FEDERAL COURT OF AUSTRALIA Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd (No 3) [2010] FCA 428 Citation: Sagacious Legal Pty Ltd v Wesfarmers General Insurance Limited (No 3) [2010] FCA 428 Parties: SAGACIOUS LEGAL PTY LTD v WESFARMERS GENERAL INSURANCE LIMITED File number: NSD 509 of 2009 Judges: RARES J Date of judgment: 15 April 2010 Corrigendum: 28 June 2010 Catchwords: PRACTICE AND PROCEDURE – notices under s 78B of the Judiciary Act 1903 (Cth) –failure to give a s 78B notice to one Attorney-General in respect of final hearing – whether s 78B(2)(c) permits a court to begin to hear evidence and argument concerning matters that are severable from the Constitutional question PRACTICE AND PROCEDURE – duty of the Court under s 37M(1) of the Federal Court of Australia Act 1976 – overarching purpose to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible – duty of the Court to facilitate overarching purpose read with duty under s 78B(1) of the Judiciary Act 1903 not to proceed in the cause except in accordance with s 78B(2) – whether Court can consider potential to continue proceedings without dealing with Constitutional issue while notice given under s 78B Legislation: Federal Court of Australia Act 1976 s 37M(1) Judiciary Act 1903 (Cth) s 78B, s 78B(1), s 78B(2)(c) Cases cited: Amrit Lal Narain v Parnell (1986) 9 FCR 479 applied Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 applied Australian Competition Consumer Commission v CG Berbatis Holdings Pty Limited (1999) 95 FCR 292 applied Oreb v Professional Services Review Committee No. 298 [2004] FCA 1408 referred to Sagacious Legal Pty Limited v Westfarmers General Insurance Limited (No 2) [2010] FCA 275 applied State Bank of New South Wales v Commonwealth Savings Bank of Australia (1986) 4 NSWLR 549 referred to Tavalu v Minister for Immigration and Multicultural, Indigenous Affairs [2002] FCA 1027 referred to Date of hearing: 15 April 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 24 Counsel for the Applicant: M Lee and M Leighton-Daly Solicitor for the Applicant: Slater & Gordon Counsel for the Respondent: P Braham Solicitor for the Respondent: Hicksons FEDERAL COURT OF AUSTRALIA Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd (No 3) [2010] FCA 428 CORRIGENDUM 1. On the cover sheet of the judgment, "Westfarmers General Insurance Limited" has been changed to read "Wesfarmers General Insurance Limited". 2. On the orders page of the judgment, "Westfarmers General Insurance Limited" has been changed to read "Wesfarmers General Insurance Limited". 3. On the first page of the Reasons for Judgment, "Westfarmers General Insurance Limited" has been changed to read "Wesfarmers General Insurance Limited". 4. In the Reasons for Judgment wherever "Westfarmers" appears it should read "Wesfarmers". I certify that the preceding four (4) numbered paragraphs are a true copy of the Corrigendum to Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 28 June 2010 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 509 of 2009 BETWEEN: SAGACIOUS LEGAL PTY LTD Applicant AND: WESFARMERS GENERAL INSURANCE LIMITED Respondent JUDGE: RARES J DATE OF ORDER: 15 APRIL 2010 WHERE MADE: SYDNEY THE COURT ORDERS PURSUANT TO ORDER 35 RULE 7 AND BY CONSENT THAT: 1. Order 1 made on 8 March 2010 be varied by replacing "amended application" with "application to file the amended reply". THE COURT ORDERS THAT: 2. The application in the notice of motion filed on 29 March 2010 to set aside Order 1 made on 8 March 2010 be dismissed. 3. The applicant pay 75% of the respondent's costs of the notice of motion filed on 29 March 2010. 4. Leave be granted to the applicant to reopen. 5. The applicant serve any outline of further evidence in relation to exhibits 5 and 6 on or before 27 April 2010, and if there be no such evidence served, serve its further written submissions dealing with those exhibits. 6. The respondent serve reply submissions by Friday, 30 April 2010. 7. The matter be stood over to 4 May 2010, subject to the parties informing the associate to Rares J that the matter need no longer be heard further, by 5:00 pm on 3 May 2010. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 509 of 2009 BETWEEN: SAGACIOUS LEGAL PTY LTD Applicant AND: WESFARMERS GENERAL INSURANCE LIMITED Respondent JUDGE: RARES J DATE: 15 APRIL 2010 PLACE: SYDNEY REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 When the trial of this matter commenced before me on 8 March 2010 during the course of his opening, leading counsel for the insured applicant sought to amend the reply, raising a significant new issue under the policy. I refused that amendment for the reasons that I gave in Sagacious Legal Pty Limited v Westfarmers General Insurance Limited (No. 2) [2010] FCA 275. The Attorney-General for Queensland had not, by oversight, been sent a notice under s 78B of the Judiciary Act 1903 (Cth) dated 11 February 2010 that had been sent to all the other Attorneys-General of the Commonwealth, the States and Territories on or about that day. Again by oversight, I was not informed of that omission until towards the conclusion of counsels' closing addresses on the last day of the hearing on 12 March 2010. 