COMINO v MANETTAS, COONEY v MANETTAS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, SHELLER and CRIPPS JJA 22 September 1993, 1 October 1993 [1993] NSWCA 73 ORDERS made by Court of Appeal on appeal — Motion for Determination of further Questions — Declaration made of right of Solicitors to claim indemnity under insurance policy — Motion for withdrawal of declaration and substitution of other orders — Motion for determination by Court of Appeal of issues not raised in pleadings, at trial or on appeal. Held: Issues would or may require the determination of issues of fact - Not appropriate for Court of Appeal to decide issues - Referred to trial Division to deal further with proceedings. Mahoney JA On 5 March 1993 this Court held, inter alia, that the appellant solicitors ("the Solicitors") were liable in negligence to their former client Nicholas Peter Manettas and that the Solicitors were, in terms of their insurance policies, entitled to indemnity against their insurers in respect of that liability. The terms of the orders to be made were to be the subject of further consideration. On 20 May 1993, after argument, this Court held, inter alia, that the relief to which the Solicitors were entitled was a declaration. It concluded that it should not make orders for payment, by the insurers to the Solicitors, of a specific money sum. It did so following argument upon the matter and because, inter alia, an important issue between the Solicitors and the insurers ("the one claim issue") required - or might require - judicial determination. Subsequently, on 28 June 1993, the Solicitors moved the Court to reconsider the orders then made, to change them, and to grant a different form of relief. They did this essentially because they desired that, on that motion, the Court should determine the one claim issue. The Solicitors conceded that that issue arose as part of their claim against their insurers, that it was not litigated or argued between them at the trial, that it was not argued before this Court on the appeal, and that it was referred to as a relevant matter in the argument before this Court as to the form which the orders of this Court should take. This Court is of the opinion that the orders sought should not be made. As the issues which have been raised have or may have implications beyond the present motion, I shall refer in more detail as to what has happened and to the circumstances in which the matter has been dealt with. It is important that the parties, and the positions they may take in future, be protected against misunderstanding as far as that may be done in the present application. The facts and the arguments range over a wide area and, I think, the arguments and, to an extent, the facts advanced in argument have varied. It is not necessary to detail with completeness what has been said in this regard. Counsel have properly dealt with the issues in a summary form. I shall follow a similar course. I shall state the facts and the relevant considerations briefly. In doing so, I shall omit, or perhaps state in a less than fully accurate form, some of them. However, I shall state them in terms which, I believe, are sufficient for present purposes. 2 UNREPORTED JUDGMENTS Court arrangements make it necessary that this matter be dealt with at once and it is therefore necessary that the matter be dealt with in this way. 1. THE HISTORY OF THE LITIGATION: The litigation arose out of business transactions undertaken by Mr Manettas and persons associated with him. They undertook the development of certain real estate. It was arranged that the Government Insurance Office of New South Wales ("GIO") provide finance to them. GIO required that they give a guarantee or guarantees. The Solicitors acted for Mr Manettas and for GIO in relation to these arrangements. In acting for Mr Manettas, the Solicitors were negligent. Their negligence consisted, and consisted only, in failing to clarify the instructions which had been given to them by Mr Manettas. Mr Manettas intended that his guarantees be limited to one third of the liability in respect of the developments. GIO required a joint and several guarantee of the total liabilities from each of the guarantors. The Solicitors believed they were authorised to prepare guarantees in the form required by GIO. It was in that that the negligence lay. GIO sued Mr Manettas on his guarantees; Mr Manettas sued the Solicitors in negligence; and the Solicitors sued their insurers. The three claims were made and litigated in the one proceeding in the Commercial Division of the Supreme Court. At the trial the proceedings were complicated and there were live issues between the three sets of parties. At the trial, the judge held: that Mr Manettas was liable to GIO on his guarantees; that the Solicitors were liable to Mr Manettas in negligence; and that the insurers were liable to indemnify the Solicitors. The only issue which had been raised in the proceeding as between the Solicitors and their insurers was whether the insurers were liable: no issue was raised as to the quantum of their liability. Upon the issue of liability, the insurers contended that the Solicitors' liability was "brought about by the dishonest or fraudulent act or omission of" the Solicitors and that for that reason, under the contracts of insurance, their liability to the Solicitors was excluded. The trial judge upheld that contention. On appeal, this Court affirmed the