Bird v Ace Insurance Limited [2011] QSC 262

SUPREME COURT OF QUEENSLAND CITATION: Bird v Ace Insurance Limited [2011] QSC 262 PARTIES: RAYMOND NORMAN BIRD (Respondent) v ACE INSURANCE LIMITED ABN 23 001 642 020 (Applicant) FILE NO: S 503 of 2006 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court of Queensland at Rockhampton DELIVERED ON: 31 August 2011 DELIVERED AT: Rockhampton HEARING DATE: 19 August 2011 JUDGE: McMeekin J ORDERS: 1. The application is dismissed 2. The applicant to pay the respondent’s costs on the standard basis CATCHWORDS: PROCEDURE – COURTS AND JUDGES GENERALLY – COURTS – DISMISSAL OF PROCEEDINGS FOR WANT OF PROSECUTION – PRINCIPLES APPLICABLE – RELEVANT CONSIDERATIONS – where defendant in original suit is seeking leave to proceed with counter claim – where no step has been taken for over three years – whether it is in the interests of justice that the matter proceed Uniform Civil Procedure Rules 1999 (Qld) Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 Cooper v Hopgood & Ganim [1999] 2 QdR 11 Hall v RH & CE McColl P/L [2007] QCA 182 -- 1 of 10 -- 2 Southern Cross Management Pty Ltd v Ensham Resources Pty Ltd [2005] QSC 233 Theiss Pty Ltd v FFE Minerals Aust Pty Ltd [2007] QSC 209 Tricon Industries v Abel Lemon & Co Pty Ltd (No 2) [1998] 2 Qd R 551 Tyler v Custom Credit [2000] QCA 178 COUNSEL: AM Arnold for the applicant JB Sweeney for the respondent SOLICITORS: Spark Helmore for the applicant South & Geldard Solicitors for the first respondent [1] McMeekin J: The defendant in the proceedings, Ace Insurance Limited (“Ace”), applies for leave to take a step in the proceeding pursuant to r 389(2) of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”)despite there having been a delay of more than two years. The respondent plaintiff, Raymond Norman Bird (“Bird”), has effectively abandoned his claim against Ace. However, Ace is a counter- claiming plaintiff and is interested in maintaining its counter-claim. [2] No step has been taken in the proceedings since Ace’s delivery of its list of documents on 26 March 2008 – three and a half years ago. Relevant Principles [3] Rule 389(2) provides: “(2) If no step has been taken in a proceeding for 2 years from the time the last step was taken, a new step may not be taken without the order of the court, which may be made either with or without notice.” [4] The reason for the rule is that “[u]nnecessary delay in proceedings has a tendency to bring the legal system into disrepute and to decrease the chance of there being a fair and just result”: Tyler v Custom Credit [2000] QCA 178 at [3] per Atkinson J. [5] On an application for leave to proceed, the applicant for leave must “show that there is good reason for excepting the particular proceedings from the general prohibition”.1 If Bird is successful in resisting this application then that will bring an end to the litigation. The question here then is whether the interests of justice require this case to be dismissed.2 [6] In Tyler Atkinson J identified numerous matters that may be relevant to the resolution of such an issue, observing that “[t]he court’s discretion is, however, not fettered by rigid rules but should take into account all of the relevant circumstances of the particular case including the consideration that ordinary members of the community are entitled to get on with their lives and plan their affairs without 1 See Tyler at [5] and the authorities there cited 2 Cooper v Hopgood & Ganim [1999] 2 QdR 113 at 119 -- 2 of 10 -- 3 having the continuing threat of litigation and its consequences hanging over them.” Those matters that Atkinson J identified were: (1) how long ago the events alleged in the statement of claim occurred and what delay there was before the litigation was commenced; (2) how long ago the litigation was commenced or causes of action were added; (3) what prospects the plaintiff has of success in the action; (4) whether or not there has been disobedience of Court orders or directions; (5) whether or not the litigation has been characterised by periods of delay; (6) whether the delay is attributable to the plaintiff, the defendant or both the plaintiff and the defendant; (7) whether or not the impecuniosity of the plaintiff has been responsible for the pace of the litigation and whether the defendant is responsible for the plaintiff’s impecuniosity; (8) whether the litigation between the parties would be concluded by the striking out of the plaintiff’s claim; (9) how far the litigation has