James v Hill[2010] QSC 70

SUPREME COURT OF QUEENSLAND

1. By this application the plaintiff seeks orders which will address the procedural consequences following the death of the first defendant, John Richard Hill, on 17 July 2009. By reason of Rule 72 of the Uniform Civil Procedures Rules (UCPR) the plaintiff requires leave to proceed.  It relevantly provides:-

“72. Party becomes bankrupt, person with impaired capacity or dies during a proceeding

1. If a party to a proceeding becomes bankrupt, becomes a person with impaired capacity or dies during the proceeding, a person may take any further step in the proceeding for or against the party only if –

1. the court gives the person leave to proceed; and

2. the person follows the courts directions on how to proceed.

2. If a party to a proceeding becomes bankrupt or dies, the court may, at any stage of the proceeding, or to the trustee of personal representative of the party or if a deceased party does not have a personal representative, someone else, to be included or substituted as a party for the original party.

…

5. The court may, before it makes an order under this rule because a party has died, require notice to be given to –

1. an insurer of the deceased who has an interest in the proceeding;   and

2. any other person who has an interest in the estate.”

2. The proposal is that John William Stewart, the executor of the first defendant’s estate, be substituted as the first defendant. The grant of leave and the making of this order are not opposed by the parties and thus the order can be made without further discussion.

3. The next order sought by the plaintiff is to add as the third defendant, Lexon Insurance Pty Ltd (hereinafter “Lexon”). Lexon was the professional indemnity insurer of the deceased in relation to his practice as a solicitor. Lexon opposes its being joined and denies it has any obligation to indemnify the deceased estate in respect of the deceased’s actions which are the subject of the claim.

Background facts

4. In 2001, the plaintiff entered into a contract of sale to sell to John Hill (deceased) a cattle breeding property known as Oakley Station together with plant, equipment, brands, earmarks and livestock. As part of the contract of sale the plaintiff provided vendor finance in the sum of $430,000, secured by Bill of Sale over the livestock and mortgage over the property second to the mortgage held by the Commonwealth Bank of Australia. 

5. The second defendant was retained to act on behalf of the plaintiff as his solicitors. But either the second defendant or the plaintiff directly entered into arrangements also with John Hill (deceased) which raises questions whether he was acting in his capacity as a solicitor.

6. The contract was completed on or about 20 December 2001 but the vendor finance arrangement was not completed at this time and the vendor was not protected for the finance he provided. The property was later sold by the Commonwealth Bank of Australia exercising the power of a sale.

7. By his second Further Amended Statement of Claim, the plaintiff alleges he lost an amount of $405,165, the balance of the vendor finance plus other expenses incurred in seeking to recover that amount. The pleading identifies breaches of the first defendant’s obligations as a town agent for the second defendant, as solicitor acting for the plaintiff and generally by his conduct which caused the plaintiff to rely upon him.^[1]  The assertions are contested and the pleadings raise a number of factual and legal disputes.

8. The first defendant was declared bankrupt on 7 September 2004 and was discharged from bankruptcy on 5 November 2007. This claim was commenced on 12 April 2006. On 5 August 2009, the Federal Magistrates Court, pursuant to s 58(3)(b) of the Bankruptcy Act (Cth) granted to the plaintiff leave, nunc pro tunc, to commence the proceedings.  Lexon argues that such leave was limited to taking action against the trustee in bankruptcy (Mr Jessup) and that he has never been joined.  Lexon contends therefore that these proceedings are invalid.

The issue

9. The plaintiff seeks to join Lexon, pursuant to s 51 of the Insurance Contracts Act 1984 (Cth), that section relevantly provides:-

“Right of third party to recover against insurer

51(1) Where –

1. the insured under a contract of liability insurance is liable in damages to a person (in this section called the ‘third party’);

2. the insured has died or cannot, after reasonable enquiry, be found; and

3. the contract provides insurance cover in respect of the liability,

the third party may recover from the insurer an amount equal to the insurer’s liability under the contract in respect of the insured’s liability in damages.

