CGU Insurance Limited v Blakeley & Ors [2015] HCATrans 324 (9 December 2015)

Last Updated: 9 December 2015

[2015] HCATrans 324

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M221 of 2015

B e t w e e n -

CGU INSURANCE LIMITED (ACN 004 478 371)

Appellant

and

ROSS BLAKELEY, MICHAEL RYAN & QUENTIN OLDE AS JOINT AND SEVERAL LIQUIDATORS OF AKRON ROADS PTY LTD (IN LIQUIDATION) (ACN 004 769 895)

First Respondent

AKRON ROADS PTY LTD (IN LIQ) (ACN 004 769 895)

Second Respondent

TREVOR PAUL CREWE

Third Respondent

ROBERT MARK SILL

Fourth Respondent

JOHN MARTIN SILL

Fifth Respondent

CREWE SHARP PTY LTD (IN LIQ) (ACN 066 670 013)

Sixth Respondent

FRENCH CJ
KIEFEL J
BELL J
KEANE J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 9 DECEMBER 2015, AT 10.16 AM

Copyright in the High Court of Australia

____________________

MR D.J. O’CALLAGHAN, QC: If the Court pleases, I appear with MS R.L. ENBOM, for the appellant. (instructed by Norton Rose Fulbright Australia)

MR P.D. CRUTCHFIELD, QC: If the Court pleases, I appear with MR O. BIGOS, for the first and second respondents. (instructed by King & Wood Mallesons)

FRENCH CJ: Thank you, and no appearance for the third to sixth respondents. Yes, Mr O’Callaghan.

MR O’CALLAGHAN: If the Court pleases. Has the Court had an opportunity to see the - - -

FRENCH CJ: No. Maybe just sit down for a moment, and we will just have a quick look at the outline. Yes, Mr O’Callaghan.

MR O’CALLAGHAN: If the Court pleases, in our respectful submission, courts do not have jurisdiction to make a declaration about the meaning and effect of a contract at the suit of a person who is not a party to that contract, and in respect of which that person has no rights, and in respect of which they claim no relief.

FRENCH CJ: Courts exercising what kind of jurisdiction?

MR O’CALLAGHAN: Does your Honour mean federal jurisdiction or - - -

FRENCH CJ: Yes.

MR O’CALLAGHAN: Could we come to the particular question in a moment, your Honour?

FRENCH CJ: Yes. It seems to me it is an anterior question, but proceed as you wish.

MR O’CALLAGHAN: We will come to it shortly, if we may.

FRENCH CJ: Yes.

MR O’CALLAGHAN: The declaration that the liquidators seek in the proceedings is at appeal book page 31. It seeks a declaration that CGU is:

liable to indemnify the First and Fourth Defendants –

we call them the insureds –

in respect of any judgment herein obtained by the Plaintiffs against the [insureds] and in respect of any sums (including legal costs) which the Court may order the [insureds] to pay –

the liquidators. In our respectful submission, courts do not have jurisdiction to make a declaration like that. That follows, we say, from the interrelated legal principles which we have set out in summary form in propositions 1 through 6 in our outline of propositions document.

In essence, they are that a justiciable controversy does not exist with respect to private contractual rights other than at the suit of a party claiming that their rights were infringed. There is authority for that proposition and we cite what Justice Gaudron said in Truth About Motorways (2000) 200 CLR 591 at paragraph 46, a passage that was relied upon by Justice McLure in QBE, and we rely on related reasoning in Kuczborski (2014) 254 CLR 109, paragraph 184.

We also say that the declaration sought is not directed to the determination of a legal controversy in which the liquidators have any relevant interest – that is, because they do not have an immediate right, duty or liability. We cite, in support of the proposition, that such an immediate right, duty or liability needs to be claimed – Ainsworth [1992] HCA 10; (1992) 175 CLR 564 at 582 and Kuczborski [2014] HCA 46; (2014) 254 CLR 51 at paragraphs 99, 184 and 278.

We also say that declaratory relief can only be given by way of the judicial determination of a legal controversy settling the dispute once and for all in such a manner as to give rise to res judicata or issue estoppel. With that proposition we cite Taylor v O’Beirne [2010] QCA 188 at paragraph 28; the decision of this Court in Bass v Permanent Trustee [1999] HCA 9; 198 CLR 334, paragraphs 46 to 48; and, not to forget, the Supreme Court Act, section 36, which uses two critical words - “binding” and “rights”.

For similar reasons, we say, the claim for declaratory relief is beyond the boundary of judicial power because it would not bind CGU. Without going to each of the cases, we rely on those specific passages that are set out in paragraph 4 of our propositions document. We also say that the consideration of the Court of Appeal below regarded as being - - -

NETTLE J: Why would it not bind CGU if the declaration is obtained as against CGU?

MR O’CALLAGHAN: The declaration obtained, your Honour, at the suit of liquidators, not at the suit of the - - -

NETTLE J: Directors.

MR O’CALLAGHAN: - - - of the insured.

NETTLE J: But the insured is a party. They will be defendants – a party to the proceeding.

MR O’CALLAGHAN: There are no pleadings between the insured and the insurer and they are not adversaries, your Honour, we would say.

NETTLE J: There are no pleadings at all. There are just points of claim, are there not?

MR O’CALLAGHAN: Well, there are pleadings, your Honour. CGU has filed a defence, including defence raising issues of material non-disclosure and so forth, so the pleadings are - - -

NETTLE J: I was only going to say, if the liquidators sought the declaration both as against CGU and the directors, surely then it would be binding upon both?

MR O’CALLAGHAN: We say not, your Honour, for the reasons that are given by Justices Byrne and McPherson in Interchase.

NETTLE J: I know his Honour asserts that, but I do not understand why. If they are both defendants to the claim why should they not both be bound?

MR O’CALLAGHAN: We say for the reasons he gives, your Honour. The decision is Interchase Corporation Ltd v FAI General Insurance Co Ltd (2000) 2 Qd R 301. The Court regardless knows that the judgment of Justice Byrne was a judgment which Justice McPherson agreed with so completely that there was no real reason for adding to them, although he did add of course a number of observations.

NETTLE J: I have read what his Honour said on the subject but.....as a plaintiff, joined two defendants, one of which is, as it were, a plaintiff as against the other defendant, but not a willing one, can I not bind them both?

MR O’CALLAGHAN: We would say not, your Honour, because they are not adversaries.

NETTLE J: But I can make them adversaries by making an unwilling plaintiff a defendant, can I not?

MR O’CALLAGHAN: We would say not, your Honour. In this case the insured has no interest in, for whatever reason, contesting the insurer’s denial of liability. They are not adversaries and if the plaintiff liquidators were to obtain a declaration of the type it seeks in that situation, for the reasons that his Honour gives, it would not bind CGU.

KIEFEL J: The principle to which Justice Nettle refers, namely, joining someone who could otherwise have been a plaintiff but is unwilling to be, is one that is commonly applied in trust and estate matters.

MR O’CALLAGHAN: It is, your Honour. That is right.

KIEFEL J: So, it is well-known, you do not need so much as the dispute between them as the need to bind them to the order of the court in terms of the administration of something.

MR O’CALLAGHAN: Well, that is certainly so in trust - - -

KIEFEL J: So, there is no hard and fast rule about there being the kind of dispute that you are - the adversarial nature of the proceedings to which you are referring.

MR O’CALLAGHAN: No, and perhaps that is the point, your Honour, is that there is not a hard and fast rule and a lot of these principles are interrelated principles.

NETTLE J: Normally you would expect the directors to join the insurer as a third party but because they are unwilling to do so, why is it not open to the liquidator to join the directors as defendants and thus create the issue?

MR O’CALLAGHAN: We would say, your Honour, that what they should be doing, with respect, is to fund the insureds for them to bring a proceeding against the insurer.

NETTLE J: Well, that would be one way of doing it. What is wrong with doing it the other way?

