rely on the statement made at [69] of Rushleigh No 1 as a conclusive prediction of the likely outcome.
The decision in Rushleigh No 1
86 The third reason why the Insurers submitted that the Court would not exercise its discretion to grant leave was because of the decision in Rushleigh No 1. The Insurers submitted that this application seeks to circumvent that decision, from which there was no appeal.
87 The Insurers noted that in Rushleigh No 1 Foster J observed at [68] that a claimant should proceed by way of proof of debt unless he or she could demonstrate that there was some good reason to depart from that procedure. The Insurers contended that his Honour held, implicitly, based on his Honour’s refusal to grant leave to proceed against Forge, that there was no good reason warranting departure from the proof of debt process.
88 The Insurers submitted that the alleged “central difference” between the circumstances in this proceeding and those in DSHE Holdings, being the presence of the claim against Forge, is more perceived than real when it is recognised that:
(1) the claim against Forge is stayed and no appeal was brought from the decision in Rushleigh No 1;
(2) it is open to Rushleigh to lodge a proof of debt in respect of its claim;
(3) the Insurers have, subject to the usual reservations, agreed to indemnify Forge in respect of that claim; and
(4) Foster J in Rushleigh No 1 concluded that a proof of debt would be the appropriate way to proceed.
89 The Insurers submitted that, contrary to Rushleigh’s contention, Foster J disagreed that a proof of debt procedure was ill-suited to the present case, a conclusion that was not challenged. They submitted that the possibility of inconsistent findings in appeal proceedings brought from the determination of proofs of debt by a liquidator was something that Foster J must have taken into account in determining the application for leave to proceed and that, in any event, such a risk is a reason why any such appeal should be heard concurrently with this proceeding, thereby removing the risk.
90 The Insurers accepted that the Civil Liability (Insurers) Act can be engaged where proceedings are not taken against a defendant. But they submitted that, in considering the exercise of the discretion under the Civil Liability (Insurers) Act, the relevant circumstances would include the availability of other possible claims by a claimant. The Insurers contended that the availability of a more appropriate avenue for relief against an insolvent insured, which has not been acted upon, weighs against granting leave to proceed against the Insurers.
91 The Insurers referred to the decision of the New South Wales Court of Appeal in Energize Fitness Pty Ltd v Vero Insurance Limited [2012] NSWCA 213 (Energize Fitness) at [59]. They submitted that the consequence of the refusal to grant the Leave Application is that no relief is available against Forge in the proceeding and that there will be no “Loss” within the meaning of cl 3.17 of the Chubb Policy incurred by Forge in the proceeding that will be the subject of a grant of indemnity.
92 The Insurers submitted that the availability of a claim under the Civil Liability (Insurers) Act does not alter the purpose of the legislation, that is, to ensure that insurers are not exposed unnecessarily to claims against them. They further submitted that the Civil Liability (Insurers) Act reveals no predisposition to claims being brought against insurers where the insured is not being or cannot be sued and that it does not alter the position that, in light of the unchallenged decision in Rushleigh No 1, no claim for legal relief against Forge can be asserted. The Insurers submitted that in those circumstances the appropriate course for Rushleigh is to pursue a proof of debt. They submitted that if leave to proceed were granted under s 5 of the Civil Liability (Insurers) Act then that would, in effect, permit Rushleigh to proceed on its claims against Forge, notwithstanding that leave to proceed pursuant to s 500(2) of the Corporations Act had been refused and that there was no appeal from Rushleigh No 1. The Insurers contended that those circumstances weigh against the grant of leave to proceed against them.