progressed; (10) whether or not the delay has been caused by the plaintiff’s lawyers being dilatory. Such dilatoriness will not necessarily be sheeted home to the client but it may be. Delay for which an applicant for leave to proceed is responsible is regarded as more difficult to explain than delay by his or her legal advisers; (11) whether there is a satisfactory explanation for the delay; and (12) whether or not the delay has resulted in prejudice to the defendant leading to an inability to ensure a fair trial. The Litigation [7] Southern Cross Management Pty Ltd (“Southern Cross”) initially brought proceedings against Ensham Resources Pty Ltd (“Ensham”) for monies outstanding in relation to the hire of a drag line. Ensham counter-claimed and joined Bird and others as defendants by counterclaim alleging, in broad terms, that it had been induced to enter into the drag line hire agreement by actions of its employees that were in breach of contractual and fiduciary duties owed. It was alleged that Bird was involved in breaching fiduciary and contractual duties that he owed to Ensham. Bird sought and obtained from Ace conditional indemnity under insurance policies indemnifying directors and officers of Little Digger Mining Pty Ltd and Southern Cross. Whether he was entitled to that indemnity is at the heart of these proceedings. [8] Pursuant to the policy agreement Ace paid out $1,165,352.46 for Bird’s legal costs. Ace reserved its position as to whether it was under any obligation to pay out under the policy. It eventually decided that it had paid out the monies under a mistaken -- 3 of 10 -- 4 view of its obligations and on 23 November 2005 it denied any liability under the indemnity policy. [9] In the meantime Bird incurred further costs in defending the suit Ensham had brought against him and then compromised those proceedings by paying Ensham $200,000. Bird sued Ace to recover the costs that he had paid out and for the amount of the compromise. Ace counter-claimed to recover the monies it had already paid out. [10] Ensham continued the proceedings against other parties and achieved a judgment in its favour: Southern Cross Management Pty Ltd v Ensham Resources Pty Ltd [2005] QSC 233 (“the Ensham proceedings”). The Applicant’s Arguments [11] Mr Arnold who appeared for the applicant advanced three principal arguments: (a) a special approach is needed where it is the defendant in the original suit seeking to obtain leave; (b) the matters in controversy involved no factual dispute but interpretation of the insurance policy; (c) the applicant’s prospects of success are good. [12] Before turning to those arguments there is some common ground. The Common Ground [13] Some of the matters identified by Atkinson J in Tyler are not in controversy. They are: (a) Bird’s actions which led to the suit against him took place in 1999- 2001; (b) Indemnity was initially denied in July 2005 and finally denied in November 2005. Bird brought his claim in November 2006 and the counter claim was brought in June 2007. No explanation is offered as to why it took Ace 19 months to bring its own claim; (c) There has been substantial delay in the prosecution of the counter claim – no step has been taken since March 2008. The question of attribution of fault is in issue; (d) There has been no disobedience of any order or direction of the Court; (e) Ace is not impecunious; (f) Bird is impecunious and his attitude to the proceedings has been informed, at least in part, by that impecuniosity. He says that he cannot afford to go on. The applicant cannot be blamed for that impecuniosity; (g) Striking out the counter-claim would effectively end the proceedings as the period of limitation governing Ace’s claim has expired; (h) Ace’s lawyers have not said that the delay that has occurred is their fault. The Respondent is the Original Plaintiff [14] A peculiarity of these proceedings is that it is the original defendant who agitates to keep the matter on foot. Mr Arnold who appeared for the applicant put that at the forefront of his submissions. He argued that there would need to be real prejudice shown in those circumstances to justify bringing the proceedings to an end. -- 4 of 10 -- 5 [15] If the intent of the submission was that different principles apply in these circumstances then I am not persuaded that is right. The rules treat a counter claiming defendant as a plaintiff: r 181 UCPR. [16] Obviously a defendant is entitled to assume that a plaintiff has an interest in