2 The solicitors for the insurer sent an email on 15 March 2010 to the Attorney-General for Queensland enclosing the notice under s 78B, which drew a response on the same day from the office of the Solicitor-General for the State of Queensland. That response advised that the notice had been examined and the Attorney-General for the State of Queensland would not be intervening in the proceedings, but that if the matter were to proceed to the High Court, the Attorney would reconsider the question. Application to set aside the order refusing leave to amend the reply 3 The insured now seeks that I set aside my order refusing it leave to amend the reply. That would enable it to raise its argument that, under the policy of insurance, it had not relevantly consented to the vehicle being driven by Lana O'Shanassy, when she was affected by alcohol or when her blood contained a percentage of alcohol in excess of the legal limit, and that the insured had no reason to suspect that she was in that condition. If this were so it would bring the insured within the exception, forming part of the terms of the policy which, for convenience, I will set out again: "Note: claims will be paid to the extent that there are not any relevant statutory provisions to the contrary, or where you can prove that you did not consent to the motor vehicle being driven by or being in charge of a person when so affected, and we agree that you had no reason to suspect that the driver was under the influence of alcohol or any drug." 4 As I noted in my earlier judgment refusing that application, the issue of whether the insured had consented to Mrs O'Shanassy driving the motor vehicle in that condition, and its state of knowledge of her doing so, had been the subject of numerous inquiries directed by the insurer to the insured commencing on 10 June 2008. Apart from a response from the solicitors for the insured dated 14 July 2008 indicating that the insured had not consented to her driving the vehicle in the relevant condition, the insured maintained a complete silence as to the circumstances of its own knowledge or awareness of the surrounding circumstances concerning how Mrs O'Shanassy was driving the vehicle on the day in question. 5 The insurer denied liability on 5 December 2008. Subsequently, on 24 April 2009, the insured's solicitors enclosed a certificate of Mrs O'Shanassy's acquittal on 19 March 2009, on a charge of driving with a mid-range prescribed concentration of alcohol on 16 January 2008. That drew a further request for information from the insurer's solicitors on 7 May 2009, to which there was no response in evidence. The insured argued that the refusal to provide this information should be understood in the context that Mrs O'Shanassy was then facing a criminal charge. In my opinion, that circumstance had nothing to do with any failure by the insured to communicate to its insurer that it did not know and consent to Mrs O'Shanassy driving the vehicle on the day in question, in any condition in which she was. 6 The first time that this argument was raised, as I noted in my earlier judgment, was when counsel for the insured informed counsel for the insurer of the proposed application to amend the reply over the course of the weekend immediately prior to the commencement of the hearing. 7 No explanation has been given by the insured, even today, for its failure to communicate to the insurer information about the circumstances that it asserted would show it had not given consent to Mrs O'Shanassy driving the car. It should not be thought that the insured was without the means of making some inquiries, since it is a company controlled by Mrs O'Shanassy's husband. Applicability of s 78B of the Judiciary Act 1903 8 The insured argued that I should reconsider my earlier decision. It contended that had I been told of the true position with respect to the notices sent and not sent under s 78B, I would have adjourned the hearing in obedience to the command in s 78B(1). Section 78B(1) and (2) provide as follows: "78B Notice to Attorneys-General (1) Where a cause pending in a federal court including the High Court or in a court of a State or Territory involves a matter arising under the Constitution or involving its interpretation, it is the duty of the court not to proceed in the cause unless and until the court is satisfied that notice of the cause, specifying the nature of the matter has been given to the Attorneys-General of the Commonwealth and of the States, and a reasonable time has elapsed since the giving of the notice for consideration by the Attorneys-General, of the question of intervention in the proceedings or removal of the cause to the High Court. (2) For the purposes of subsection (1), a court in which a cause referred to in that subsection is pending: (a) may adjourn the proceedings in the cause for such time as it thinks necessary and may make such order as to costs in relation to such an adjournment as it thinks fit; (b) may direct a party to give notice in accordance with that subsection; and (c) may continue to hear evidence and argument concerning matters severable from any matter arising under the Constitution or involving its interpretation." (emphasis added) 9 The insured argued that the duty of the Court not to proceed in the cause, was attracted, albeit unknown to the parties and myself, by the mere fact that a notice under s 78B had not been given to the Attorney-General for Queensland. It argued that had I been apprised of that oversight, I would have adjourned the hearing on the first day, despite the fact that I had been informed that about 17 witnesses were waiting outside the court to give evidence. The insured argued that I could not exercise the discretion to continue to hear evidence and argument, concerning matters severable from any matter arising under the Constitution or involving its interpretation under s 78B(2)(c). It contended the word "continue" necessarily connoted that the hearing had already commenced, and that the issue attracting or enlivening the duty under s 78B(1), had arisen during its course. The insured argued that because all issues ought to be determined once and for all at the hearing of the matter, I would have required the proceedings to stand over to a time subsequent to the dates fixed for hearing. And, it contended that consequently, there would not have been the prejudice that I identified in my earlier reasons, of inconveniencing all of the witnesses who were ready to give evidence, and otherwise delaying the hearing of the proceedings that had been fixed to commence on 8 March 2010. In other words, the insured argued that an adjournment would have been inevitable, had the true position been made clear to me at the outset on 8 March 2010. 