93 The Insurers’ submissions focussed on the fact that there had been no appeal from the Rushleigh No 1, nor, given the change in circumstances occasioned by the filing of the Liquidators’ Proceeding, a fresh application for leave to proceed pursuant to s 500(2) of the Corporations Act against Forge. That is so. However, it cannot be the case that a party must exhaust its rights under s 500(2) before making an application under the Civil Liability (Insurers) Act. There is no such condition specified in the Act itself. Further, the NSWLRC Report states at paragraph 4.19 that:
The new provisions are framed to capture all possible scenarios of a defendant's inability or failure to meet the relevant liability. This includes a defendant who, as:
…
• a corporation:
- is deregistered
- has had a receiver or provisional liquidator appointed
- is insolvent
- is in liquidation
- is in voluntary administration or subject to a deed of company arrangement, or
- otherwise has no ability to meet the liability in whole or in part, for example, because it has transferred all assets to another company (although it has no other debts).
(emphasis added)
94 The NSWLRC Report uses the word “defendant” to refer to the insured person or entity but, as submitted by Rushleigh, it does not contemplate that the claimant would need to litigate claims against the insured in order to invoke the Civil Liability (Insurers) Act. Rather, the NSWLRC Report contemplates that a claimant would recover directly from the insurer and that the insured would not be sued: see the discussion at paragraphs 4.12-4.21.
95 The Insurers contended that Rushleigh’s avenue for recovery is via the proof of debt procedure. In considering the Leave Application, Foster J considered that, in the absence of a good reason for departing from that process, a claimant should proceed by way of lodgement of a proof of debt: at [68]. Rushleigh submitted that, in expressing that opinion, Foster J did not consider or address Rushleigh’s proposed application under s 6 of the LRMP Act, which it intended to make if it was successful in the Transfer Application.
96 Submissions were made by Forge and Rushleigh on the Leave Application in relation to Rushleigh’s proposal to join the Insurers to the proceeding: see [53] above. At [63] his Honour rejected “these submissions”, by which it appears that his Honour rejected the submissions made by Rushleigh. But his Honour did not suggest at [68] that it would not be appropriate to grant leave to proceed against the Insurers under s 6 of the LRMP Act. His Honour’s comments were confined to the Leave Application.
97 In the Transfer Application Rushleigh made submissions about s 6 of the LRMP Act, in particular as to whether a claim under the LRMP Act could be asserted in this Court. Foster J effectively rejected that submission at [94]: see [57] above. His Honour gave further reasons for dismissing the Transfer Application at [97]-[98], including by reference to any claim that might be made by Rushleigh pursuant to s 6 of the LRMP Act: see [58] above. In doing so his Honour did not suggest that it would be inappropriate to grant relief under the LRMP Act or that, because the Leave Application had been dismissed, an application under that Act could not be pursued.
98 In my opinion, the present application is not foreclosed by the decision in Rushleigh No 1. Indeed, the current circumstances are exactly those in which a court would be minded to exercise its discretion in favour of a grant of leave. As Ball J observed in Opes Prime at [18]:
Generally, where leave is sought, that is because there are difficulties in pursuing the claim against the insured or the insurer has denied liability. … For example, in Bede Polding College itself, the defendant had entered into administration, the business no longer traded and the former principals of the business were deceased. In those circumstances, it was not unreasonable to expose the insurer to proceedings against it if the plaintiff had an arguable claim and it was arguable that the insurer was liable to indemnify the defendants in respect of it.
A similar situation presents itself here. That is, Forge is in liquidation; it no longer trades; and, given that its Leave Application failed, Rushleigh cannot sue it directly.
99 The proof of debt procedure was considered to be an appropriate procedure to adopt vis-à-vis pursuit of claims by Rushleigh against Forge in Rushleigh No 1. The Insurers submitted that the ability of Rushleigh to proceed by way of lodgement of a proof of debt was a reason why the Court would exercise its discretion not to grant leave to proceed against them.
100 It cannot be said that the availability of the proof of debt procedure is a bar to making a claim under the Civil Liability (Insurers) Act. That said, it could, in some circumstances, be a relevant factor in the exercise of the discretion to grant leave. This is one such case. But, contrary to the Insurers’ submissions, it is not a factor that would weigh against the exercise of the discretion. That is so for a number of reasons.
