New South Wales Supreme Court CITATION : Bazem Pty v Bureau of Urban Architecture; Bureau of Urban Architecture v Bazem [2010] NSWSC 978 HEARING DATE(S) : 27 July 2010 JUDGMENT DATE : 2 September 2010 JUDGMENT OF : Gzell J DECISION : Applications granted. CATCHWORDS : PROCEDURE - Joinder of Parties - whether plaintiff should have leave to join insurer of defendant that refused to indemnify - whether in related proceedings it should have leave to amend its defence to raise issues upon which the insurer relied Bankruptcy Act 1966 (Cth) Architects Act 2003 Licensing and Registration (Uniform Procedures) Act 2002 Trade Practices Act 1974 (Cth) LEGISLATION CITED : Uniform Civil Procedure Rules 2005 Supreme Court Rules 1970 Insurance Contracts Act 1984 (Cth) Federal Court Rules 1979 (Cth) The Supreme Court (General Civil Procedure) Rules 2005 (Vic) Re Great Eastern Cleaning Services Pty Ltd and the Companies Act [1978] 2 NSWLR 278 Walker v Commonwealth Trading Bank of Australia (1985) 3 NSWLR 496 Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589 Mercantile Mutual Holdings Ltd v Territory Insurance Office, NSWSC, unreported, 10 April 1989 Mercantile Mutual Holdings Ltd v Territory Insurance Office, NSWSC, unreported, 4 May 1989 J N Taylor Holdings Ltd v Bond (1993) 59 SASR 432 Tatterson v Wirtanen [1998] VSC 88 CASES CITED : CE Heath v Pyramid Building Society [1997] 2 VR 256 Beneficial Finance Corp v Price Waterhouse (1996) 68 SASR 19 Interchase Corporation Ltd (in liq) v FAI General Insurance Co Ltd [2000] 2 Qd R 301 Employers Reinsurance Corporation v Ashmere Cove Pty Ltd [2008] FCAFC 28; (2008) 166 FCR 398 Ashmere Cove Pty Ltd v Beekink (No 2) [2007] FCA 1421; 244 ALR 534 Done v Financial Wisdom Ltd [2008] FCA 1706 Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd [2009] VSC 371 Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175 In Proceedings 2009/287392 Bazem Pty Limited (Plaintiff) Bureau of Urban Architecture (First Defendant) PARTIES : CGU Insurance Limited (Second Defendant) In proceedings 2009/289283 Bureau of Urban Architecture (Plaintiff) Bazem Pty Ltd (Defendant) FILE NUMBER(S) : SC 2009/287392; 2009/289283 David Weinberger (Bazem Pty Limited) COUNSEL : James Sleight (Bureau of Urban Architecture Pty Limited) Gregory Curtin (CGU Insurance Limited) Gadens Lawyers (Bazem Pty Limited) SOLICITORS : Neville & Hourn Legal (Bureau of Urban Architecture Pty Ltd) Colin Biggers & Paisley (CGU Insurance Limited) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J THURSDAY 2 SEPTEMBER 2010 2009/287392 BAZEM PTY LIMITED v BUREAU OF URBAN ARCHITECTURE PTY LIMITED 2009/289283 BUREAU OF URBAN ARCHITECTURE PTY LIMITED v BAZEM PTY LIMITED JUDGMENT 1 In the first of the above proceedings, Bazem Pty Limited sought leave to file an amended statement of claim by which to join CGU Insurance Limited as second defendant and to seek against it a declaration that it was obliged to indemnify Bureau of Urban Architecture Pty Limited, the first defendant. 2 CGU served a draft defence to the proposed pleading of Bazem in which it alleged fraudulent non-disclosure or fraudulent misrepresentation by Bureau that entitled it to avoid the policy of insurance with Bureau. 3 In the second proceedings, Bazem sought leave to amend its defence to include allegations in the draft defence of CGU in the other proceedings. 4 As the hearing of the proceedings was imminent, I granted both applications stating that I would give my reasons later. These are my reasons. 5 Bazem was a property developer. Bureau provided architectural services. CGU insured Bureau under a claims made policy. 6 Bazem and Bureau entered into a contract for Bureau to supply architectural services with respect to a proposed property development. 7 Disputes arose and Bureau commenced proceedings in the District Court against Bazem for unpaid fees. Those proceedings were removed into the Supreme Court and became the second of the above proceedings. The first proceedings were commenced by Bazem alleging breach of contract by Bureau. 8 The gravamen of the allegations of CGU in its draft defence was that Richard Huxley, a director of Bureau, entered into a personal insolvency agreement pursuant to Part 10 of the Bankruptcy Act 1966 (Cth) and he did not disclose this fact in the proposal for professional indemnity insurance. 9 Under the Architects Act 2003, s 10 Bureau could not represent itself to be an architect unless it had at least one nominated architect responsible for the provision of architectural services by the corporation. 