Eisenhuth v Insurance Exchange of Australasia Group & Ors S224/2000 [2001] HCATrans 230 (1 June 2001)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S224 of 2000

B e t w e e n -

WILLIAM EISENHUTH

Applicant

and

INSURANCE EXCHANGE OF AUSTRALASIA GROUP

First Respondent

MICK DOOLEY

Second Respondent

PACIFIC COAST BASEBALL LEAGUE INCORPORATED

Third Respondent

Application for special leave to appeal

GLEESON CJ

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 1 JUNE, 2001, AT 11.35 AM

Copyright in the High Court of Australia

_________________

MR A.S. MORRISON, SC: May it please the Court, I appear with my learned friend, MR C.P. LOCKE, for the applicant. (instructed by Velleley & Associates)

MR J.E. SEXTON, SC: May it please the Court, I appear with my learned friend, MR G.C. GRANT, for the respondent. (instructed by Connery & Partners)

GLEESON CJ: The second respondent desires to make no oral submissions. There is a certificate from the Deputy Registrar that she has been informed by the solicitor for the third respondent that the third respondent does not wish to be represented at the hearing of this matter and will submit to any order of the Court save as to costs. Yes, Mr Morrison.

MR MORRISON: Thank you, your Honour. This application for special leave to appeal raises issues of general principle as the occasions when a third party is able on an appeal, absent an appeal by the defendants, to challenge the outcome between plaintiff and defendants.

GLEESON CJ: This case turns upon the meaning and effect of the Rules of the District Court of New South Wales, is that right?

MR MORRISON: We would say not, your Honour. We would say that the case which the particular bench of the Court of Appeal used, namely Helicopter Sales, turned upon the Rules of Court applicable there, but the present case was not governed by any rule. I need to expand on that to illustrate what I mean by that.

The other matter which has to be recognised is that there is a conflict between decisions of differently constituted benches of the New South Wales Court of Appeal which appear to be irreconcilable in their approach to this issue. It has to be remembered at the outset that the plaintiff applicant was deprived of his verdict not because of any appeal by the defendants but because the third party appealed against a finding on an issue between it and the defendants.

What the Court of Appeal did was to apply the High Court decision in Helicopter Sales. The point of that decision was that the Queensland rules applicable in that case provided, as did the English rules, that there was power on a cross-claim to order that the cross-defendants have leave to defend the plaintiff's action. The New South Wales rules have no such provision.

GLEESON CJ: The District Court Rules, you mean?

MR MORRISON: The District Court Rules. The rules differed as between the two cross-claims, and I need to just identify which rule applied to which. Part 20 was applicable to the cross-claim of the first defendant, Dooley, and it simply contained no such power whatsoever. Part 21, which was applicable because of the time of commencement, to the cross-claim of the second defendant contained power only to make an order as to the extent to which the parties were bound by the cross-claim or third party proceeding, but no order was made.

So we simply say that the rules, both in respect of Part 21 and Part 20, simply did not determine the matter in the way that they did in Helicopter Sales, where there was an express power which the Court effectively found was exercised. I need to explain that just a little. Justice Stephen in Helicopter Sales said at page 14:

the appropriate course appears to be to treat the matter as the parties have chosen to, to deal with both of the third party's appeals as if an order had been made binding it by the result of the trial of the issues between plaintiff and defendant.

There was a divergence in the Court as to whether or not an order had been made, but Justice Stephen said the parties treated the matter as if an order had been made; therefore we will treat it in the same way. There was power under the Queensland rules to make such an order. There was no power in New South Wales in the District Court to make such an order.

In the present case the parties simply did not contemplate that the third party would be bound or that the plaintiff would be bound by any appeal by that third party. Can I demonstrate that.

GLEESON CJ: Could you say that sentence again.

MR MORRISON: In conducting the litigation at first instance, the parties did not contemplate that the third party would be bound as between the plaintiff and the defendants or that the plaintiff would be bound by the proceedings between the defendants and the third party. Can I illustrate that because that may seem a little surprising given that the matter was all heard together.

When leave was sought to appeal to the Court of Appeal by the third party, the defendants not appealing, the third party initially pleaded as a ground of appeal that the judgment against the defendants should be set aside. It abandoned that on the appeal and accepted that the plaintiff was not a necessary party to the appeal. That was when the matter came on, the application initially for leave to appeal. Only subsequently and at the urging of Mr Justice Handley did the third party amend to restore the prayer which it had originally inserted seeking relief as between plaintiff and defendants and rejoining the plaintiff to the proceedings.

