Crawley v Vero Insurance Limited & Ors (No 2) [2012] NSWSC 1053

Supreme Court New South Wales

Medium Neutral Citation: Crawley v Vero Insurance Limited & Ors (No 2) [2012] NSWSC 1053 Hearing dates: 4 September 2012 Decision date: 06 September 2012 Jurisdiction: Common Law Before: Beech-Jones J Decision: Amendment allowed Catchwords: PRACTICE AND PROCEDURE - application for leave to amend pleadings - utility of proposed amendment. Legislation Cited: Legal Profession Acct 1987 - s 44 Legal Profession Act 2004 - s 409 Cases Cited: - Crawley v Vero Insurance Ltd & Ors [2012] NSWSC 593 - Lee v Phair & Anor (Supreme Court of New South Wales, Cohen J, 31 October 1996, unreported) - Medical Defence Union Ltd v Department of Trade [1980] 1 Ch 82 Category: Interlocutory applications Parties: Christopher William Crawley (Plaintiff) Vero Insurance Ltd (First Defendant) HDI-Gerling Australia Insurance Company Pty Ltd (Second Defendant) Gordian Runoff Ltd (Third Defendant) Westport Insurance Corporation (Fourth Defendant) Zurich Specialities London Ltd (Fifth Defendant) LawCover Pty Ltd (Sixth Defendant) Representation: Counsel: M.L.D. Einfeld QC, A.C. Harding (Plaintiff) D.L. Williams SC, Ms L. Chan (Defendants) Solicitors: Bruce & Stewart (Plaintiff) Colin Biggers & Paisley (Defendants) File Number(s): 2010/397627

Judgment 1By a notice of motion filed on 16 August 2012 the plaintiff applied for leave to amend his statement of claim, discovery of certain categories of documents arising out of the amendment and leave to administer interrogatories. The application to amend seeks to plead certain facts, and add a prayer for relief seeking a declaration, concerning the conduct of LawCover Pty Ltd ("LawCover") in purportedly making a determination under s 409 of the Legal Profession Act 2004. The application for interrogatories was not pressed. 2On 14 June 2012, I ordered that certain questions concerning quantum be decided separately after the trial of all other issues in the proceedings: Crawley v Vero Insurance Ltd & Ors [2012] NSWSC 593 ("Crawley (No 1)"). At [2]-[5] of Crawley (No 1), I summarised the background of the proceedings and at [6]-[12] I summarised the pleadings. 3At [10] of Crawley, I noted that there was a cause of action pleaded in respect of the "Solicitors' Mutual Indemnity Fund" (SMIF). In Crawley (No 1) at [43] I noted that the plaintiff foreshadowed the possibility of seeking to amend his statement of claim. This possibility eventuated in the notice of motion before me. The Proposed Amendment 4The proposed amendment seeks the addition, inter alia, of a paragraph 31. For the sake of completeness it needs to be read with existing paragraphs 26 to 30, as follows: "26. LawCover was and is the entity which, under the terms of the Legal Profession Act 1987 ('the 1987 Act') and the Legal Profession Act 2004 ('the 2004 Act'), managed and manages the Solicitors' Mutual Indemnity Fund ('the Fund') as presently constituted by section 405 of the 2004 Act. 27. Pursuant to section 41 of the 1987 Act, the Policy was in force for the period 1 July 1997 to 30 June 1998. 28. Consequent upon the notification given by the Plaintiff to LawCover, as referred to in paragraph 8 hereof, and pursuant to section 409 of the 2004 Act, LawCover was and is: (a) required to pay from the Fund, inter alia, such amount as LawCover determines towards meeting any difference between the indemnity provided by the Policy, and the civil liability of the Plaintiff as referred to in the Policy; (b) thereby required to determine the amount of indemnity provided by the Policy; (c) also required to determine the civil liability of the Plaintiff in respect of the Claims; (d) required to determine the amounts towards meeting the difference between the amounts determined pursuant to (b) and (c) above, which LawCover would cause to be paid to the Plaintiff from the Fund. 29. LawCover has failed to make the determinations required by section 409 of the 2004 Act whereby the Plaintiff has been deprived of a sum or sums equivalent to the Amounts Claimed. 30. In the premises LawCover is obliged to make the said determinations and the Plaintiff is entitled to an Order (in the nature of mandamus) that it make such determinations in accordance with section 409 of the 2004 Act. 31. In the alternative, LawCover, as Manager of the Fund, determined to pay from the Fund in and after February 2003 amounts towards meeting the difference between the indemnity provided by the Policy and the civil liability of the Plaintiff, whereby the Plaintiff is entitled to the relief sought in prayer 5 of the Relief Claimed." Particulars of Amounts Paid Amounts totalling $6,788,359.92 paid in respect of solicitors' tax invoices set out in schedule 'A' annexed hereto." 5Proposed prayer 5, referred to in proposed [31], is in the following terms: "In the alternative a declaration that LawCover, as Manager of the Fund, determine under section 409 of the Legal Profession Act 2004 to pay from the Fund in and after February 2003 amounts towards meeting the difference between the indemnity provided by the Policy and the civil liability of the Plaintiff." 6The existing defence to [26]-[30] of the statement of claim pleads that LawCover made a determination under s 409 of the 2004 Act, and did so in terms that did not require any payment to the plaintiff. Thus the structure of the proposed pleading is that in [26]-[30] of the statement of claim the plaintiff contends that LawCover was required to, but has not yet made any determination under s 409 of the Act, and seeks an order in the nature of mandamus requiring that such a determination be made. In the alternative, proposed [31] seeks to assert that there was such an determination in 2003 which led to the payments of the amounts stated in the particulars. 