Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Energize Fitness Pty Ltd v Vero Insurance Limited [2012] NSWCA 213 Hearing dates: 22 June 2012 Decision date: 19 July 2012 Before: Allsop P at [1] Campbell JA at [2] Meagher JA at [72] Decision: (1) Grant leave to appeal against the refusal of the primary judge to grant leave to file the proposed Third Cross Claim. (2) Direct that a notice of appeal, in substantially the form contained in the White Book but modified to relate only to the primary judge's decision to refuse leave concerning the Proposed Third Cross Claim, be filed within 14 days of the date of these orders. (3) The appeal be dismissed, with costs. (4) Subject to the preceding orders, dismiss the summons seeking leave to appeal, with costs. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: PRACTICE AND PROCEDURE - joinder of insurer - Law Reform (Miscellaneous Provisions) Act 1946 s 6 - where respondent was the liability insurer of company A, alleged to be manufacturer of defective equipment - requirement to establish arguable case against the insured party - test for arguable case requires evaluation of evidence supporting pleaded case, not merely acceptance that facts have been pleaded which if true would, on an arguable view of the law, provide a remedy - insufficient evidence led to establish an arguable case that insured manufactured the defective equipment PRACTICE AND PROCEDURE - joinder of insurer - Law Reform (Miscellaneous Provisions) Act 1946 s 6 - where policy insures company A and its subsidiaries - alternative allegation that manufacturer was company B, and that company B was subsidiary of company A - no arguable case that company B was subsidiary of company A WORDS AND PHRASES - "arguable case" Legislation Cited: Corporations Act 2001 (Cth) Law Reform (Miscellaneous Provisions) Act 1946 Trade Practices Act 1974 Cases Cited: Tremolada v Energize Fitness [2011] NSWSC 1166 Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399 AFG Insurances Ltd v Andjelkovic (1981) 54 FLR 398 Andjelkovic v AFG Insurances Ltd (1982) 49 ALR 245 Dixon v Royal Insurance Australia Ltd (1998) 90 FCR 390 Travel Compensation Fund v FAI General Insurance Co Ltd [1999] FCA 1214 Macquarie Underwriting Pty Ltd v Permanent Custodians Ltd [2007] FCAFC 60; (2007) 240 ALR 519 House v R (1936) 55 CLR 499 General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125 Bede Polding College v Limit (No 3) Limited [2008] NSWSC 887 Zhang v Minox Securities Pty Ltd [2008] NSWSC 689 Zhang v Minox Securities Pty Ltd [2009] NSWCA 182; (2009) 72 ACSR 556 Category: Principal judgment Parties: Energize Fitness Pty Ltd (First Appellant) Belrose Wellness Centre Pty Ltd (Second Appellant) Vero Insurance Limited (Respondent) Representation: Counsel: DS Weinberger (Appellants) R Cavanagh SC; R Perla (Respondent) Solicitors: McCabe Terrill Lawyers Pty Limited (Appellants) Curwoods (Respondent) File Number(s): 2011/351652 Decision under appeal Citation: Tremolada v Energize Fitness [2011] NSWSC 1166 Date of Decision: 2011-10-07 00:00:00 Before: RS Hulme J File Number(s): 2008/289376 Judgment 1ALLSOP P: I agree with the orders proposed by Campbell JA and with his Honour's reasons. 2CAMPBELL JA: Nature of the Case 3In mid-November 2006, Mr Alan Tremolada was seriously injured at a gymnasium known as the "Energize Fitness Centre" in Belrose. His injury arose when he was using an aid to weightlifting known as a Smith Machine ("the Machine"). While he was using it the barbell to which the weights were attached descended heavily onto his back, rendering him a paraplegic. 4Mr Tremolada brought proceedings against Energize Fitness Pty Ltd and Belrose Wellness Centre Pty Ltd contending (so it seems - the application papers do not include the Statement of Claim) that one or other of them conducted the gymnasium, and was liable to him because (in part) it permitted him to use equipment that was defective. 5The defendants sought leave, pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 to join Vero Insurance Limited as a cross-defendant in the proceedings. The basis of that application was a contention that Vero was the liability insurer of the company that was the manufacturer (or alternatively was deemed to be the manufacturer under the Trade Practices Act 1974 ("TPA")) of the Machine. RS Hulme J dismissed the application to join Vero: Tremolada v Energize Fitness [2011] NSWSC 1166. 