judge's decision upon other issues but held that the Solicitors' liability to Mr Manettas had not been "brought about by the dishonest or fraudulent act or omission of" the Solicitors. Accordingly, the only issue raised in the litigation, the liability issue, was decided in the Solicitors' favour. During argument before this Court, reference was made to the form of relief to be given. The parties indicated that there were some matters which, on one view, might be outstanding "and which it will be appropriate to be dealt with by the trial judge". Accordingly, in its judgment, this Court concluded that it was proper "that the Court invite the parties to indicate what (if any) further procedures should be taken within the terms of the present proceedings". The Court therefore directed that minutes of the orders to be made should be brought in by Mr Manettas and that the parties might, if they desired, make submissions as to the form of the orders which should be made. Subsequently, the parties lodged draft minutes of orders in differing forms. The Court heard argument as to the form which the orders then to be made should take. A considerable part of the argument was directed to the form of the orders to be made for the Solicitors against (as the insurers were described) "the insurer Lawcover". URJ COMINO v MANETTAS, COONEY v MANETTAS (Mahoney JA) 3 In relation to the matter here in question, the Solicitors submitted that the relief should take the form of an order for the payment of a liquidated sum. The insurers submitted that the relief should be merely a declaration that the Solicitors are entitled to indemnity in accordance with the terms of their policies. During this argument, a number of reasons were advanced by counsel for the insurers as to why the relief then granted should take merely the form of a declaration. These reasons were directed, inter alia, to two main matters: the difficulty of then calculating the amount of the payment to be made by the insurers to the Solicitors; and the existence, or possible existence, of disputes between the Solicitors and the insurers which would affect the quantum of the payment to be made to the Solicitors. In respect of the first matters, reference was made to the fact that, for example, Mr Manettas was, under his guarantee, liable to pay to GIO interest on the amount outstanding and was liable for costs relating to the instant and other proceedings. Until the amount of principal payable to GIO was determined, the amount of interest payable by Mr Manettas to GIO could not be finally calculated. And, of course, his costs, in the instant and possibly other proceedings, had not been quantified. It might have been possible, in this regard, for orders to be made directing that the insurers pay to the Solicitors specific sums representing the amounts which at that date could be quantified in relation to the payments to be made by the Solicitors to Mr Manettas, and that the unquantified balance of the liability of the Solicitors to Mr Manettas and, accordingly, of the underwriters to the Solicitors be dealt with by the terms of a declaration. But that course was not, I think, pressed or, insofar as it was raised, was not on the facts before the Court appropriate. Problems of this kind still exist in relation to the final quantification of the amount payable by the Solicitors to Mr Manettas and accordingly by the insurers to the Solicitors. In addition, counsel for the insurers raised, as a further reason, the existence or possible existence of a dispute relating to the one claim issue. In my judgment upon the application, I referred to this matter in the following terms: "This paragraph deals with the relief to be given to the appellants' solicitors against the insurer Lawcover. The solicitors submit that the court should order payment of a liquidated sum; Lawcover submits that the relief given should be merely a declaration that the solicitors are entitled to indemnity in accordance with the terms of the policy. Reference has been made to the form of relief, by way of declaration, initially claimed. Reference has been made in argument to complications apt to arise in calculating the amounts to be paid to the solicitors pursuant to the indemnity... A further complication arises because, as the submission suggests, there is or may be a limit upon the amount of the indemnity: it was suggested that, in respect of Lawcover, the indemnity may be limited to $5 million. The total of the amounts otherwise payable under the indemnity may exceed $5 million. The parties are not agreed as to the operation of the policy in relation to these matters and to the limit of the indemnity. During submissions in respect of the short minutes, competing contentions were raised. These matters have not been the subject of argument or determination in this Court. It does not appear whether they were within the terms of the proceedings before Cole J and whether they are available to be dealt with by him in the present proceeding. If they are not, the determination of them may require the commencement of a separate proceeding. However that be, the disputes relating to these matters cannot be determined by this Court upon the present applications. In all the circumstances, I am of opinion that the orders to be made in respect of the 4 UNREPORTED JUDGMENTS liability of the insurer Lawcover to the solicitors in this regard should take the form of a declaration