MR O’CALLAGHAN: Well, we would not say there is anything wrong with it, other than for all the reasons we give, your Honour - - -

NETTLE J: I see. Thank you.

MR O’CALLAGHAN: - - - which is to say that there is something wrong with it because it is beyond the nature of a justiciable controversy, which extends beyond reasons going to res judicata, of course.

NETTLE J: Yes.

KEANE J: Is not the problem that in Interchase the court was focused upon the effect of a particular rule that did not permit the joinder and, therefore, there could not be a binding order because there could not be a joinder. The question is whether the different rule that has been invoked in this case permits the joinder and hence produces a binding result. Is that not where we should be looking - - -

MR O’CALLAGHAN: We would say, with great respect, your Honour, that the observations of Justice Byrne and Justice McPherson in Interchase – some of them relate to the rule, and some of them clearly have nothing to do with the rule, we would say. We would say, with respect, that the critical observations upon which we rely as to res judicata and Anshun, among other things, are matters that had nothing to do with the rule.

If one were to turn first to the judgment of Justice Byrne, we would say it is clear – this is 2 Qd R 301 at 317 – that that critical reasoning from line 9 onwards is not rule-based reasoning in any sense. It is true that in the paragraph before, his Honour recites the rule, but nothing he says is tied to the rule. All the observations that his Honour makes and findings that he makes, we would say, through to the end of his judgment, including a passage about abuse of process, are entirely divorced from any consideration of the rule. Likewise, Justice McPherson at page 313 – his Honour’s observations that:

the plaintiff in this action has and can have no direct legal or equitable, as distinct from possible financial, interest in obtaining a declaration –

are observations and reasons, but again, had nothing to do with the rule, we would say.

FRENCH CJ: Is not the anterior question here whether or not the relief sought against CGU is or is part of a matter arising under federal law?

MR O’CALLAGHAN: We would say, your Honour, that – I did not mean to leave the anterior question so long, your Honour - - -

FRENCH CJ: It strikes me – it is a strange point of entry to come in at the relief when we are talking about jurisdiction, which is what your ground of appeal is about.

MR O’CALLAGHAN: The question that we were asked to address, your Honour, was whether the joinder of the appellant in the proceeding invoked the jurisdiction in the matter arising under a law of the Commonwealth. We would say that the joinder of CGU to this proceeding could not and did not invoke jurisdiction of any sort, because jurisdiction, in the sense of authority to decide, is itself the anterior question to determining whether jurisdiction should be exercised.

FRENCH CJ: Yes.

MR O’CALLAGHAN: The Court is well aware of what the Court said in Minister v B (2004) 219 CLR at 377 and 395 about the distinction between the two concepts of the existence of jurisdiction in the sense of does the court have authority to enter upon or decide a question on the one hand, and once it has it, exercising it on the other.

FRENCH CJ: Well, there is a question of jurisdiction and there is a question of power. Jurisdiction is not determined, ordinarily, by rules of court. One looks to the question: is there a matter? Because jurisdiction in the federal sense – and that is what we are dealing with here, is it not? The claim brought in in the Supreme Court of Victoria was a claim for relief arising under a law of the Commonwealth.

MR O’CALLAGHAN: Yes, your Honour.

FRENCH CJ: So we have there a matter arising under a law of the Commonwealth. The question is whether the claim for relief against CGU is part of that matter or is itself a matter arising under a federal law. I mean there are two potential areas of examination, are there not?

MR O’CALLAGHAN: Yes, your Honour, and we submit, with respect, that there cannot be any obligation arising under the Corporations Act in respect of the declaration sought against CGU because that declaration is something that is sought in respect of the private rights - or I should say the rights of parties to a private contract to which they are not a party and which does not itself involve - - -

FRENCH CJ: I am sorry, the liability of CGU, if there be a liability under the insurance policy, to the directors or the director and the company depends upon the existence of a liability asserted against the director and the company; that is, the principal action. So that if there be a contractual liability in this case the contention is the contractual liability under the insurance policy depends for its existence upon a liability arising under federal law.

MR O’CALLAGHAN: That is how the plaintiffs would put the case, your Honour.

FRENCH CJ: It does, does it not? That does not undercut your argument about the position as between the plaintiff and CGU; I am just talking about the liability of CGU to the directors and the company itself. That, relevantly, only comes into existence if it exists at all, upon the finding of liability in relation to the action by the plaintiff against the company and the director.

MR O’CALLAGHAN: We would accept that, your Honour.

FRENCH CJ: So the contractual liability depends for its existence upon a liability created by federal law.

MR O’CALLAGHAN: In the sense that your Honour puts it, it does depend upon federal law, yes.

FRENCH CJ: Somebody suing on that contractual liability – let us just say it is the director and the company for the simple case, suing on the contractual liability, would seem to be invoking federal jurisdiction, would they not?

MR O’CALLAGHAN: We would say, your Honour, that they would be seeking to invoke federal jurisdiction and that - - -

FRENCH CJ: And you would have no problem with them suing; that is the director and the company themselves suing CGU if CGU denied liability under the insurance policy?

MR O’CALLAGHAN: That is quite so.

FRENCH CJ: Because they have privity, you say?

MR O’CALLAGHAN: Quite so.

FRENCH CJ: Yes.

MR O’CALLAGHAN: We draw what we would trust is not regarded as a semantic distinction between the existence of jurisdiction on the one hand – a finding of the existence of jurisdiction – and the party seeking to invoke it on the other. We say whether it is a matter of federal or State jurisdiction is a matter of pure contract law, there is no jurisdiction because the reason I gave in - - -

FRENCH CJ: I think really what it amounts to is this, that your argument about the unavailability of declaratory relief must be an argument, if it goes to jurisdiction, that says for those reasons there is no matter.

MR O’CALLAGHAN: Yes, your Honour. We accept that.

FRENCH CJ: So that the claim by the plaintiff against CGU is neither part of the matter between the plaintiff and the directors and the company or is a matter itself.

MR O’CALLAGHAN: Yes, your Honour, and as the Court said in Re Wakim, identification of a matter involves the same thing that it does in State courts which is identification of a justiciable controversy. For all the reasons we have given in our submissions, we say that there is no such justiciable controversy here.

KEANE J: So would your argument fail if the claim of the liquidators was for a declaration that your client is obliged to pay the proceeds of the policy to them.

MR O’CALLAGHAN: I think the answer to that question is yes, your Honour, but that is conspicuously what they do not plead. The only declaration that is sought is a declaration that the, we will call them the insurer, is liable to indemnify the insureds, a declaration about the rights of people other than themselves.

KEANE J: That would certainly be a step on the way to justifying the declaration that I have put to you. That would be a step that would be involved. There are really two steps, are there not? There needs to be established an entitlement in the insured to indemnity and then an entitlement in the liquidators to payment of those proceeds by virtue of the Bankruptcy Act and section 562 of the Corporations Act. So it is a two-step thing.

MR O’CALLAGHAN: Yes, your Honour.

KEANE J: But why does not the contest about each of those steps constitute a matter?

MR O’CALLAGHAN: We would say in this instance, your Honour, that it does not constitute a matter or a justiciable controversy - we say they are the same thing - because of what the declaration seeks. The declaration is limited – and I am ageing myself and I shall not - but it is limited to a declaration about the rights of parties to a contract that the liquidators are not themselves a party to and it stops there. They ask in a colloquial sense, what does a liquidator do with a declaration of this sort, once obtained? Your Honour has suggested it is a step in a process but what process exactly, we would say. We say that it is an inutile declaration.

FRENCH CJ: The trouble with approaching it through the entry point of looking at the declaration is, you are asking some questions which are relevant to the existence of jurisdiction but it is very easy to slide into issues which concern power and discretion and the real issue here is jurisdiction.