10 The Licensing and Registration (Uniform Procedures) Act 2002, s 53 required a registered person to notify any change in registered particulars. At no time during the period of the personal insolvency agreement did Mr Huxley inform the Architects Registration Board of the change in his registered particulars constituted by his personal insolvency agreement. 11 Further particulars were included in the draft defence, which it is unnecessary, for present purposes, for me to describe. 12 In the second proceedings, Bazem sought to amend its defence to include these allegations as particulars of representations falling within s 52 of the Trade Practices Act 1974 (Cth). Bazem seeks to allege that in reliance upon the representations it entered into the contract with Bureau as a result of which it suffered loss and damage. 13 In similar terms were the amendments sought by Bazem in its proposed amended statement of claim in the first proceedings. CGU opposition 14 CGU does not say that declaratory relief is inappropriate. It accepts that if Bazem establishes an entitlement to amend its statement of claim and the Court exercises its discretion in its favour CGU would not regard a declaration as inappropriate relief. 15 The Uniform Civil Procedure Rules 2005, Pt 6 r 6.24(1) provides as follows: "If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party." 16 The forerunner to that provision has given rise to a number of authorities upon which CGU relies. The Supreme Court Rules 1970, Pt 8 r 8(1) was in the following terms: "Where a person who is not a party - (a) ought to have been joined as a party; or (b) is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceedings may be effectually and completely determined and adjudicated upon, the Court, on application by him or by any party or of its own motion, may order that he be added as a party and make orders for the further conduct of the proceedings." 17 In Re Great Eastern Cleaning Services Pty Ltd and the Companies Act [1978] 2 NSWLR 278 a company was struck off the register and the Commissioner of Taxation commenced proceedings against an individual for unremitted group tax. The individual commenced proceedings against the Corporate Affairs Commission to have the company's name restored to the register and the Commissioner of Taxation sought leave to be joined as a respondent. Needham J refused the application as the proceedings were sufficiently constituted to permit the Court to determine the matter and the Commissioner of Taxation was not a party who ought to have been joined. At 280 his Honour said: "Clearly, the Commissioner was not a necessary party, in the sense of being a person who "ought to have been joined as a party". The respondent to the application is the Corporate Affairs Commission. On the face of it, the proceedings, as commenced, were sufficiently constituted to permit the Court to determine the matter in issue, that is, whether the company's name should be restored to the register." 18 It was submitted that like the Commissioner of Taxation, CGU was not a necessary party for these proceedings which were sufficiently constituted as between Bazem and Bureau to enable the Court to determine the matters in issue. 19 Needham J maintained his view in Walker v Commonwealth Trading Bank of Australia (1985) 3 NSWLR 496 well after the decision of the High Court in Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589 had been handed down. 20 Giles J followed those decisions in Mercantile Mutual Holdings Ltd v Territory Insurance Office, NSWSC, unreported, 10 April 1989. 21 The Uniform Civil Procedure Rules, Pt 6 r 6.19 is in the following terms: "(1) Two or more persons may be joined as plaintiffs or defendants in any originating process if: (a) separate proceedings by or against each of them would give rise to a common question of law or fact, and (b) all rights of relief claimed in the originating process are in respect of, or arise out of, the same transaction or series of transactions, or if the court gives leave for them to be joined. (2) Leave under subrule (1) may be granted before or after the originating process is filed." 22 The forerunner of that provision was Pt 8 r 2 of the Supreme Court Rules which was as follows: "Two or more persons may be joined as plaintiffs or defendants in any proceedings - (a) where - (i) if separate proceedings were brought by or against each of them, as the case may be, some common question of law or of fact would arise in all the proceedings; and (ii) all rights to relieve claimed in the proceedings (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or (b) where the Court gives leave so to do." 23 In Mercantile Mutual Giles J rejected joinder under the Supreme Court Rules Pt 8 r 8(1). His Honour gave little consideration to Pt 8 r 2 on the basis that his decision with respect to the former rule would require rejection of joinder under the latter rule. His Honour said: "Assuming that it can provide an alternative route, the present circumstances would not have fallen within Pt 8 r 2(a), and the reasons that I have given for the view that the joinder of IRM is not necessary within Pt 8 r 8 are such that I do not think that leave would have been appropriate pursuant to Pt 8 r 2(b)." 