Cassatone Nominees Pty Ltd v Queenslandwide House & Building Reports Pty Ltd & Ors [2007] QSC 138

SUPREME COURT OF QUEENSLAND CITATION: Cassatone Nominees Pty Ltd v Queenslandwide House & Building Reports Pty Ltd & Others [2007] QSC 138 PARTIES: CASSATONE NOMINEES PTY LTD (ACN 097 207 040) (Plaintiff/Respondent) v QUEENSLANDWIDE HOUSE & BUILDING REPORTS PTY LTD (IN LIQUIDATION) (ACN 081 139 871) (First Defendant) and VERO INSURANCE LTD (ABN 48 005 297 807) FORMERLY KNOWN AS ROYAL & SUN ALLIANCE INSURANCE AUSTRALIA LTD (ABN 48 005 297 807) (Second Defendant/Applicant) and CGU INSURANCE LTD (ABN 27 004 478 371) (Third Defendant/Applicant) FILE NO/S: S 775/04 DIVISION: Trial Division PROCEEDING: Application for Costs Application for Summary Judgment ORIGINATING COURT: Supreme Court DELIVERED ON: 12 June 2007 DELIVERED AT: Townsville HEARING DATE: 28 May 2007 JUDGE: Cullinane J ORDER: (a) That the plaintiff pay the costs of and incidental to the application to set aside the judgment by default entered on 6th December 2006 to be assessed. (b) That the plaintiff’s action be dismissed with costs to be assessed. -- 1 of 7 -- 2 CATCHWORDS: COSTS – GENERAL RULE – COSTS FOLLOW THE EVENT – whether costs of and incidental to the proceedings can be awarded. COSTS - DEPARTING FROM THE GENERAL RULE – INDEMNITY COSTS - whether the second and third defendants’ application for costs of setting aside a judgment by default can be assessed on an indemnity basis. CORPORATIONS LAW – where first defendant company went into liquidation and was deregistered - where plaintiff added first and second defendant to the proceedings pursuant to s 601AG Corporations Law - whether claim against second and third defendant falls within s 601AG – whether insurance contract relied upon covered liability alleged before deregistration of the first defendant. SUMMARY JUDGMENT – application made pursuant to r 293 UCPR – whether summary judgment can be entered. Uniform Civil Procedure Rules 1999 (Qld), r 293 Corporations Law (Cth), s 601AG. COUNSEL: Mr. Anthony Collins for the Applicant’s. Mr. Malcolm Gracie for the Respondent. SOLICITORS: Minter Ellison Lawyers for the Applicant’s. Dennis & Company Solicitors for the Respondent. [1] There are two applications on behalf of the applicants (the second and third defendants) before the court. [2] One seeks an order for the costs of setting aside a judgment by default obtained by the plaintiff against the applicants. [3] The other seeks summary judgment against the plaintiff pursuant to Rule 293 of the Uniform Civil Procedure Rules. [4] Although the plaintiff was represented upon the hearing of these applications by counsel the litigation had previously been conducted by a director, Mr Schepis. [5] The plaintiff instituted proceedings initially against Queensland-wide House and Building Reports Pty Ltd. This company went into liquidation and is now deregistered, having been deregistered in June 2006. [6] In October 2006 the plaintiff obtained an order adding the second and third defendants (both insurers) to the action. [7] The claim against the applicants is based upon section 601AG of the Corporations Act which provides as follows: -- 2 of 7 -- 3 “A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if: (a) the company had a liability to the person; and (b) the insurance contract covered that liability immediately before deregistration.” [8] After the applicants were joined as parties, correspondence was exchanged between solicitors acting on their behalf and Mr Schepis on behalf of the plaintiff. [9] Service was affected of the amended claim and statement of claims on the second and third defendants and on 6 November 2006 solicitors acting on their behalf wrote informing the plaintiff that preliminary investigations were being conducted to see whether the first defendant was in fact insured by the applicants. An extension of time until 4 December 2006 was sought for the delivery of a defence. No reply having been received on 10 November 2006 the solicitors again wrote to the plaintiff seeking a confirmation of extension of time and asking that no steps be taken in the matter without first contacting them. This communication was by facsimile transmission. [10] A little later on the same day the solicitor having the conduct of the matter on behalf of the applicants contacted Mr Schepis who was away from home. He indicated that he was aware of the extension being sought and that he would write to the applicant’s solicitors when he returned home and he said that he “would not run around behind us and do anything.” [11] On 12 November 2006 Mr Schepis wrote to the solicitors for the applicants. Included in the letter was the following: “I consent to extending your time to file a defence until 4 December 2006 as requested.” [12] By letter of 16 November 2006 the solicitors for the applicants wrote to the plaintiff stating that they were now in possession of the applicants’ file relating to the matter. [13] The letter went on to relate that the applicants had denied indemnity to the first defendant in relation to its claim and a number of other claims arising out of the 2001/2002 policy (and all subsequent policies). The grounds for denial of indemnity were stated to be material nondisclosure. A copy of the letter sent to the plaintiff denying such liability was enclosed. This was dated 29 January 2004. [14] The letter from the applicants’ solicitors went on to relate that section 601AG only applies if