101 First, in this proceeding Rushleigh has overlapping claims against Forge and former directors of Forge. If Rushleigh were required to proceed against Forge by way of proof of debt and to pursue Messrs Hutchinson and Simpson in this proceeding then it would, in effect, be left to prove those overlapping claims in two different forums. In doing so it would incur additional cost and expense which could be avoided if it were permitted to proceed against the Insurers directly in this proceeding.
102 Secondly, even if Rushleigh and the Group Members were to proceed by way of proof of debt, their proofs might be rejected by the Liquidators or they might be otherwise dissatisfied with the decision of the Liquidators. In those circumstances, Rushleigh and the Group Members would need to appeal the Liquidators’ decision. I accept Rushleigh’s submission that any such appeal would traverse many of the same issues that would need to be determined in this proceeding.
103 Rushleigh submitted that, unless this proceeding and any appeal were heard together, there could be a risk of inconsistent findings. The Insurers submitted that hearing this proceeding together with the appeal from any rejection of a proof of debt or debts would remove the risk of inconsistent findings. In Rushleigh No 1 Foster J considered the possibility of inconsistent findings arising out of an appeal from the Liquidators’ rejection of a proof of debt that might cover the same general subject matter as findings made by this Court concerning the claims made against Messrs Hutchinson and Simpson. At [64] his Honour found that the potential for inconsistent findings was entirely speculative given that the Liquidators were unlikely to initiate a proof of debt process because there was no point in doing so. Rushleigh submitted that it could not be assumed that proofs of debt would not be lodged but that, if that were so, that was more reason why it should have an opportunity to sue the Insurers in this proceeding.
104 There was no evidence before me about the prospect of the Liquidators calling for proofs of debt. Nor does it appear that there was such evidence before Foster J. However, if proofs of debt are called for; a proof of debt is lodged by Rushleigh or any of the Group Members and rejected; and an appeal is brought from that rejection then, as submitted by Rushleigh, there would be the potential for inconsistent findings as between this proceeding and any such appeal. That eventuality would be avoided if this proceeding and any appeal were heard together. However, Rushleigh and the Group Members have no control over the time at which, if at all, the Liquidators might call for and determine proofs of debt such that any appeal could be heard together with this proceeding. Further, even if that ultimately were to occur, it would in any event be more efficient to grant leave to proceed against the Insurers at this stage. If, on the other hand, as Rushleigh submitted, the Liquidators are unlikely to call for proofs of debt then that is a factor that would weigh in favour of an exercise of discretion to grant leave to proceed against the Insurers.
105 The Insurers submitted that the consequence of the refusal of the Leave Application is that no relief is available against Forge in the proceeding and that there will be no “Loss” within the meaning of cl 3.17 of the Chubb Policy incurred by Forge in this proceeding that will be the subject of a grant of indemnity. In support of their submission the Insurers relied on Energize Fitness at [59]. In that case the issue considered by the NSW Court of Appeal was whether the primary judge had erred in finding that the defendants did not have a sufficiently arguable case to justify the grant of leave under s 6(4) of the LRMP Act. At [59] Campbell JA, with whom Allsop P and Meagher JA agreed, said:
At the level of principle, it could not be right that all an applicant for leave need do is proffer a pleading that alleges facts that, if true, would show that the insured had a liability to the applicant, and that that liability fell within the scope of an insurance policy issued by the insurer, regardless of whether there was any arguable basis upon which those facts might be true. Ordinarily an insurer has the right under a policy to choose whether or not to take over the defence of proceedings brought against an insured. The purpose of s 6(4) is to provide a filter against insurers being unjustifiably made parties in litigation that, apart from the grant of leave, they would be free to stay out of. The standard for when it is justifiable to bring an insurer in is fairly low, namely that there is an arguable case, but an arguable case exists only when there is both an arguable case that certain facts exist, and an arguable case that those facts provide grounds for legal relief. This is reflected in the sort of certificate that s 347 Legal Profession Act 2004 requires before a legal practitioner files a claim for damages, namely that "there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success."