24 In Mercantile Mutual Holdings Ltd v Territory Insurance Office, NSWSC, unreported, 4 May 1989, Giles J considered a further application for joinder, which his Honour rejected. He said there was no matter in dispute between Mercantile Mutual and IRM and however convenient it might be for Mercantile Mutual to have IRM bound by the result in the proceedings before him, his Honour could not see that the joinder was necessary to ensure that all matters in dispute were effectively and completely determined. His Honour again referred to Walker. 25 There was an alternative submission for joinder under the Supreme Court Rules Pt 8 r 2 with which his Honour dealt as follows: "In referring to joinder of two or more persons as plaintiffs or defendants, Pt 8 r 2(a)(i) postulates separate proceedings "brought by or against each of them, as the case may be". It deals with separate proceedings brought by each of two or more plaintiffs against the same defendant or defendants, or separate proceedings brought against each of two or more defendants by the same plaintiff or plaintiffs. Referring to the present parties, it would deal with separate proceedings brought by each of MMH and TIO against IRM, and enable the joinder of MMH and TIO as plaintiffs in the one proceedings against IRM; and it would deal with separate proceedings brought by MMH against each of TIO and IRM as defendants in the one proceedings, and enable the joinder of TIO and IRM as defendants in the one proceedings by MMH. In each case some common question of law or fact would have to arise in both proceedings. But here the separate proceedings which have been or could have been brought are those by MMH against TIO (the claim in these proceedings), by TIO against IRM (the cross-claim in these proceedings), and by MMH against IRM (the equity proceedings), and the common questions of fact said to arise are in the second and third of these. Pt 8 r 2(a)(i) might enable MMH and TIO to join as plaintiffs against IRM, but does not enable MMH to join TIO and IRM as defendants." 26 That is not the situation in the present proceedings. Bureau did not seek relief against CGU by way of cross-claim. The separate postulated proceedings for the purposes of the rule are Bazem against Bureau for damages for misrepresentation and Bazem against CGU for a declaration that it is obliged to indemnify Bureau. 27 CGU asks who is the contradictor if leave is granted under the Uniform Civil Procedure Rules, Pt 6 r 6.19? The answer is Bureau. It will oppose Bazem's claim for damages for misrepresentation and it will oppose CGU's claim of fraudulent misrepresentation entitling it to avoid the contract of insurance under the Insurance Contracts Act 1984 (Cth), s 28(2). To that end Bureau will, no doubt, serve a reply to CGU's draft defence. 28 It was submitted that the proposed amended statement of claim raised an issue in relation to causation: If Bazem suffered damages it was because Bureau's work was not satisfactory, not because Mr Huxley was not a registered architect. But the proposed amendments raise a new cause of action in addition to the breach of contract and negligence already pleaded. 29 It was submitted that there was no commonality because the representations were with respect to different contexts at different times and in different ways. CGU's claim was with respect to a proposal for insurance whereas Bazem's claim was with respect to a contract for services. But in both cases the gravamen is that Mr Huxley failed to inform CGU of his personal insolvency agreement and the consequent inability of Bureau, lawfully, to provide architectural services. In both cases the allegations appear to be of misrepresentations by silence, that is, the failure of Mr Huxley to reveal his inability to practise as an architect and, in consequence, the misrepresentation that Bureau could provide architectural services. 