New South Wales Supreme Court CITATION : The Owners - Strata Plan 50530 v Walter Construction & Ors [2006] NSWSC 552 HEARING DATE(S) : 25/05/2006 JUDGMENT OF : McDougall J at 1 EX TEMPORE JUDGMENT DATE : 05/25/2006 DECISION : See para [48] of judgment CATCHWORDS : INSURANCE - whether insurer should be joined to proceedings pursuant to s 6, Law Reform (Miscellaneous Provisions) Act 1946 - whether s 6 applies to claims made and notified policy where action accrued prior to inception of policy - whether point should be decided on application for leave to join or reserved to trial LEGISLATION CITED : Law Reform (Miscellaneous Provisions) Act 1946 Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 Capita Financial Group Limited v Triden Properties Limited (6/9/93, unrep; BC 9302088) Carnie v Richards (9/9/97, unrep; BC 9707898) FAI General Insurance Co Ltd v McSweeney (1997) 154 ALR 229 FAI (NZ) General Insurance Co Ltd v Blundell and Brown [1994] 1 NZLR 11 Manettas v Underwriters at Lloyds (1993) ANZ Ins Cas 61-180 CASES CITED : National Mutual Property Services (Aust) Pty Ltd v Citibank Savings Ltd (No 4) (1996) 138 ALR 409 New South Wales Aboriginal Land Council v Ace Global Markets Limited [2005] NSWSC 39 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 QBE Insurance Ltd v Aulich (2003) 152 ACTR 1 Schipp v Cameron (1995) 8 ANZ Ins Cas 61-256 Schipp v Cameron [1999] NSWSC 997 Tzaidas v Child (2004) 61 NSWLR 18 The Owners - Strata Plan 50530 (Plaintiffs) Walter Construction Group Ltd (in liq) (First Defendant/Respondent) PARTIES : Sydney City Council (Second Defendant/Respondent) Straesser Poli Little & Associates (Third Defendant/Respondent) QBE Insurance (Australia) Limited (Fourth Respondent) FILE NUMBER(S) : SC 55004/01 COUNSEL : C T Barry QC/A Thomas (for the Plaintiffs and mentioning for the solicitors for the Second and Third Defendants) G Curtin (for Fourth Respondent) McLachlan Chilton (Plaintiffs) Corrs Chambers Westgarth (First Defendant) SOLICITORS : Ebsworth & Ebsworth (Second Defendant) Minter Ellison (Third Defendant) Phillips Fox (Fourth Respondent) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST McDOUGALL J Thursday 25 May 2006 Ex tempore (revised 26 May 2006) 55004/01 THE OWNERS - STRATA PLAN No. 50530 v WALTER CONSTRUCTION GROUP (IN LIQUIDATION) & ORS JUDGMENT – on application for leave to commence proceedings 1 HIS HONOUR: By amended notice of motion filed in Court on 25 May 2006, the plaintiff (the Owners Corporation) seeks, among other things, leave to commence proceedings against the fourth respondent (QBE) to the notice of motion pursuant to s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (the Act), and an order that QBE be joined to these proceedings as fourth defendant. 2 Section 6 provides, relevantly: "6 Amount of liability to be charge on insurance moneys payable against that liability (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability. … (4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken." 3 The proceedings arise out of the construction of the strata title development of which the Owners Corporation is the owners' corporation. The Owners Corporation alleges that the present first defendant, Walter Construction Group Limited (in liquidation) (Walter), as the builder under a design and construct contract, performed its work in breach of contract and negligently, and that there are many substantial defects in the work so performed. It is said that the cost of rectification of the defective work is of the order of $10 million. Walter is in liquidation. 4 QBE opposes the grant of leave, and its joinder, on three substantive grounds. The first is that the relevant policy (the existence of which is not in dispute), a "claims made and notified" policy, was not in existence at the time the Owners Corporation suffered loss. The second ground is that, QBE submits, Walter owed no duty of care to the Owners Corporation, so that there is no arguable case against Walter. The third ground is a limitation point. 5 For reasons that I will explain, I have come to the conclusion that the application for leave should fail on the first ground. In those circumstances, I do not think it profitable to explore the second ground. Nor would it have been profitable to explore the third ground, had it been argued; but for reasons that it is unnecessary to traverse, it was not. 6 The relevant policy was current from 31 December 1999 to 31 December 2001. As I have said, it is what is commonly called a "claims made and notified" policy. That is apparent from the insuring clause at 1.1, which provides as follows: "1.1 QBE agrees to indemnify the Insured against legal liability for any Claim for compensation first made against the Insured during the Period of Cover and which is notified to QBE during the Period of Cover, in respect of any civil liability whatsoever and howsoever incurred in the conduct of the Professional Business Practice and arising out of the performance of the Insured's professional activities and duties." 