CGU Insurance Limited v Blakeley & Ors: Powers of State Courts [2016] HCA 2

Today (11 February 2016) in CGU Insurance Limited v Ross Blakeley, Michael Ryan & Quentin Olde as Joint and Several Liquidators of Akron Roads Pty Ltd (In Liq) & Ors [2016] HCA 2, the High Court of Australia has dismissed an appeal from the Supreme Court of Victoria, Court of Appeal. In dismissing the appeal, the High Court has held that the Federal jurisdiction invested in the Supreme Court of Victoria authorised that Court to grant a declaration in favour of a plaintiff against a defendant's insurer that the insurer is liable to indemnify the defendant.

Background and Earlier Proceeding

In the proceeding in the Supreme Court of Victoria (see Akron Roads Pty Ltd (in liq) v Crewe Sharp & Ors [2015] VSC 34 (13 February 2015)), Akron Roads Pty Ltd (the second respondent) (Akron) and its liquidators (the first respondents) alleged that the directors of Akron breached the Corporations Act 2001 (Cth) section 588G(2) which relates to a director's duty to prevent insolvent trading by a company, which provides that:

The relevant directors in the matter were Trevor Crewe (the third respondent) and Crewe Sharp Pty Ltd (in liquidation) (the sixth respondent) (Crewe Sharp). On 4 December 2013, Crewe Sharp made a claim for indemnity with respect to the proceeding under a professional indemnity policy of insurance that it had with CGU Insurance Limited (CGU) and being a director Mr Crewe was also an insured under the policy.

On 6 March 2014, CGU denied the claim on the policy on the basis that the policy did not provide cover in respect of the proceeding in question. At this point, neither Crewe Sharp nor Mr Crewe indicated any intention to challenge CGU’s denial of liability. The first and second respondents, however, sought an order pursuant to the Supreme Court (General Civil Procedure) Rules 2005 [now 2015 rules] (the Rules) rule r 9.06(b) which deals with the addition, removal and substitution of parties, seeking that CGU be joined as a defendant in the proceeding, sub-rule (b) provides as follows:

The first and second respondents also sought leave to file and serve amended points of claim in which they sought a declaration that CGU was liable to indemnify Mr Crewe and Crewe Sharp under the policy in respect of any judgment obtained by the first and second respondents against them.

In his decision of 13 February 2015, Justice Judd of the Victorian Supreme Court, granted the application and made orders joining CGU as the fifth defendant in the proceeding. CGU sought the leave of the Victorian Court of Appeal to appeal the decision of Justice Judd on the grounds that his honour had erred in law in joining it as a defendant to the proceeding because courts have no jurisdiction "at the suit of a stranger" to grant declaratory relief as to the meaning and effect of a private contract between parties who will not pursue any claim relating to rights or duties under that contract.

The Court of Appeal

The Court of Appeal in CGU Insurance Ltd v Blakeley & Ors [2015] VSCA 153 (19 June 2015) (Ashley, Beach and McLeish JJA) noted that Australian case law implicitly supported the proposition that in exceptional circumstances a court will permit a plaintiff who is not a party to a contract to seek a declaration as to rights existing under that contract. In this respect the court further found that the authorities also show that if there is practical utility in resolving a matter in which the plaintiff has a real interest, this may suffice to justify making a declaration in respect of that matter.

In the current case, the Court of Appeal found that the making of a declaration in the circumstances would be of practical utility and would not constitute the giving of an advisory opinion, because its practical effect would be to resolve the issue as between insured and insurer.

Further, the Court of Appeal took the view that it would be an abuse of process to permit either the insured or the insurer to litigate the question in subsequent proceedings - and while - as a general proposition it may be accepted that only contracting parties have an interest in the contract to which they are parties, once an insured becomes insolvent, leaving behind an unpaid claimant in respect of whose claim an insurance policy responds, the situation becomes different from that of an ordinary private contract.

The Court accepted the submission of the first and second respondents that in those circumstances it is the claimant, and only the claimant, that has an interest in the insurance contract. The insured no longer has any practical commercial interest in the policy. That is the effect of of the Corporations Act 2001 (Cth) section 562 and the Bankruptcy Act 1966 (Cth) section 117, which sections, provide for the payment of the insurance proceeds "to the third party".

The Court of Appeal considered that the possibility of separate proceedings between the current parties and later proceedings between a relevant liquidator or trustee in bankruptcy and CGU should not be countenanced and for such reasons, Justice Judd's analysis was correct and his orders should not be disturbed. Whether ultimately grounds for a declaration being made against CGU existed was a matter for trial and not a matter appropriate for final determination on a joinder application.

Special Leave to Appeal High Court

Special leave to appeal was granted on 11 September 2015 ( see [2015] HCATrans 232 (11 September 2015) and [2015] HCATrans 324 (9 December 2015)]. The main ground for appeal was that the Victorian Court of Appeal erred in dismissing the appeal because the court does not have jurisdiction at the suit of the first and second respondents to grant declaratory relief as to the meaning and effect of a contract to which they are not parties and when the parties to the contract, being the appellant and the third and sixth respondents, are not themselves in dispute.

Result

The High Court has dismissed the appeal, finding that the liquidator's claim for relief was within the subject matter area of federal jurisdiction and constituted a justiciable controversy between the liquidators and CGU confirming that the Supreme Court of Victoria had Federal jurisdiction to entertain the liquidators' claim and grant the declaration sought. 

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CGU Insurance Limited v Ross Blakeley, Michael Ryan & Quentin Olde as Joint and Several Liquidators of Akron Roads Pty Ltd (In Liq) & Ors [2016] HCA 2 (11 February 2016) and relevant High Court transcripts and summaries.

CGU Insurance Ltd v Blakeley & Ors [2015] VSCA 153 (19 June 2015)

Akron Roads Pty Ltd (in liq) v Crewe Sharp & Ors [2015] VSC 34 (13 February 2015)