So that it is manifest from the way in which the matter was treated, both before the Court of Appeal and below, that, unlike Helicopter Sales, the parties did not regard there having been an order made or anything in the nature of an order, as was contemplated in Helicopter Sales and as was permissible under the Queensland and English rules. So the matter was not determined by the terms of the New South Wales rules. Rather it falls to be determined by issues of general principle relating to third parties.

GLEESON CJ: Where do we find the principles stated by Justice Handley?

MR MORRISON: The principles stated by Justice Handley in the judgment really comes from his analysis of Helicopter Sales in which he simply applies Helicopter Sales. He does not appear to have accepted that there was any relevant difference from the Queensland rules, though upon their face there was.

GLEESON CJ: On page 66, line 32, he says that the Rules of the Supreme Court of Queensland were "substantially in the terms of DCR Pt 20".

MR MORRISON: Yes. We simply say that is just manifestly wrong. There was no power to make an order but in any event, and even if there had been power, no order was made. The way in which the matter came before the Court of Appeal initially, with the third party resiling from any intent to deprive the plaintiff of the verdict against the defendants and then coming back to that, simply illustrates that that was not the way the proceedings had been conducted and it was a situation quite unlike Helicopter Sales.

Can we add to that, your Honours, that the matter had been the subject of consideration by a differently constituted bench of the Court of Appeal in Berkeley Challenge. That was a court constituted by Justices Meagher, Sheller and Powell. We have given your Honours the citation to that in the unreported decision. But Justice Powell in the leading judgment at page 7 - - -

GLEESON CJ: Was this before or after the present decision?

MR MORRISON: This was before.

GLEESON CJ: Was it referred to in the present case?

MR MORRISON: It was. His Honour Mr Justice Handley just simply said that in his view Mr Justice Powell was wrong.

GLEESON CJ: Where do we see that?

MR MORRISON: He discusses a number of decisions which are in conflict with the approach he takes, going back to The Millwall, and that is starting at pages 68, 69 and 70. Then he refers to another decision which is contrary, a decision of the Full Court of the Supreme Court of Queensland, Legal and General Assurance Society Limited, at page 73. But the discussion of Mr Justice Powell's views, page 63, line 20:

In the light of these authorities -

that being Helicopter Sales really -

I must respectfully differ from the opinion expressed by Powell JA in Berkeley Challenge - - -

CALLINAN J: Mr Morrison, could I ask you this. Is your complaint that formal leave pursuant to rule 4(c) was never sought or actually given?

MR MORRISON: We have not based our application for leave upon that technical aspect. Our complaint is with the substance of the decision.

CALLINAN J: The first respondent was a defendant to a cross-claim?

MR MORRISON: Yes.

CALLINAN J: Then would not the first respondent have been within rule 4(c)?

MR MORRISON: Your Honour, rule 4(c) - - -

CALLINAN J: It is set out at page 66. So the first respondent was a defendant to a cross-claim?

MR MORRISON: Yes.

CALLINAN J: Then his Honour Justice Handley says at page 66, paragraph 29:

The trial commenced and continued without any orders being made pursuant to DCR Pt 20. It was conducted on the basis that the insurer had full rights of defence -

and so on. So what his Honour is really saying is that the proceedings were conducted as if leave had been given under rule 4(c), is that not right?

MR MORRISON: That would seem to be so.

GLEESON CJ: And that is exactly what Justice Fitzgerald said on page 91 at line 15.

MR MORRISON: Yes. It is not that that we cavil with, your Honours. There was power under that rule, though not under the other rule on the other cross-claim, to determine the extent to which parties were bound in relation to the third party proceedings.

GLEESON CJ: But just come to what Justice Fitzgerald says on page 91 at line 15. Do you quarrel with that?

MR MORRISON: We quarrel with it to this extent, that there was no determination as to the extent to which the parties were bound. True it was that the third party by implication was given power to cross-examine the plaintiff on the issues.

GLEESON CJ: But if it is the case that that question should be determined as if directions had been given under rule 4, what is the consequence for that of the outcome of this appeal?

MR MORRISON: The consequence of that is that that still does not take the step of determining - that is a procedural matter dealing with the extent to which the third party can participate in the trial as between plaintiff and defendants. That is different from determining the extent to which the third party is bound by the outcome between plaintiff and defendants or the extent to which the plaintiff is bound by any appeal as between third party and defendants.

CALLINAN J: But that is why Mr Justice Handley wanted the plaintiff there, because the plaintiff could conceivably have been affected by the outcome of these proceedings. That is why his Honour wanted to make sure that the plaintiff was a party to the appeal, is that not right?