7 At this point, it is convenient to note also cl 1.4(a) on which the Owners Corporation placed reliance. It provides: "1.4 (a) 'Unlimited Retroactive Cover' – unless a Retroactive Date is specified in the Schedule, this Policy shall provide cover in respect of acts, errors or omissions, committed (or alleged to have been committed) irrespective of when such acts, errors or omissions were committed (or were alleged to have been committed)." 8 The schedule to the policy made it plain that the Retroactive Date was unlimited. 9 By reference to the Owners Corporation's case, both as presently propounded through its further amended summons, and as it is sought to be propounded through the second further amended summons that would be filed should leave be granted, it is apparent that the relevant works were carried out many years ago. Assuming, for present purposes, the accuracy of the facts stated in the contentions, development consent was granted in August 1993 (and modified on a number of dates in 1994 and 1995) and building approval was granted in November 1993. 10 Construction took place from about January 1994 to about July 1995, and in July 1995 the local council, the second defendant, granted permission to occupy the building and issued a building certificate. The strata plan was registered on about 11 August 1995. 11 When one considers the allegations of loss and damage in the further amended summons and draft second further amended summons, as amplified in the schedules that have been provided, it is apparent that on the Owners Corporation's case, damage in the form of manifestation of defects and the like was incurred no later than July 1995. On any view, it is apparent that very substantial damage - if not the whole of the damage that the Owners Corporation now seeks to recover - was incurred well before 31 December 1999. 12 The Owners Corporation's claim is one for pure economic loss, it not having been the party with whom Walter contracted for the design and construction of the building. Nor could it have been, since it did not come into existence until the registration of the strata plan on 11 August 1995. At that date, which was after physical damage had become manifest, the Owners Corporation became the proprietor, as agent for proprietors of lots, of the common property. If it has a claim, its claim was complete no later than that date. 13 In those circumstances, QBE submits, leave to join it should be refused because the facts do not come within s 6(1) of the Act. It relies on the decision of Cole J in Manettas v Underwriters at Lloyds (1993) ANZ Ins Cas 61-180; in particular, his Honour's analysis of the application of s 6 to claims made and notified policies at pp 78,031 - 78,032. 14 In that case, as explained by Cole J in his later decision in Capita Financial Group Limited v Triden Properties Limited (6 September 1993, unreported; BC 9302088), it was established that s 6(1) of the Act would not apply to a claims made and notified policy where the cause of action accrued prior to the inception of the policy. As his Honour explained in Manettas at 78,032, that is because the event giving rise to the claim for damages or compensation is the cause of action in negligence. Further, as his Honour explained in Capita at BC 84, 85, that means the complete cause of action, including the suffering of damage; which in the case of latent defects, accrues when the defect first becomes known or manifest. 15 The reasoning in Manettas and Capita Financial has not been received with complete approbation. However, with one exception, it has been followed in a number of first instance decisions in this State. I refer in particular to the decisions of Dowd J in Carnie v Richards (9 September 1997, unreported; BC 9707898), Einstein J in Schipp v Cameron [1999] NSWSC 997 and Wood CJ at CL in New South Wales Aboriginal Land Council v Ace Global Markets Limited [2005] NSWSC 39. 16 As I have said, the reception given to the principle established by Manettas and Capita Financial has not been one of universal approbation. Thus, Lindgren J in National Mutual Property Services (Australia) Pty Limited v Citibank Savings Limited (No. 4) (1996) 138 ALR 409 declined to follow it. His Honour adhered to that course in FAI General Insurance Co Limited v McSweeney (1997) 154 ALR 229. Further, Richards J in FAI (NZ) General Insurance Co Limited v Blundell and Brown [1994] 1 NZLR 11 refused to follow it, and Young J in Schipp v Cameron (1995) 8 ANZ Ins Cas 61-256 (the interlocutory decision preceding the decision of Einstein J) expressed doubt. However, Young J did not find it necessary to decide the point, since he thought it was unnecessary, and perhaps undesirable, to do so on an application for leave under s 6. 17 The reasoning in Manettas was considered by the Court of Appeal of the Australian Capital Territory in QBE Insurance Limited v Aulich (2003) 152 ACTR 1. It is apparent from what their Honours said in that case, at 4 [16] and following, and from their reference to the reasoning in particular in Capita Financial, that they approved the reasoning in Manettas. 18 That does not mean that, of itself, leave under s 6 should be refused. The operation of s 6 was analysed by Giles JA in Tzaidas v Child (2004) 61 NSWLR 18. As his Honour pointed out at 23 [14] and following, s 6(4) provides for a "prohibition" against the grant of leave in the circumstances set out in the second subparagraph. However, for that prohibition to apply, two things must happen. 