Wayland v Bird

MACFARLAN JA: I have had the advantage of reading the judgment of Ward JA in draft. I agree with the order that her Honour proposes and the reasons she gives.

WARD JA: Mr and Mrs Wayland (the applicants) are the owners of a property at Wyongah. Prior to their purchase of the property they obtained a pest inspection report from the first respondent (Mr Bird). In July 2013, they commenced proceedings in the District Court of New South Wales against Mr Bird, claiming damages for negligence and breach of contract in relation to that report and pest control services allegedly provided by Mr Bird after their purchase of the property. Although the claim in the District Court proceedings is unliquidated, the applicants have particularised their damage as including, amongst other things, property damage claimed to have been sustained by the presence of termites undetected in the pest inspection. This property damage, calculated by reference to the cost of remediation, is said to be “in excess of $45,000” (see statement of claim [10.1]).

In May 2015, no defence having by then been filed by Mr Bird – as remains the case today – the applicants filed a notice of motion seeking leave under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Act) to join Pacific International Insurance Limited (the second respondent) as a defendant to the proceedings in its capacity as the insurer of Mr Bird under a professional indemnity insurance policy. An amended notice of motion was filed in June 2015. That application, which was opposed by the second respondent, was heard by Olsson SC DCJ in the District Court on 13 April 2015 and was dismissed in June 2016. The applicants now seek leave to appeal from that decision. Their application for leave was heard concurrently with the appeal in the event that leave were to be granted.

The second respondent, in its written submissions, argues that the applicants’ summons (filed on 3 September 2016) was not filed within the time prescribed by r 51.10 of the Uniform Civil Procedure Rules 2005 (NSW), which required the summons to have been filed and served within 28 days of the material date. That could, of course, be the subject of an extension of time. However, this is not necessary since, for the reasons that follow, leave to appeal should not be granted and the summons seeking leave to appeal should be dismissed with costs.

By way of further background to the present dispute, the following should be noted.

The second respondent was notified by the applicants’ solicitors in about February 2014 of the claim against Mr Bird, the solicitors seeking confirmation that the second respondent indemnified Mr Bird in respect of the claim. Thereafter, there was communication between the claims assessor employed by the insurance agent of the second respondent (Mr John Harvey) and Mr Bird as to the claim (see affidavit of Mr Harvey sworn 14 August 2014). Mr Harvey has deposed that at that stage, in February 2014, Mr Bird informed him that he was aware of the claim but was not going to bother lodging a claim against the insurance, saying words to the effect that he did not do anything wrong so there would not be anything to pay and that if he did lose he would pay the claim himself (Mr Harvey’s affidavit at [9]).

In both late April and early May 2014 Mr Harvey spoke again with Mr Bird requesting that he provide information in relation to the claim and lodge a claim under the insurance policy so that it could be managed by the insurer (Mr Harvey’s affidavit at [13]-[15]). When he received no documentation from Mr Bird, the matter was referred to the second respondent’s solicitors, Moray & Agnew Lawyers, who also attempted (largely unsuccessfully) to obtain information in relation to the claim from Mr Bird. Although at one stage Mr Bird requested that they act for him (and a notice of appearance was filed on his behalf), and although some documentation was provided to them, ultimately a notice of ceasing to act was filed by Moray & Agnew Lawyers on 10 April 2015. Mr Bird has since taken no further steps in the proceedings (nor has he in the proceedings in this Court).

The second respondent, which had accepted that Mr Bird’s professional indemnity insurance policy could respond to the applicants’ claim and proceeded on the basis that a claim had been made on the policy by Mr Bird, initially granted indemnity in respect of that portion of the proceedings relating to the timber pest inspection and report undertaken by Mr Bird on 27 May 2011. It did not, however, accept that the policy extended to the claim relating to the termite management programme undertaken after the inspection report.

By letter dated 18 February 2015, in which a draft defence was forwarded to Mr Bird for his instructions, the second respondent’s solicitors outlined to Mr Bird their complaints as to his lack of any meaningful cooperation or assistance in respect of the proceedings and put him squarely on notice of the insurer’s position that, should he further fail to provide the full co-operation and assistance requested of him, the insurer would be entitled to cease to represent him and to reduce or entirely disclaim its liability to indemnify him. When that failed to produce any response from Mr Bird, the second respondent revoked its grant of indemnity (see letter dated 27 February 2015).