6The defendants seek leave to appeal against the dismissal of their application to join Vero. The Court has heard the argument that would be presented if leave to appeal were to be granted. The Insurance Policy 7The only insurance policy in evidence adopts a drafting convention of printing in bold any word or expression that is defined in the policy. The critical parts of the insuring clause are: "... the Insurer will indemnify the Insured against the legal liability of the Insured to pay compensation in respect of: 1.1.1 Injury to any person; ... ... during the Period of Insurance as a result of an Occurrence happening in connection with the Insured's Business." Thus, the relevant date as at which to consider whether the policy provides an indemnity concerning Mr Tremolada's injury is the date when that injury occurred. 8So far as relevant, the definition of "Insured" is: "Insured means: 4.1.1 The Named Insured stated in the Schedule; 4.1.2 any subsidiary company (including subsidiaries thereof) of the Named Insured and any other organisation under the control of the Named Insured and over which it is exercising active management; ..." 9There are two documents that might possibly be the Schedule to the policy. Each of them states that the Named Insured is Cal-Gym Manufacturing Pty Ltd. Like the primary judge, I will refer to that company as "Manufacturing". 10The policy does not contain a definition of "subsidiary", but the parties have conducted the case on the basis that the definition in the Corporations Act 2001 (Cth) is applicable. Section 46 Corporations Act provides: "A body corporate (in this section called the first body) is a subsidiary of another body corporate if, and only if: (a) the other body: (i) controls the composition of the first body's board; or (ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or (iii) holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or (b) the first body is a subsidiary of a subsidiary of the other body." 11Both possible Schedules to the policy identify the Period of Insurance as including the period from 30 September 2006 to 30 September 2007. Thus, the date on which Mr Tremolada was injured was within the Period of Insurance. 12The two possible versions of the Schedule have slightly different wording identifying the Business. However, a common element in them is: Manufacturer, Supplier & Distributor of Gymnasium and Fitness Equipment. 13Vero does not dispute that it is the insurer of Manufacturing under that policy. The Cross-Claims 14On 5 August 2009 the defendants filed a First Cross-Claim against Manufacturing. The primary judge summarised it as alleging that Manufacturing: "... had manufactured the Smith Machine, supplied the machine to Life Fitness Australia Pty Ltd and that that company had sold the machine to Vital Fitness who had on-sold the machine to [the first defendant] in or around 1999." 15On 21 February 2011, the defendants filed a Second Cross-Claim against Cal-Gym Equipment Pty Ltd. I will refer to that company as "Equipment". The primary judge summarised that cross-claim as alleging that Equipment: "... was the manufacturer, or pursuant to s 74A(3) and s 75AB of the Trade Practices Act deemed to be the manufacturer, of the machine and the company that had supplied it to Life Fitness Australia Pty Ltd." 16The primary judge had before him a draft Third Cross-Claim, that named Vero as the cross-defendant. It alleged that the Machine was manufactured by Manufacturing, that Manufacturing supplied the machine to Life Fitness, which sold the machine to Vital Fitness, which in turn sold the machine to the first defendant "in or around 1999". For the purpose of a claim under the TPA, it alleged that Manufacturing was the manufacturer of the Machine, or alternatively, pursuant to ss 74A(3) and 75AB of the TPA that Manufacturing: "... is deemed to have been the manufacturer of the machine as it caused or permitted the name of its corporation or brand to be applied to the machine." 17It pleaded respects in which the Machine was defective within the meaning of s 75AC of the TPA, and that the defects caused or contributed to Mr Tremolada's injuries, and have caused loss to the defendants. It made an alternative pleading in negligence. It pleaded that Vero was the public liability insurer of Manufacturing for the period 30 September 2006 to 30 September 2007, and that events falling within the insuring clause of the policy had occurred. 18The primary judge also had before him a proposed Fourth Cross-Claim, brought by the defendants against Vero. It alleged that the machine was manufactured by Equipment, that Equipment supplied the machine to Life Fitness, which sold the machine to Vital Fitness, which in turn sold the machine to the first defendant in or around 1999. 