MR MORRISON: But the complaint about that is that that would be valid if the trial had been conducted on the basis of an order.

CALLINAN J: But it was conducted as if orders had been made in fact under Part 20 of which rule 6(4) provides - - -

MR MORRISON: But there are two difficulties with that. First of all, there was no such rule applicable to the other cross-appeal. Part 21 contains no equivalent, so that would still leave one of the verdicts undisturbed. Secondly and in any event, we say there is a distinction between the implied permission to participate in the proceedings and making an order determining the extent to which those who participate are bound. The absence of an order, we would say, is significant and, moreover, it is a very - - -

GLEESON CJ: But this seems to bring the matter down to turn upon a very narrow point of the way in which the proceedings were conducted at first instance. Going back to what Justice Fitzgerald says on page 91, he seems to be saying, "Having regard to what happened, having regard to the way the proceedings at first instance were conducted, we ought to deal with this matter as though directions had been given under rule 4 which had the effect of attaching the same consequences to the separate proceedings of the League and Dooley against the appellant".

MR MORRISON: But it depends what one means by "the way in which the proceedings were conducted at first instance". True it is that they were conducted on the basis that the third party could participate fully in the trial.

CALLINAN J: And a third party within Part 21 in this case and a defendant to a cross-claim within Part 20 - the first respondent was both, is that right?

MR MORRISON: Yes, joined once pursuant to Part 20 and once pursuant to Part 21, but the rules in relation to Part 21 and the orders which could have been made were far more restrictive. Having said that, there was no order and our point is that if that be the case, we fall back on general principle.

GLEESON CJ: What if there had been an order?

MR MORRISON: No order could have been made under Part 21. It is as simple as that.

GLEESON CJ: What if directions had been given under rule 4 of the kind referred to by Justice Fitzgerald?

MR MORRISON: That may have been effective in respect of that cross-claim but it still would not have deprived the plaintiff of his verdict because the other cross-claim would not have been affected.

GLEESON CJ: Which is the cross-claim we are concerned with?

MR MORRISON: We are concerned with both, but the cross-claim under Part 20 was the cross-claim of the first defendant. The cross-claim under Part 21 was the cross-claim in respect of the second defendant. Dooley was the first defendant.

GLEESON CJ: The third party was there at trial arguing that there should be a verdict for the defendants.

MR MORRISON: Yes, but no one had said before the Court of Appeal on the application initially for leave to appeal that an application which did not involve an appeal by the defendants should be binding upon the plaintiff. It only came subsequently when Mr Justice Handley took a different view that anyone even contemplated that there was any potential difficulty with the plaintiff's original verdict against the defendants. The defendants chose not to appeal. There is a long line of authority which supports what we are putting to your Honours.

CALLINAN J: The first respondent was represented at the trial, is that right?

MR MORRISON: Yes.

CALLINAN J: And cross-examined the plaintiff?

MR MORRISON: Yes.

CALLINAN J: Participated fully in the trial?

MR MORRISON: Yes.

CALLINAN J: So that the case was conducted as if the first respondent might participate fully as if it were a defendant to the plaintiff's claim in the trial or hearing?

MR MORRISON: Your Honour, we say not as if it were a defendant because that requires the sort of power which is given by the Queensland rules.

CALLINAN J: But the plaintiff was cross-examined by the first respondent.

MR MORRISON: To the extent that the third party thought necessary.

CALLINAN J: On the issue of liability.

MR MORRISON: Yes. Can I just take your Honours to what Mr Justice Powell said on this.

CALLINAN J: And quantum as well.

MR MORRISON: I believe so. Mr Justice Powell in Berkeley Challenge at page 7 said:

If, however, a third party was not given leave to defend the action between the plaintiff and the defendant, he was not bound by the judgment in that action - and thus could not appeal against that judgment -

and cites Asphalt and Public Works Ltd v Indemnity Guarantee Trust (1969) 1 QB 465 for that proposition. Your Honours, could we say that that line of authority is of considerable standing. Justice Powell said the same thing in Bremner & Anor v Sinclair (No 2) (1999) NSWCA 407 at paragraph 86. The English line of authority, again absent any specific rule permitting an order to be made as was made or treated as having been made in Helicopter Sales, goes back to The Millwall, 1905, and Legal and General Assurance Society Limited v The Commonwealth, which is a 1985 Full Court of the Supreme Court of Queensland case.

Your Honours, this decision applying Helicopter Sales turns a case which did turn upon the peculiarities of the Queensland provisions into a case of general application and it leaves a marked inconsistency between the approach taken by different benches of the same court.