of entitlement to indemnity in terms of the policy and not an order for payment of a specific amount. The form of the declaration, if not agreed, will be settled by the Registrar in due course." On 28 June 1993 the present motion was filed. It is not clear from argument whether the effect of the filing of the notice of motion was to prevent the final settlement by the Registrar of the forms of the orders, including the declaration. An application was made to the High Court of Australia for special leave to appeal against the orders made in the proceeding. The Court has been informed that, on a date after the filing of the motion, special leave to appeal was refused. The Court has been informed that, for the purpose of that application, it was felt necessary to have a form of final order of this Court and that, as I understand the submissions, the parties agreed upon a form of order for that purpose. That agreement was made, it is said, upon the basis that it was without prejudice to the present application. Nothing has been urged to turn upon that matter. In the circumstances it is not necessary to consider what was the arrangement, what was done pursuant to it, the effect of it, and whether, if there was an order, such an arrangement could prevent what otherwise would be the effect of it. I shall put those matters aside. When the present motion came before this Court, the two insurers - the primary insurer and the excess insurer - were separately represented. It was accepted that there was or might be a conflict between them. In fact, the submissions made on the motion by the two insurers were different and inconsistent. The primary insurer opposed the making of the orders sought in the motion or most of them; the excess insurer, in respect of the main matters argued, adopted the submissions made for the Solicitors. In the course of the argument on the motion, it was apparent that the submissions to be made fell into two main groups: those relating to whether the Court could and/or should set aside the orders made by it as to the form of relief to be given and make other and different orders; and whether the one claim issue could or should now be decided, for the Solicitors or for the insurers. The Court took the course of dealing first with the first group of submissions. The Court is, of course, acquainted in general terms with the nature of the one claim issue and the documents relating to it. The policy documents were before the Court upon the determination of the appeal and have been placed before the Court on this motion. However, the Court invited counsel to deal with the first group of submissions so that it could decide whether it was necessary or appropriate that it deal with the second. It is upon that basis that the matter now falls to be dealt with. Subject to what I shall say, I shall for the purpose of argument accept that, as Mr Jackson QC for the Solicitors has contended, the one claim issue and the issue of construction involved in it present a comparatively short point of construction, although the factual basis for the point may require investigation and the finding of contested facts. 2. THE ISSUES BETWEEN THE SOLICITORS AND THE INSURERS ON THIS MOTION: I come now to consider in more detail the differences between the Solicitors and the insurers. The insurance arranged by the Solicitors was described in the proceeding as Lawcover. Under the first or primary insurance, the sum insured was "$1,100,000 each claim". The policy provided that, on the terms and conditions contained in it, the insurers "shall indemnify the Assured up URJ COMINO v MANETTAS, COONEY v MANETTAS (Mahoney JA) 5 to an amount not exceeding the sum insured and related costs against all loss to the Assured... arising from any claim or claims first made against the Assured during the Period of Insurance...". The second or excess insurance provided for a limit of liability "$3,900,000 each claim. Excess of $1,100,000 each claim". Accordingly, as it has been suggested, the total insurance involves $5,000,000 in respect of each claim, the first $1,100,000 to be paid by the primary insurer and the balance by the excess insurer. (The Solicitors were, it was said, to bear a small excess). There is, at the least, the possibility that in respect of their negligence, the total amount payable by the Solicitors to Mr Manettas may exceed $5,000,000. And, in addition, it is, at the least, possible that GIO may make a further claim against the Solicitors. As I have indicated, it was suggested during the appeal that the Solicitors had acted both for Mr Manettas and GIO. There was default by the Solicitors not merely in respect of the form of the guarantees but also in that the solicitor concerned had falsely certified that he had done things which had not been done in respect of the guarantees. Because of those matters or otherwise, it is possible that GIO may have a claim in damages against the Solicitors. Accordingly, the total amount available to the Solicitors under their policies could be of importance. If, for example, they may claim only $5,000,000 from the insurers they may be liable themselves to pay substantial sums. In these circumstances, counsel have during argument adverted to the possibility that what occurred in relation to the transactions in question may have given rise to more than one "claim". One suggestion which, I think, emerged in argument was that there might be one claim