19Like the proposed Third Cross-Claim, the proposed Fourth Cross-Claim raised causes of action under the TPA, and also in negligence. It alleged that Equipment was the manufacturer of the Machine, and that pursuant to s 74A(3) and 75AB of the TPA, Equipment: "... is deemed to have been the manufacturer of the machine as it caused or permitted the name of its corporation or brand to be applied to the machine." 20Save for the different allegation about the company that was the manufacturer or deemed manufacturer of the Machine, the basis on which it was contended that Equipment was liable under the TPA and in negligence was identical with the basis on which the Third Cross-Claim contended that Manufacturing was liable in those respects. 21The Fourth Cross-Claim relies upon the insurance policy that Vero issued to Manufacturing for the period 30 September 2006 to 30 September 2007. It then pleads Vero's liability to indemnify Equipment under that policy in the following terms: "22. The Policy relevantly provides that any subsidiary company of [Manufacturing] and any organisation under the control of [Manufacturing] and over which it is exercising active management is an 'Insured' under the Policy (clause 4.1.2). 23. [Equipment] was a subsidiary of [Manufacturing]. 24. Further and in the alternative, [Equipment] was an organisation under the control of [Manufacturing] and over which it exercised active management. 25. By reason of the matters set out at paragraphs 21 to 24 above, [Equipment] is an Insured under the Policy." Section 6 22Section 6 Law Reform (Miscellaneous Provisions) Act 1946 relevantly provides: "(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. ..." The Judgment Below in Summary 23The principle on which the primary judge proceeded was: "... before leave is given under s 6 of the Law Reform (Miscellaneous Provisions) Act to join an insurer of another person said to be liable, there must be:- (i) An arguable case against that other person; (ii) An arguable case that the policy responds; and (iii) A real possibility that if judgment is obtained, that other person would not be able to meet it. -see e.g. Bede Polding College v Limit (No 3) Limited and Anor [2008] NSWSC 887 at [6];" 24By the time of the application before the primary judge, both Manufacturing and Equipment had been de-registered. It was undisputed that the third of the propositions that his Honour articulated had been satisfied. There was some expert evidence before his Honour that incorporation of a particular safety device into the Machine could have prevented the injury. The case proceeded on the basis that it was arguable that Mr Tremolada had a right to recover against one or other of the defendants, and it was also arguable that whoever was the manufacturer of the Machine had a liability to that defendant and/or Mr Tremolada. 25Though I will deal with his reasoning in a little more detail later, in broad terms the primary judge held that the evidence before him was insufficiently strong to provide an arguable case that Manufacturing was the manufacturer of the Machine. Thus, he held that there was no arguable case that it was Manufacturing which had the liability to a defendant and/or Mr Tremolada, and for that reason leave to join Vero as the insurer of Manufacturing should be refused. The judge held that the second requirement that he identified was not satisfied so far as Equipment was concerned because there was "simply no evidence that Equipment was a subsidiary of Manufacturing or that Vero insured Equipment". Thus, he held that leave to join Vero as the alleged insurer of Equipment should be refused. 26Considering the correctness of those propositions requires an account of the evidence relating to who was the manufacturer (or deemed manufacturer), and what, if any, corporate relationship existed between Equipment and Manufacturing. Evidence Re Corporate Relationships 27The primary judge had before him the results of an ASIC search relating to Equipment, that had been conducted on 9 November 2010. That search showed that Equipment had been registered in Queensland on 7 July 1992. The search showed that the then current directors were Mr Manfred Meier and Ms Maree Simon, both of whom had been appointed on 7 July 1992. The only former directors were people who had been both appointed, and ceased to be directors, on 7 July 1992. It showed that the only people who were, or ever had been, shareholders in Equipment were Mr Meier and Ms Simon. 28The search identified the principal place of business of Equipment as being at an address in Mooloolah Valley, Queensland, since 14 January 2002. Its former principal place of business, during the period from 2 February 1996 to 13 January 2002, was an address in Moffat Beach, Queensland. 