LIFE AFTER CHUBB V MOORE

Transcription

1 LIFE AFTER CHUBB V MOORE The revival of third party declaratory relief proceedings against insurers and more... Katherine Ruschen, Director Louise Moussa, Solicitor 19 May 2015

2 Leave to sue insolvent insured under Corporations Act Company in administration s 440D Court ordered winding up s 471B Voluntary winding up of company s 500(2) Deregistered company s 601AH

3 Section 562, Corporations Act Directs that proceeds under a contract of insurance against liability to a third party must be paid to that third party (after deduction of expenses) in priority to all other creditors.

4 Legislative framework for joining insurers Bankruptcy Act 1966 (Cth), s 117 Corporations Act 2001 (Cth), s 601AG Insurance Contracts Act 1984 (Cth), s 51 Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6

5 Prior to s 117, Bankruptcy Act

6 Section 117, Bankruptcy Act Insured becomes bankrupt Liability arises (before or after bankruptcy) Charge over any amounts received under policy

7 What is a charge? Security for payment of debt, or performance of obligation Creates a new right and remedy No requirement for quantified value Created on happening of event Applies to any amount payable after event

8 Section 51, Insurance Contracts Act

9 Section 51, Insurance Contracts Act Insured liable in damages Policy responds Insured dead or cannot be found

10 Section 601AG, Corporations Act Insured deregistered Insured liabile Policy responds

11 Almario v Allianz Australia Workers Compensation Insurance Limited (2005) 62 NSWLR 148 Company has a liability to applicant. Insurance contract applies. Before company deregistered

12 Langridge v Insurance Commission of Western Australia & Ors [2003] WASC 24

13 Section 6, Law Reform (Miscellaneous Provisions) Act Claim against insured, and insured is indemnified, charge on all insurance money Charge has priority over all other charges affecting the insurance money Enforceable against insurer directly Claimant must seek leave to proceed under s 6 No need for insured to be named defendant Any payment made under policy is a valid discharge of liability, even if no notice of charge Amount recoverable limited to sum insured

14 Leave to proceed under s 6 Is there an arguable case that: The insured is liable? The insurance policy responds? There is reason to believe the insured cannot meet judgment?

15 Production of policies

16 Policies will be discoverable if they are relevant to a fact in issue. Generally, policies will become directly relevant to proceedings, or impending proceedings, against insurers under statute, or for declaratory relief.

17 When there s a fork in the road...

18 Practical considerations: Al Khaled v Jacaranda Property Developments Pty Limited & Ors [2012] NSWSC 755: s 500(2) of the Corporations Act or s 6 of the LRMPA? Practical implications: Victorian Workcover Authority v Mildura Rural City Council & Cosmos Soccer & Athletic Club Inc: s 601AH or s 601AG of the Corporations Act?

19 Things to consider: Is indemnity seriously in issue? Will the insurer want to exercise subrogation rights? Is the insurer likely to gain any forensic advantage or disadvantage from being the named defendant?

20 Life after Chubb v Moore

21 The limited utility of s 6 of the [LRMPA] in many cases involving claims made and notified liability insurance policies as illustrated by Chubb v Moore, supports the adoption of another legally available path lest plaintiffs who have a strongly arguable claim for redress go without an effective remedy. That possibility is not in the interest of justice or, I might add, the administration of justice.

22 What is declaratory relief

23 A declaration: Is an equitable discretionary remedy. Is a formal statement by a court, pronouncing upon the existence or non-existence of a legal state of affairs.

24 It s not about nothing...

25 Says something about something. But does not create rights capable of enforcement without further order of the Court.

26 Jurisdiction It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which it is neither possible nor desirable to fetter... by laying down rules as to the manner of its exercise.

27 The necessary elements: There must be a justiciable controversy. The plaintiff must have a real interest in the matter. The declaration, if made must have utility.

28 The not in privity of contract argument: No justiciable controversy unless the parties to the insurance contract are in dispute. The plaintiff lacks standing only the parties to the contract are entitled to enforce rights under it. A declaration between third party and insurer would not bind insured and insurer.

29 Third party applications Interchase Corporations (in liq) v FAI General Insurance Company Limited (2000) 2 Qd R 301 Majority: not legally binding between insurer and insured; no appreciable prospect that a defence by the insurer in subsequent proceedings would be struck out as an abuse of process (no res judicata or issue estoppel); would be in the nature of an advisory opinion, without beneficial effects; therefore, no utility.

30 Justice Davies dissenting judgment Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589; if the insurer is joined, the insurer and insured would have full opportunity in the action to litigate the indemnity question; it would be an abuse of process to permit either to litigate that question again in subsequent proceedings; therefore, a declaration would have practical utility, as it would effectively determine the question of the insurer s liability to indemnify the insured as between those parties.

31 Foreseeable consequences the plaintiff could fund proceedings by the insured against the insurer and exercise priority rights over the proceeds of that claim (s562 of the Corporations Act); or the insured may be deregistered at which point the plaintiff will have a right to sue the insurer (s601ag of the Corporations Act).

32 Employers Reinsurance Corporation v Ashmere Cove Pty Limited [2008] FCAFC 28 (7 March 2008) Justice Davies in Interchase followed

33 The Constitutional Challenge in Ashmere Cove

34 QBE Insurance (Australia) Ltd v Lois Nominees Pty Ltd [2012] WASCA 186 (26 September 2012) Justice Davies/Ashmere followed

35 Chubb v Moore

36 Sienkiewicz (As Trustee for the Sienkiewicz Superannuation Fund) v Salisbury Group Pty Limited [2013] FCA 977 (30 September 2013) Austcorp Project No 20 Pty Limited v LM Investment Management Led, in the matter of Bellpac Pty Ltd (receivers and managers appointed) (in liq) [2013] FCA 883 (8 November 2013)

37 Belcastro v Gabriel Nakhl & Ors [2014] NSWSC 1305 (24 September 2014) Given the decision in Chubb v Moore s 6 may become redundant as a means of joining an insurer to proceedings which have their foundation in a claims made and notified policy.

38 Belcastro Although indemnity had not been formally declined it likely would be. s 562 of the Corporations Act provides an appropriate legal context to permit the plaintiffs to seek a declaration. Joinder of the insurers will avoid a multiplicity of proceedings.

39 The limited utility of s 6 of the [LRMPA] in many cases involving claims made and notified liability insurance policies as illustrated by Chubb v Moore, supports the adoption of another legally available path lest plaintiffs who have a strongly arguable claim for redress go without an effective remedy. That possibility is not in the interest of justice or, I might add, the administration of justice

40 Akron Roads Pty Ltd (in liq) v Crewe Sharp & Ors [2015] VSC 34 (13 February 2015) Justice Davies and Ashmere followed

41 JUSTICE DAVIES INTERCHASE MAJORITY 7 0

42 The outcome Third parties can make applications for declaratory relief against insurers. The absence of privity in contract is not a bar. The absence of a dispute between insured and insurer is not a bar. It can be a way round Chubb v Moore. Not legally binding between insurer and insured but practically binding.

43 Practical utility A declaration can by used to encourage the insured to challenge the denial of indemnity. Proceedings between the insured and insurer may be funded by the third party. If deregistration occurs the third party can commence proceedings directly against the insurer. If the insurer denies liability in any subsequent proceedings, its defence is liable to be struck out as an abuse of process.

44 Checkmate for the insurer insurer third party insured

45 The full scope of the declaratory power is AWESOME AW Street SC, 10 August 2004

46 The full scope of the declaratory power is AWESOME AW Street SC, 10 August 2004

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