10 I reject that argument. First, it assumes incorrectly that it would not have been possible to craft a course permitting notice to be given to the Attorney-General for Queensland, and inquiries to be made of the Attorney as to whether it would be possible to consider promptly if the Attorney wished to intervene. Experience of dealing with notices under s 78B, suggests that ordinarily, as one might expect, Attorneys-General are usually co-operative if some difficulties arise in a proceeding, such as in a case like the present, had a notice been given to the Attorney-General for Queensland on 8 March 2010. As events transpired, the Attorney was able to give a response on the same day as the notice was given. I infer that had a problem been communicated to the Attorney-General for Queensland that a hearing involving over 17 witnesses would have to be adjourned, it is likely that urgent attention would have been given to the notice and the Attorney would have come to the conclusion which he did and communicated this promptly. 11 This all presupposes that there actually was some issue arising under the Constitution or involving its interpretation within the meaning of s 78B. In fact, both parties asserted at all times that no such issue did arise. I was told very early on 8 March 2010 by counsel for the insured, that "in any event, it really isn't a constitutional question in my respectful submission". That was also a position adopted by counsel for the insurer. 12 Of course, the parties cannot by consent negate whether or not the operation of s 78B(1) is attracted. It is a matter for the Court to determine that such a matter does arise. I am of opinion that had this issue been raised on 8 March 2010, it would have been necessary to consider, first, whether any such matter in truth arose within the meaning of s 78B(1); and secondly, whether a course could be crafted so as to enable the matter to proceed in the meantime, including consideration of the application to amend, while inquiries were made of the Attorney-General for Queensland after a notice had been served. 13 Having now had the benefit of argument by the parties and time to reflect on it, I am satisfied that in truth no matter arises under the Constitution, or involves its interpretation, the subject of the s 78B notice in any event. And, that the position of counsel at the time the hearing commenced was correct. Notices were served out of an abundance of caution, as is often the case: see for example the remarks of Priestley JA in State Bank of New South Wales v Commonwealth Savings Bank of Australia (1986) 4 NSWLR 549 at 560G-561A. As Burchett J said in Amrit Lal Narain v Parnell (1986) 9 FCR 479 at 489, s 78B only operates when the circumstances that it postulates are made to appear to the Court. The section does not operate simply because a party asserts those circumstances, nor does it operate merely because the Court acts out of an abundance of caution in seeking to ensure that the trial does not miscarry for failure to give a notice in case it were required. 14 The reason s 78B(2)(c) was introduced into the Judiciary Act, is likely to have been due to some remarks made by Fitzgerald J in Capelvenere v Omega Development Corporation Pty Limited (1983) 5 ATPR 40-386 at 44,546 to which French J referred to in Australian Competition Consumer Commission v CG Berbatis Holdings Pty Limited (1999) 95 FCR 292 at 297 [13]. The second reading speech of the Minister introducing the amendments to the Judiciary Act, inserting s 78B(2)(c), observed that the amendment would achieve improved operation of that section. As French J observed, the section does not impose a duty on the Court not to proceed pending the issue of the notice no matter how trivial, unarguable or concluded the constitutional point might be: Berbatis 95 FCR at 297 [14]. 15 The insured's argument that the word "continue" in s 78B(2)(c) connotes that the hearing has actually commenced, is likely to be erroneous. The command in s 78B(1) is qualified by s 78B(2) which commences with the chapeau that "… for the purposes of subsection (1) a court in which a cause referred to in that subsection is pending", introducing the facility in s 78B(2)(c) that permits a court to continue to hear the evidence and argument concerning matters that are severable from the Constitutional question. 16 Section 78B(1) imposes a duty not to proceed in the cause. In my opinion, the better reading of the word "continue" as used in s 78B(2)(c) is that the Court is entitled to embark on a hearing provided that it can be conducted in a way that severs the matter arising under the Constitution, or involving its interpretation, until the proceedings reach the point where such severance cannot be maintained. It is possible in some cases, such as the present, to meet an oversight that has caused one Attorney-General not to be given a notice under s 78B by promptly giving a notice and asking for a timely response. In the meantime the Court can craft a procedure whereby the proceedings may otherwise continue. That could be by hearing, as in this case, the application to amend which may not have been able to be determined until after the Attorney had made known his attitude, or by dealing with other matters that were severable, including the taking of evidence from witnesses who were not concerned with the issue that is the subject of the notice. 