MR O’CALLAGHAN: We accept that, your Honour, and the Court would have obviously seen from the cases that there is very much a slide that your Honour mentions between power and discretion. Maybe the cases are easier to decide on a discretionary basis than on this basis. We do say, with respect, that the intermediate Court of Appeal decisions that go the other way are wrongly decided and what they do not do, with respect, is grapple sufficiently, or at all, with the reasoning that we urge upon the Court.

If I can turn, if I may, to the liquidators’ case? The liquidators’ contention which they say permeates every aspect of their case for a declaration is that a stranger to a contract of insurance – and by the expression “stranger” we mean someone who is not a party to it, has no rights in respect of it and claims no relief under it – may seek a declaration about the meaning and effect of that controversy when the actual parties have no controversy about it. They say that their contention rests entirely on sections 562 and 117. They say that 562 of the Corporations Act and 117 of the Bankruptcy Act confer on the liquidators what they call “a legal right” and “a direct claim to the insurance proceeds”.

This claim appears – this submission, rather – appears principally at paragraph 11 of the liquidators’ submissions. They concede that the sections do not, in terms, vest in them the insolvent company’s rights against the insurer. We would say, with great respect to our learned friends, that a concession of that sort is a fairly inauspicious way of commencing the task of statutory construction. But they say, nonetheless, that the effect of them is to confer what they call – to confer on them:

a legal right to the proceeds of the policy. Once the insured is in liquidation or in bankruptcy, the provisions operate to give the claimant [them] a direct claim to the insurance proceeds.

The Court would have seen that we take issue with the summary of the provision that next appears; one, because it is incomplete and, two, because it inserts the critical words “has a right to payment” which are not contained in the section.

KIEFEL J: Why is there not a statutory right given – looking at section 562? There has to be a statutory right so that they can demand the moneys in order to discharge the liability to the third party.

MR O’CALLAGHAN: We say, with respect, your Honour, that section 562 is a provision that deals, under Division 6, with proof and ranking of claims. What it does, to use the language of a precursor section, is fix moneys once they are paid by an insurer to the liquidator of the insured. It fixes those moneys with a trust. That is the effect of it.

NETTLE J: That is a contingent right, is it not, a contingent statutory right conferred on the liquidator?

MR O’CALLAGHAN: Your Honour, it depends on what “contingent” means. It is a right that may or may not arise - - -

NETTLE J: That is why it is contingent. It is contingent upon certain events occurring, but nonetheless it is a contingent statutory right.

MR O’CALLAGHAN: We say it does not vest a right in liquidators. It obliges the liquidator of the insured to keep the money separate and to pay it to the liquidators if and when the moneys are received - - -

NETTLE J: That is the obligation.

MR O’CALLAGHAN: But that does not confer - - -

NETTLE J: The correlative is the contingent legal right conferred on the liquidator plaintiffs.

MR O’CALLAGHAN: We say, with great respect, your Honour, that section 562(1) does not do that work on its face. The legislature in many different areas is acutely aware of how third parties are invested with rights they would not otherwise have.

NETTLE J: What you say is it creates a trust, if it operates, as I understood you to say?

MR O’CALLAGHAN: Yes, your Honour.

NETTLE J: If it creates a trust, does it not confer rights on the beneficiaries of the trust albeit that they are for the time being contingent?

MR O’CALLAGHAN: We say, your Honour, that if one looks at the words of the section, it does no more work than oblige the liquidator of the insured to keep the moneys separate and pay them across in the eventuality that they are paid.

NETTLE J: I had understood we had got that far and beyond it to the point where you recognised that it gave rise to a trust. I repeat, if it gives rise to a trust, does it not give rise to rights in the beneficiaries of the trust?

MR O’CALLAGHAN: Your Honour, perhaps “trust” was an unfortunate provocation, but it was a word used in an earlier section of the Companies Act. It is not an expression used now. Perhaps I should not have used it. I do not mean to avoid your Honour’s question by saying that.

NETTLE J: I do not think it matters much what you call it. There is a statutory right of priority in relation to the proceeds of the policy after certain other costs are taken out. That right of priority is contingent, but nonetheless it is conferred statutorily, as Justice Kiefel has pointed out.

MR O’CALLAGHAN: We would say, your Honour, that it is not conferred on the liquidators and that the legislature, when it wants to confer, invest rights in third parties, goes out of its way to make particular provisions. We have referred in our submissions to section 601AG of the Corporations Act, which concerns, as your Honours well know, deregistered companies, and section 51 of the Insurance Contracts Act, which vests rights in circumstances where an insured has died or cannot be found. That is what the legislature does when it wants to vest rights in third parties. It does not do so by the back door in a priorities provision, we would say.

NETTLE J: Very well; thank you.

KEANE J: But is not what you are saying no more than that the liquidators cannot enforce, cannot themselves bring about a situation where the receipt of the money occurs?

MR O’CALLAGHAN: Yes, your Honour.

KEANE J: So they cannot bring that situation about, but once the situation has been brought about, why is it not accurate to say that the third party, that is to say, in this case, the liquidators, have a right to payment of that money?

MR O’CALLAGHAN: If all those circumstances occur – and we, of course, say that they are hypothetical circumstances, and “hypothetical” is another word of describing all the other concepts that we put – if it gets to that, they probably do have a right. That is not what has happened here.

KEANE J: So we come back to the point that it is just that they are not in a position, not being parties to the contract of insurance, to enforce it themselves.

MR O’CALLAGHAN: Most certainly not, your Honour, yes.

KEANE J: But if it were to be enforced, they would then have a right to payment of the proceeds?

MR O’CALLAGHAN: Were those circumstances to occur – and, of course, as we say, they could occur if they chose to fund the insureds to bring an action; something they have never, we say, with respect, endeavoured to explain, because we would not be here if they did that.

KEANE J: Except that it is a bit unrealistic to expect the insured, even if funded, to pursue the action, given that – as one understands the facts – there is nothing in it for the insured. It is nothing more than a conduit, because it enforces the action entirely for the benefit of the liquidators. Why would they even be attracted by the notion of being funded to pursue the litigation?

MR O’CALLAGHAN: There is no reason why they would not be attracted to it, your Honour, in this case. I cannot delve into their minds - - -

KEANE J: But their involvement would be purely charitable. It would be purely in the interests of the liquidators of Akron.

MR O’CALLAGHAN: Or if insurance proceeds are paid ultimately it may be in their own interests. It depends whether they win or lose.

KEANE J: But at a practical level there is not going to be anything left for them because it will all go to the plaintiffs.

MR O’CALLAGHAN: In this situation we also do, in our submissions, draw a distinction between the two different insurers. There is the corporate director who is said to be a de facto or shadow director, one or the other, which is in liquidation. Mr Crewe - no bankruptcy order has been made in respect of him and, one suspects, could not be until some determination of the proceeding. His interests will be different to that of the alleged corporate director.

KEANE J: Thank you.

MR O’CALLAGHAN: We do say, with respect, that the proposition that the liquidators rely on that they have a legal right and a right to a direct claim to the insurance proceeds is not a proposition for which they can or do cite authority. It is, we would say, with respect, inconsistent with what your Honour the Chief Justice said in Ashmere Cove, which is shorthand for Ashmere Cove Pty Ltd v Beekink (No 2) [2007] FCA 1421; (2007) 244 ALR 534. At page 550 at paragraph [59], your Honour said of section 562, in the fourth sentence:

Although s 562 confers no legal right on the applicants as against the insurers, it creates a priority right in the proceeds of any successful claim . . . which gives them a very real interest in having the insurers’ obligations to KMF determined.

Of course, one of the questions of controversy about how the cases differ is whether it is sufficient interest or not.

KIEFEL J: If section 562 does not directly give a legal right to the moneys, does it not confirm the position at law that if there is a liability under the policy the liquidators are entitled to demand the moneys under the policy?

MR O’CALLAGHAN: We would say that it does not, your Honour, because the liquidators have to wait. They have to wait until they pursue their claim against the insureds, wait until they see if they succeed or not and then - - -

KIEFEL J: But what section - - -

MR O’CALLAGHAN: - - - wait to see if a payment – sorry, your Honour.