29The primary judge also had before him an ASIC search of Manufacturing, that had been conducted on 9 November 2010. It showed that Manufacturing had been incorporated in Queensland on 15 October 1998. The only shareholder that Manufacturing had ever had, according to that search, was Calgym Group Holdings Pty Ltd. 30The search showed the principal place of business of Manufacturing, since 1 October 2007, was the same address in Mooloolah Valley as was the principal place of business of Equipment. The search does not disclose its principal place of business between its date of incorporation and 1 October 2007. The searches also showed that Manufacturing and Equipment had the same Registered Office during the period February 2003 to 3 December 2007. 31A later ASIC search, conducted on 29 April 2011, showed that Manufacturing had been de-registered. That search contained more extensive information concerning former shareholders in Manufacturing than the previous search had shown. In particular, it showed that Equipment had at one stage held six "A" shares in Manufacturing. However, it does not state at what time Equipment held those shares, or what rights attached to them. 32A search of Equipment conducted on 29 April 2011, showed that it had also been de-registered. The only former shareholders identified in that search were Mr Meier and Ms Simon. 33An ASIC name search relating to Mr Manfred Meier shows that he as a director of a company called Calgym Holdings Pty Ltd during the period 15 October 1998 to 30 July 2010, and a member of that company from 14 March 1999 to 17 June 2009. It identifies him as a member and director of Calgym Group Holdings Pty Ltd from 16 June 2009 to dates in July 2010. 34At the application, counsel for the defendants cross-examined Ms Lesley Woodmore, a solicitor at Curwoods Lawyers. She has the carriage of the matter on behalf of Vero. 35Mr Weinberger, counsel for the applicant in this court, placed reliance on the following passage in Ms Woodmore's cross-examination: "Q. And you will see from [clause] 4.1.2 [of the Policy] the insured also included subsidiaries of Calgym Manufacturing? A. Correct. Q. And other organisations under the control of Calgym Manufacturing? A. Mmm. Q. Over which Calgym Manufacturing exercises active management? A. Yes. Q. You said a moment ago you are not able to say with certainty whether or not Calgym Manufacturing exercises such management over Calgym Equipment, correct. That's what you said a minute ago? A. With certainty, no." Evidence Re Identity of Manufacturer 36A document that appears to emanate from Zurich Insurance was before the primary judge. It purported to be a claims listing for Manufacturing. It identified policies commencing on 7 August 1998, and various claims made, the earliest of which related to a loss on 22 May 1999. 37A Client Risk Review relating to Manufacturing, noted as updated in July 2006, was produced by the broker connected with the writing of the policy. It was a printed form, in which requests for information had been filled in in handwriting. It provided details that included: "Period insured has occupied premises 14 years ... Years in business 20 years" 38However, it also stated: "Does Insured design or formulated specifications for own manufacture? Yes Insured is a qualified Mining Engineer" (Italics added, indicating handwriting.) 39The primary judge had before him a witness statement of Mr Martin Dunkerley. Mr Dunkerley stated that he was the Managing Director of the first defendant from 1997 to 2006, and that he was a director and shareholder of the second defendant. The second defendant took over the first defendant, and commenced trading on 31 March 2006 in different premises to those of the first defendant. His statement includes the following: "In or around 1999, I purchased the Smith Machine from an auction run by Grays Auctions which was held at a gymnasium in Pennant Hills known as Vital Fitness. I [do] not have any copy of a purchase invoice or receipt relating to this purchase. ... I would estimate that the Smith Machine in question was about 10 years old at the time of Mr Tremolada's incident. It was in use at the club's former premises from 1999 to 2005. It has been at the current premises since this time." 40The cross-examination of Ms Woodmore also included: Q. As I understand it, you made some inquiries to ascertain the identity of the manufacturer of the Smith machine? A. Yes. Q. As far as your inquiries have revealed a Calgym entity manufactured the Smith machine, is that correct? A. I can say that I am aware