Australian courts have not yet had the opportunity to consider the "Bridgecorp" issue which has confronted the New Zealand courts in recent times (see our article on page 50). Given the high stakes involved, it is unlikely to go away, even after the New Zealand Court of Appeal sensibly preserved the interests of insureds.
In the meantime, we summarise the recent key decisions handed down in relation to section 6 (s 6) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (LRMPA). These decisions reinforce the difficulties that plaintiffs may encounter in seeking to join insurers to proceedings pursuant to s 6.
ENERGIZE FITNESS PTY LTD V VERO INSURANCE LTD  NSWCA 213
This was an appeal from a decision of RS Hulme J dismissing an application to join Vero Insurance Ltd (Vero) as a defendant to a proceeding pursuant to s 6(4) of the LRMPA. Vero was the liability insurer of Cal-Gym Manufacturing Pty Ltd (CG Manufacturing), the named insured of the policy in question and its subsidiaries.
The proceeding was issued by the plaintiff, who had been seriously injured in November 2006 at a gym owned and operated by the defendant, Energize Fitness Pty Ltd (Energize), while using a weightlifting aid known as the Smith Machine, which was alleged to be defective. Energize brought CG Manufacturing and Cal-Gym Equipment Pty Ltd (CG Equipment) into the proceeding on the basis that one of them had manufactured the machine. Energize subsequently applied to join Vero to the proceeding on the basis that it was the liability insurer of both CG Manufacturing and CG Equipment. By the time of the hearing of that application, both CG Manufacturing and CG Equipment were deregistered.
The primary judge held that leave will only be given to join an insurer under s 6 of the LRMPA where there is an arguable case against the insured, an arguable case that the policy responds and a real possibility that if judgment is obtained the insured would not be able to meet it. In relation to the first of those requirements, the primary judge held that there was insufficient evidence for there to be an arguable case that CG Manufacturing was the manufacturer of the machine, because the evidence was that the machine was manufactured in or around 1996, which was two years before CG Manufacturing was incorporated. It was held that there was no arguable case that CG Manufacturing was the manufacturer of the machine and therefore Vero, as insurer of that company, should not be joined to the proceeding. In relation to CG Equipment, the primary judge held that there was no evidence that Vero insured CG Equipment or that CG Equipment was a subsidiary of CG Manufacturing and therefore Vero should not be joined.
On appeal, the Court of Appeal said that the decision to grant or refuse leave to proceed against an insurer under s 6(4) is discretionary. The Court of Appeal rejected the argument that the primary judge made an error of principle in not applying the test for summary dismissal of an action, because the questions involved in an application for summary dismissal and an application for leave under s 6 of the LRMPA are different. In an application for leave under s 6 of the LRMPA, the question is whether the court should permit a litigant to commence an action against a party who, in the absence of such leave, the litigant has no right to sue, whereas in an application for summary judgment the question is whether an action that a litigant has been able to commence without any need for leave of the court should be brought to an end. The Court of Appeal said that the essential question for the grant of leave in this case was whether there was an arguable case that the machine was manufactured on or after the date that GC Manufacturing was incorporated. It held that the primary judge's view that there was no such arguable case was the correct view.
PERPETUAL TRUSTEES VICTORIA LTD V MALOUF  NSWSC 1119
This decision concerned an application by the second defendant, Albert Malouf, to join his solicitor's insurer, LawCover Insurance Pty Ltd (LawCover), to a cross-claim he was making against his solicitor, Mr Goldberg. The question for the court was whether the event giving rise to the claim occurred before inception of the applicable insurance policy.
The underlying proceeding arose out of a transaction in which Mr and Mrs Malouf signed several documents in the belief that they were providing short-term financial assistance to their son, Albert (the second defendant). However, the effect of the documents was that Mrs Malouf's interest in the property was transferred to Albert (and therefore Mr Malouf and Albert became tenants in common) and a mortgage was granted over the property to the plaintiff. That mortgage secured a AU$700,000 loan to Albert, which Albert on-lent to a third party. The third party, and then Mr Malouf and Albert, fell into default and the plaintiff sought to exercise its rights under the mortgage. As Mr Goldberg had ceased practising as a solicitor, Albert sought to join LawCover to the proceeding pursuant to s 6(4) of the LRMPA.