each in respect of, as they were described, the Dylcu transaction and the Presabout transaction. It is not necessary for present purposes to pursue these matters further; the submissions were made only in general terms. Details were provided by the extensive written submissions of the parties. But the determination of the present motion does not require a more detailed analysis of them. However sufficient has been said to indicate the potential importance to the Solicitors of the one claim issue and matters affecting it. Mr Jackson QC, for the Solicitors, has, in my opinion, correctly submitted that there is utility in the determination of this issue and the determination of it without unnecessary complication or delay. For this reason, it is appropriate to consider, to an extent beyond that necessary for dealing with the motion, some of the matters which have been raised. In doing so, I shall express no concluded view upon the issues which will remain for determination. 3. THE DETERMINATION OF THE ONE CLAIM ISSUE: As [have said, this issue was not raised formally in the pleadings, at the trial, or before this Court on appeal. It was, however, adverted to in general terms as a possible issue during the argument as to the form of the relief. Mr Liney, for the primary insurer, has submitted: that the issue is not now able to be raised by the Solicitors; and (if it is) the Court should not determine it on this motion. In his helpful submissions, Mr Liney has advanced a number of reasons in support of these submissions. In the main, he contends: that had the issue been raised at the trial, the primary insurer's case would have been conducted, in relation to cross examination and otherwise, differently; that had it been raised at the trial, further evidence could or would have been brought to deal with it; that the issue cannot now be litigated because, in accordance with the estoppel principle as now developed, it should have been raised and determined 6 UNREPORTED JUDGMENTS at the trial; and that this Court cannot or should not reconsider or change the decision which it made as to the form of relief appropriate to be granted. It has, I think, not seriously been questioned that, had the one claim issue been pleaded in terms and litigated at the trial, the primary insurer could or would have conducted its case differently and/or adduced further evidence. The insurers would probably have been separately represented. Mr Liney has suggested, in general, that the primary insurer could or would have sought to show that the Solicitors had treated the whole of the dealings between Mr Manettas and GIO as one transaction; that the instructions as to the form of the guarantees were given at one time; that the breach of duty which occurred occurred in respect of one thing, viz, the failure to clarify instructions; and that the various things that occurred involved merely the working out of a single "claim". He referred, in addition, to the question whether in fact one or more than one claim was made and how that affected liability under the insurance. Mr Liney's submissions suggested further that, if the one claim issue is to be raised and determined, it is necessary first to investigate the facts to see whether what occurred constituted, on the proper meaning of "claim" or otherwise the construction of the policies, one claim or more. Mr Jackson QC submitted that the matter falls to be determined on the facts as found by the judge and that whether what was done constituted one claim or more or otherwise raised the quantum of liability under the policy must be determined on the basis of those facts. I think the thrust of Mr Liney's submissions in this regard should be accepted. The determination of the one claim issue involves, of course, the construction of the policy or policies and the application of them to the facts. These are inter related. No attention was given at the trial or on appeal to what facts would have been significant for this purpose and it is at least possible that, had the issue been raised, the case would have been conducted so as to draw out further or other facts relating to the issue. This alone makes it inappropriate for this Court now to undertake the determination of the one claim issue. If and insofar as the issue may now be raised, it should be raised before a trial judge so that the relevant factual matters may be determined. The judge would then, in the ordinary course, construe the policy or policies and apply them to the facts found by him so as to determine this issue. But, Mr Liney's submissions suggested, the matter should not be returned to the Commercial Division because it is not now open to the Solicitors to raise this issue. His submission has been to the effect that it is the duty of a party to litigation to raise in the litigation all issues which he requires to be determined and that, after litigation has been determined by judgment, he may not raise further or other issues which could properly have been raised and determined in the proceeding. Reference was made to the principles discussed in detail in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. I do not think that that submission should prevent this Court returning the matter to the Commercial Division. As that case and other cases indicate, the determination of what could and should have been raised for decision in litigation may be affected by the nature of the litigation, the