that the inquiries of Curwoods Lawyers have led us to the opinion that Calgym Manufacturing did not manufacture the machine. Q. Also lead you to the opinion that the manufacturer was another Calgym entity? A. It may be. Q. Could be Calgym Equipment, for example? A. It may be." 41The only evidence placed before the primary judge relating to a name or brand being applied to the machine was that Chris Tzarimas, an expert who inspected the machine, provided a report that referred to it as "[t]he 'CALGYM' brand Smith Machine". The Primary Judge's Reasoning in Greater Detail 42The Primary Judge said, at [24]: "Counsel for the Defendant submitted that the references to an 'arguable case' involved nothing more than that, by reference to the pleadings, it appeared that there was an arguable case. In support he referred to Bede Polding College v Limit (No 3) Limited and Anor at [9] where Grove J said that the applicable test was as for summary dismissal and that 'once it appears that there is a real question whether of fact or law and that the rights of the parties depend on it, then it is not competent for the Court to dismiss the action'. To similar effect are remarks of Barrett J in Zhang v Minox Securities Pty Ltd [2008] NSWSC 689 at [16] and I accept the general proposition." 43At [25], he posed the relevant question for himself as being whether: "... it can be said that the Defendants have a sufficiently arguable case to justify the grant of leave under s 6 of the Act." 44He reviewed the evidence about who was the manufacturer, and expressed the view that Mr Dunkerley's estimate of the age of the Machine was "not incontrovertible although as he apparently saw the machine in 1999, it might be thought to be fairly strong evidence that it was not manufactured after Manufacturer's incorporation on 15 October 1998." He concluded at [28], so far as granting leave against Manufacturer was concerned: "In the result, it does not seem to me that I would be justified on the present state of the evidence in joining Vero as Manufacturer's insurer. I appreciate that this conclusion is to some extent inconsistent with the approach taken in the cases to which I have referred but the Act requires that leave be granted before Vero is joined and in that situation it does not seem to me that I should ignore the state and strength of the evidence before me. It may well be of course that further research, whether pursuant to UCP Rule 5 or otherwise, may assist the Defendants but in this Application, the claim to join Vero as Manufacturer's insurer must be dismissed." The Topic for Decision Under Section 6(4) 45Decisions in both the High Court and the Full Federal Court establish that the first sentence of the proviso to s 6(4) confers on a court a discretion to grant leave to commence an action against an insurer. The second sentence of the proviso sets out one circumstance in which the court is obliged to refuse leave, but otherwise does not limit the discretion that the first sentence confers. 46In Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399 at 448, McHugh and Gummow JJ said that the last sentence in s 6(4): "... is not directing the court that leave be denied only in a case where it is satisfied both of entitlement to disclaim liability and that necessary steps have been taken to establish entitlement to do so. Leave may be refused in other cases but must be refused in these cases." 47Brennan CJ, Deane and Dawson JJ at 415 agreed with McHugh and Gummow JJ concerning the proper construction of s 6. 48In AFG Insurances Ltd v Andjelkovic (1981) 54 FLR 398, the Full Federal Court (Franki, McGregor and Kelly JJ) said, at 400, that the ACT analogue of s 6(4): "... commands the court not to grant leave in certain circumstances. It is not easy to decide precisely what is embraced in the words which describe the circumstances where the court is not to grant leave. In our opinion the court has a general power to grant leave in all cases which do not fall within the provision that it shall not grant leave and in which it is made to appear by evidence available in the application that there is an arguable case of liability against the insured, being a liability against which the insured is indemnified by a contract of insurance in force at the time of the happening of the event said to give rise to the claim. We accept the relevant test proposed by the respondent which is really the test formulated by the primary judge, namely, has the respondent presented a case which is at least arguable?" 