30 In my judgment there is sufficient commonality to satisfy the requirement of a common question of law or fact for the purposes of the Uniform Civil Procedure Rules, Pt 6 r 6.19. Bazem application 31 In contradistinction to the above authorities there are decisions supporting the view that joinder is available against an insurer of a defendant that has utility and avoids multiplicity of proceedings. For this last proposition King CJ in J N Taylor Holdings Ltd v Bond (1993) 59 SASR 432, in allowing the joinder of an insurer that claimed it was not obliged to indemnify the defendants, said at 442 that in the exercise of discretion the court must be guided by the overriding principle that multiplicity of proceedings is to be avoided. The other members of the Banco Court agreed with his reasons. 32 J N Taylor was followed in Tatterson v Wirtanen [1998] VSC 88 in which Gillard J held that there was a controversy between the parties that would define the rights of the parties to the proceedings and the insurance company. 33 Where the insurer has not denied liability, no controversy exists that would justify joinder of the insurer (CE Heath v Pyramid Building Society [1997] 2 VR 256; Beneficial Finance Corp v Price Waterhouse (1996) 68 SASR 19). 34 In Interchase Corporation Ltd (in liq) v FAI General Insurance Co Ltd [2000] 2 Qd R 301 the majority of the Queensland Court of Appeal refused joinder notwithstanding that FAI declined indemnity. Davies JA dissented. His Honour accepted that no utility would be served by an order for joinder if the declaration did not effectively determine the issue of the insurer's liability. But applying Anshun his Honour concluded that the practical result of the proposed joinder would be, in effect, a binding determination of the liability between the insurer and the insureds. 35 In Employers Reinsurance Corporation v Ashmere Cove Pty Ltd [2008] FCAFC 28; (2008) 166 FCR 398 a group of investors instigated proceedings to recover losses from the responsible entity of a registered management scheme. They also sought a declaration that two insurers were liable to indemnify the responsible entity of the scheme. Leave was granted to join the insurers in the proceedings under the Federal Court Rules 1979 (Cth), O 6 r 2, which is almost identical with Pt 8 r 2. It is in the following terms: "Two or more persons may be joined as applicants or respondents in any proceeding - (a) where - (i) if a separate proceeding were brought by or against each of them, as the case may be, some common question of law or of fact would arise in all the proceedings; and (ii) all rights to relief claimed in the proceeding (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or (b) where the Court gives leave so to do." 36 French J, at first instance (Ashmere Cove Pty Ltd v Beekink (No 2) [2007] FCA 1421; 244 ALR 534) adopted the approach taken by Davies JA in Interchase and granted the plaintiffs leave to seek a declaration against the insurer. In dismissing the appeal, the Full Court at 410 [52] held that the investors had a real interest in establishing, if they could, that the insurers were liable to indemnify the responsible entity against the claims made against it by the investors. They had standing to claim declaratory relief against the insurers. 37 At 410 [54] the Court said that a cross-claim by the responsible entity against the insurers would form part of the same justiciable controversy as the investors' claim against the responsible entity and the investors' claim against the insurers would form part of the same single justiciable controversy. 38 Their Honours concluded at 414 [73]-[74]: " The reality is that the joinder of the Insurers, as directed by the primary Judge, will prove to be of practical utility. There are good reasons, explained by his Honour, for all the issues to be litigated in the one proceeding. The directions that have been made will facilitate the orderly, expeditious and just resolution of the justiciable controversy. In substance, the effect of the joinder orders made by the primary Judge is no different to the situation involved in the every day case of an insured joining its insurer as a third party (by whatever procedural means may be appropriate in the particular court). This enable issues of liability and assessment of damages or compensation, both as between claimant and insured and as between insured and insurer, to be heard and determined in the one proceeding. There are obvious benefits in terms of efficiency and economy. There is no reason in modern times why form should trump substance, where the interests of justice suggest that all related issues should be resolved in a single proceeding." 39 CGU complained that the cases to which it referred were not cited to the Full Court of the Federal Court. But, with the exception of the second Mercantile Mutual case, they related to the different basis for joinder under the Uniform Civil Procedure Rules, Pt 6 r 6.24 and its forerunner. Furthermore, the above passage in the second Mercantile Mutual case does little more than specify the requirements of Pt 8 r 2 and is, in my view, an obiter dictum, the application having being determined under Pt 8 r 8. 