KIEFEL J: I am sorry, I have cut across you. What section 562 confirms is that if there is a liability of an insurer to pay under the policy, the moneys must be paid to the liquidator and not to the company.

MR O’CALLAGHAN: Section 562 - - -

KIEFEL J: Because you could read the words “by the company or, in the case of a liquidation of the company, the liquidator”.

MR O’CALLAGHAN: Yes, the words:

and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer - - -

KIEFEL J: But what it confirms is that where there is a liquidation on foot the insurer must pay to the liquidator, not to the company.

MR O’CALLAGHAN: We would rather have thought that it contemplates either possibility because it contemplates receipt by the company or the liquidator from the insurer.

KIEFEL J: But if there is a liquidation on foot, a creditor would be obliged to pay for the liquidator not the company. Is that not right?

MR O’CALLAGHAN: One would imagine so, your Honour, but I am not sure that is exactly what 562(1) says because it does contemplate the payment being received by the company or the liquidator.

BELL J: On either view, given the company is in liquidation, why is that not a real interest as distinct from a legal right for the purposes of the declaratory relief that is sought?

MR O’CALLAGHAN: In essence, your Honour, we say that an economic interest of that type is not the sort of legal interest that the cases say is necessary.

BELL J: Not within the scope of the plurality reasoning in Ainsworth.

MR O’CALLAGHAN: I am sorry, your Honour.

BELL J: Your submission is that an economic interest of this character, namely, the interest as the beneficiaries of an insurance policy granted by statute, that economic interest is not the kind of real interest to which the plurality refer in Ainsworth.

MR O’CALLAGHAN: Yes, your Honour, and we would say it is not real, it is not immediate, it is hypothetical and it is dependent upon a bunch of things happening in the interim and it therefore does not satisfy that description, and we have said so in detail in our submissions. We do say, with respect, that the decision of this Court in AssetInsure is relevant in this regard. AssetInsure v New Cap Reinsurance [2006] HCA 13; (2006) 225 CLR 331, and at paragraph 79 on page 358, their Honours Justice Kirby and Justice Hayne, in the context of considering questions about reinsurance, turned to what section 562 does and at 79 explained the historical position in the UK and the 1930 Act and set out the critical provision of that 1930 Act, and in paragraph 80 note that:

Australian companies legislation took a different path from that taken by the Third Parties (Rights against Insurers) Act. Rather than proceed by vesting the insolvent company’s rights against the insurer in the third party to whom the liability was incurred, provision was made in the companies legislation for preferential treatment of such a liability.

Now, the liquidators can only contend that they have some kind of vested right and we say, for reasons that find some support in that passage, it does not do so, and we also say that the existence of some right is inconsistent with the limited declaratory relief that they seek.

They contend that the statutory provision vested in them are right, but then they do not seek any relief, declaratory or otherwise, to enforce it or to even raise it, and we say if that is the sum of their case then the appeal should be allowed on that basis alone because we say the construction for which they contend of those two provisions cannot be right.

We have been accused of some egregious breach of a Latin maxim and have provided to the Court copies of the 1930 UK Act and the as yet not enforced UK 2010 Act only for the purpose of demonstrating what legislatures need to do in order to vest rights of the kind the liquidators contend they have and the sorts of policy considerations that arise once one makes the decision to vest such rights.

The 1930 Act - section 1 is headed “Rights of third parties against insurers on bankruptcy” and this deals both with companies in liquidation and all sorts of other things and individuals. But if some insolvency event occurs then, reading from the last five lines of the first page:

if, either before or after -

one of those insolvency events -

any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred.

Subsection (2) deals with what is to occur with deceased debtor’s rights, which is another policy consideration. Subsection (3) deals with what happens to parties to an insurance contract in circumstances where the insurer seeks to avoid the rights conferred by this statute. Subsection (4) provides that:

the insurer shall, subject to the provisions of section three of this Act, be under the same liability to the third party as he would have been under to the insured -

but there are two exceptions. Subsection (6) provides a carve-out of obvious enough cases. Section 2 provides a duty to give necessary information to third parties so that you can find out whether someone is insured and, presumably, for how much. Section 3 deals with settlements between insurers and insured parties. It says:

Where the insured has become bankrupt or where in the case of the insured being a company, a winding-up order . . . no agreement made between the insurer and the insured after liability has been incurred to a third party . . . as the case may be, nor any waiver, assignment, or other disposition . . . shall be effective to defeat or affect the rights transferred to the third party -

The courts in England held very early on that rights only vested upon a determination by a court that the insured was liable to pay the third party – and that has been regarded by some as an unsatisfactory state of affairs – and that is one of the reasons, among many, that the 2010 Act was passed but, as we said, that is not yet enacted. One of the critical changes that the 2010 Act will make, if it ever comes into effect, is in section 1(2), which provides:

The rights of the relevant person under the contract against the insurer in respect of the liability are transferred to and vest in the person to whom the liability is or was incurred -

and then, more importantly, subsection (3):

The third party may bring proceedings to enforce the rights against the insurer without having established the relevant person’s liability; but the third party may not enforce those rights without having established that liability.

So that is a change to the position. There are all sorts of other provisions in the new Act. Our point is that if a section like 562 is to vest a right in the liquidators in this case we would say, with great respect, that would be by a side wind; it would be inconsistent with the approach that our own legislature takes to vest in third party rights and people in analogous situations. To the extent that it is relevant, it would be inconsistent with legislation of this sort and Canadian legislation that we cite too. We only cite it for the purpose of demonstrating that there are matters of policy that legislatures have to address in this regard and that is a reason for not construing legislation in the manner contended for by the liquidators. Could we briefly go to the reasons of the Court of Appeal? We deal with the reasons in paragraphs 10 and onwards in our propositions document.

FRENCH CJ: Did the Court of Appeal decide whether they were involved in an exercise of federal jurisdiction or State judicial power or simply that it did not matter?

MR O’CALLAGHAN: It was not an issue that arose, your Honour, or that either our learned friends or ourselves referred to. The court did not refer to it.

FRENCH CJ: It is generally a good idea to know.

MR O’CALLAGHAN: We would accept that, your Honour, and we would accept that it is a good idea to know whether it makes any difference in the end or not.

FRENCH CJ: Or what kind of jurisdiction you are exercising. If Justice Gummow were here he would probably put it in far more trenchant terms than I did.

MR O’CALLAGHAN: The reasoning of the Court of Appeal commences at page 284 of the appeal book. If we could go to page 287? After the introduction and some background, at the very bottom of page 287 the court notes:

Neither Crewe Sharp nor Mr Crewe have indicated any intention to challenge CGU’s denial of liability.

They say why they say that in paragraphs 11 and 12, and that is the simple fact. The judgment below of Justice Judd is dealt with at pages 289 to 292. The analysis commences at page 292 at paragraph 21. We would say, with respect, that the court has correctly characterised the submission we made in broad terms in the first sentence of paragraph 21. They then cite Ainsworth. Having done so, at paragraph 23 they draw a distinction between federal cases and make this statement:

The position is of course different in the context of federal jurisdiction, where there must be a ‘matter’ sufficient to attract the exercise of judicial power.

We say that whether it is a matter or a justiciable controversy it is the same thing. The court then says:

For that reason, observations about limits on the power of courts exercising federal jurisdiction to grant declarations do not necessarily assist - - -

FRENCH CJ: That rather suggests they did not think they were in federal jurisdiction, does it not?

MR O’CALLAGHAN: It does rather think that that is what they thought, but I suspect, your Honour, that was not a result of anything the parties submitted. We say that proposition just cannot, with great respect to their Honours, be correct. They then go on to say that:

even in that context –

it means the context of federal jurisdiction –

authority is against the view that the court lacks jurisdiction –

Then it seems that the court relies principally, if not entirely, upon the judgment of your Honour the Chief Justice in Ashmere Cove. It is noted in the final sentence of paragraph 24 that your Honour’s analysis –

was upheld on appeal by the Full Court.