49An appeal to the High Court was dismissed, without any doubt being cast on those propositions: Andjelkovic v AFG Insurances Ltd (1982) 49 ALR 245. The passage from Andjelkovic that I have just quoted was repeated by the Full Federal Court (Miles, Lee and Lehane JJ) in Dixon v Royal Insurance Australia Ltd (1998) 90 FCR 390 at 398-9, by the Full Federal Court (Burchett, Lehane and Hely JJ) in Travel Compensation Fund v FAI General Insurance Co Ltd [1999] FCA 1214 at [2], and by the Full Federal Court (Allsop and Buchanan JJ) in Macquarie Underwriting Pty Ltd v Permanent Custodians Ltd [2007] FCAFC 60; (2007) 240 ALR 519 at [10]. Error in Not Applying General Steel Test? 50The decision to grant or refuse leave to proceed under s 6(4) is discretionary. Thus an appeal against it can succeed only in accordance with the principles in House v R (1936) 55 CLR 499. Mr Weinberger does not dispute that proposition. 51However, Mr Weinberger contends that the primary judge made an error of principle in not applying the test for summary dismissal of an action contained in General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125. 52The judge made no such error of principle. The questions involved in an application for summary dismissal, and an application for leave under s 6 Law Reform (Miscellaneous Provisions) Act are different. In a summary judgment application, the question is whether an action that a litigant has been able to commence without any need for leave of the court should be brought to an end. In an application for leave under s 6 Law Reform (Miscellaneous Provisions) Act the question is whether the court should permit a litigant to commence an action against a party who, in the absence of such leave, the litigant has no right to sue. In a general sense, considerations about when the court should permit the curial system to be deployed against a person enter into both summary judgment applications and applications for leave under s 6, but the questions are still different. 53As well, the onus operates differently in the two types of application. In a summary judgment application, the evidentiary and persuasive onus of establishing that the action is doomed to fail is on the defendant who seeks the summary dismissal. By contrast, when an application for leave is made pursuant to s 6(4) the evidentiary and persuasive onus of establishing that there is an arguable case that the insured is liable, and an arguable case that the policy responds, is on the applicant for leave. Whether the court finds that there is an "arguable case" will be very dependent on the facts and circumstances of the individual case, including any grounds on which the insurer opposes leave. 54Mr Weinberger supported the applicability of the General Steel test by reference to the decision of Grove J in Bede Polding College v Limit (No 3) Limited [2008] NSWSC 887. At [6], Grove J accepted that in an application for leave under s 6: "... the plaintiff must show three things. First, that there is an arguable case against [the insured]; second, that there is an arguable case that the policy responds and, third, that there is a real possibility that, if judgment is obtained, [the insured] would not be able to meet it: Oswald v Bailey (1987) 11 NSWLR 715; Zhang v Minox Securities [2008] NSWSC 689." 55At [9], Grove J said that in determination of whether there is an arguable case: "... I would ... follow the guidance of General Steel Industries v Commissioner for Railways (1962) 112 CLR 125. That case and Dey v Victorian Railway Commissioners (1949) 78 CLR 62 were focussed on summary dismissal but as Dixon J observed in the latter 'once it appears that there is a real question whether of fact or law and that the rights of the parties depend on it, then it is not competent for the Court to dismiss the action'. That test is applicable." 56For the reasons given above, the litigious frame in which the General Steel test comes to operate is not the same as that in which the court considers a s 6(4) application. In considering an application under s 6(4) a judge should consider directly whether the applicant has shown that there is an arguable case on the relevant matters, without being distracted by the General Steel test. To that extent, Bede Polding should not be followed. Error in Taking Evidence Into Account? 57Mr Weinberger submits that the primary judge's reference in [28] of the judgment below ([44] above) to not ignoring "the state and strength of the evidence" is an error of principle. I do not agree. 