GLEESON CJ: Thank you, Mr Morrison. Yes, Mr Sexton.

MR SEXTON: Your Honours, the general statement of his Honour Justice Handley is at page 58 in paragraph 9:

If a judgment in favour of the plaintiff binds the third party as a res judicata, one would think, on first principles, that the third party would have the normal right of a litigant to be heard before that judgment was given, and to appeal against it should it be adverse.

GLEESON CJ: I would have thought that you would be relying on what appears on page 58 paragraph 10, that is to say that this is a case about "the procedural framework".

MR SEXTON: That is so, your Honour. That is the next point. My learned friend has said that there is no power to give leave under Part 21, which is set out on the next page at page 59. Part 21 rule 4(1) provides that:

A third party shall . . . be a party to the action -

and section 127 of the District Court Act, which is set out in paragraph 24 at page 64 of the judgment, provides that:

"A party who is dissatisfied with a Judge's judgment or order in an action may appeal to the Supreme Court".

GLEESON CJ: Just before you go any further, on page 91 Justice Fitzgerald refers to directions given under rule 4. Should that be directions under rule 5?

MR SEXTON: I think, your Honour, he is referring to directions under Part 20 rule 4, which is at page 65.

CALLINAN J: The whole intention of the rules, one would have thought, Mr Sexton, was to enable a party who could be affected by the outcome, no matter in what capacity the party is there, to have an opportunity of appealing and, indeed, of participating in the hearing because that party might ultimately in practical terms be liable.

MR SEXTON: Yes, your Honour, that is the point. The rules, in our submission, should be construed and applied to give effect to that.

CALLINAN J: And that was the way in which this case was conducted at first instance. Everybody who was there was participating fully.

MR SEXTON: Yes, your Honour. When the concession was made on the first leave application, the judgment against the plaintiff could not be effected having regard to the authority in Berkeley Challenge v Potbury. Nevertheless, that application proceeded on the basis that as between the third party and the two defendants, findings as between the plaintiff and those defendants could be challenged. It was on that basis that leave was given. It is only when his Honour Justice Handley raised the problem with that approach and the problem with the approach in Berkeley Challenge v Potbury and Legal and General Assurance that a fresh application was made to join the plaintiff as a necessary party and that application was granted.

GLEESON CJ: Then the plaintiff came in a participated in the appeal.

MR SEXTON: Yes, your Honour. The distinction between Part 21 and Part 20 is that section 127 is the basis for the right of appeal where a party has been joined under Part 21. So far as Part 20 is concerned - - -

GLEESON CJ: Would you say that again, please.

MR SEXTON: The basis upon which a third party has a right of appeal where the third party has been joined pursuant to Part 21 is section 127 which gives a party a right of appeal. Part 20, which was a new part that was introduced into the District Court Rules after these proceedings commenced but before Mr Dooley served a third party notice, is more similar to the rules that were considered by this Court in Helicopter Sales and the rules of the English courts that have been considered in the cases that my learned friend referred to.

The distinction between the rule that was considered in Helicopter Sales and the present rules of the District Court is in respect to rule 4(b) which is at page 65. In Helicopter Sales the Queensland rules provide a power to give leave to the third party to defend the plaintiff's action. District Court Rules Part 20 rule 4(b) gives power to the court to:

give to a defendant to the cross-claim leave to defend the claim on the statement of claim -

His Honour Justice Handley considered that there was no difference between the expression "leave to defend the claim on the statement of claim" and the expression "leave to defend the plaintiff's action".

GLEESON CJ: Thank you, Mr Sexton. Yes, Mr Morrison.

MR MORRISON: Your Honours, my learned friend referred at page 59 to Part 21 rule 4(1):

A third party shall, as from the time of service upon him of a third party notice, be a party to the action -

but what has to be read with that is the last sentence of that paragraph which says:

if he had been sued in a separate action by the defendant.

It does not say that he is a party to the action as between him and the plaintiff. He is only a party to the action in so far as he has been joined by the defendant, and that is all the rule says. It does not advance the situation at all and we simply say Helicopter Sales is clearly distinguishable, should have been distinguished on that basis.

GLEESON CJ: The outcome of this case in the Court of Appeal of New South Wales turned upon the meaning and effect of the Rules of Court of the District Court and upon the operation of those rules having regard to the manner in which the case was conducted at first instance. The Court is of the view that there are insufficient prospects of success of an appeal to warrant a grant of special leave and the application is refused with costs.

AT 12.04 PM THE MATTER WAS CONCLUDED