maintaining the suit. To the extent that a plaintiff leads a defendant to believe that the matter is being pursued in the usual way then some latitude can be given to a defendant. And Bird can hardly be heard to assert in his favour the observation of Atkinson J that “that ordinary members of the community are entitled to get on with their lives and plan their affairs without having the continuing threat of litigation and its consequences hanging over them” when it was he that initiated the proceedings. He chose not to formally advise the defendant that he was withdrawing his suit. Hence I give no weight to the claimed deterioration in his financial circumstances during the period of delay. But beyond those considerations there can be no difference in approach. [17] Here the only steps that the plaintiff took, after seeking particulars in mid 2007 was, so the defendant asserts, to refuse to comply with his obligations under the rules. That could hardly have encouraged a belief in the defendant that it was entitled to sit back and not pursue what it claims are its rights. Prospects of Success [18] Under the policy Ace was required to pay “on behalf of the Insured(s) all Loss which they are legally obligated to pay… for any Claim against the Insured(s) for a Wrongful Act …” Under an exclusion clause it was not obligated to pay if the loss was based on or arose from or was attributable to “any personal profit or advantage gained by the Insured(s) to which such Insured(s) was not legally entitled.” [19] “Wrongful Act” is defined in the policy to mean “any actual or alleged act, error, omission, breach of duty, breach of trust, breach of authority, misstatement or misleading statement by the Insured(s) while acting in their capacity as Insured(s) of the Company or any Outside Organisation to which the Outside Directorship Extension applies…” [20] It is common ground that Bird is within the definition of “Insured(s)”. “Company” is defined in a schedule to the policy and includes Little Digger Mining Pty Ltd and Southern Cross (I will call them, inaccurately but for convenience, “the insured companies”). [21] The applicant’s case is set out at paragraphs 17 and 18 of its Counterclaim. [22] Ace contends that Bird was not entitled to indemnity under the policy because: (a) his actions did not amount to a “wrongful act” covered by the policy; (b) he fell within the exclusion because he had made personal gain from the alleged wrongful acts; (c) any wrongful acts were perpetrated by Bird as a director of Ensham not as an officer of either of the insured companies. [23] Ace’s prospects thus turn on the construction of its policy and on the proper characterisation of Bird’s conduct. [24] Ace argues that its prospects of success are good. Its solicitor swears to that issue but provides no evidence to support the assertion. -- 5 of 10 -- 6 [25] The matter is not as simple as Ace now contends. It would hardly have paid out over $1M on what it now says was a mistaken basis if things were so simple. And if it was so simple, and the matter without factual contest, then it is difficult to understand why Ace did not apply for summary judgment on the filing of the Reply and Answer four years ago. [26] Bird was the General Manager of Ensham and an officer of the insured companies at material times. Ace’s submission was that Ensham’s complaint in the Ensham proceedings was that Bird acted in breach of his duties to Ensham when acting in his capacity as General Manager of Ensham not as director of the insured companies. That with respect is perfectly obvious – the basis of any obligation to Ensham derived from Bird’s role as its General Manager. But it is not obvious that that observation denies Bird a right to indemnification under the policy. [27] It can be immediately observed that the definition of “Wrongful Act” does not require that the “breach of duty, breach of trust [or] breach of authority” involve a breach of duty, trust or authority owed to the “Company”. That the relevant duty, trust or authority may be one owed to these companies seems obvious but whether it is necessarily exclusively so, as Ace’s arguments assume, is not so clear. [28] Bird argues that the “alleged act, error, omission, breach of duty, breach of trust, breach of authority misstatement or misleading statement” pleaded against him was plainly done while he was acting in his capacity “as Insured(s) of the Company”. Indeed he alleges that the claim Ensham made against him was that he preferred