At the hearing of the applicants’ amended notice of motion seeking leave to join the second respondent as a defendant to the District Court proceedings, the applicants adduced evidence of real property searches carried out as at October 2013, on which they relied to show that Mr Bird held no real property in this State. There was, however, some evidence that Mr Bird was continuing to advertise his business as a pest consultant.

At that stage (August 2015), the second respondent’s solicitor’s evidence was that he was aware of Mr Bird’s address (T 12.10). The loss assessor, Mr Harvey, who gave evidence that he had tried to make arrangements to meet with Mr Bird at his office or wherever Mr Bird nominated (T 16.21), agreed that there was no reason why he could not travel to Mr Bird’s home (and wait for him to arrive) (T 17.25). However, attempts by the second respondent’s solicitors to serve the appeal documents at that (San Remo) address, and at a post office box address by registered mail, resulted in the return of those documents unopened, which casts some doubt as to Mr Bird’s whereabouts. The applicant’s solicitor has deposed that he does not know of any other address for Mr Bird (Mr Nash’s affidavit sworn 12 October 2016).

The primary judge, having set out the background to the application, the relevant legislative provisions, the principles applicable to applications for leave of the kind sought, and having referred to evidence adduced on the application and the parties’ submissions, determined the application against the applicants as follows:

The applicants’ draft notice of appeal identified the following seven grounds of appeal:

In the course of oral argument, however, the applicants informed the Court that they did not seek to press grounds 3 or 6 of those proposed grounds.

In essence, the applicants maintain that the primary judge erred by not applying established principles for the grant of leave to join insurers pursuant to s 6 of the Act. They accept that in order to succeed on an appeal from the exercise of a discretionary judgment of the kind here involved they must establish error in the House v The King sense (House v The King (1936) 55 CLR 499; [1936] HCA 40); i.e., an error of principle, material error of fact, the taking into account of an irrelevant consideration or failure to take into account a relevant consideration, or unreasonableness such as to indicate an error of that kind.

In the course of oral argument, the error that the applicants first identified in that regard was that there was insufficient material to enable the primary judge to arrive at a conclusion that there was such prejudice to the insurer (from Mr Bird’s conduct) as to warrant dismissal of their application (T 3.37). The applicants did, however, also embrace the proposition (that fell from the bench by way of clarification of what the applicants were putting in this regard) that her Honour’s discretion had miscarried because undue (or any) weight had been placed on the fact that the insurer might disclaim liability (see T 4.41-5.10).

The applicants do not suggest that the possibility that the insurer might be in a position to deny indemnity under the policy by reason of Mr Bird’s lack of co-operation was an irrelevant consideration for the primary judge to take into account in the exercise of the discretion whether to grant the leave sought by them; but they maintain that there was no evidence of prejudice (or sufficient prejudice) to “enliven” discretionary factors against the grant of leave. They say that the insurer had not taken sufficient steps to establish a finding of prejudice. They also challenge the conclusion by the primary judge (at [58]) that the evidence did not establish that there was a real possibility that Mr Bird would be unable to satisfy any judgment obtained against it in the proceedings.

Section 6 of the Act provides as follows:

In the present case, there was no suggestion that the proviso was applicable since no proceedings have been brought to establish the insurer’s entitlement to disclaim liability. However, as made clear in the judgment of McHugh and Gummow JJ in Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399 at 448; [1995] HCA 28 at [105] (Bailey v NSW Medical):

In Energize Fitness Pty Ltd v Vero Insurance Ltd [2012] NSWCA 213 at [59] Campbell JA explained the purpose of s 6(4) as being “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” and noted that the standard for when it is justifiable to bring an insurer in was “fairly low”.

Earlier, in Oswald v Bailey (1987) 11 NSWLR 715, Kirby P had pointed (at 717-718) to the uniqueness of the statutory provision and had referred to the beneficial object lying behind it, saying that:

At 726, Kirby P referred to one of the major purposes of the Act as being to provide ease of access by claimants for damages and compensation to a fund which it would otherwise be difficult for them to access and said:

Priestley JA, at 734, said:

Thus, it has been accepted that for an application for leave to proceed against an insurer under s 6(4) of the Act it is necessary for the applicant to establish, among other things, an arguable case that there is a policy which responds to indemnify the insured in respect of the alleged liability and an arguable case that there was a statutory charge under s 6(1) (Guild Insurance Ltd v Hepburn [2014] NSWCA 400 per Meagher JA at [44]; and see the authorities there cited). As adverted to above, those other things that an applicant must establish include that there is a real possibility that if judgment is obtained the insured will not be able to meet it.