That is true in one sense, but your Honour dealt with the case on discretionary grounds because counsel conceded that it was only a discretionary point. Then, on appeal, someone thought of what they called “the constitutional argument”, and the Full Court dealt with both the constitutional argument and discretion. For what it matters, the cases are not identical.

In 25, the Court of Appeal recognises there is a conflict of authority on the res judicata point. Principally, it is between what Chief Justice King said in JN Taylor and what was said in Interchase. The court in 26 found it unnecessary to resolve the conflict of that res judicata. They then say:

Neither of those decisions decided the question whether the making of a declaration would be determinative by virtue of abuse of process –

That may be overstating the position a bit because the court in Interchase certainly took the view that Anshun was unlikely to be applied. Our principle point about Anshun really is that you cannot tell now whether and why CGU may or may not be prohibited from re-litigating the point in circumstances where the course of the trial cannot be known.

The participation of the insureds – one of whom is in dire trouble and has not got enough money to participate and the other has not participated significantly to date – in the course of such a trial, how it ends up, and whether CGU may be so prohibited, we say is not something that can be absolutely determined. The Court of Appeal, we say, did absolutely determine that, without question, the doctrine in Anshun would apply to prevent us relitigating, no matter what happened in the trial.

NETTLE J: Of course, as parties to the proceeding, you would have every right to dispute the director’s liability to the liquidators.

MR O’CALLAGHAN: Yes, your Honour.

NETTLE J: And thus make up the inadequacies created by their lack of funding to defend the claim.

MR O’CALLAGHAN: Well, we may or may not be able to do so, your Honour. There are material non-disclosure pleas, for example, and how a trial works in circumstances where the insureds are not actively participating and do not give evidence or do not give discovery about matters relevant to material non-disclosure are all things that, by way of example, cannot now be known and should not be predicted with the sort of certainty that the Court of Appeal brought to bear.

NETTLE J: The point is simply it is up to you. If as a defendant to the proceeding you choose to defend the claim you may by calling the directors if you wish and obtaining all the discovery in the world.

MR O’CALLAGHAN: Whether that happens, your Honour, and the extent to which it is permitted, is something that we would say cannot be predicted with the sort of confidence that your Honour has in mind.

NETTLE J: I assume that is what was informing the views of the Court of Appeal in the passage that you have just criticised.

MR O’CALLAGHAN: Well, we should not make assumptions, with great respect, your Honour, about what informed the Court of Appeal’s reasons. The reasons are the reasons, as Justice Hayne said in more elegant terms in Waterways v Fitzgibbon, I think. The critical reason the court gives for saying that Anshun would decide is the words:

In other words, the making of a declaration in the circumstances sought in the present case 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 the insured and insurer. It would be an abuse of process to permit either to litigate the question in subsequent proceedings -

Other than the decision of Justice Davies dissenting in Interchase, we do not read any court to say as emphatically at Anshun, at this stage - which is the only stage the question of jurisdiction can after all be determined - to say at this stage that the doctrine of Anshun would apply, and even in Ashmere - I should not say even, but in the Full Court decision in Employers Reinsurance Corporation v Ashmere Cove [2008] FCAFC 28; (2008) 166 FCR 398, which is a decision of Justices Heerey, Sackville and Siopis, at page 412 their Honours say at paragraph 68:

Assuming the view of the Queensland Court of Appeal in Interchase [2002] 2 Qd R 301 is indeed to be preferred –

on the res judicata point -

any attempt by the Insurers to relitigate their liability under the Policy in subsequent proceedings would give rise to an issue concerning the application of the Anshun principle. The outcome cannot be predicted with certainty, since it may be influenced by the course the trial takes.

Then at paragraph 71, they warm up a bit on the point and say in the middle of line 3:

it is difficult to see why the Anshun principle would not preclude them from relying on any such defence in subsequent proceedings –

although we do read those observations to be relevant to the question of discretion rather than jurisdiction.

FRENCH CJ: It was all going to the practical utility question, was it not?

MR O’CALLAGHAN: Yes, your Honour, that is right. But the Court of Appeal, we would say, with respect, has elevated that consideration because it did after all say in paragraph 36 that is all that matters, but we say to elevate the question to something that is the only consideration in accepting that there is jurisdiction to hear the case is contrary to authority and is a proposition that should not, with great respect to their Honours, be accepted.

The Court in paragraph 20 – I should go back to the last line of paragraph 26. The trial judge did observe this but he was mistaken and so, too, was the Court of Appeal. We never accepted at any time that that position was so in relation to Mr Crewe.

In paragraph 27, the Court does not consider what Justice McLure said in QBE because it depended, in part, upon what Justice Gaudron said in Truth About Motorways. Because that was a federal case, they did not deal with QBE further. Their Honours then refer to the decision of the Victorian Court of Appeal in CE Heath [1997] 2 VR 256, but that is not a passage that we took the Court to. The passage that we relied on was the observation of Justice Ormiston in that case which we record at footnote 56 on page 15 of our main submissions where Justice Ormiston:

expressed “the gravest doubts” –

is the expression he used about whether a non-party to a contract could do the sort of thing the liquidators want to do here. Of course, it was a different case because in CE Heath the insureds had not made up their minds about whether the policy responded or not and the case went off on that ground. But, it was Justice Ormiston’s observation that we pointed to. In paragraph 31, there is another observation in the first sentence that:

The judgments in CE Heath did not address the issue upon which the reasoning in Ashmere Cove depended.

Other than the observation I have just made, we did not contend otherwise. As to Ashmere Cove, the Court says:

We are conscious that, in Ashmere Cove, the issue of jurisdiction was conceded and the matter was determined based on discretionary considerations.

That, with great respect, is also not correct because although the issue of jurisdiction was conceded, or not pressed below, it was - - -

FRENCH CJ: The question of power was conceded.

MR O’CALLAGHAN: Power was conceded, yes.

FRENCH CJ: Jurisdiction was not raised.

MR O’CALLAGHAN: But it certainly was raised in the Full Court.

FRENCH CJ: Yes.

MR O’CALLAGHAN: So, the Court seems unaware of the difference between the two cases. In paragraph 33, it is suggested that we submitted that the judge’s discretion miscarried. We did not make, nor could we have made, on the basis of our appeal any submission about discretion.

NETTLE J: I just took that to be the discretion to allow the amendment to join the party and it miscarried by reason that he had failed to understand that there was no jurisdiction to do what was being asked.

MR O’CALLAGHAN: It may be, your Honour, but our point is that we did not make submissions about whether discretion miscarried or not with Justice Judd. The construction point, the 117, 562, is dealt with in paragraph 34. There the court accepts submissions made by our learned friends which we say are different to the submission they make now about the provision vesting rights in them. They are accepted. We deal with that proposition in our submissions at paragraphs 37 to 39 and 57 to 65.

Then their Honours turn to the Civil Procedure Act and the need to avoid multiplicity of proceedings and so forth. Of course, your Honours would have seen from our submissions that, in our submission, it is the last sentence of paragraph 37, read with paragraph 26, that is the ratio of what their Honours had said, because the penultimate sentence in paragraph 37 says that everything that appears above “are matters for determination at trial”, whether the court ultimately hears and grants relief cannot be known and so forth.

We say that there is a mixture there of factors that should have been considered at the anterior stage of determining whether the court had jurisdiction or not and the court, for reasons we give at submissions 68 to 71, was wrong to put them all to one side and say that they are all questions for trial.

NETTLE J: But might it not change if there were a determination that the directors were liable to the liquidator? Might it not then be a more strongly arguable case that there is jurisdiction then to make a declaration that the insurer is liable to indemnify the directors?

MR O’CALLAGHAN: We say, with respect, your Honour, that questions of jurisdiction have to be and can only be determined on what on one view may necessarily be limited material, and that is an observation that the Court made in Wakim’s Case.

