Supreme Court New South Wales Medium Neutral Citation: BNY Trust Company of Australia Limited v MMJ Real Estate (WA) Pty Ltd (No 3) [2019] NSWSC 84 Hearing dates: 1 February 2019 Date of orders: 14 February 2019 Decision date: 14 February 2019 Jurisdiction: Common Law Before: Schmidt J Decision: Orders made in the terms appearing at [4]. Catchwords: CIVIL PROCEDURE - cross-claims - dispute over form of order to give effect to resolution of single issue as to proper construction of insurance policy - whether cross claim should be dismissed – whether costs should be payable forthwith – s 56 Civil Procedure Act 2015 (NSW) – orders made Legislation Cited: Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: AMP Financial Planning Pty Ltd v CGU Insurance Ltd (No 2) [2004] FCA 1397 AMP Fire and General Insurance Company Limited v Dixon [1982] VR 833 BNY Trust Company of Australia Limited v MMJ Real Estate (WA) Pty Ltd (No 2) [2018] NSWSC 1938 BNY Trust Company of Australia Limited v MMJ Real Estate (WA) Pty Ltd [2018] NSWSC 1052 Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Category: Procedural and other rulings Parties: BNY Trust Company of Australia Limited (Plaintiff) MMJ Real Estate (WA) Pty Ltd (formerly DTZ (WA) Pty Ltd) (First Defendant/ Cross-Claimant) Dennis John Volk (Second Defendant/ Cross-Claimant) Brett Hosking (Third Defendant/ Cross-Claimant) XL Insurance Company SE (Cross-Defendant) Representation: Counsel: T Faulkner SC with L H Johnston (Plaintiff) K Petch (First, Second & Third Defendants/Cross-Claimants) S Donaldson SC (Cross-Defendant) Solicitors: HWL Ebsworth Lawyers (Plaintiff) Mony De Kerloy Barristers and Solicitors (First Defendant/ Cross-Claimant) Mills Oakley Lawyers (Second Defendant/ Cross-Claimant) Hotchkin Hanly Lawyers (Third Defendant/ Cross-Claimant) Moray & Agnew (Cross-Defendant) File Number(s): 2016/313421 Publication restriction: Nil Judgment 1. These proceedings concern a claim for professional negligence in the valuation of real estate in Western Australia. In December 2018, I gave judgment for the defendants on separate questions arising under a cross-claim brought against the defendants' insurer: BNY Trust Company of Australia Limited v MMJ Real Estate (WA) Pty Ltd (No 2) [2018] NSWSC 1938. The questions concerned whether the insurer was entitled to decline to indemnify the defendants under the insurance policy. That depended on the proper construction of the policy. 2. It was Davies J who ordered that the separate questions be determined: BNY Trust Company of Australia Limited v MMJ Real Estate (WA) Pty Ltd [2018] NSWSC 1052. 3. I concluded that the questions had to be answered in the way for which the defendants contended and directed that the parties file proposed orders, to reflect the conclusions which I had reached. But they were unable to agree on those orders. 4. The plaintiff and the defendants contended that the Court should order: 1. Pursuant to r 28.3 Uniform Civil Procedure Rules 2005, the following questions be answered as follows: Q1. Whether the Cross-Defendant (XL) is entitled to decline to: (i) indemnify the First Defendant/Cross-claimant on the First Cross-claim (MMJ) under Professional Indemnity Insurance Policy No. AU00006350EO16A (the Policy) for any "Loss" (as defined in the Policy) (Loss) incurred by the MMJ in respect of the Plaintiff's claim against it in the proceedings; and (ii) to pay "Defence Costs" (as defined in the Policy) (Defence Costs) in relation to that claim, by reason of the operation of clause (ix) of Endorsement 1 to the Policy. A1. No. Q2. Whether XL is entitled to decline to: (i) indemnify the Second Defendant/Cross-claimant on the Third Cross-claim (Volk) under the Policy for any Loss incurred by Volk in respect of the Plaintiffs claim against him in the proceedings; and (ii) to pay Defence Costs in relation to that claim, by reason of the operation of clause (ix) of Endorsement 1 to the Policy. A2. No. Q3. Whether XL is entitled to decline to: (i) indemnify the Third Defendant/Cross-claimant on the Second Cross-claim (Hosking) under the Policy for any Loss incurred by Hosking in respect of the Plaintiffs claim against him in the proceedings; and (ii) to pay Defence Costs in relation to that claim, by reason of the operation of clause (ix) of Endorsement 1 to the Policy. A3. No. 2. A declaration that XL is liable in accordance with the terms and conditions of the Policy to indemnify each of MMJ, Volk and Hosking in respect of any liability it or he has to the Plaintiff in the proceeding. 3. XL indemnify in accordance with the terms and conditions of the Policy each of MMJ, Volk and Hosking against any amount found to be due by it or him to the Plaintiff in the proceeding. 4. XL pay in accordance with the terms and conditions of the Policy the Defence Costs of each of MMJ, Volk and Hosking incurred in respect of the claims brought by the Plaintiff in the proceeding. 5. XL forthwith pay MMJ's costs of the First Cross-claim, including the costs of and incidental to the application heard by Justice Davies on 26 June 2018 and the separate questions heard by Justice Schmidt on 16 November 2018. 6. XL forthwith pay Volk's costs of the Third Cross-claim, including the costs of and incidental to the application heard by Justice Davies on 26 June 2018 and the separate questions heard by Justice Schmidt on 16 November 2018. 7. XL forthwith pay Hosking's costs of the Second Cross-claim, including the costs of and incidental to the application heard by Justice Davies on 26 June 2018 and the separate questions heard by Justice Schmidt on 16 November 2018. 8. XL forthwith pay the Plaintiffs costs of the Cross-claims, including the costs of and incidental to the application heard by Justice Davies on 26 June 2018 and the separate questions heard by Justice Schmidt on 16 November 2018. 9. The proceedings be stood over to the Registrar's list for further directions on" 1. The insurer, however, contended that the Court should order: "1. The Separate Questions the subject of the order made by Davies J on 13 July 2018 is answered as follows: No. 2. The First Cross-claim, Second Cross-claim and Third Cross-claim (the Cross-claims) be dismissed. The dismissals shall not operate to prevent the cross-claimants bringing fresh proceedings or claiming the same relief in fresh proceedings, in accordance with s 91 of the Civil Procedure Act 2005. Any such fresh proceedings are not to be commenced before determination of the cross defendant's appeal of order 1. 3. The cross defendant to pay the cross-claimants' costs of the Cross-claims, including the costs of, and incidental to, the hearing before Schmidt J on 16 November 2018, on the ordinary basis to be agreed or assessed. 4. The cross defendant to pay the plaintiff's costs of, and incidental to, the hearing before Schmidt J on 16 November 2018, on the ordinary basis to be agreed or assessed. 5. Orders 3 and 4 herein be stayed pending the outcome of the cross defendant's appeal, or further order of the Court or the Court of Appeal." The parties' cases 1. The insurer's contention that the cross-claim should dismissed was submitted by the other parties to be startling, given the basis upon which the separate questions had been referred and what had been resolved in relation to them, by the December judgment. 2. They contended that the orders they sought should be made, reflecting as they did the resolution of the only issue lying between them and the insurer. Further, that they would not preclude the insurer acting to deal with potential problems of the kind it had only now raised in submissions, by bringing a cross-claim against the defendants. 3. The plaintiff also contended that the insurer's submissions in fact raised a red herring, because the only defence it had advanced in relation to the cross-claim was the construction question, which had been resolved against it. The defendant's rights having been determined on the only issue raised by the cross-claim in their favour, the Court's order should now reflect their success. 4. While it was accepted that the dispute as to the construction of the policy had been quelled by the December judgment, the insurer contended that the cross claim should now be dismissed, because even if the plaintiff finally succeeded against the defendants, no orders would be made against it under the defendant's cross-claim. 5. The insurer also contended, on the assumption that there was no change to the plaintiff's claim which raised liability under the policy, that there would be no further dispute between it and the defendants "in relation to the liability of the indemnity". Thus there would be no dispute remaining to be quelled between them, when the dispute between the plaintiff and the defendants was determined by the Court's final orders. 6. Thus, the insurer contended, in the circumstances, despite its failure on the cross-claim, no final relief other than dismissing the cross-claim with a costs order against it, was now warranted. 7. The insurer accepted that if the order dismissing the cross-claim was made, that meant that if the plaintiff succeeded and still it refused to indemnify the defendants, that they would have to bring further proceedings against it. It also was accepted that s 56 of the Civil Procedure Act 2005 (NSW) and the surrounding provisions had to be borne in mind in resolving this issue, so that it was open to the Court to preclude that possibility. 8. But it was submitted that potential problems which could arise, if the declarations sought were made at this point, when liability had not crystallised, had to be borne in mind, when resolving what was in issue. 9. An example given of such potential problems was said to be the defendants failing to adhere to the obligation imposed upon them by the policy, to co-operate with the insurer in its defence of the claim, rendering it impossible to defend. That would result in there then being no entitlement to indemnity under the policy. It conceded that to guard against such a possibility, making orders in respect of the cross-claim could be delayed until the conclusion of the proceedings. 10. The parties also joined issue over the effect of what had been decided in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 and AMP Fire and General Insurance Company Limited v Dixon [1982] VR 833 on the question of what orders should now be made in respect of the cross claim. All parties contended that the orders which they pressed, reflected what had been decided on the referred questions. 11. The plaintiff submitted that the effect of the Anshun principle was that the claim to an indemnity in third party procedures may be litigated in the plaintiff's action "notwithstanding that the payment creating the right to indemnity is not made until after the amount of the plaintiff's verdict is ascertained in that action": AMP v Dixon at 838–839 citing Anshun at 595. 12. The insurer argued, relying on AMP Financial Planning Pty Ltd v CGU Insurance Ltd (No 2) [2004] FCA 1397, that AMP v Dixon was authority for the proposition that only in most exceptional circumstances should a declaration of liability of a third party in third party proceedings be granted before the liability of the defendant to the plaintiff is established and that such exceptional circumstances are not present: AMP v CGU at [6]. 13. That was also in issue. 14. It was also explained for the defendants that the order that the insurer should pay costs forthwith was intended to reflect their success on the construction question in the separate hearing, which had involved them in considerable expense, in circumstances where the insurer would henceforth conduct the proceedings on their behalf. 15. There was no issue as to the Court's power to make such an order, but it was opposed by the insurer, whose position was that such an order was usually not made when there were continuing matters lying between the parties. The parties' positions before Davies J 1. His Honour's judgment reveals that before Davies J the plaintiff had opposed the determination of the proposed separate questions which the defendants sought to have answered, an application which the insurer supported: at [18]. The relevant facts were, however, agreed. In its written submissions the insurer then contended that there was utility in determining the construction question as a preliminary issue, because if its construction as accepted, "then the cross-claims can be dismissed. If it is not, then the issues between the parties will have been narrowed substantially and the prospects of settlement enhanced". 2. His Honour thus noted at [25] that "The insurer accepts that if it is found liable to indemnify the defendants, it is locked in to defending the proceedings and cannot subsequently deny indemnity for issues that relate to the Prudent Lender clause." 3. In the result his Honour made the orders which the defendant and insurer proposed, observing at [26] that:" "Two beneficial things will flow if the separate hearing is decided in favour of the insurer being required to indemnify. The first is that the final proceedings will be more confined because there will be only two parties involved without the side issues between the defendants and the insurer. The second matter is that it is likely settlement of the proceedings will be easier to achieve if the insurer is conducting the defence of the proceedings. One of the variables, whether the insurer is bound to indemnify, will have been removed from consideration when settlement is discussed. I accept the submissions of the defendants and the cross-defendant in that regard." The orders which the plaintiff and the defendants seek must be made 1. Despite what the insurer submitted before Davies J in support of the defendants' application, that if it succeeded, the cross-claim would be dismissed, the separate questions having been determined against the construction which it advanced, it still seeks to have the cross-claim dismissed, with no orders in favour of the defendants other than as to costs, despite their success on the construction question and the failure of its resistance of that construction. 2. The reason for this seemingly illogical result was not foreshadowed before Davies J, but was one which the insurer argued involved no inconsistency. 3. I am satisfied that this cannot be accepted and that justice demands that the orders which the insurer seeks cannot be made, because they do not reflect the defendants' success on the only issue lying between them and the insurer, on their cross-claim, that not being precluded by what was decided in AMP v CGU. 4. That is because both the defendants and the insurer urged the Court to determine the only issue lying between them on the cross-claim separately, on facts which the parties agreed, given the impact that would have on the further conduct of the proceedings and the increased likelihood which would result, of a settlement being achieved. The insurer also then contended that if it succeeded on the construction issue, the cross-claim would be dismissed and it would not have to participate further in the proceedings. The corollary, that if it failed orders on the cross claim would be made, was the obvious risk of the course which it then urged the Court to purse. 5. Having failed on the only matter it put in issue by its pleaded case, justice simply does not now permit an order dismissing the cross-claim to be made. 6. Section 56 of the Civil Procedure Act obliges the Court, the parties and their legal representatives, to adhere to the obligations there imposed in respect of the overriding purpose specified, namely, to facilitate the just, quick and cheap resolution of the real issues in the proceedings. So far as the cross-claim is concerned, the insurer agreed with the defendants, that the only issue lying between them concerned the proper construction of their contract. That was resolved by the separate questions which they asked the Court to determine. 7. The order which, accordingly, should now be made in relation to the cross-claim, is one which reflects the defendants' success on that issue and the role which it played in this litigation. 8. If something else arises in the future, which the insurer wishes to contend has some other impact on the defendants' right to indemnity under the policy, which it has been concluded that they do have, it may seek to take some positive step in the proceedings to deal with that issue. For example, by itself bringing a cross-claim. 9. The order I propose to make will not foreclose that possibility, but it will foreclose the need for the defendants to pursue yet further proceedings, in order to give effect to what has been resolved by the December judgment. 10. As to costs, I am also satisfied that in the circumstances which I have discussed, that justice dictates that the orders which the plaintiff and the defendants seek should be made, in the exercise of the Court's undoubted discretion under s 98 of the Civil Procedure Act. 11. That reflects that the only issue lying between the parties on the cross-claim has been resolved. There is no reason, in justice, why those costs should not now be paid by the insurer, having failed as it did to establish the case it advanced on the proper construction of the policy, especially given that if it had succeeded, it would have played no further part in the proceedings and having failed, it is now for the insurer to conduct the defence. Orders: 1. For these reasons I now make orders in the terms appearing at [4]. ********** 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: 14 February 2019