2. A payment under subsection(1) is a discharge, to the extent of the payment, in respect of

1. the insurer’s liability under the contract; and

2. the liability of the insured or of the insured’s legal personal representative to the third party.

3. This section does not affect any right that the third party has in respect of the insured’s liability, being a right under some other law of the Commonwealth or under a law of a State or Territory.”

10. To succeed in any claim against Lexon, the plaintiff will have to establish liability on the part of the first defendant and that such liability was of a kind to be indemnified by the insurance cover provided by Lexon. It will also have to establish the validity of the proceedings. All but the latter of these issues are canvassed in the proposed Third Further Amended Statement of Claim, a draft of which is exhibited to the affidavit of Gregory Clive Parr sworn on 30 November 2009 and filed herein by leave.

11. The adding of a party to an existing proceeding is controlled by Rule 69 of the UCPR which provides:-

“69 Including, substituting or removing party

1. The court may at any stage of a proceeding order that –

1. a person who has been improperly or unnecessarily included as a party, or who has ceased to be an appropriate or necessary party, be removed from the proceeding; or

2. any of the following persons be included as a party –

1. a person whose presence before the court is necessary to enable the court to adjudicate effectually and completely on all matters in dispute in the proceeding;

2. a person whose presence before the court would be desirable, just and convenient to enable the court to adjudicate effectually and completely on all matters in dispute connected with the proceeding.

…”

12. Whether there is a good claim against Lexon or not, is not a matter that can be determined summarily. Whether there is merit in Lexon’s argument that the leave given by the Federal Magistrates Court has not been validly pursued similarly is not a matter which can be determined in the context of an application such as this. The correct approach was referred to by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW)^[2] where he said (at p 129):-

“It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action – if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal – is clearly demonstrated.  The test to be applied has been variously expressed; “so obviously untenable that it cannot possibly succeed”; “manifestly groundless”; “so manifestly faulty that it does not admit of argument”; “discloses a case which the court cannot succeed…””

13. In TNT Australia v CMW Design and Construct^[3] Osborn J applying the same test in allowing an application to add an insurer as a defendant said:-

“The allegation made by the seventh defendant is not one which I would regard as properly susceptible of a striking out application if the third party claim had been made in time.  It is not in my view hopeless in the sense contemplated by the relevant authorities.”

14. I have been referred by counsel for the plaintiff to the discretionary considerations relevant to a joinder of an insurer as identified by Gillard J in Tatterson v Valry Mavis Wirtanen^[4], the choice is often to await a determination whether the judgment against the party is one which the insurer is required to indemnify before.  The common consequence of that approach is that there may well be two separate proceedings with different adjudications.

15. In end result I am satisfied that in the circumstances here, there is an arguable case against Lexon. Lexon is also the insurer of the second defendant and therefore has had knowledge of the proceeding and the various iterations of the claim made by the plaintiff. I am satisfied that it is in the interests of justice that all issues already identified in the pleadings and raised in the proposed draft pleading be determined in the one proceeding.

Orders

16. I therefore make the following orders:-

1. Leave be granted to the plaintiff to proceed in the current proceedings in respect of the plaintiff’s claim against the first defendant John Richard Hill (deceased).

2. That John William Stewart be substituted as first defendant as Executor of the Estate of the first defendant.

3. That Lexon Insurance Pty Ltd be added as third defendant to the proceeding.

4. That costs of and incidental to the application be costs in the cause.

5. The court directs that:

1. the plaintiff deliver an Amended Statement of Claim within seven (7) days of the date hereof:

2. Lexon Insurance Pty Ltd provides its Defence within twenty eight (28) days;

3. the second defendant provide any Amended Defence within twenty one (21) days;

4. the plaintiff replies to the Defences within fourteen (14) days; and

5. any disclosure required by the parties take place within twenty one (21) days of the delivery of the reply.