40 In Done v Financial Wisdom Ltd [2008] FCA 1706 at [28] Perram J granted leave to join Allianz as a respondent pursuant to the Federal Court Rules, O 6 r 2: "The making of a declaration that Allianz is liable to Bentley Barton and Mr Taylor under the terms of Policy and the presence of Allianz in any such suit will, effectively, resolve in the most efficient fashion, all of the issues between the parties. Accordingly, Allianz should be joined pursuant to O 6 r 2." 41 In Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd [2009] VSC 371, Vickery J considered an application by a plaintiff to join the insurer of defendant architectural companies as a further defendant. The Supreme Court (General Civil Procedure) Rules 2005 (Vic), rule 9.02 was almost identical with Pt 8 r 2 of the Supreme Court Rules. 42 His Honour held at [74] that Anjin had a very real interest in having the indemnity obligations of Allianz to the architect companies determined. The existence of a cause of action was not strictly necessary but a bona fide legal controversy was. His Honour went on to conclude at [79] that there was a true legal controversy and the plaintiff was entitled to the joinder subject to relevant discretionary considerations: "In my opinion, the evidence discloses a "true legal controversy" on the crucial question as to the liability of the insurer to indemnify the architect companies. It follows that, in my opinion, and subject to a consideration of relevant discretionary matters for the grant of relief, the plaintiff Anjin is entitled to bring its proposed proceeding against the insurance company and seek the declaratory relief which it has foreshadowed." 43 In coming to his conclusion his Honour, at [84] said he preferred to follow the reasoning in Tatterson, Beekink and Ashmere. And so do I. Discretion 44 In the second proceedings it was submitted by Bureau that Bazem had not explained its delay in seeking to amend its defence. Reference was made to Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175 at 215 [103] where the High Court stressed the importance of an explanation where discretion is sought to be exercised in favour of one party and to the disadvantage of another. 45 Bazem was aware on 14 July 2009 that Mr Huxley was a discharged bankrupt. Its solicitors wrote to the solicitors for Bureau on that date requesting an explanation. 46 On 29 September 2009 solicitors appearing for CGU entered an appearance for Bureau. The solicitors ceased to act and Bazem became aware that CGU had declined indemnity to Bureau on 18 February 2010. On 4 May 2010 Bazem's solicitors asked for reasons for the declinature and on 10 May 2010 CGU refused to disclose the reasons because of privacy and confidentiality concerns. 47 But the full reasons for the declinature were not apparent until CGU served its draft defence on 8 July 2010. It then became apparent to Bazem's solicitors that they might need to amend Bazem's defence in the second proceedings. 48 The solicitors for Bazem swore that that was a time consuming exercise because of the time required properly to review the matters contained in the draft defence and their effect on the statement of claim in the first proceedings and the defence in the second proceedings. 49 Bazem's amended notice of motion for leave to amend its statement of claim was filed on 2 July 2010 and its notice of motion for leave to amend its defence was filed on 16 July 2010. 50 The matter was complicated by the fact that Bureau was ordered to pay security for costs and both proceedings were stayed. Security was to be provided on 28 July 2010. 51 In my view, sufficient explanation has been given for the late stage at which the application for leave to amend the defence was instigated. While the solicitors for CGU were on the record as the solicitors for Bureau there was no suggestion that CGU had denied liability. That knowledge did not come until 18 February 2010 and then further particulars were refused by CGU. The full details of CGU's claims were not apparent until service of its draft defence on 8 July 2010. 52 Similar considerations apply to the application for leave to amend the statement of claim. 53 I formed the view that the discretion to grant leave to amend the defence in the second proceedings and to amend the statement of claim in the first proceedings was to be exercised in favour of Bazem. Resolution 54 It was for these reasons that I allowed both applications. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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