7As I understand it, the payments which are particularised in [31] are those that I referred to Crawley (No 1) at [5], being, according to LawCover, various interim payments on account of legal costs that were made pending the outcome of the Equity Division proceedings (see Crawley (No 1) at [3]). The plaintiff disputes that characterisation of the payments. LawCover seeks the recovery of those amounts pursuant to its cross claim. 8In support of his application to amend, the plaintiff read an affidavit which attached a series of invoices issued to LawCover by the solicitors acting on his behalf in the Equity Division proceedings from February 2003 up to and including April 2006. All bar one of these invoices bears a stamp from which the inference is available that it was affixed by someone within LawCover with appropriate authority to authorise the payment of the invoice. The first of the invoices is dated 24 February 2003 and bears a stamp that says "SMIF Payment Approved" with an affixed signature and date. The fifth invoice in the series is dated 30 May 2003 and bears a stamp that says "Copy - Original approved and referred for payment" with initials and date, and another stamp "SMIF Payment Approved" with no signature. The balance of the invoices merely bear a stamp that states "Copy - Original approved and referred for payment" with initials and a date. Solicitors' Mutual Insurance Fund 9With effect from 1 October 2005, Division 3 of Part 3.3 of the Legal Profession Act 2004 has, to an extent, regulated professional indemnity insurance for solicitors. Section 405 defined the "Solicitors' Mutual Indemnity Fund" managed by the "Company" (i.e. LawCover, the sixth defendant) as consisting of a number of items, including the residue of the equivalent indemnity funds established and continued by the previous legislation. 10Section 406 precludes the Council of the Law Society from granting or renewing a local practising certificate to an insurable solicitor unless satisfied that there is, or will be, in force with respect to the solicitor an "approved insurance policy". 11Section 409 relevantly provides: "Payments from Indemnity Fund (1) There is payable from the Indemnity Fund in such order as the Company decides: (a) the expenses incurred by the Company in carrying on its business, and (b) premiums in respect of any approved insurance policy required by section 406 (Solicitor to be insured and to make contributions), and (c) such amount as the Company determines towards meeting any difference between the indemnity provided by the approved insurance policy required by section 406 and the liability of a person insured under the policy, and (d) such other amounts as the Company determines. (2) The Company is required to pay from the Indemnity Fund the costs of an investigation of the Indemnity Fund, as referred to in section 414 (Investigation of Indemnity Fund), in accordance with a direction given by the Attorney General under that section. (3) The Company may make determinations under subsection (1): (a) that differ according to different circumstances, or (b) that are subject to compliance with conditions imposed by the Company, or that do both. (4) The Company may: (a) divide solicitors into classes approved by the Law Society Council, and (b) under subsection (1) (c), make a different determination for each of the classes." (emphasis added) 12The bulk of the invoices which are particularised in proposed [31] appear to have been rendered and paid prior to the commencement of s 409. Prior to that date, the equivalent section to s 409 was s 44 of the Legal Profession Act 1987 which provided: "(1) There shall be paid from the Indemnity Fund in such order as the company decides: (a) the expenses incurred by the company in carrying on its business, and (a1) premiums in respect of any approved insurance policy required by section 41, and (b) such amount as the company determines towards meeting any difference between the indemnity provided by the approved insurance policy required by section 41 and the liability of a person insured under the policy, and (c) such other amounts as the company determines." 13When this proposed amendment was discussed at an earlier directions hearing, it was foreshadowed that the plaintiff would allege that at some point in 2003 and 2004 LawCover had determined under s 409(1)(c) (or its equivalent) that there would be paid out of SMIF the difference between any indemnity provided by the approved insurance policy issued in respect of the plaintiff and his liability in respect of the claims made in the Equity Division proceedings. It was explained that the amendment would attempt to take advantage of that determination and seek an order giving effect to it by requiring the payment out of SMIF of an amount representing the entitlement said to flow from that determination. 14The form of the amendment brought forward is narrower than that foreshadowed. It only alleges that LawCover determined under s 409(1)(c) to pay the amounts particularised by way of meeting the difference between any indemnity provided under the approved insurance policy and the cost liabilities of the plaintiff, and seeks declaratory relief accordingly. At best this form of relief could only confirm the plaintiff's entitlement to the payments that were previously made. They would not give rise to an entitlement to further payment. This allegation appears to have more relevance to defeating that part of the cross claim that seeks recovery of those amounts rather than the plaintiff's statement of claim which is directed towards seeking payment from LawCover for the balance of the plaintiff's liabilities. 