In the present case, there was no dispute that the applicants (who bore the evidentiary and persuasive onus on the application for leave) had established on the balance of probabilities that there was an arguable case against Mr Bird and that there was an insurance policy that responded to that claim. There was a dispute as to whether the evidence established that there was a real possibility that Mr Bird would be unable to satisfy a judgment made against him (to which I will return shortly).

However, while those are matters which must be established before such an order will be made, the establishment of each of those matters does not mandate the making of such an order. That question remains one within the discretion of the Court (see for example Bailey v NSW Medical; Tzaidas v Child (2004) 61 NSWLR 18).

To succeed in an appeal from the decision of the primary judge to dismiss their application, the applicants must establish error of the type identified in House v The King (Energize Fitness at [50]).

As noted above, the applicants now accept that it was not an irrelevant consideration for the primary judge to take into account the likelihood (or possibility) that the second respondent might be in a position to deny indemnity under the policy as a result of the conduct to date of Mr Bird (namely, his refusal to co-operate with the insurer and to provide assistance in relation to the preparation and carriage of his defence).

In Bailey v NSW Medical, McHugh and Gummow JJ said (at 448-449):

Their Honours said (at 450):

Thus it is difficult to see how the proposed ground 4 of the applicants’ grounds of appeal (which they did not abandon) could succeed.

It was clearly open to the primary judge, in the exercise of her discretion, to consider the possibility that the second respondent might be in a position to disclaim liability if its ability to defend the proceedings had been prejudiced by the Mr Bird’s lack of co-operation. Similarly, the potential operation of s 54 of the Insurance Contracts Act 1984 (Cth) was a matter that could properly be taken into account in that regard (see Tzaidas v Child; Gorczynski v W&FT Osmo Pty Ltd [2010] NSWCA 163).

However, her Honour went further than that and made a finding that there was such prejudice to the insurer as to entitle it to refuse indemnity to Mr Bird (at [57]) and said, that being the case, that s 6 of the Act was not enlivened. To the extent that her Honour’s reasoning (in the first two sentences of [57]) suggests that her Honour considered that this finding was determinative against the application, this seems to have been an acceptance of the proposition put to her by the insurer that:

The prejudice to which the insurer had there referred was Mr Bird’s failure to respond to requests for specific information and documentation to permit a defence to be filed and to enable it to be certified in accordance with s 347 of the Legal Profession Act 2004 (NSW) (repealed from 1 July, 2015) and/or cl 4 of Sch 2 of the Legal Profession Uniform Law Application Act 2014 (NSW).

It can readily be accepted that the insurer would have difficulty, if joined as a defendant to the proceedings and if Mr Bird persists in his unco-operative stance or cannot be located, in preparing and conducting its defence (though the difficulty in verifying a defence to which the second respondent points might be overcome by a defence which simply puts the applicants to proof of their claim). However, by the same token, it may be that ultimately no prejudice will have been suffered as a result of Mr Bird’s lack of co-operation (say, if the applicants fail to establish liability on the part of the insured) or that it is not sufficient prejudice to entitle the insurer wholly to disclaim liability under the policy.

Whether or not there was sufficient material for her Honour to conclude that there was prejudice to the insurer to such an extent that it would be entitled to disclaim liability under the policy, it cannot be said (and is not now contended by the applicants) that her Honour’s discretion miscarried in taking into account the fact that the insurer might be entitled to disclaim liability. The possibility of such a disclaimer would not of itself be determinative against the grant of leave – it would simply be a matter which would inform the exercise of the court’s discretion.

On one view, therefore, the primary judge’s discretion may be said to have miscarried in regarding the evidence of lack of co-operation by Mr Bird as determinative against the grant of leave. That said, her Honour went on in the last sentence at [57] to say that, for the same reasons (i.e., because of the prejudice that she considered had been caused to the insurer) she was not satisfied that this was an appropriate case for leave to be granted. Clearly, her Honour had turned her mind to the question of prejudice as part of weighing the factors relevant to the exercise of her discretion and had reached the same conclusion. Thus even if there was an error of principle to the extent that her Honour considered the finding of prejudice to be determinative of the s 6(4) application, the same result would have been reached in the exercise of her Honour’s discretion.