58In the court below the argument was put that the question of whether there was an arguable case should be determined by reference to the pleadings alone. Notwithstanding that the primary judge at [24] ([42] above) might have appeared to accept that proposition, his reasons for rejecting the application make clear that ultimately he did not accept it. He was right to reject it. Authority and principle both support a judge being able to consider evidence in an application for leave under s 6(4). The passage in Andjelkovic at 400, that I have set out at [48] above and that has been repeatedly approved in appellate courts, recognises that it can be necessary for the arguable case of liability to "appear by evidence available in the application". The phrase "by evidence applicable in the application that there is an arguable case", in the passage I have quoted from Andjelkovic, was a considered one. Their Honours, at the foot of 400, rejected an argument that the incident in which the plaintiff in that case was injured, fell within the scope of the insuring clause, and continued, at 401: "Nor on the evidence in this application is such a proposition arguable." At 402, their Honours concluded: "We consider that the respondent did not show that she had any case or even one that could be said to be arguable. The evidence before the court did not permit any serious argument that the injury which took place was within the terms of the policy." 59At the level of principle, it could not be right that all an applicant for leave need do is proffer a pleading that alleges facts that, if true, would show that the insured had a liability to the applicant, and that that liability fell within the scope of an insurance policy issued by the insurer, regardless of whether there was any arguable basis upon which those facts might be true. Ordinarily an insurer has the right under a policy to choose whether or not to take over the defence of proceedings brought against an insured. The purpose of s 6(4) is to provide a filter against insurers being unjustifiably made parties in litigation that, apart from the grant of leave, they would be free to stay out of. The standard for when it is justifiable to bring an insurer in is fairly low, namely that there is an arguable case, but an arguable case exists only when there is both an arguable case that certain facts exist, and an arguable case that those facts provide grounds for legal relief. This is reflected in the sort of certificate that s 347 Legal Profession Act 2004 requires before a legal practitioner files a claim for damages, namely that "there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success." 60Mr Weinberger also submits that by his reference to "the state and strength of the evidence" the judge was impermissibly requiring proof as on a final hearing of the case. 61I do not accept that submission. Any evaluation of the state and strength of a body of evidence must be done for some purpose. Read in context, what the judge was doing was assessing the state and strength of the evidence for the purpose of deciding whether an arguable case had been made out. Assessing the state and strength of evidence for the purpose of deciding whether a disputed matter has been proved at a trial is a different exercise. 62Mr Weinberger submits that the judge's recognition that his conclusion "is to some extent inconsistent with the approach taken in the cases to which I have referred" is a recognition by the primary judge that he is straying from principle. Whether or not the primary judge was of that view, his ultimate conclusion is in accordance with correct principles. 63The only cases to which the primary judge had referred are Bede Polding and Zhang v Minox Securities Pty Ltd [2008] NSWSC 689. I have already held that Bede Polding should not be followed in so far as it adopted a General Steel test for the exercise of the s 6(4) discretion. 64Zhang v Minox Securities concerned claims brought by people who had made certain investments in companies associated with the Westpoint Group on the advice of Mr Chen. He was alleged to be an authorised representative of the defendant, which had formerly been known as Quantum Securities Pty Ltd. It appeared from the claims for relief and a draft pleading that the liability of Quantum was contended to arise because Mr Chen had contravened various provisions of the Corporations Act. Barrett J refused to grant leave to join Quantum's insurer, QBE. Barrett J set out at [12] the scope of the dispute before him: "QBE contends that, having regard to the way in which the plaintiffs claims are framed, there is no arguable case that the relevant policy responds to any liability for damages of Quantum to the plaintiffs and the class for whom they sue. It is on that ground alone that QBE seeks to resist the application involving it. It is