NETTLE J: But is it necessary that there be jurisdiction before the declaration is finally made?

MR O’CALLAGHAN: Yes, your Honour; that is our point. It is necessary that there be jurisdiction. I am sorry; I beg your pardon. I have - - -

NETTLE J: So long as it has been established by the time the judge comes to make the declaration, is that not sufficient?

MR O’CALLAGHAN: We say no, your Honour. Questions of jurisdiction either have to or ought to be determined before the case commences, or even at the commencement of it, and they are necessarily to be determined on the limited basis of information available at the time.

In Wakim [1999] HCA 27; (1999) 198 CLR 511, their Honours did make an observation along those lines – I say their Honours, I meant Justices Gummow and Hayne - at page 585. In paragraph 138, their Honours refer to Philip Morris, Fencott and Stack and in the question of determining whether there was a single matter, said at 139:

The central task is to identify the justiciable controversy. In civil proceedings that will ordinarily require close attention to the pleadings (if any) and to the factual basis of each claim.

KIEFEL J: What about the position where it is necessary to find facts to found jurisdiction?

MR O’CALLAGHAN: We would say, your Honour, if the facts are pleaded, then they are not found, are they?

KIEFEL J: No.

MR O’CALLAGHAN: I do not mean to avoid your Honour’s question, but cases of this type are determined on the pleadings. It is not - - -

KIEFEL J: It may suggest that there is no black and white rule.

MR O’CALLAGHAN: Yes.

KIEFEL J: It just depends upon the circumstances of a particular case.

MR O’CALLAGHAN: The circumstances – this is picking up Justice Nettle’s question too – the Court goes on to say, about seven lines down, in paragraph 140:

Considerations of impression and practical judgment are relevant –

This is in relation to the question - - -

FRENCH CJ: This is the accrued jurisdiction – what is the scope of the matter?

MR O’CALLAGHAN: Yes.

FRENCH CJ: It suggests an evaluative judgment, does it not, to some extent?

MR O’CALLAGHAN: Yes. They say:

the question of jurisdiction usually arises before evidence is adduced and often before the pleadings are complete. Necessarily, then, the question will have to be decided on limited information.

FRENCH CJ: Usually arises.

MR O’CALLAGHAN: Yes, your Honour. I did not not use the word “usually”.

FRENCH CJ: No, no.

MR O’CALLAGHAN: We do say in relation to paragraph 38 that those sorts of considerations about countenancing or not countenancing the possibility of separate proceedings should not be relevant to the question of whether jurisdiction exists. If that passage and passages like it were intended to say that matters of case management and the like are relevant to the question whether there is a justiciable controversy, we would say, with great respect to their Honours, that that cannot be correct.

It is not altogether clear in these reasons, with respect, which of these considerations were operative on the question of their ultimate finding that there was jurisdiction. All the questions of whether one countenance is separate proceedings or not are really questions that cannot be known for sure. If CGU sits through a two-week trial and is told at the end of it that there is no jurisdiction that would not be, at least from CGU’s point of view, a very effective - - -

FRENCH CJ: That just emphasises the desirability of determining jurisdiction in the usual case up-front.

MR O’CALLAGHAN: Yes, your Honour.

FRENCH CJ: I suppose, coming back to the points I was putting to you earlier on, one can extract from consideration of the availability of declaratory relief a subset of questions which go to the question, for the purposes of federal jurisdiction, whether the court has jurisdiction. There are other questions which go to matters of discretion in the grant of the relief down the track. It is that subset of questions relating to availability of declaratory relief in this context, in your submissions, that goes to the question of jurisdiction in the sense of is there a matter?

MR O’CALLAGHAN: Yes, your Honour.

FRENCH CJ: Assuming it to be a matter arising under federal law, even though it concerns a contractual right.

MR O’CALLAGHAN: Yes, your Honour. As I said, whether it is a matter or justiciable controversy, they are identical questions.

FRENCH CJ: I am not sure that equation has been made in the court’s jurisprudence. There are various ways of describing the concept of “matter”.

MR O’CALLAGHAN: We would say, with respect, that at least Justices Gummow and Hayne in Wakim equated “matter” with justiciable controversy. For all the reasons we have given, we say there is not one. Whether that arises under federal jurisdiction or State jurisdiction, it matters not.

KEANE J: Whether one is talking about a matter or using the language of justiciable controversy is there not both a matter and a justiciable controversy arising out of your client’s refusal of the claims for indemnity by Mr Crewe and by Akron?

MR O’CALLAGHAN: By Crewe Sharp?

KEANE J: By the insureds? Is there not a matter that can be entertained by the courts?

MR O’CALLAGHAN: It could be entertained if the insureds sought to challenge CGU’s denial of the indemnity, but the evidence is that they have no intention of doing so.

KEANE J: But there has been a claim on your client by each of the insured and a refusal of indemnity. So while there may not be the pursuit of the resolution of the matter, there is not much doubt, is there, that there is a matter?

MR O’CALLAGHAN: We would say, your Honour, in circumstances where the insureds have no intention of challenging the denial – to use the Court of Appeal’s words; they have indicated no intention to challenge – then there is not because there is no extant dispute or likely dispute of any type. The matter has - - -

KEANE J: Why is there not simply a dispute because they demand and you refuse?

MR O’CALLAGHAN: They have effectively put up their hands and said okay.

KEANE J: It is a different thing entirely, is it not, to say they have done nothing about it; they have done nothing about resolving the dispute? That is one thing. It is a different thing entirely to say that they have accepted that their claim is rightly refused.

MR O’CALLAGHAN: We would say for practical purposes, your Honour, they certainly – I am not suggesting the insureds have said, “Yes, you were right to refuse our claim”, but the claim having been refused they have sought to do nothing about the refusal. One cannot do better than the words of the Court of Appeal; they have not indicated an intention to challenge. That has to be read as no current or likely intention to challenge and that means that there is not an extant dispute and therefore no matter. The evidence about the precise position - there is correspondence about the insured’s position. The evidence about it is at appeal book 210, 166 and 170.

BELL J: What is wrong with reasoning that in exceptional cases, of which this type is one, where there is the issue of the denial of indemnity by the insurer, the insured has no interest in the matter in the sense that the insured is insolvent? In those circumstances, why would not one depart from a general rule in relation to those who are the beneficiaries of the fund in the event the controversy is resolved against the insurer under the statute? What is wrong with the reasoning?

MR O’CALLAGHAN: Well, firstly, only one of the insureds is – the corporate insured is in liquidation. Mr Crewe is not.

BELL J: Is in liquidation, and there are suggestions that Mr Crewe’s means are – there is some evidence about that - - -

MR O’CALLAGHAN: There is.

BELL J: - - - which suggests that it is likely that there will be a trustee appointed in due course.

MR O’CALLAGHAN: Well, if and when the plaintiffs are successful in a judgment, I think it is in the realm of $14 million and his assets are a fourteenth of that. But if and only then that is more likely than not, one would imagine, in the ordinary course of things to happen. We would say, with great respect, your Honour, in his case he certainly has an interest, one would imagine, in pursuing any legitimate claim to an indemnity.

Of course, we argued before Justice Judd that this policy will not in a million years respond to this claim because it is not a director’s liability policy, among any other things. So one would be guessing to know what Mr Crewe’s own expectations or preferences or interests are with respect to agitating some contest.

If one accepts the premise of your Honour’s question that the corporate insured has no interest, we would, with great respect, say that that is a matter for the legislature to decide and that these provisions simply do not do the work that many others other than insurance companies may wish them to do as a matter of statutory construction.

We say, with respect, that the statutory construction which permeates every aspect of the liquidator’s case is not right for the reasons we have endeavoured to explain and, if it is not right, they do not have another basis for seeking a declaration. I was going to turn to the different cases in the intermediate Court of Appeal, but I suspect that that would not be useful.

