New South Wales Supreme Court CITATION : Healy v Luke [2007] NSWSC 244 HEARING DATE(S) : 19 March 2007 JUDGMENT DATE : 20 March 2007 JURISDICTION : Common Law JUDGMENT OF : Austin J DECISION : Leave under s 6(4) granted CATCHWORDS : PRACTICE & PROCEDURE - claim for damages for assault - leave to commence proceedings against insurer direct - whether arguable case that insurer may be liable - whether sufficient reason to sue insurer direct LEGISLATION CITED : Corporations Act 2001 (Cth) ss 440D, 471B, 500(2) Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ss 6(1), 6(4) Catto v Hampton Australia Ltd (in liq) (1998) 29 ACSR 225 Dixon v Royal Insurance Ltd (1991) 105 FLR 129 CASES CITED : Manettas v Underwriters at Lloyds (1993) 7 ANZ Insurance Cases 61-180 National Mutual Fire Insurance Co Ltd v Commonwealth [1981] 1 NSWLR 400 Schipp v Cameron (1995) 8 ANZ Insurance Cases 61-256 Peter Healy by his tutor Jennifer Healy (P) PARTIES : Raymond Tapa Luke (D1) Au Succour Pty Ltd (D2) Stephen Jones (D3) FILE NUMBER(S) : SC 20192/06 COUNSEL : F Tuscano (P) J J Ryan (D) SOLICITORS : McLaughlin & Riordan (P) Thompson Cooper Lawyers (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST AUSTIN J MONDAY 20 MARCH 2007 20192/06 PETER HEALY BY HIS TUTOR JENNIFER HEALY V RAYMOND TAPA LUKE & 2 ORS JUDGMENT 1 HIS HONOUR: By a statement of claim filed in the Common Law Division on 25 May 2006, the plaintiff (by his tutor) sues the defendants for damages (including aggravated and exemplary damages) for negligence, breach of contract and breach of statutory duty arising (it is alleged) out of the plaintiff being assaulted at the Salisbury Hotel on 6 August 2003. 2 On 21 December 2006 the plaintiff filed a notice of motion seeking relief of two kinds, in the alternative: · an order granting him leave to proceed against the second defendant, said to be a company under administration, pursuant to s 440D of the Corporations Act 2001 (Cth); · an order granting him leave, nunc pro tunc, to commence proceedings against the second defendant's insurer under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). 3 The application was heard in the Corporations List because the plaintiff sought, by the first alternative, relief under the Corporations Act. However, in so far as he did so, the application was misconceived. It appears from an ASIC Company Extract dated 22 August 2006 that the company is in external administration by virtue of a members' voluntary winding up under Part 5.5 Division 2 of the Corporations Act, rather than a voluntary administration under Part 5.3A. Therefore s 440D has no application. There are provisions staying proceedings against a company in liquidation, except with the leave of the court, in the case of a winding up by the court (s 471B) and in the case of a creditors' voluntary winding up (s 500(2)), but there is no such provision in the case of a members' voluntary winding up (see Catto v Hampton Australia Ltd (in liq) (1998) 29 ACSR 225; Ford's Principles of Corporations Law (looseleaf), para [27.600]). Therefore, in so far as the application seeks leave to proceed against the second defendant as a company in external administration, it is unnecessary. 4 Relevant provisions of the Law Reform (Miscellaneous Provisions) Act are as follows: "6(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 he is indemnified against liability to pay any damages or compensation, the amount of his 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." "6(4) Every such charge as aforesaid shall be enforceable by way of 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 party 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 subs (2) apply, no such action shall be commenced in any court except with the leave of the 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." 5 In Schipp v Cameron (1995) 8 ANZ Insurance Cases 61-256, BC 9504540, Young J identified three questions to be addressed under s 6(4): A: whether the plaintiff has an arguable case that the insurer may be liable in respect of the claim; B: whether there are sufficient reasons for him to sue the insurer direct; C: whether the insurance policy is a "claims made and notified" policy in respect of an event occurring prior to the commencement of the period of the policy, to which s 6(1) does not apply according to the decision in Manettas v Underwriters at Lloyds (1993) 7 ANZ Insurance Cases 61-180. 6 Issue C does not arise on the facts and was not agitated before me. The submissions of the parties were directed to issues A and B. 7 As to issue A, the statement of claim alleges that the second defendant was the owner and/or occupier and had the care, control and management of licensed premises at Percival Road, Stanmore trading as The Salisbury Hotel, and that the third defendant was the licensee of those premises. It alleges that the first defendant was employed by the second and/or third defendant as a manager and to provide security at the premises, and that the first defendant assaulted the plaintiff, using excessive force and failing to take any or any adequate precautions. Against the second defendant, the statement of claim asserts various failures to take adequate precautions amounting to negligence and breach of contract, and breach of statutory duty under the Liquor Act 1982 (NSW), and it contends that the second defendant is primarily and vicariously liable for the assault. In my opinion the statement of claim discloses an arguable case against the second defendant, if the matters alleged are proved. 