15Subject to that matter to which I will return, the tenor of the amendment is to plead as a matter of fact that a determination referable to s 409(1)(c) was made in a manner favourable to the plaintiff, and to seek declaratory relief to that effect. Underlying the amendment is either an assumption or a contention that once a determination is made under s 409(1)(c), LawCover becomes subject to a legal obligation to make a payment from SMIF reflecting its determination and, if it fails to do so, is amenable to an order from this Court requiring payment. The parties did not debate in much detail whether that proposition was made good. It is not a point that I proposed to decide on an amendment application, other than to conclude that it is reasonably arguable. It finds some support in the opening words of s 44(1) of the 1987 Act ("there shall be paid"). Arguably it also finds some support in Cohen J's consideration of s 44(1) of the former Act in Lee v Phair (Supreme Court of New South Wales, Cohen J, 31 October 1996, unreported). His Honour endorsed a passage from the judgment of Megarry VC in Medical Defence Union Ltd v Department of Trade [1980] 1 Ch 82 at 90 which addressed the rights of a medical practitioner to obtain indemnity under a similar scheme: "All that he has is the right to have his requests for the union's help under these heads properly considered by the council or by one of its committees. In practice it is rare for such a request to be refused. Yet although the prospects of such a request succeeding are great, all that member has by way of right is that his request should be properly considered, and, of course, if it is granted, that the union should conduct the proceedings or indemnify him, or both." (emphasis added) 16At least so far as the past payments are concerned the plaintiff contends that he was in the position of a person whose "request" was "granted", in the sense that a determination was made, and that a legal obligation ("should") arose. 17Mr D.L. Williams SC, for LawCover, made three submissions in opposition to the grant of leave. First he contended that the proposed amendment and new prayer for relief are of no utility in that they could not give rise to any legal entitlement on the part of the plaintiff to obtain or retain the payments referred to. Allied to this was a related submission that proposed [31] involved a bare assertion and that further facts should be pleaded such as those that are necessary to give rise to an estoppel or the like before any legal entitlement could arise. As I understand the plaintiff's position, such an entitlement is said to arise purely from the operation of s 409(1) upon the establishment as a matter of fact that a determination of the kind referred to in s 409(1)(c) was made. 18Leaving aside the point raised in [14], in my view proposed [31] raises a sufficient factual basis to give rise to an arguable claim for declaratory relief of the kind sought. Further it follows from [15] that it is reasonably arguable that a determination of the kind referred to in s 409(1)(c) gives rise to a legal entitlement to receive the benefit of the payment the subject of the determination. Any question of whether such an entitlement may be defeated by any subsequent decision of LawCover does not arise at this point. 19The second submission by Mr Williams SC was that the amendment should be disallowed because there is an insufficient factual basis to give rise to the suggestion that there was a determination of the kind pleaded. He pointed to the fact that only one or perhaps two of the invoices were said to have any material connecting them to SMIF and that it was wholly speculative to draw from that material the factual assertion in [31]. In my view, it cannot be said that the material available to the plaintiff is insufficient to disentitle him to make the allegation in proposed [31], bearing in mind the relatively low evidentiary threshold that must be reached in order to make that allegation, especially as it does not involve any suggestion of fraud or disreputable conduct. 20The third matter noted by Mr Williams SC concerned the fact that the true legal relevance of the amendment and the prayer for relief are more by way of defence to the cross claim, in that it arguably only seeks to defeat the claim for recovery of payment already made by LawCover. For the reasons I have indicated, I think there is considerable force in that. It may be that my decision to allow this amendment may prompt a further application by the plaintiff to amend the defence to the cross claim. However, there is nothing objectionable in the plaintiff seeking a declaration in his initiating process which might have the effect of confirming his entitlement to retain the benefit of the payments that were made by LawCover to the solicitors he retained in the Equity Division proceedings. 21Otherwise, no argument concerning prejudice or delay was made in opposition to the proposed amendment. Accordingly, subject to one matter, I will allow the proposed amendment. The only condition of the amendment is that prayer 5 be amended to read: "Under section 409 of the Legal Profession Act or s 44 of the Legal Profession Act 1987", to reflect the point made in [12] above.