FRENCH CJ: I think we are well aware of them. We have read your submissions.

MR O’CALLAGHAN: So unless there was anything further, those are our submissions.

FRENCH CJ: Thank you, Mr O’Callaghan. Yes, Mr Crutchfield.

MR CRUTCHFIELD: Thank you. If the Court pleases. Can I just start with the Court’s question, in particular, the specific questions that your Honour the Chief Justice raised this morning about federal jurisdiction? The first question, is the claim against CGU a matter arising under federal law, we would answer that question yes, it is, by reason of the fact that it is not a pure contractual dispute. It engages section 562 and section 117, which is Commonwealth legislation.

To the separate question that the Court asked this morning, the Chief Justice asked is CGU’s claim part of a federal law matter constituted by the insolvent trading claim that is brought by my client against the directors, again we would answer that question yes. So we are in federal jurisdiction and we also agree with the observations with respect of the Chief Justice that the Court of Appeal assumed it was in State jurisdiction. That is clear from paragraph 23.

But one needs to be fair, we would say, to the Court of Appeal because what CGU is saying in this case remains elusive. All the way along, including in the submissions to this Court, they rely upon the reasons of her Honour the President, Justice McLure, and the reasons of Justice Byrne and Justice McPherson in that very old decision of Interchase under the old Queensland Rules.

Now, if one has a look at those decisions – and I can take the Court to them, perhaps it is convenient to go first to Justice McLure - but the point is neither of those decisions say there is no power to grant a declaration. Neither does Justice Ormiston when he expresses his grave doubts - and I will come on to those. The argument was about whether or not – and the argument in this proceeding was about whether or not granting the declaration would be inutile, which is what Justice Byrne found and what we say is the proper reading of Justice McLure.

Sorry to do this out of order, but can I just also go to the Court of Appeal’s reasons and you can see it clearly from the Court’s reasons in appeal book 289 at paragraph 16. We accept that questions of jurisdiction and standing – there is an overlap - but CGU have always elided these concepts and they have really focused, because of their reliance on Justice McLure and the Interchase decision, on not whether or not there is power in a constitutional sense, whether in State law or federal law, but whether the granting of the jurisdiction would be inutile.

As to the list of cases that is dealt with there, I do not think any of those raise the question of whether there was constitutional power for State or Commonwealth purposes, the only exception to that being Ashmere Cove in the Full Court.

FRENCH CJ: We are talking about statutory jurisdictions. When we are talking federal jurisdiction in the context of a State court we are talking about jurisdiction conferred by section 39 of the Judiciary Act.

MR CRUTCHFIELD: Absolutely.

FRENCH CJ: Or section 1337B, I think it is, of the Corporations Act and so forth. So we are not talking about constitutional jurisdictions here; we are talking about statutory federal jurisdiction.

MR CRUTCHFIELD: Yes, and I apologise. That is right. But my point is it is not really the way CGU have put the point. Let us go to Justice McLure’s observation, because what Justice McLure does is distinguish Ashmere Cove and says that it is unnecessary for her Honour to decide it. That is the QBE decision. Her Honour deals with Ashmere Cove, starting at paragraph 31. There is an acceptance at the start of paragraph 32 that the court had power to join:

The joinder was opposed on discretionary grounds only.

Her Honour deals with the Full Court’s decision and says in paragraph 34:

There was no ‘lis’ -

and points out, at 35:

Special leave to appeal was refused . . . The special leave point relied on was the constitutional issue.

Then her Honour says:

There must be a justiciable controversy (that is, a ‘matter’ for constitutional purposes) before there is jurisdiction to grant declaratory relief.

Then her Honour goes on and says, at paragraph 40:

Accepting that a third party can in appropriate circumstances obtain declaratory relief in respect of the private rights and duties of others, such occasions are likely to be very rare.

Then in 50 and 51 her Honour concludes, in effect, that it would be inutile to grant the declaration here. In 51, her Honour says:

However it is unnecessary for this court to determine whether Ashmere Cove is wrongly decided. That case is distinguishable on its facts. In the circumstances which I have detailed, the real controversy in this case is between Mr Hill and the appellants . . . That being so, there is no arguable basis . . . Thus there is no utility -

That is the decision our friends say should have been followed. You get the same out of Justice Byrne’s decision in Interchase and, for that matter, Justice McPherson. I will deal with his Honour first. Justice McPherson, at page 314, makes it clear that it is not a power question, at about line 25 and following. As Justice Keane points out at line - it is clear from Justice McPherson, at line 40, that it is all about the application of the rule.

FRENCH CJ: You seem to be equating power and jurisdiction. There is jurisdiction - authority to decide; power - the things you can do by way of orders that you can make, remedies you can grant, et cetera, which this Court has frequently - a distinction this Court has frequently drawn and I think it is important to maintain that distinction. We are talking here about jurisdiction. That is how the ground of appeal is framed.

MR CRUTCHFIELD: It is. I accept that, and I will come on to why there plainly is a matter, and therefore jurisdiction. But just to finish this off, Justice Byrne also accepted it was not a jurisdiction question. It was about whether or not it was inutile, and that is at page 320. To turn to the question of whether or not there is a matter we submit there plainly is a matter and perhaps the best place to start with that is the reasons of the Full Court in Ashmere. There is a matter, for all of the reasons that the Chief Justice put and the additional reasons that Justice Keane and Justice Nettle were putting to us. It starts at paragraph 43 on page 408, where the court quotes from Crouch v Commissioner for Railways – I will just read the second paragraph of that:

When the word “matter” is used in Ch III of the Constitution in its ordinary prima facie sense of the subject matter for determination in a legal proceeding rather than the legal proceeding itself, it focuses attention upon the substance of the dispute.

Then in 44 –

The distinction between a “matter” and legal proceedings is illustrated by the decision of the High Court in Re Wakim –

Then at the bottom of the page, 45 –

Gummow and Hayne JJ (with whom Gleeson CJ and Gaudron J agreed) accepted . . . that the bringing of three separate proceedings would ordinarily suggest that there was more than one matter. If that were so, the question of jurisdiction would have to be resolved separately in each proceeding. However, their Honours considered . . . that the authorities had established that:

the identification of the justiciable controversy between parties is not determined only by the considerations of there being separate proceedings and different parties in the one court. And in some circumstances a single matter can proceed through more than one court.

Over the page, at the end of that quoted paragraph –

The central task is to identify the justiciable controversy. In civil proceedings that will ordinarily require close attention to the pleadings (if any) and to the factual basis –

Then, at 47, about halfway through the quote –

What is a single controversy “depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships”. There is but a single matter if different claims arise out of “common transactions and facts” or “a common substratum of facts”, notwithstanding that the facts upon which the claims depend “do not wholly coincide”. So, too, there is but one matter where different claims are so related that the determination of one is essential to the determination of the other, as, for example, in the case of third party proceedings or where there are alternative claims for the same damage and the determination of one will either render the other otiose . . . Conversely, claims which are “completely disparate”, “completely separate and distinct” or “distinct and unrelated” are not part of the same matter.

Then at the bottom of the page, we submit entirely correctly, the court says –

The flaw in the Insurers’ approach to the constitutional issue is that it assumes that the boundaries of the “justiciable controversy” in the present case are determined by the contractual relationship between [the insured] and the Insurers. Mr Donaldson’s emphasis on the contractual relationship arising out of the Policy tends to obscure the fact that a single controversy is capable of embracing far more than a dispute between the parties to a particular contract. It is to be remembered that the word ‘matter’ is a term of wide connotation.