19 First, the Court must be satisfied that the insurer is entitled under the terms of the policy to disclaim liability. Second, the Court must be satisfied that any proceedings necessary to establish that entitlement have been taken. That both these matters must be satisfied before the prohibition can apply is clear from what Giles JA said at 24 [18]. However, even if the prohibition does not apply, there remains a discretion to refuse leave. In some circumstances, as his Honour pointed out at 25 [21], there will be an intersection between the prohibition (or the questions relating to it) and the discretion (or questions relating to it). The discretion arises because, even if the prohibition is not engaged (for example, because the Court is not satisfied that the necessary proceedings have been taken), nonetheless the intending plaintiff must establish an arguable case that the insurer is obliged to provide indemnity. 20 Thus, as Giles JA said at 25 [23], leave will be refused if the Court is satisfied that the insurer is entitled to disclaim liability. However, where no proceedings have been commenced to establish that entitlement, the refusal will be in the exercise of the general discretion and not the result of the application of the prohibition. It is clear, from what his Honour said in that paragraph, that leave may be refused on discretionary grounds even where proceedings to establish entitlement to disclaim have not be taken. 21 In this case, Mr Barry, QC, who appeared with Mr Thomas of counsel for the Owners Corporation, submitted that there was an arguable case as to entitlement because of the discrepancy in the first instance authorities to which I have referred. Thus, he submitted, I should grant leave, and leave it to the trial judge, after a contested hearing, to decide the question. 22 Further, Mr Barry submitted, the existence of the unlimited retroactive cover provision given by clause 1.4(a) took the matter outside the ambit of the claims made and notified policies that had been the subjects of the cases to which I have referred. 23 It is convenient, and probably appropriate, to deal first with this second point. 24 The structure of the insuring clause is that the obligation to indemnify arises where a Claim (as defined) is first made against the insured during the period of cover and notified to QBE during that period of cover. It was accepted, for the purposes of this hearing, that the requirements for claims made and notified were, or more accurately could be taken to be, satisfied. It was likewise accepted, for the purpose of this application, that there was at least an arguable case that the claim so made was in respect of civil liability incurred in the conduct of Walter's Professional Business Practice and arising out of the performance by Walter of professional activities and duties. 25 Nonetheless, there is no obligation to indemnify outside the ambit of cl 1.1 of the insuring clause. Thus, I think, this is properly described as a claims made and notified policy. The grant of unlimited retroactive cover does not lead to any different conclusion. It simply means that any claim made during the period of insurance and notified during that period will be a claim engaging the insuring clause, notwithstanding the date when the acts, errors or omissions leading to the claim were committed, or were alleged to have been committed. It does not turn the policy into one that provides cover for any act, error or omission committed, or alleged to have been committed in the past. It provides cover for such acts, errors or omissions where the claim asserted in respect of them is first made against the insured during the period of cover and notified to QBE during the same period. 26 I therefore conclude that the reasoning in Manettas and the cases that follow it is directly applicable to the present policy, notwithstanding the wording of cl 1.4(a). 27 That leads to the other submission. Should I follow the trend of first instance authority in this State, or should I leave it to the trial judge? 28 If there were questions of fact that were required to be determined to give rise to the question of principle, then clearly, the matter should be left to the trial judge unless there were some powerful reason indicating otherwise. But in the present case, the only relevant factual dispute is as to the accrual of the complete cause of action. On any view, in circumstances where the Owners Corporation acknowledges that it suffered loss and damage well prior to the inception of the policy, and when it became entitled (if it is) to sue in respect of that loss or damage, well prior to the inception of the policy, there does not seem to me to be any outstanding issue of fact that is required to be resolved by the trial judge. On the case as pleaded, the principle in Manettas is engaged. And, for present purposes, it is the case as pleaded with which I am concerned. 