context in which it was brought, and, in some cases, what the parties said and did. If an estoppel principle of this kind is to be relied upon to prevent the Solicitors raising the first claim issue, it should in my opinion be left to the person raising that contention to plead and particularise the basis on which it is to be made. A decision on such an URJ COMINO v MANETTAS, COONEY v MANETTAS (Mahoney JA) 7 important matter should not be made based upon statements and submissions made in a motion of the present kind. When the matter is returned to the Commercial Division, the judge who deals with the matter may, of course, consider and take such course as appears appropriate in relation to such contentions based upon estoppel as may be made to him. However, in deference to the submissions made on this motion, I shall add, obiter, some general observations upon certain aspects of the matter. In determining questions of this kind, it is proper to have in mind the manner in which litigation between an insured and insurer may come to be conducted. In principle, a claim by an insured upon an insurer should ordinarily be determined, both as to liability and as to quantum, in the same proceeding. But it is proper to recognise that in some circumstances it may be appropriate for the parties, in a particular proceeding, to deal only with one part of their rights. I am conscious of what was said in Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 as to the Supreme Court Act 1970 s63 and otherwise. I am conscious also of the principle adopted by Chancery judges that, in proceedings brought in that jurisdiction, justice should be done "not by halves" but completely and that issues and parties should be brought before the court to enable this to be done. But, as I have said, I do not think that these principles deny to the parties, in an appropriate case, the right to have determined partial or limited issues, by declaration or otherwise, and to reserve for further proceedings in the same or separate litigation the other issues existing between them: see generally Trans Realties Pty Ltd v Grbac [1975] 1 NSWLR 170 at 181 et seq, 184B. In considering what should be the course of litigation between insured and insurer, it is proper to have regard to the nature of such litigation, the issues apt to arise, and how they are apt to arise. In principle, such litigation may involve issues as to liability and as to quantum. The litigation will (to adapt pre Judicature Act concepts) be a Chancery proceeding rather than a proceeding in common law because, unless and until the final liability of the insurer can be determined, a judgment at law cannot be obtained. The insured can obtain only a declaration of liability under the policy. If relief were required before the final quantification of the insurance payment, it would be sought in Chancery proceedings, a declaration of right would be given and the right to proceed further in the proceeding would be reserved to allow of such further and more specific relief as was required. A declaration that the insurer was liable under the policy could be made and the right reserved to the insured to move for, eg, an order for payment of a particular sum in due course. If, in the original proceeding, the pleadings contained both a claim for a declaration of liability and a claim for quantification and payment of the amount of the insurance, a declaration of liability could be made and, at a later date, the issues of quantification and payment considered. A problem might arise if the pleading dealt only with the liability issue and did not raise all issues as to quantum. It might be argued that, the unpleaded issues as to quantum not having been raised at the outset, they could not later be raised. In days when matters of such kind might be formally debated, an issue might arise as to whether the subsequent proceeding to quantify the insurer's liability would be in principle a further and separate proceeding for substantive relief or would be, as it were, part of the original proceeding and/or the working out of the decree as to liability previously given in the proceeding. The distinction between what might be raised on further consideration of a main proceeding, what might be raised, under "liberty to apply" or otherwise, under the working out of the decree or order 8 UNREPORTED JUDGMENTS which has already been made in the main proceeding, and what required a new and separate proceeding was discussed at length in earlier times: see generally, for example, the matters discussed in Daniell's Chancery Practice, 8th ed, Vol 1, at 683 et seq; Vol 2, at 1134 et seq; and in Halsbury's Laws of England (1st ed) Vol 18, at 182. Cf In re St Nazaire Co (1879) 12 ChD 88 at 97; and the Trans Realties case at 184 to 185. As I have said, I do not pre empt consideration of these matters by the judge before whom the proceeding will come. I come now to the submission based upon the Autodesk Inc v Dyason [No 2] (1993) 67 ALJR 270 decision. It was submitted for the primary insurer that by reason of that decision, the decision made as to the form of relief cannot now be reargued or be set aside. In this regard, there are, I think, distinctions to be observed. In proceedings of a Chancery or Judicature nature, the principle was long accepted that, before the decree or judgment was formally entered, it was open to a party to move the court to vary or reverse the order