As to the complaint made in respect of her Honour’s obiter finding that it had not been established on the balance of probabilities that there was a real possibility that the insured would not be able to meet an adverse judgment against him, the applicants argue that her Honour should have inferred that because Mr Bird held no real property in October 2013 he would not have acquired any since. That is not in my opinion a reasonable inference on the basis of the material that was before the primary judge, let alone the only available one.

It has been made clear in this Court that leave to appeal will usually be refused where there is no question of principle involved (Jaycar Pty Ltd v Lombardo [2011] NSWCA 284; Zelden v Sewell Henamast Pty Ltd [2011] NSWCA 56; Dunn v Ross Lamb Motors [1978] 1 NSWLR 26). Here, any error of principle would not have been determinative since the primary judge would have reached the same result in any event. If this Court were to grant leave to appeal and conclude that there had been an error of principle, it would be necessary to exercise the discretion afresh and the potential for prejudice to the insurer as a result of the insured’s conduct would again be a relevant factor to take into account.

In The Age Company Ltd v Liu (2013) 82 NWLR 268; [2013] NSWCA 26, Bathurst CJ (at [13]), with the agreement of Beazley JA, as her Honour then was, and McColl JA, said that “[g]enerally speaking, it is only appropriate to grant leave in matters that involve issues of principle, questions of public importance or in circumstances where it is reasonably clear that an injustice has occurred by reason of error in the judgment, going beyond what is merely arguable”. (See also Clarke v State of New South Wales [2015] NSWCA 27; Carolan v AMF Bowling Pty Ltd t/as Bennetts Green Bowl [1995] NSWCA 69; Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164.)

The quantum in dispute should also be borne in mind. The requirement for leave to appeal from a judgment where the quantum in dispute is less than $100,000 implicitly recognises the importance of keeping in mind the proportionality of the dispute (see Polo Enterprises Australia Pty Ltd v Pinctada Hotels and Resorts Pty Ltd [2015] NSWCA 397).

In the present case, the amount in issue is relatively small; there are avenues open to the applicants to pursue their claim against Mr Bird and, if successful, to take steps to enforce it; the applicants are not shut out from claiming in that event against the insurance policy (at a time when the issue of prejudice to the insurer would be able to be determined with the benefit of a concluded hearing) and hence no substantial injustice in the refusal of leave to join the second respondent to the proceedings has been shown. Insofar as this was a matter in the exercise of the primary judge’s discretion, it is not sufficient that this Court might have come to a different conclusion. The applicants have invoked s 56 of the Civil Procedure Act 2005 (NSW) which mandates consideration of the “just, quick and cheap” resolution of disputes. It is by no means apparent that the course that has been adopted in the present case (by pressing this application for leave to appeal as opposed to proceeding, once leave to join the insurer was refused, simply to obtain default judgment against Mr Bird and have an assessment of damages) has been consistent with those purposes. In any event, I am not persuaded that this is an appropriate case in which leave to appeal should be granted.

I am therefore of the opinion that leave to appeal should be refused with costs.

EMMETT AJA: The question in these proceedings is whether a judge of the District Court erred in declining to make an order, on the application of Mr and Mrs Wayland, under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (Law Reform Act). Mr and Mrs Wayland sued the first respondent, Mr Bird, claiming damages for negligence and breach of contract in relation to a pest inspection report provided by Mr Bird. Mr Bird was insured by Pacific International Insurance Limited (the Insurer), which is the second respondent. Under s 6 of the Law Reform Act, where a person has entered into a contract of insurance by which the person is indemnified against a liability to pay any damages, the amount of the person’s liability is to be a charge of non-insurance monies that are or may become payable in respect of that liability. Under s 6(4), every such charge is to be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages from the insured. In respect of any such action the parties are to have, to the extent of the charge, the same rights and liabilities, and the court is to have the same powers, as if the action were against the insured. However, subject to exceptions not presently relevant, no such action may be commenced in any court except with the leave of that court. By notice of motion filed in the District Court, Mr and Mrs Wayland sought to join the Insurer. A judge of the District Court refused the application. Mr and Mrs Wayland now seek leave to appeal to this Court from that refusal.

I have had the advantage of reading in draft form the proposed reasons of Ward JA for refusing leave to appeal. I agree with her Honour’s conclusions for the reasons proposed. I agree with the orders proposed by her Honour.