29 I am conscious of the limitations on the extent of decision making in the course of an interlocutory hearing. However, I take the relevant principle to be as expressed by McClelland J in Kolback Securities Limited v Epoch Mining NL (1987) 8 NSWLR 533 at 535. Although his Honour was speaking in the context of an application for an interlocutory injunction, I think that the principles are at least equally, if not more, applicable to a case such as this. His Honour said, among other things, that where the fate of the entitlement to ultimate relief is uncertain, the Court is required to consider the cause of the uncertainty. Where that uncertainty depends on contested questions of fact, it cannot be resolved at an interlocutory hearing. Where it depends on a contested question of law, it may or may not be appropriate for the Court to decide that question notwithstanding that the hearing is interlocutory. Whether the Court should do so will depend on a number of circumstances including the novelty or difficulty of the question, its susceptibility to resolution on the limited evidence available and the availability of time to give proper consideration to the question. 30 In this case, the question is not novel (although I concede that, uninstructed by authority, it is difficult). Its resolution does not depend on any contested question of fact; on the contrary, as I have sought to explain, the relevant facts may be taken to be as asserted in the proposed second further amended summons, on the safe assumption that they will not rise any higher. Finally, partly because the ground has been well traversed in other authorities and partly because the hearing of this application has not been rushed, I do not think that it is impracticable to give proper consideration to the question. 31 Because the question has been dealt with on a number of occasions, I do not think that there is much to be gained by my repeating at length the considerations dealt with in the cases to which I have referred. It is sufficient to say that I think, with respect, that the decisions of Cole J in Manettas and Capita Financial were correct. In any event, given that they have been followed on three occasions, on each occasion after lengthy argument and with extensive consideration of the principles, I would not think it appropriate for me to depart from those decisions unless, contrary to the fact, I were persuaded that they were clearly wrong. 32 I refer in particular to the decisions of Einstein J in Schipp and Wood CJ at CL in Aboriginal Land Council. In each case, their Honours considered at length, and I infer after detailed argument, the authorities on which Mr Barry relied in support of the proposition that Manettas and Capita Financial were wrongly decided. In each case their Honours considered, after an extensive review of the authorities and the submissions, that Manettas and Capita Financial were properly decided. 33 If I may say so with respect, I find those decisions more persuasive than the decision of Dowd J in Carnie, because I perceive in Carnie some lack of clarity, or perhaps even confusion, as to what was decided in Manettas and Capita Financial, which features are conspicuously absent from the reasoning in Schipp and in Aboriginal Land Council. 34 In short, I agree completely with the analysis and conclusions in both those cases; and I do not think it is profitable to seek to restate, in my own words, the matters there so carefully dealt with. 35 I am reinforced in that approach by the fact that the question has been considered by an intermediate appellate court. Although the circumstances are not precisely those described by the High Court of Australia, in Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 492, I think that they are sufficiently analogous to require me to abide by the decision of the Court of Appeal of the Australian Capital Territory unless convinced that it is plainly wrong. Again for the reasons I have given, I am not so convinced. 36 The decision of Young J at the interlocutory level in Schipp might be thought to give some cause for concern. However, it must be understood that his Honour, whilst expressing reservations at the decisions in Manettas and Capita Financial, did not find it necessary to express a concluded view. Thus, his Honour's consideration of the topic does not form part of the reasons for granting the relief that he did. In any event, his Honour's reasons were considered by Einstein J in Schipp at the final hearing stage, and by Wood CJ at CL in Aboriginal Land Council, and did not dissuade their Honours from following Manettas and Capita Financial. 37 I should mention that Aboriginal Land Council was a case where it was put to Wood CJ at CL that he should leave the question to a final hearing on the merits: ie that as I have been urged to do, that he should grant leave and leave it to the trial judge to decide the point. His Honour declined to take that course. 