17 I am satisfied that, in all of the circumstances, I would not have adjourned the hearing on 8 March 2010 had I been informed when the matter was called on without giving the parties an opportunity to rectify the failure to give notice to the Attorney-General for Queensland, and in the meantime, proceeding with other matters that were severable from the possible Constitutional point. Had it been necessary, I would have determined whether or not a matter did, in fact, arise under the Constitution or involved its interpretation. And, as I have said, I would have come to the conclusion that no such matter existed in the circumstances of this case. Other judges have been able to proceed by hearing evidence and argument concerning severable matters, notwithstanding the existence of actual issues to which the operation of s 78B(1) was attracted: for e.g., Oreb v Professional Services Review Committee No. 298 [2004] FCA 1408 at [17]-[21] per Jacobson J; see also Tavalu v Minister for Immigration and Multicultural, Indigenous Affairs [2002] FCA 1027 at [7] per Moore J. Indeed, French J described the power given by s 78B(2) as a "… facility to continue proceedings on matters severable from the constitutional matter": Berbatis 95 FCR at 296 [12]. 18 In addition the Court now has a duty under s 37M(1) of the Federal Court of Australia Act 1976, described as the overarching purpose of the civil practice and procedure provisions, to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. I am satisfied that it would have been necessary for me to explore whether it was possible to construct a procedure that would respect each of the Court's statutory duties under s 78B(1) and s 37M(1), and, at least to have explored the potential to ensure that the hearing proceeded on the dates for which it had been fixed, rather than to set to one side the parties' efforts to be ready to conduct the hearing. 19 If, at the end of that attempt, it were not possible to proceed, the hearing might have then had to be vacated. But, as I have said, first, it is likely that the Attorney-General for Queensland would have replied promptly once given a notice so as to avoid that potential as a matter of fact, and secondly, there is no actual matter to which the operation of s 78B(1) applied. 20 These findings make it strictly unnecessary for me to express a view as to how I would have re-exercised my discretion had I come to the conclusion that an adjournment ought to have been granted for the failure to give a notice under s 78B to the Attorney-General for Queensland. In that regard, I am conscious that the insured took a deliberate decision of not providing the insurer with any information at all about the matter which it had belatedly sought to raise in the amendment application. As I said in Sagacious (No 2) [2010] FCA 275 at [35]-[36]: "The insured has had a full and proper opportunity to plead its case. … Plainly, any reliance upon the exception to the exclusion in the policy is a matter that should have been raised a lot earlier." 21 That position holds true today, in my opinion, as Gummow, Hayne, Crennan, Kiefel and Bell JJ said in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 at 215 [103]: "Generally speaking, where a discretion is sought to be exercised in favour of one party and to the disadvantage of another, an explanation will be called for." And they continued: "Not only will they need to show that their application is brought in good faith, but they'll also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the rules." 22 There can be no doubt that an explanation by the insured was required in this case. The explanation offered by the insured was simply to refer to the circumstance of the criminal charge pending against Mrs O'Shanassy prior to the decision of the insurer to refuse indemnity, and the belated appreciation of counsel for the insured that his client should seek to raise its entitlement under the exception to the exclusion to the policy. I accept that that late thought had occurred to counsel only recently before the hearing was to commence. But, the insured was fully alive to its much earlier refusal to provide any information about the circumstances. It made a tactical choice from the outset of its dispute with the insurer, well before it had declined liability. The insured adhered to that course of silence when the insurer sought further information, even after Mrs O'Shanassy had been acquitted. There has been no explanation as to why the insured took that course or sought to be relieved from its consequences, other than assertions by counsel from the bar table. 23 I am satisfied that the insured took a deliberate forensic decision. It is plain from the correspondence that it chose to keep the insurer wholly in the dark. The insured did not explain why it had not given the insurer the basic information repeatedly requested from it. In those circumstances, even if I were wrong in my view about the operation of s 78B, I would have rejected as a matter of discretion the application to amend. 24 In the circumstances, I reject the application to set aside my order refusing to allow the amended reply to be filed. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 6 May 2010