BNY Trust Company of Australia Limited v MMJ Real Estate (WA) Pty Ltd

In September 2010, Leigh John Kennedy made an application to the plaintiff to fund the acquisition of 35 individually-titled self-storage unit facilities that formed part of a strata plan situated at 14A Hurrell Way, Rockingham, Perth, Western Australia. The amount of the finance sought was in the sum of $1,650,000. In October 2010, Wayne Allen Houghton made an application to the plaintiff to fund the acquisition of 30 individually-titled self-storage units in the same strata plan. Mr Houghton sought finance in the amount of $1,450,000.

On 29 November 2010, the plaintiff instructed the first defendant to value the lots in each of the applications. On 30 November 2010, the first defendant provided a valuation of the Kennedy lots on the basis that each strata lot was valued individually, the aggregate sum of which totalled $2,237,500, and provided a valuation of the Houghton lots on the basis that each strata lot was valued individually, the aggregate sum of which totalled $1,942,500. The valuations were carried out by the third defendant and were counter-signed by the second defendant.

On the basis of those valuations, on or about 11 January 2011 the plaintiff advanced to Mr Kennedy the sum of $1,650,000 and to Mr Houghton the sum of $1,450,000.

Mr Kennedy defaulted by failing to pay an instalment on 11 February 2011 and Mr Houghton defaulted by failing to pay an instalment on 11 March 2011.

On or about 22 December 2015 the plaintiff commenced proceedings in this court against Mr Houghton claiming the sum of $2,549,247.33 plus interest pursuant to his loan facility. No defence was filed to that claim, and on 12 August 2016 the plaintiff obtained default judgment in the sum of $2,787,386.19. Subsequently, Mr Houghton was served with a bankruptcy notice with which he did not comply.

On or about 21 December 2015 the plaintiff commenced proceedings in this court against Mr Kennedy seeking judgment in the sum of $2,953,348.84. The plaintiff was unable to serve Mr Kennedy personally with the statement of claim and on 24 June 2016 those proceedings were discontinued.

Neither of the borrowers has paid what is owing to the plaintiff.

In August 2015 the plaintiff attempted to sell the whole of the property comprising the Kennedy lots and the Houghton lots. On 19 November 2015 contracts were exchanged for the sale of the property for a purchase price of $675,000. On 29 February 2016 the solicitor acting on behalf of the purchaser informed the plaintiff’s solicitors that the purchaser would be unable to complete the contract. The plaintiff accepted the purchaser’s repudiation and terminated the contract. Despite further attempts to sell the property, the property has not sold.

On 20 October 2016 the plaintiff commenced the present proceedings against MMJ Real Estate (WA) Pty Ltd, and the two valuers responsible for the valuations provided to the plaintiff. The plaintiff claims the first defendant, MMJ, breached its retainer and that all of the defendants breached their duty of care owed to the plaintiff. The plaintiff further claims that the defendants made various representations in trade and commerce which were misleading and deceptive. The plaintiff claims damages in reliance on s 51A of the Trade Practices Act 1974 (Cth), s 41 of the Fair Trading Act 1987 (NSW) and s 9 of the Fair Trading Act 1987 (WA).

The defendants collectively filed a defence to the original statement of claim and an amended defence to the amended statement of claim. Subsequently, following the filing of notices of motion on 28 March 2018, each of the defendants was given leave on 13 April 2018 to file a cross-claim against XL Insurance Company SE. The first defendant, MMJ, seeks the following relief against the cross-defendant:

The second defendant, Dennis John Volk, seeks the same relief against the cross-defendant.

The third defendant, Brett Hosking, seeks the following relief:

The cross-defendant’s principal defence to the claim for indemnity by the defendants is pleaded as follows in its defence to each cross-claim:

In their motions filed 28 March 2018 the first defendant and the third defendant sought leave to file a further defence which pleaded proportionate liability. The notice of motion filed by MMJ did not specify the basis for the proportionate liability pleading. The third defendant’s notice of motion sought to plead proportionate liability under s 5AK(1) of the Civil Liability Act 2002 (WA).

In the consent orders made on 11 April 2018 provision was made for amended draft defences to be circulated and for the plaintiff to indicate whether or not it consented to the filing of those defences. The plaintiff has now indicated that it does so consent.

New solicitors for the first defendant have raised issues with the form of the amended statement of claim filed on 15 September 2017. The plaintiff has indicated that, whilst it does not accept the criticisms made, to avoid dispute, delay and expense, it seeks leave to file a further amended statement of claim. The defendants consent to that course.