therefore necessary to decide whether there is an arguable case on that matter. The other elements referred to in Priestley JA's formulation need not be considered." (italics added) 65It was in that context that his Honour made the remarks in [16] to which the present primary judge referred: "It will be seen immediately that the claims against Quantum are based on alleged contraventions of Corporations Act provisions by Mr Chen. It will also be seen that the proposition that Mr Chen was, for the purposes of those provisions, an authorised representative of Quantum is advanced by the plaintiffs and is central to their case. The question whether an arguable case has been shown must accordingly be approached on the basis that that relationship existed." (italics added) 66In making the remark I have just italicised, Barrett J was saying that, for the purpose of the limited question with which he was dealing, namely whether the policy responded to a claim of the type that had been alleged, one should proceed on the basis that the allegations in the claim are correct. That statement is unremarkable, indeed almost self-evident. The remarks of Barrett J in [16] of Zhang provide no warrant for a conclusion that an application under s 6(4) should always be approached on the basis of assuming that all the facts alleged in the claim against the insured are correct. (An appeal from Barrett J's judgment in Zhang was upheld in part: Zhang v Minox Securities Pty Ltd [2009] NSWCA 182; (2009) 72 ACSR 556. However, nothing in the appellate judgment affects this appeal.) 67Mr Weinberger attacked the primary judge's denial of leave concerning Manufacturing on another ground. It was that it was not reasonably open to the judge to conclude that there was not an arguable case that Manufacturing was the manufacturer of the Machine. 68I do not agree. It is a legal impossibility that Manufacturing could have done anything prior to its incorporation on 15 October 1998 that resulted in it having a liability in tort or under the sections of the Trade Practices Act upon which the cross-claims relied. While one can concede that there is a bare possibility that Manufacturing might have manufactured the Machine between 15 October 1998 and the time it came into the hands of one of the defendants in 1999, there is no factual basis for it being arguable that it is more likely than not that it was manufactured in that period. Insofar as there is evidence of when the Machine was manufactured, the fact that it passed through the hands of Life Fitness and Vital Fitness before Mr Dunkerley acquired it, and Mr Dunkerley's estimate of its age at the time of acquisition tends to suggest that it was manufactured prior to 15 October 1998. However, the essential question, for the grant of leave, is whether there is an arguable case that it was manufactured or after 15 October 1998. It was not only an available view that there was no such arguable case, in my view it is correct to say that there was no such arguable case. 69Bede Polding has stated a misleading test concerning the way in which the grant of leave under s 6(4) operates, and in the present case the primary judge appears to have given some recognition to that test. In light of that, it is appropriate to grant leave to appeal concerning the rejection of leave to file the proposed Third Cross-Claim, but to dismiss the appeal. There is no reason why costs should not follow the event. 70The reason the primary judge did not grant leave to join Vero as the insurer of Equipment was that there was "simply no evidence that Equipment was a subsidiary of Manufacturing or that Vero insured Equipment". There are no reasonable prospects of success in contesting that proposition. Leave to appeal against the primary judge's rejection of leave to file the proposed Fourth Cross-Claim should be refused, with costs. Proposed Orders 71I propose the following orders: (1) Grant leave to appeal against the refusal of the primary judge to grant leave to file the proposed Third Cross Claim. (2) Direct that a notice of appeal, in substantially the form contained in the White Book but modified to relate only to the primary judge's decision to refuse leave concerning the Proposed Third Cross Claim, be filed within 14 days of the date of these orders. (3) The appeal be dismissed, with costs. (4) Subject to the preceding orders, dismiss the summons seeking leave to appeal, with costs. 72MEAGHER JA: I agree that the orders proposed by Campbell JA should be made for the reasons that his Honour gives. ********** 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. Decision last updated: 19 July 2012