The case against Mr Goldberg was that he was negligent in failing to investigate the security properties adequately or at all and failing to obtain the consent of caveators with priority to the registration of a second mortgage over the security properties.
The relevant policy was a claims made policy providing run-off cover to Mr Goldberg for the period 1 July 2006 to 30 June 2007. There was no dispute that the claim was first made against Mr Goldberg in March 2007. As the court was bound by authority that s 6(1) does not give rise to a charge where the event that gives rise to a cause of action against the insured occurred before the inception of the relevant contract of insurance, the issue to be determined was when the event giving rise to the liability arose. Was it at the time of the sale of the final security property in October 2006 (as argued by Albert)? Or at the time Mr Goldberg breached his contract of retainer when the first loan was made, in 2004 (as submitted by the LawCover)?
The court said that what is described as "the event" in s 6 is what causes the charge on the insurance moneys to arise and that "the event" is whatever completes the cause of action against the insured. In this case, the policy indemnified Mr Goldberg against civil liability for claims arising from the legal practice of the firm first made against him during the period of insurance.
The case against Mr Goldberg was that he breached the term of the retainer to provide appropriate advice. The court held that the breach (if established) occurred in 2004 when the loans were made and that the cause of action to which the policy responds (ie civil liability for a claim) was complete on the breach. Therefore the "event" occurred in 2004, which was prior to the inception of the policy. Therefore no charge was created under s 6(1), which precluded Mr Malouf from being granted leave to claim directly against LawCover.
AL KHALED V JACARANDA PROPERTY DEVELOPMENTS PTY LTD & ORS  NSWSC 755
The plaintiff, Mr Al Khaled suffered injuries from electrocution while working as a cement renderer on scaffolding at a building site when the aluminium straight edge he was using came into contact with an energised power line. He issued proceedings against the developer of the building site and the companies that erected the scaffolding. The defendants each issued a cross-claim against Neatrule Cement Rendering Pty Ltd (Neatrule), a labour hire company that provided the plaintiff's labour. Neatrule became the subject of a creditor's voluntary winding up order and liquidators were appointed. At the time of the event in question, Neatrule held public liability insurance with Calliden and workers compensation insurance with Allianz.
Calliden initially conducted the defence on behalf of Neatrule under a reservation of rights and, while doing that, joined Allianz to the proceeding as a cross-defendant on the basis that it was obliged to indemnify Neatrule because the plaintiff was a worker or deemed worker of Neatrule.
After liquidators were appointed to Neatrule, the defendants sought leave to continue the cross-claims against that company. Calliden argued that the appropriate course was for leave to be granted to the defendants to institute fresh proceedings seeking relief under s 6 of the LRMPA. The defendants opposed such an order. The issue for the court was whether to grant leave to the defendants to continue the cross-claims.
Although the court was "very attracted to the idea that an order under s 6(4) should be made", ultimately it held that the orders sought by the defendants should be made (ie to grant leave to the defendants under s 500(2) of the Corporations Act 2001 (Cth) (Corporations Act) to continue with the cross-claims). If the defendants were to bring claims directly against the insurers pursuant to s 6 of the LRMPA, that would involve instituting fresh proceedings and redrafting pleadings, which the defendants did not wish to do. The court did not wish to impose that burden upon the defendants.
The court acknowledged that there was some commercial risk that continuing the proceedings under s 500(2) may later lead to it being necessary for the defendants to bring further proceedings, but said that it was not for the court to protect the defendants from that risk. The preferable course was to maintain the status quo and allow the proceedings to continue as they had been. Therefore, orders were made that the defendants be granted leave under s 500(2) of the Corporations Act to continue each of the cross-claims against Neatrule.
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