which it had made and to come to a different decision: see, eg, In re Harrison's Share Under a Settlement [1955] Ch 260 at 268 et seq, 275 et seq. Such a procedure is, in my opinion, open under the Supreme Court Act and Rules: see Pt40 and in particular Pt40 R9. It is, of course, not to be expected that the court will readily change a decision which has been made by it: see Bainton v Rajski (1992) 29 NSWLR 539. If the submissions made for change involve essentially a reconsideration of submissions made previously, the court is, I think, not required to consider them at the same length. And it may, I think, have regard to the desirability of the end of litigation: see Autodesk Inc v Dyason (1993) 67 ALJR 270 at 270E per Mason CJ. See also Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 at 684; State Rail Authority of NSW v Codelfa Construction Pty Ltd (1982) 150 CLR 29 at 38; Wentworth v Rogers and Ors (No 9) (1987) 8 NSWLR 388 at 394B to 395C. But, however these matters be, the right of a party to make such an application was established. Different considerations arose when judgment had been formally entered pursuant to what the court had ordered. In such circumstances, the right to apply for, to have considered, and to achieve the setting aside of a judgment entered was seen as considerably more restricted: see ibid. Such a right may, of course, be exercised more freely where legislation provides for it: cf Pt40. But, absent such a provision, the position was generally as such cases established. In the Autodesk case, it was, in my respectful opinion, not necessary for the High Court to consider such distinctions at length. I do not think that what was there said was intended to affect the right of a party so to apply before the judgment or order has been formally entered. It may be necessary for this Court to consider in due course whether what was there said as to the right so to apply after formal entry is applicable only to the High Court as the final court of appeal and, if it is not, what is the basis of the extension of power to apply authorised by that case. I do not think it is necessary to pursue these matters in this case. In the present context, two questions arise: whether there has been a formal entry of judgment such as restricts reconsideration of the form of the relief granted; and whether what is sought in the present motion involves, in the relevant sense, not the setting aside of a judgment but the working out of the terms of it in the traditional way. In the present case, if judgment was formally entered and that judgment provided merely for a declaration of liability as the relief to be given in respect of the present issue, then (subject to what I shall say) Ido not think that the court should reopen the judgment. However, in such a case URJ COMINO v MANETTAS, COONEY v MANETTAS (Cripps JA) 9 it would remain for determination whether, having regard to the precise form of the judgment, what is here sought is the setting aside of the judgment or merely (as I have described it) the further consideration of the main proceeding, the exercise of liberty to apply in it, or otherwise the working out of the orders already given. In the circumstances it is not necessary to pursue these matters to a conclusion. The judge who deals with the proceeding may consider them if it be necessary. 4. ORDERS: Having regard to the matters to which I have referred and because of the uncertainty of the position in relation to them, I am of opinion that the orders sought on the present motion should not be made. O'Keefe CJ of CommD has ordered that the proceeding, which was then before him, should be transferred to this Court. It may be that his Honour made that order so that, if this Court felt it could and should consider the one claim issue or otherwise give relief in it, it would have the proceeding before it and could make such order as was appropriate. As this Court should not take that course, the proceeding should, in my opinion, be returned to the Commercial Division. It is not necessary to consider whether the question posed by the judge is, within the legislation, a question appropriate to be put or whether the transfer of the proceeding to this Court should have been ordered. As far as concerns the orders of this Court, it is proper to make clear that the Solicitors and/or the insurers or either of them may move the Court in the Commercial Division for orders in relation to the one claim issue and that the judge before whom the matter comes for hearing may, subject to the rights of the parties in that regard, adopt such procedure for the determination of such an application as he may consider appropriate. In particular, if and insofar as any application is properly to be seen as an application for working out this Court's order or is a proceeding on further consideration of the proceeding which was before this Court, the proceedings may be dealt with by that judge. The motion should be dismissed with costs. Sheller JA I have had the benefit of reading the draft judgment of Mahoney JA and agree with it and the order proposed. Cripps JA I agree with Mahoney JA. The motion should be dismissed with costs. Counsel for the Appellant: DF JACKSON QC/P FINCH Instructed by: JAMES A MOUSTACAS and Co Counsel for Underwriters (Primary): P LINEY Instructed by: COLLIN BIGGERS and PAISLEY Counsel for Underwriters (Excess): M PEMBROKE/M LAWLER Instructed by: COWLEY HEARNE