8 The solicitors for all three defendants are acting on the instructions of an insurer, Trenwick International Ltd. They wrote to the plaintiff's solicitors on 25 January 2007, declining to consent to the orders sought in the notice of motion because "our client insurer has granted limited indemnity to the defendants with respect to this claim". The letter also stated that: · the insurer is entitled to disclaim liability if a finding is made that the plaintiff was assaulted not for the purpose of preventing or eliminating danger to persons or property; and · the insurer is not liable to indemnify the defendants should there be an award of aggravated or exemplary damages. 9 Insurance policy No GH 00702 provides indemnity to "Salisbury Hotel" for all amounts which the insured shall become legally liable to pay for compensation in respect of personal injury happening during the period of the insurance, caused by an occurrence in connection with the business, subject to a limitation of liability set out in the schedule (section 9, para 1). There are relevant definitions in section 9, para 2. "Personal Injury" is defined to include "assault and battery not committed by or at the direction of the insured unless committed for the purpose of preventing or eliminating danger to persons or property". "Compensation" is defined so as to exclude exemplary damages. 10 It will be seen that the exemption from liability in respect of assault is not quite as stated in the defendants' solicitors' letter. The policy responds if the insured becomes legally liable to pay compensation in respect of personal injury caused by an occurrence in connection with the business. It appears from the statement of claim that the plaintiff has an arguable case that the assault of which he complains occurred in connection with the second defendant's hotel business. If that is proven, the policy indemnifies the second defendant unless there is an applicable exclusion. Liability is excluded, according to the definition of "Personal Injury", if the assault is committed at the direction of the insured. But the exclusion does not operate, and therefore the policy responds, where the insured has directed the assault to occur for the purpose of preventing or eliminating danger to persons or property. 11 If proceedings are permitted against the insurer, there may be issues of fact as to whether the assault of which the plaintiff complains was committed at the direction of the second defendant, and if it was, whether that direction was given for the purpose of preventing or eliminating danger to persons or property. However, it seems to me appropriate to conclude, for the purposes of the present application, that the plaintiff has an arguable case that the policy provides indemnity to the second defendant in respect of the plaintiff's injury. 12 As to aggravated and exemplary damages, I was informed from the bar table that if leave is granted under s 6(4), the plaintiff will not seek those damages in proceedings against the insurer. 13 In Schipp v Cameron, Young J noted some cases where the plaintiff had lost a leave application because his case was completely unarguable, but he observed that such cases are exceptional, and that ordinarily leave is granted where the plaintiff shows that his or her case is arguable and no other factor is involved (BC 9504540 at 5). I am satisfied that issue A is satisfied in this case. 14 I turn to issue B, whether there are sufficient reasons for the plaintiff to sue the insurer direct. The liquidator of the second defendant is James Patrick Ryan. In response to a query from the plaintiff's solicitors, he stated in a letter dated 26 February 2007 that, while he did not have instructions to provide a formalised statement of assets and liabilities, the company has "a small amount of funds remaining, certainly by comparison to the likely damages should the claim be successful". 15 In Schipp v Cameron, Young J referred to Dixon v Royal Insurance Ltd (1991) 105 FLR 129, and continued (BC 9504540 at 8): "The facts in the instant case are not as strong as they were in Dixon's case, but it seems to me that whilst the onus is on the plaintiff to show some reason why she should be allowed to sue the insurer direct, and whilst one must take into account the policy of the Act that suing an insurer is not the ordinary nor even a normal alternative course, it seems to me the authorities show that a plaintiff only has to show that there are reasonable doubts about her obtaining the proceeds of the claim if successful from the real defendant." 16 Although the court does not have any detailed evidence about the financial position of the second defendant, Mr Ryan's letter is evidence creating, at the very least, substantial doubt as to whether the second defendant would be able to meet a judgment for damages against it. Therefore the plaintiff has shown a reason why he should be allowed to sue the insurer direct, in respect of his claim against the second defendant. 17 In summary, the plaintiff has what seems on the face of the pleading to be an arguable case against the second defendant, which is a company subject to a members' voluntary liquidation. There is a policy which on its face appears to respond to a claim for damages for assault in connection with the second defendant's hotel business, subject to an exemption the relevance of which will depend on the facts established at the hearing. If the action were to continue against the second defendant and judgment were to be entered against that company, the plaintiff might then be faced with the need to commence proceedings against the insurer to test the applicability of the exemption, with all the additional cost and delay that a second action would involve. This seems to me the kind of case where it is entirely appropriate to grant leave under s 6(4). To do so is in accordance with the legislative purpose, which is to allow direct access to the insurer "in those cases where enforcement might be frustrated unless such direct access were available" (National Mutual Fire Insurance Co Ltd v Commonwealth [1981] 1 NSWLR 400, at 403 per Moffitt P). ********** 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.