the relevant insurance contract covered the liability concerned immediately prior to deregistration and that this was not the case given the denial of indemnity. [15] The letter then went on: -- 3 of 7 -- 4 “In the circumstances, we would be grateful if you would inform us whether you require our clients to deliver a defence. Should you agree that no defence need be delivered, our clients confirm that they will agree to a notice of discontinuance being filed in relation to the claim against them and they will bear their own costs. However, should you insist upon a defence being delivered, the ordinary costs consequences will flow. We confirm that any defence delivered on our client’s behalf will plead the matters set out above. Once that defence has been delivered we anticipate that we would shortly thereafter bring an application seeking orders to strike out Cassatone’s amended claim and amended statement of claim against our clients.” [16] By email of 20 November 2006 the plaintiff responded: “Further to your fax to me on 16 November 2006 I respond as follows: - Before I can deal with the matters raised by you in your letter to me I require full details of the material of nondisclosure upon which you denied indemnity to Queensland House and Building Reports (QHBR).” [17] By a letter of 29 November 2006 the solicitors for the applicants responded to the plaintiff enclosing a copy of a letter sent by them on behalf of the applicants to QHBR on 27 March 2003 setting out the reasons for which indemnity was denied. [18] The letter concluded:- “We look forward to hearing from you in relation to whether you wish to continue the claim against our clients.” [19] In the enclosed letter it was stated that the first defendant had engaged in a widespread practice of writing reports that glossed over or played down deficiencies in dwellings and that there had been nondisclosure in relation to such matters. [20] On 5 December 2006 the plaintiff applied for and obtained default judgment. The affidavit in support did not exhibit or contain any reference to the letters passing between the parties after 12 November 2006. The solicitors for the applicants set out the history of the matter in a letter to the plaintiff dated 6 February 2007 complaining about the manner in which Mr Schepis had acted. The letter included a draft consent order which the plaintiff was asked to sign to set aside the judgment and so as to restrict costs. The letter went on to relate that if the plaintiff did not reply then the solicitors would without further notice have the default judgment set aside and seek costs against the plaintiff. [21] By letter of 8 February 2007 the solicitors for the applicants asked the plaintiff to reconsider its position in relation to the setting aside of the -- 4 of 7 -- 5 judgment. On 9 February 2007 in a telephone conversation the solicitors for the applicants told the plaintiff that they would hold off making the application until Wednesday 14 February 2007. [22] The plaintiff in a letter of 13 February 2007 denied any wrongdoing and said that at no time did he lead the solicitors for the applicants to believe that it would not proceed to obtain judgment if a defence was not delivered by 4 December. The plaintiff went on to say that any application to set aside the judgment would be strongly resisted. [23] Application was made to set aside the judgment on 16 March 2007. An order by consent was made on 16 March 2007 that the judgment be set aside. The plaintiff had indicated a couple of days before the return date that the application would not be opposed. The costs of the application were reserved for further argument. [24] The applicants seek an order for the costs of setting aside the judgment. This is based upon the plaintiff’s conduct in entering judgment in the circumstances outlined above and in refusing to consent to the setting aside of the judgment when given a number of opportunities to do so. [25] For the plaintiff it was said that Mr Schepis is not legally qualified and that his conduct is not inconsistent with his maintaining the position that he had granted an extension until 4 December and that nothing he said or did in any way altered that. [26] On the other hand the letter of the 16 November 2006 clearly asked the plaintiff to consider whether in the circumstances outlined in that letter the plaintiff required a defence to be delivered. In the event that the plaintiff did not then each party would pay their own costs but in the event that he did then the ordinary costs consequences it was said, would follow. [27] The plaintiff in the response of 20 November 2006 sought further information so that he could consider those matters. [28] Similarly the subsequent letter of 29 November 2006 asked the plaintiff to confirm whether in view of the further information (which included the letter to the first defendant of 22 March 2003 setting out the reasons for which indemnity was denied) the plaintiff wished to continue the claim. [29] There can be no misapprehension about the fact that at the time that the plaintiff entered judgment it had been asked to consider whether he would proceed with the matter in view of the information provided and had sought information from the applicants for the purpose of doing so. [30] That conduct taken with the opportunities which the plaintiff was afforded to set aside the judgment without any costs in my view justify an order for costs against him. [31] The circumstances