38 Mr Barry urged upon me that the course that I am about to take would not be conducive to the just, quick and cheap disposition of these proceedings. Whether it is just is a matter for others to decide; it is sufficient to say that I regard myself as obliged to follow a clearly established line of authority in circumstances where I agree with the reasoning and conclusion that it demonstrates. Whether it is cheap is a matter on which minds may differ. If QBE were joined, it would be forced, or if not forced then at least likely, to defend the proceeding on the merits: ie, on the merits as between the Owners Corporation and Walter. Thus, QBE would be drawn into a full blown building case. 39 It is apparent from the contentions and from the schedules of defects that the case is one of considerable factual complexity and extent. It is apparent that QBE may be put to very substantial expense in meeting that case on its merits. I do not regard that as necessarily consistent with the objective to procure a cheap disposal of the proceedings. 40 Whether a quick disposal is facilitated is, to some extent, within the Owners Corporation's own grasp. If it chooses to seek leave to appeal from my decision - and I might indicate, if I could be so bold, that the conflict in the first instance authorities is clearly one that might merit the consideration of an appellate court - then it would need leave to appeal from the orders that I am about to make. 41 If the Court of Appeal were of the view that the question is one that requires its attention, it might be expected to grant leave. If it were minded to do so, in circumstances where that would hold up the progress of the present proceedings, it might be minded to give the appeal (assuming the grant of leave) some expedition. If the Court of Appeal, having taken all those steps, upheld the appeal then the result would be that the amended notice of motion would require further consideration to evaluate, and rule upon, the other grounds of opposition. All that would take some time. But the time that it might take, considered in the context of the time scale relevant to these proceedings, is unlikely to be vast. 42 Further, if the Owners Corporation, having considered the matter, chooses not to seek leave to appeal, then its action will continue in the ordinary way and, presumably, be heard and determined in one of the other ordinary ways that are available in the Technology and Construction List. I therefore do not think that the course that I am about to take is unduly inimical to the quick disposal of the proceedings. 43 I am conscious that by failing to deal with the other grounds of opposition, I am leaving questions that may require reagitation at a later date if the Court of Appeal grants leave to appeal from my decision and allows the appeal. But that would happen in any event because, as I have said, the limitation issue could not proceed today. I therefore do not regard the reservation, as well, of the duty of care point as one that in those circumstances would be productive of any significant difficulty, let alone of further delay. 44 It therefore follows that the amended notice of motion must be dismissed as against the fourth respondent, QBE, and I will so order. However, the amended notice of motion also sought leave to proceed against the first defendant. As I understand it, the liquidator of the first defendant has neither supported nor opposed the grant of that relief. In those circumstances, and bearing in mind that there is still some continuing benefit in ensuring that Walter is bound by the outcome, I would think it appropriate to make an order in terms of prayer 1 of the amended notice of motion if that is still pressed, but on terms that no judgment recovered against the first defendant be enforced without the further leave of the Court. 45 The remaining issues are what directions should be given to ensure that the proceeding continues and the question of costs. I will hear the parties on those matters; and I will also hear the Owners Corporation on whether it still desires leave to proceed against Walter. 46 QBE asks for its costs of the application against it. That was opposed, although not with any particular vigour, on the ground that until the Owners Corporation decides what it is going to do (in relation to seeking leave to appeal) and does it, and until the Court of Appeal does what it is going to do (if it grants leave), one would not know what the overall situation might be. 47 In circumstances where I have dealt with one issue, the result of which is entirely favourable to QBE, I think prima facie that costs should follow the event. If the Owners Corporation does not seek leave to appeal, then that order will finally dispose of all issues between it and QBE without the need for the parties to come back to me. If leave to appeal is sought and granted, and the appeal allowed, then ordinarily, the costs order would also be set aside. In those circumstances, I think, both the interests of justice and the interests of convenience favour the making of the order. 48 I make the following orders: (1) I grant the plaintiff leave to proceed against the first defendant, that leave being granted upon condition that any judgment recovered by the plaintiff against the first defendant not be enforced without the further leave of the Court. (2) I stand the proceedings into the Directions List on 23 June 2006. (3) I dismiss the amended notice of motion as against the fourth respondent. (4) I order the plaintiff to pay the fourth respondent's costs of the amended notice of motion. ***** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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