the interests of Southern Cross to Ensham.3 While Bird appears to accept that he received monies from acting as a director and being a shareholder of Southern Cross he denies making any personal gain from wrongful acts and so denies that the exclusion clause applies.4 These are each factual issues that require resolution in the usual way. [29] According to the findings in the Ensham proceedings Bird did cause letters to be written and cheques to be paid out in his capacity as a director of Southern Cross which breached his duties to Ensham.5 As I discuss below those findings are not binding on Bird and he denies them in these proceedings.6 But assuming that he did write such letters and pay out such monies and that forms the basis of any potential liability to Ensham the question is whether his actions in doing so amount to a “Wrongful Act” as defined in the policy and that question is not answered by saying that he did so in breach of his duties to Ensham. [30] Further it was found by Chesterman J (as he then was) in the Ensham proceedings that Ensham was misled in various ways principally by one Kenneth John Foots (“Foots”) and that Bird was complicit in that. Bird points to findings in the Ensham proceedings that he was subordinate to Foots.7 Mr Sweeney informed me that Bird’s case will be that he was as much misled by Foots as Ensham was.8 [31] It is by no means clear that Bird is wrong in these assertions. They are all matters that will need to be explored at trial. 3 Para 5(d) of the Answer 4 Para 6(a)(i) of the Answer 5 Para 16.3 of the Defence and Counterclaim 6 Para 6(a)(v) of the Answer 7 Southern Cross Management Pty Ltd v Ensham Resources Pty Ltd [2005] QSC 233 at [589] 8 Consistently for example with para 28 of Bird’s Defence in the Ensham proceedings -- 6 of 10 -- 7 [32] At this stage I cannot form any view as to the applicant’s prospects of success. This then is a neutral factor. Prejudice [33] It is not irrelevant that Bird is the plaintiff in this suit – he plainly thought in November 2006 that not too long had passed for a fair trial to be had. However, the relevant question is whether that is so now, nearly five years later. [34] The fact that the events in question occurred ten years and more ago would normally be a cogent reason against allowing the proceedings to continue. Bird contends that his recollections of events from 1997 will be relevant. There is inevitable prejudice from such long delay, whether it be 10 years or 14.9 [35] Ace argues that this is not particularly relevant – it says that its counter-claim will be determined on documents, not witnesses’ recollections, namely its insurance policy and the nature of the claim brought against Bird by Ensham which can be determined from the pleadings and evidence in those proceedings. Indeed, as I have mentioned, Ace made the submission that there were no factual issues between the parties. This assertion was strongly contested. [36] The admissibility of the insurance policy and the pleadings in the Ensham proceedings is self evident but I am not persuaded that the submission is otherwise accurate. The evidence led in the Ensham matter is not admissible, at least as of right and for the purpose of establishing the truth of the matters therein contained, against Bird in these proceedings. Bird gave no evidence as the suit was compromised before he was called on. There can be no issue estoppel as no question was determined as between Bird and any other party again because of the compromise. Hence any matter of fact relating to Bird’s alleged conduct will need to be proved in the usual way. [37] The Counterclaim brought against Bird and others in the Ensham proceedings runs to 84 pages. Not all of that is relevant here. But allegations are made of documents that it is alleged Bird saw10 and actions and conversations that he was a party to,11 and personal relations that he had12 from which inferences were drawn as to his alleged knowledge which rendered his acts wrongful. If these matters are relevant and in issue, then witnesses’ recollections are all important. [38] I am not in a position to understand the extent to which these matters will need to be proved. But Ace’s referring to the findings made by Chesterman J in the Ensham proceedings in its pleadings in this case13 and in its particulars14 tends to suggest that those findings, and hence the evidence lying behind those findings, would need to be established. Bird positively asserts that evidence relevant to the events of 1997 to 2001 is central to the case. I am not persuaded that witness’ recollections are not likely to be significant. 