do not however in my view justify the making of an order that he pay the costs on an indemnity basis. -- 5 of 7 -- 6 [32] Such an order requires exceptional circumstances. No doubt had the plaintiff been a legal practitioner there would be no room to argue about this. However it seems to me that the fact that Mr. Schepis is not legally qualified is relevant to this issue. I am prepared to give him the benefit of a somewhat benevolent construction of his actions in the absence of an express stipulation between the parties that the December 4 extension was no longer applicable. [33] In these circumstances I am not persuaded that the appropriate course to take is to order indemnity costs. [34] The second application is an application for judgment. It is based essentially upon the proposition to which I have already referred and which the solicitors for the applicants outlined in the letter of the 16 November 2006. [35] The plaintiff did not file any material in response to the application for summary judgment. [36] Here the only evidence before the court is that by letter of 27 March 2003 the solicitors for the applicants wrote to the first defendant informing it that the applicants proposed to decline indemnity in relation to the particular claim the subject of the letter and all other claims for the relevant policy period and in any subsequent policy periods. The letter went on to invite the first defendant to respond to the issues raised in the letter and said that their clients would defer making a final decision for a period of 14 days pending the receipt of such an submissions. [37] Subsequently by letter of 29 January 2004 and with no written submissions having been received the applicants informed the first defendant that the indemnity sought in relation to all matters pursuant to the policy period 23 March 2001 to 23 March 2002 and any subsequent policy periods were rejected for the reasons already explained. [38] The claim here fell within the policy period 23 March 2001 to 23 March 2002. There is nothing to suggest the first defendant or the liquidator took any action against the insurer. [39] For the applicants it is said that the claim against them by the plaintiff is doomed to failure since the only evidence is that the insurance contract relied upon did not cover the liability alleged immediately before deregistration. Claims under the policy had been rejected some years before. [40] Counsel for the plaintiff advanced a number of arguments. In relation to some of these counsel for the applicants, I think justifiably, complained that they are not supported by evidence. [41] The primary argument advanced was that section 601AG(b) is apt to cover the situation where an insurance contract has been wrongly repudiated and a person seeking to make a claim against the insurer seeks to base that claim upon the wrongful rejection of liability. -- 6 of 7 -- 7 [42] No issue of this kind appears in the pleadings. Indeed the claim by the plaintiff against the applicants is limited simply to a reference to having been made under section 601AG. [43] No authority was cited for the proposition advanced that a claim of the kind described falls within section 601AG. The section limits the right to recover from an insurer to the circumstances provided in 601AG(a) and (b). [44] Here the only evidence is that the relevant contract does not cover the liability asserted here immediately prior to registration because liability under it had been denied in respect of such liability at a significantly earlier period. The plaintiff's argument would require reading the section in a way which would significantly expand its area of operation. [45] An argument was advanced based upon the requirements of the Queensland Building Services Authority Act 1991 and the financial requirements stipulated by the Board constituted pursuant to that Act. [46] These require a licensee such as the first defendant to obtain a policy of insurance which imposes upon the insurer the obligation to give notice of any proposed cancellation to the manager of the Building Services Authority. [47] The policy here is expressed in such terms. [48] There is no evidence that the applicants gave any such notice. There is indeed no evidence either way. [49] Counsel for the applicant made it quite clear in response to a question from me that he was not then contending that the failure to give such a notice was fatal to the right of the applicants to determine the policy. [50] Rather he sought to develop an argument based upon an estoppel. The difficulty is that there is no evidentiary basis for such an argument. No conduct on the part of the plaintiff brought about as a result of any action by the applicant can be identified from the material filed. Nor is any detriment arguably open on such material. [51] I am not persuaded that there is on the material any arguable defence based upon an estoppel. [52] Whilst the expanded power for which section 293 of the UCPR provides is one which should be exercised cautiously it seems to me that there is in this case no reason to believe that the plaintiff could overcome the obstacle represented by section 601AG(b) in the light of the circumstances just described. [53] I order: (a) that the plaintiff pay the costs of and incidental to the application to set aside the judgment by default entered on 6th December 2006 to be assessed. (b) that the plaintiff's action be dismissed with costs to be assessed. -- 7 of 7 --