106 But a refusal of leave to proceed against a company in liquidation is a procedural bar. The effect of the dismissal of the Leave Application is that Rushleigh cannot pursue the proceeding against Forge. It does not affect the substantive question of whether Forge is in fact liable to Rushleigh and the Group Members. The Insurers accepted that there was an arguable case against the insured respondents, including Forge. I would infer that the Insurers accept that there is both an arguable case that certain facts exist and that those facts provide grounds for legal relief. That Rushleigh cannot pursue its claim against Forge because leave to proceed was denied does not mean that Forge may not be liable to Rushleigh and the Group Members or that there is no arguable case for relief.
107 Section 4(3) of the Civil Liability (Insurers) Act provides that, in a proceeding brought by a claimant, in this case Rushleigh, against an insurer under s 4, the insurer stands in the place of the insured person, Forge, as if the proceeding were a proceeding to recover damages, compensation or costs from the insured person. The subsection further provides that, subject to the Act, the parties have the same rights and liabilities and the court has the same powers as if the proceeding were a proceeding brought against the insured person. That is, the insurer stands in the place of the insured. If leave were granted then the Insurers would stand in the place of Forge and Rushleigh’s claim would proceed against them as if they were Forge. Any finding of liability would be against the Insurers, standing in the shoes of Forge.
Other matters
108 The Insurers suggested that Rushleigh found itself in the position it did because of its own forensic decision. They submitted that if the present application had been made at the time of the applications that resulted in the judgment in Rushleigh No 1 then they would not be presented with the refusal of leave to proceed against Forge as a “fait accompli”. They further submitted that, had they been present at the hearing before Foster J, they would have had an opportunity to make the submissions made in the present application as to why, if leave were to be granted to proceed against someone then, as between the Insurers and Forge, the most appropriate entity would be Forge. The Insurers contended that, had that submission been made, and if his Honour had concluded that someone should be in the shoes of Forge, he would have logically concluded that it should have been Forge. The Insurers submitted that, having failed to seek leave to bring proceedings against the Insurers at that time and having deprived them of the right to be heard on that application, Rushleigh cannot now manufacture a situation where it is in a better position in relation to a grant of leave against the Insurers.
109 Those submissions should be rejected. There is no basis upon which it could be said that the Insurers had a right to be heard on the Leave Application. Nor is there any requirement that an application for leave to proceed against a company in liquidation and an application for a grant of leave pursuant to s 5 of the Civil Liability (Insurers) Act against an insurer be made at the same time. As Rushleigh submitted, they are alternative procedures and a litigant has a choice as to which application to make and when.
110 Rushleigh submitted that it was evident from the decision in Rushleigh No 1 that an application to proceed against the Insurers was not made before Foster J because it was thought that such an application had to be made in the NSW Supreme Court, not in this Court. Senior counsel for Rushleigh conceded that that position was wrong but said that, nonetheless, it was the rationale. Given that Forge was in liquidation at the time, it could be inferred that the Insurers were aware of Rushleigh’s application to proceed against Forge. If the Insurers considered that they had an interest in the application and a right to be heard in relation to it then they could have applied to be heard.
conclusion
111 Having considered all of the circumstances and the submissions made by the parties, I am of the opinion that leave to proceed against the Insurers under s 5 of the Civil Liability (Insurers) Act should be granted. It follows that orders should also be made joining the Insurers to the proceeding and granting leave to Rushleigh to file the further amended originating application and further amended statement of claim. Given the conclusion I have reached, the Insurers should pay Rushleigh’s costs of this application.
112 I will make orders accordingly.
I certify that the preceding one hundred and twelve (112) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic. |