9 Tricon Industries v Abel Lemon & Co Pty Ltd (No 2) [1998] 2 Qd R 551 10 E.g. para 38(b)(2)(B) – the timing of receipt is put in issue: para 24 of Bird’s Defence; para 49(b)(D)(2) of the Ninth Amended Counterclaim 11 E.g. para 35 of the Ninth Amended Counterclaim and para 22A of Bird’s Defence. See also para 49B of the Ninth Amended Counterclaim which in turn refers to earlier paragraphs many of which detail actions taken by Foots 12 E.g. para 49(b)(C)(2) of the Ninth Amended Counterclaim 13 Para 16 of its Counterclaim 14 Paras 1.2, 3.2, 3.4, 4.1, 5.26.1, 7.1.2, 8.2, 9.1 of particulars dated 27 September 2007 -- 7 of 10 -- 8 [39] Bird says that his recollections of events and conversations are fading. While there is no reason to doubt that claim it would be surprising, to say the least, if detailed statements were not taken from relevant witnesses in order to mount a defence in the Ensham proceedings. I was informed that the proceedings were compromised after the plaintiff’s case had closed. Over $1M was spent on legal costs. One assumes that a part of that was spent on gathering evidence. There is no evidence that any of this preparation was thrown out. Memories can be refreshed. [40] That does not mean that there is no prejudice from long delay – a witness is at a disadvantage if their recollections have gone and they can only rely on a statement made long before. The prejudice here can be both insidious and subtle because parties cannot demonstrate what it is that they have forgotten.15 [41] This is a factor against allowing the proceedings going on, but is not of itself compelling. Explanation for the Delay [42] A significant matter is whether there is any explanation for the delay. [43] The respondent makes three points – first the applicant took two years to bring its suit from the time it decided to deny indemnity; secondly, it had to be forced to serve its particulars and when provided those particulars were not responsive; thirdly, there has been no step for three and a half years. [44] There is no answer to the first two points. Although the delay in providing the particulars was not great the particulars proceed in large part on the assumption that all that Ace need do is refer to the findings made against other parties in the judgment of Chesterman J in the Ensham proceedings. Bird is entitled to know the case made against him.16 It is not for him to work out what it might be. In truth proper particulars have not yet been provided. [45] Ace claims that the delay since March 2008 is the fault of Bird in two ways – Bird was the plaintiff in the proceedings and failed to pursue the matter as he was obliged to do. Secondly, Bird failed to make proper disclosure and Ace has been endeavouring to resolve disclosure issues without coming back to the Court. [46] The first point is true enough, but it is met by Bird’s explanation – he could not afford to go on. Generally courts are more lenient in their approach to impecunious parties. More significantly, that Bird had lost interest in the suit should have been evident to Ace long ago. Ace in effect seeks to rely on the impecuniosity of Bird to justify its own inaction. [47] The disclosure point is somewhat disingenuous. [48] The only document in issue is a copy of the transcript in the Ensham proceedings. Ace says that it has been pursuing a copy of that transcript. Several letters were written to that effect between March and December 2008 and then two more letters to the same effect, one in March and the other in November 2009. Bird included the transcript in his List of Documents. He refused to provide a copy of it. If the document was properly the subject of disclosure then he was obliged to.17 The true reason behind the refusal to provide a copy is not apparent to me. 15 Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551 per McHugh J. Tyler v Custom Credit at [45] 16 See r 157 and Theiss Pty Ltd v FFE Minerals Aust Pty Ltd [2007] QSC 209 17 Rule 214(1)(b) UCPR. An offer that the applicant inspect the document was made – see r 215 UCPR -- 8 of 10 -- 9 [49] However, there are three reasons why this provides no valid explanation for the delay. First, if one party refuses to comply with his or her duty under the Rules then the remedy lies in the hands of the other party - apply for an order compelling obedience to the Rules. To let matters drift for