The principal matter for determination is whether the court should direct pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) for the decision as a preliminary question, prior to the determination of the plaintiff’s claim, whether the cross-defendant is liable under the policy to indemnify the defendants against the plaintiff’s claim. The cross-defendant agrees that there should be an order for a hearing of the separate questions

The plaintiff opposes that application on the basis that it is not possible to determine all the issues arising in the indemnity dispute without trespassing on issues which will arise in the main proceedings. The plaintiff submits that there is an overlap of issues. The plaintiff also submits that the proceedings will be unnecessarily delayed with no certainty that the outcome of the separate hearing will shorten the length of the final hearing.

The proposed questions for separate determination are as follows:

The defendants and the cross-defendant have agreed the facts for the purpose of the separate questions as follows:

In Southwell v Bennett [2010] NSWSC 1372, Hallen ASJ (as his Honour then was) said at [15]:

In Crawley v Vero Insurance Ltd & Ors [2012] NSWSC 593, Beech-Jones J adopted those principles and made five further points as follows:

The plaintiff submitted that the issues raised by the Prudent Lender clause are issues that will have to be determined at the final hearing in the sense that matters of causation, contributory negligence and reliance are issues raised by the defences in any event. The plaintiff submitted that for the defendants and the insurer to agree on paragraph 16 of the agreed facts for the purpose only of the separate hearing means that the separate hearing will be decided on a hypothetical.

In my opinion, the agreement contained in paragraph 16 of the agreed facts is significant for two reasons. First, it means that there will be no factual issues to be determined at the separate hearing, and that the separate hearing will, as the defendants and the cross-defendant submit, be determined on the question of construction only. That question of construction is, as Mr Watson SC for the defendants said, whether the clause can operate in the absence of causation to entitle the insurer to decline indemnity.

The second reason it is significant is that, although questions of causation, contributory negligence and reliance will be live issues at the final hearing, they will be issues unattended by any complexity from the Prudent Lender clause if, on the separate hearing, the insurer is found liable to indemnify the defendants. The insurer accepts that if it is found liable to indemnify the defendants, it is locked in to defending the proceedings and cannot subsequently deny indemnity for issues that relate to the Prudent Lender clause. The end result is that the issues that will be between the plaintiff and the defendants represented by the insurer will be no different from the issues between the plaintiff and the defendants unrepresented by the insurer.

Two beneficial things will flow if the separate hearing is decided in favour of the insurer being required to indemnify. The first is that the final proceedings will be more confined because there will be only two parties involved without the side issues between the defendants and the insurer. The second matter is that it is likely settlement of the proceedings will be easier to achieve if the insurer is conducting the defence of the proceedings. One of the variables, whether the insurer is bound to indemnify, will have been removed from consideration when settlement is discussed. I accept the submissions of the defendants and the cross-defendant in that regard.

The plaintiff quite legitimately raises the prospect of delay. One aspect of that delay can be fairly easily put aside. There are hearing dates available for single day or short matters in the relatively near future. There are no hearing days, probably this year at all, for three day or more matters. In those circumstances, the final hearing is unlikely to take place prior to 2019. By that time the separate hearing will have been determined.

The second aspect of delay raised by the plaintiff concerns an appeal from the result in the separate hearing. An appeal can never be put out of consideration but, if the possibility of an appeal was thought to be a barrier to this separate hearing, the possibility of an appeal would always be a barrier to any separate hearing. There is perhaps some irony in the fact that the one party in the present matter that considers it most likely that there would be an appeal from any separate question determination is the one party not directly involved in that separate hearing. Both the defendants and the cross-defendant have submitted that an appeal is unlikely whichever way the matter is determined.

Furthermore, an appeal from a decision on a separate question requires leave of the Court of Appeal: s 103 Supreme Court Act 1970 (NSW). That carries with it the result that any such appeal could probably be brought at the conclusion of the final hearing.

All the parties agree that it is difficult to see precisely how the Prudent Lender clause operates; particularly how the causation question is relevant to its operation. Having to determine that question with the ordinary causation, contributory negligence and reliance questions that are in issue between the plaintiff and the defendants would unnecessarily complicate the final hearing. The agreement contained in paragraph 16 of the facts obviates the need for that. That is a significant advantage and justifies an order for a separate hearing.

In my opinion, a proper application of the matters in Southwell v Bennett and Crawley v Vero Insurance Ltd makes it appropriate to order a separate hearing in the present case in the terms sought.

I make the following orders: