Case: JN Taylor Holdings Ltd (In Liquidation) v Alan Bond (1993) 59 SASR 432
Outcome: cited
The Full Court of the Supreme Court of South Australia took that general approach to a factual situation similar to the present in JN Taylor Holdings Ltd (In Liquidation) v Alan Bond (1993) 59 SASR 432. Plaintiff companies in liquidation sued three of their former directors alleging breaches of duty. The directors were insured in respect of any wrongful act committed in their capacity as directors. One of them was bankrupt and the other two had left the country. The trustee in bankruptcy had agreed to assign to the plaintiff companies the bankrupt defendant's right to indemnity under the policy subject to the consent of the insurer. The insurer denied liability to indemnify the directors. The plaintiffs sought leave to join the insurer as an additional defendant seeking a declaration that the insurer was obliged to indemnify the directors in respect of any judgment in favour of the plaintiff companies arising out of any wrongful act within the terms of the policy. On appeal the Full Court ordered the joinder of the insurers. Special leave to appeal against the decision was refused by the High Court. 38 Before referring to the judgment it should be noted that s 117 of the Bankruptcy Act 1966 (Cth) had some relevance to it. It is similar in its operation to s 562 of the Act. It provides: (1) Where: (a) a bankrupt is or was insured under a contract of insurance against liabilities to third parties; and (b) a liability against which he is or was so insured has been incurred (whether before or after he became a bankrupt), the right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall, if the liability has not already been satisfied, be paid in full forthwith to the third party to whom it has been incurred. (2) Subsection (1) does not limit the rights of the third party in respect of any balance due to him after the payment referred to in that subsection has been made. (3) This section applies notwithstanding any agreement to the contrary, whether entered into before or after the commencement of this Act. 39 King CJ who wrote the principal judgment with which Prior and Perry JJ agreed, said of s 117 (at 437): By virtue of that section, if the trustee in bankruptcy were to obtain payment of moneys from the insurer in consequence of a judgment against the defendant directors, those moneys would not be divisible among the creditors but would be payable to the plaintiffs. In order to obtain satisfaction in that way, it might be necessary for the plaintiffs to make the non-bankrupt directors bankrupt and, having provided a proper indemnity for costs to the trustee in bankruptcy, to institute and prosecute in the trustee's name an action against the insurer. 44 JN Taylor Holdings 59 SASR 432 was distinguished by the Court of Appeal in Victoria in CE Heath Casualty and General Insurance Ltd v Pyramid Building Society (In Liquidation) (1997) 2 VR 256. In that case a building society in liquidation sued its former auditors for breaches of retainer and duty of care. The insurers were conducting the defence. However upon inquiry from the plaintiff, they neither admitted nor denied liability to indemnify the auditors. They declined to commit themselves about the interpretation of the policies so far as they provided for maximum amounts of cover. The plaintiff sought leave to join them as defendants and to seek declarations against them as to the application of their policies. The Court of Appeal allowed an appeal against an order at first instance granting leave to join them. The Court held there was no basis for the joinder under the Supreme Court Rules . The issues raised against the insurers were additional to those between the building society and the auditors. They depended upon discrete facts. The Court also rejected the proposed joinder on discretionary considerations. 48 These discretionary considerations distinguished the case that faced the Victorian Court of Appeal from the case before the South Australian Full Court and the case before this Court. As to the decision in JN Taylor Holdings 59 SASR 432, Ormiston J observed (at 270): ... I should state that I do not think that the mere fact that the disputant is the liquidator of a possible creditor of the insured can prevent that liquidator from raising the issue and seeking declaratory relief. I say that largely because that question has been raised and resolved in the JN Taylor case, from which leave to appeal to the High Court was refused. If the matter were not free from authority I confess I would have had the gravest doubt whether it was ordinarily appropriate to permit an outsider to seek from the court declaratory relief as to the meaning and effect of a contract between two parties who had not themselves raised any issue as to its meaning and effect and at least one of whom objected to the court's interfering in its private affairs. 49 Phillips JA did not suggest that JN Taylor Holdings 59 SASR 432 was wrongly decided. He referred to the rejection by King CJ of the view expressed at first instance that the plaintiffs did not have an interest sufficient to maintain the action for declaratory relief unless and until they succeeded in the action against the defendants. King CJ had characterised that as too narrow a view of the interest of the plaintiffs required to render the issue real rather than theoretical. Phillips JA said: That seems to me apt here, if I may say so. What is wanted in the plaintiff is a sufficient interest to render its claim to declaratory relief "real rather than theoretical" and if that be the test I think that it is probably satisfied. 51 In allowing the appeal the Full Court held that the action did not bring into issue any question concerning the insurance arrangements as the insurers had not declined indemnity. There was no arguable case for joinder. Accordingly, documents evidencing the insurance arrangements were unrelated to any matter in question on the pleadings and were not a proper subject for discovery. The JN Taylor Holdings 59 SASR 432 decision was distinguished on that basis. Cox J, who dissented in the result, agreed with Perry J that no arguable case for joining the defendant's insurer had been advanced. He said (at 22): The orders made in JN Taylor Holdings Ltd (In liq) v Bond (1993) 59 SASR 432 were exceptional, for the reasons that are explained in the judgment, and the case is clearly distinguishable. 52 Perry J described JN Taylor Holdings 59 SASR 432 as unusual "in that there were overlapping questions of fact". He referred to the insurer's denial of liability on the basis that the conduct of the defendant directors was such as to disentitle them to indemnity. The same conduct would need to be scrutinised to determine whether the plaintiffs' claim against the directors should succeed (at 37). He said (at 37): The decision in JN Taylor Holdings must be confined to its special facts, and in particular the fact that not only was there in that case a denial of liability on the part of the insurer, but the facts and circumstances relevant to the grounds upon which liability were denied were more or less co-extensive with the factual inquiry which would be necessary in order to dispose of the issues raided [sic] as between the parties in that case other than the insurer. That will not often be the case. More commonly, I would have thought any denial of liability on the part of the insurer will not involve the need to address questions of fact which are common to the questions arising in the context of the resolution of the claim against the insurer. He observed that the question whether there were any common questions of fact would depend upon what stand was ultimately taken by the insurer and the ground upon which at some stage it might be prompted to deny liability. 53 The Queensland Court of Appeal in Interchase Corporation Ltd (in liq) v FAI General Insurance Co Ltd [1998] 2 Qd R 301 by majority, declined to follow JN Taylor Holdings 59 SASR 432 . In that case Interchase Corporation commenced proceedings against valuers in connection with the development of a retail and commercial complex in Brisbane. It claimed to have lost about $60 million through a negligent valuation of the complex. FAI was the professional indemnity insurer of the valuers. FAI conducted the defence of the litigation for some time then declined indemnity. The valuers did not object to that decision and did not foreshadow any possibility of contesting it. Interchase then sought to join FAI as an additional defendant to obtain a declaration that it was liable to indemnify the valuers in respect of their liability to Interchase. A judge acceded to that application and an appeal from that decision was allowed by majority. The majority held in substance that convenience alone could not justify joinder of an additional defendant under the Rules of the Supreme Court. There was no controversy between the valuers and the insurer and therefore their rights inter se would not be determined in the action. The joinder would serve no useful purpose. 54 Byrne J referred to the judgment of King CJ in JN Taylor Holdings 59 SASR 432 and particularly his finding that the insurer if joined as a defendant would be bound in subsequent proceedings by the defendant directors or their trustee in bankruptcy by a declaration of liability and findings of fact. King CJ, as noted earlier, relied upon the decision of Jacobs J in Re Multi-Tech Services 30 SASR 218. However, according to Byrne J, Jacobs J, in the earlier case had assumed rather than decided that the additional party would be bound and did not consider whether the determination of an existing controversy between co-defendants was essential to a binding adjudication. 55 McPherson JA, who agreed with Byrne J, suggested that the more expansive Rules of Court relating to joinder of parties in South Australia might explain the decision in JN Taylor Holdings 59 SASR 432. He said (at 315): Plainly, a rule enabling a court to determine a question because it is "related to or connected with" any relief claimed in the existing cause or matter may be capable of justifying a joinder like that sought in this instance. It is, however, difficult to see how it would effectively solve the problem discussed by Byrne J in his reasons on this appeal of the binding effect (or lack of it) of the declaration which the plaintiff now wishes to claim against FAI, which is a question that was not explored in JN Taylor Holdings v Bond. 56 In dissent, Davies JA said (at 309): I accept that there would be no point in making the order for joinder if the declaration did not, in practice, effectively determine the issue of FAI's liability to the valuers as between those parties. But I do not think it is sufficient, for the joinder to lack utility, that it is not binding between those parties at law if, in its practical effect, it is. He agreed with Byrne J that Interchase and the valuers were not privies for the purposes of res judicata and issue estoppel. He also agreed that neither doctrine would operate to bind FAI and the valuers inter se in respect of that question. His Honour went on however to refer to the wider concept of estoppel enunciated in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45 ; (1981) 147 CLR 589, a case in which admittedly there was mutuality. He said (at 310): There was mutuality in Anshun and their Honours in the joint judgment to which I have referred did not find the abuse of process test, as elucidated in some of the English cases, of great utility. However, abuse of process is a similar mechanism designed "to protect against 'the scandal of conflicting decisions'," which can achieve that protection where mutuality is absent as it is here. FAI and the valuers would have the full opportunity of contesting the question in respect of which the declaration was sought. Davies JA thought it would therefore be an abuse of process to permit either to litigate that question in subsequent proceedings. It followed that the declarations sought would effectively determine the question of FAI's liability to the valuers as between those parties. 58 I respectfully agree with the view expressed by Byrne J that the decision of Jacobs J in Multi-tech Services 30 SASR 218 does not seem to be authority for the proposition that an insurer joined as a co-defendant at the suit of a claimant against the insured, would be bound as between itself and the insured, by a declaration that it was liable to provide indemnity to the insured. There was no exposition by Jacobs J of any principle that would support that proposition. It is not necessary for me to decide the general question here. In my opinion the approach taken in JN Taylor 59 SASR 432 is supportable on a wider basis without reliance on a res judicata or issue estoppel. That wider basis was enunciated by Davies JA. In this respect I refer also to my review of the authorities relating to the general concept of abuse of process by relitigation in Spalla v St George Motor Finance Ltd (No 6) [2004] FCA 1699 at [59] [69]. I consider, as did Davies JA, that there is utility in a declaration against an insurer in circumstances such as the present. That factor however, while important, does not exhaust the discretionary considerations, particular to this case, to which I should have regard.