three and a half years is inexplicable. [50] Secondly, the transcript was readily available from another source – the State Reporting Bureau. If it was important to Ace to have that transcript then it was a simple matter to obtain it. Effectively that is what Bird told Ace to do. [51] Thirdly, it is difficult to see why the transcript was in fact discoverable. I cannot see how it is directly relevant to any issue between the parties. Ace seems to be operating under the assumption that it has an entitlement to tender the transcript against Bird to prove its counter claim. It has not been made clear to me why it holds that view. Mr Sweeney, who appeared for Bird, submitted that the document should not have been included on the respondent’s list. I think that is right. [52] A third matter mentioned in correspondence is that the applicant was seeking from Bird details of his financial and asset position. He refused to provide such information. Again, if Ace thought that it had some entitlement to that information – and it is far from clear that it had – then the remedy was to come to Court and get the necessary order. Bird’s attitude has been clear for the last two and a half years. [53] There is no satisfactory explanation for the delay. The inference seems inescapable that Ace lost interest in the suit. As can be seen from the decision in Hall v RH & CE McColl P/L [2007] QCA 182 at [20] per Jerrard JA, unexplained delay, depending on the circumstances, can be fatal. [54] Here, this is, at least, a significant factor against allowing the matter to continue. How Far Has the Litigation Progressed? [55] Whilst the applicant asserts that the matter is ready for trial that assertion seems to be based on an error. The applicant seems to be operating under the assumption that it can prove its case by relying on findings made in the Ensham proceedings or by tendering the transcript of those proceedings. It cannot do either of those things. The findings in my view are completely irrelevant. The transcript may be relevant to show what was alleged against Bird – and I have doubts about that as I would have thought that the pleadings in the Ensham proceedings would serve that function - but it cannot be used to establish the truth of any allegation made. [56] While I was not told I suspect, given that approach, that there has been no attempt yet to gather the necessary evidence. If Bird is right in his contentions, and Ace have not persuaded me to the contrary, then there will need to be extensive evidence gathered. Bird contends that any trial is likely to take several weeks. [57] On that basis the litigation has not progressed very far. Effectively disclosure has been made. The parties are only in the foothills of this litigation. [58] This is a factor against granting leave. Summary [59] The proceedings concern matters that occurred long ago. The applicant took nearly two years to bring its claim after deciding to deny indemnity. By then the proceedings concerned events that were up to 10 years in the past. The litigation has been characterised by long periods of delay. Only two letters were written by the applicant to the respondent in the whole of 2009. Nothing else was done that year or the next. There is no satisfactory explanation for the three and a half year delay -- 9 of 10 -- 10 since the last step was taken. Prejudice is sworn to by the respondent and there are grounds for concern given the 10 to 14 years that have elapsed since the relevant events occurred. Even if the matter was ready to proceed, and I doubt that it is, there would necessarily be further delays before a trial could be had. It is unlikely that there could be a trial before February 2012 at the earliest. [60] While refusing leave would bring an end to the proceedings it is far from clear that the applicant would be kept out of a good suit as a result. [61] I cannot identify any factor in favour of allowing the matter to proceed. Effectively the parties have let it go to sleep. The plaintiff did so deliberately, presumably hoping that it would go away. The defendant offers no satisfactory explanation for its conduct. [62] No good reason has been shown for excepting these proceedings from the general prohibition. There are grounds for concern that a fair trial may not be had. [63] In my judgment the discretion should be exercised to refuse leave. Orders [64] The application is dismissed. [65] I order the applicant to pay the respondent’s costs on the standard basis. -- 10 of 10 --