Then, 50, we rely upon. Paragraph 51, the first sentence is precisely the situation here:

The core of the justiciable controversy is the dispute between the Investors –

for which read our clients, the liquidator of Akron and Akron itself –

and KMF -

being Crewe Sharp and Mr Crewe. Then halfway through that paragraph the court says:

On any view, the controversy constituted by the exchange of correspondence –

picking up Justice Keane’s point -

between the liquidator of KMF and the Investors formed part of the single controversy arising out of the Investors’ claims against KMF. The success of the Investors’ claims is an essential prerequisite to the determination of any claim by KMF –

for which read Crewe Sharp and Trevor Crewe -

for indemnity -

from CGU -

(although the Insurers wish to raise other defences.)

Pausing there, the Court will have noted that CGU has pleaded other defences. We are not taking a Verwayen point. We have never filed a conditional appearance and to use our friends’ phrase, it is “passing strange” that they are participating in the action, pleading, with apparently no difficulty whatsoever, non-disclosure and other defences that they intend to run against the insured and at the same time saying there is – apparently saying there is no jurisdiction:

Moreover, the liquidator’s request that the Insurers agree to indemnify KMF arises out of the same substratum of facts as the Investors’ claims.

Paragraph 52:

The Investors plainly have a real interest in establishing, if they can, that the Insurers are liable to indemnify KMF . . . Certainly they have standing to claim declaratory relief against the Insurers -

and the court quotes from Justice Lockhart’s well-known passage in Aussie Airlines.

Even though the Investors are not at this point seeking orders directly against the Insurers (other than a declaration) –

and we say it is unnecessary for this Court to decide this, but I will take your Honours to some passages in some of these cases which suggest it is not unarguable that we do not have a direct right against CGU right now, but that is not necessary because we have a real interest. It is not necessary for this Court to decide that question. Then 53 is important – and we do not want to fall into the error of saying that the Durack-type error that people fell into that comments on special leave mean anything, but these observations here were relevant to Justices Gummow, Kiefel and Hayne on the special leave from this decision:

One possibility is that the Investors could take advantage of s 562 of the Corporations Act, should the liquidator receive an amount from the Insurer pursuant to the Policy -

which, I think, is Justice Kiefel’s point -

A second is that the Investors may invoke s 601AG of the Corporations Act in the event that KMF –

here Crewe Sharp -

is deregistered.

That section – if Crewe Sharp, which is in liquidation, were to be deregistered, the Corporations Act gives us a direct right against the insurer, and that is what it says.

A third option is for the Investors to appeal to the Court, pursuant to s 1321 . . . against the liquidator’s refusal to file a cross-claim or otherwise proceed against the Insurers.

So there is clearly a matter and that issue is elaborated upon in the authorities that our friends have referred the Court to, including the Kuczborski decision that many of your Honours participated in the reasons. I will not go to it. It is in the list. It is also clear, we say, from Justice Gaudron’s reasons in Truth About Motorways and that passage that is relied upon, her Honour is not saying there is no jurisdiction, and perhaps if I could just go to that briefly.

FRENCH CJ: Just before you do, how vital is 562 to your argument? I suppose if there were an entitlement – I suppose it depends upon whether the insured actually claimed relief and then a debt was created between – I am thinking in terms of garnishee-type relief.

MR CRUTCHFIELD: Yes.

FRENCH CJ: But that depends upon the existence of a judgment debt as between insurer and insured, does it not?

MR CRUTCHFIELD: It does, but to pick up on a point I think that Justice Kiefel was making and the debate between Justice Nettle and our friend, 562 we do say does create a statutory trust and just like in equity – the decision of Justice Finn in Lidden that it is notorious, where a trustee refuses to take action or is conflicted, the circumstances have to be exceptional, but the beneficiary can sue the third party. It is not relevant to this case per se, but we say it is possible to posit circumstances in which if the insured is refusing to sue the insurer, that a court would allow us to step into the shoes or sue the insurer directly.

Just on Truth About Motorways, the passage that is relied upon appears at page 611, paragraph 46, and we had always understood – well, as I say, it has always been opaque or elusive, but CGU seemed to be making a standing point more than a jurisdictional point, at least until they put in their notice of appeal. At 46 her Honour says:

There may be cases where, absent standing, there is no justiciable controversy. That may be because the Court is not able to make a final and binding adjudication. To take a simple example, a court could not make a final and binding adjudication with respect to private rights other than at the suit of a person who claimed that his or her right was infringed. Or there may be no justiciable controversy because there is no relief that the court can give to enforce the right, duty or obligation in question.

That sentence that is relied upon as a general proposition is unremarkable, but her Honour should not be taken, we submit, to be saying that there can never be any exceptions to that. Her Honour goes on in 49 and 50, we rely upon:

Absent the availability of relief related to the wrong which the plaintiff alleges –

Well, that is us. On any view, we submit the relief that we seek – the relief we seek, the declaration that CGU indemnify the insured, is related to the wrong which we allege which is the injury we have suffered that is insured. Then, paragraph 50:

Provided there is a remedy which is appropriately related to the wrong in question, whether the remedy derives from the general law or is created by statute, nothing in Ch III of the Constitution prevents Parliament from –

et cetera. So, in summary, we accept that we are in federal jurisdiction and the Court has to be satisfied there is a matter and we say for numerous reasons there is, or perhaps are matters.

Without wishing to descend into the facts, we disagree with the proposition that is put by our friends that neither Trevor Crewe nor Crewe Sharp has indicated any intention to challenge CGU’s denial of indemnity. If I could go briefly to the appeal book, your Honours have Mr Blakeley’s affidavit and it starts at page 165 of the appeal book, paragraph 4 and the “Fourth Defendant” referred to in paragraph 4 is Crewe Sharp and then Trevor Crewe is referred to in RAB-7, which appears at page 170. We rely in particular on the sentence:

Our client disagrees with the denial of indemnity which was given by CGU in respect of the professional indemnity policy obtained by Crewe Sharp Pty Ltd prior to its liquidation. Our client considers that CGU’s denial of indemnity is incorrect and is agreeable to your clients’ joining and pursuing the claim against CGU.

The denial of indemnity itself is in the appeal book. Justice Keane referred to it. It is at AB 158 and we submit that it is plain from that detailed denial of indemnity that there is a sufficient nexus between that denial of indemnity and the claim which we bring against Mr Crewe and Crewe Sharp Pty Ltd. So, we are obviously strangers to this contract but to paraphrase, if not quote Justice Gummow, we are not an alien.

Just a few other matters, we submit that once it is accepted there is a matter and there is jurisdiction and it is accepted that there is power to grant the declaration, and we are into the realm of whether or not it is an inutile thing to do, we submit we are in the realm of House v The King and that is the end of it but even if for some reason the Court were to disagree with that, we say rhetorically, what is wrong with the use of the declaratory power in this way.

It is a procedural remedy which is extraordinarily flexible, engaged by trial judges all around the country all of the time. There are other examples one can posit where someone is sued for breach of a sale of business agreement, for example, and the plaintiff that has bought the business has warranty insurance in relation to that. Courts around the country have joined the plaintiff’s warranty insurer on the application of the defendant, who is an alien, a stranger, so that all the matters can be resolved in the one proceeding. It is really to go back to a pre-Judicature Act world where we have to have two separate sets of proceedings and we submit there is no warrant for such an approach.

In Ashmere at first instance it is true that your Honour the Chief Justice said there was no direct legal right that the third party, the injured party, had against the insurer – that is at paragraph 59 – but that was in the context of there was no assertion that there was a legal right; that is paragraph 36. It was not argued before your Honour that there was a legal right.

Can I just go to some of the passages in the cases – your Honours, I will only be about another 10 or 15 minutes, I think – which allude to the fact that there may well be a direct right that the third party possesses against the insurer. We say it is not dispositive of this appeal. In fact, it is arguably not even important to the appeal. But in case it is of any assistance I will just take your Honours to it.

FRENCH CJ: It will be of assistance if it goes to the question of jurisdiction, which is the question we are concerned with.

MR CRUTCHFIELD: I think it would go to the question of jurisdiction, your Honour, because the question is whether or not at the point at which such a claim were to be pleaded whether or not that engaged a matter – that is, a justiciable controversy. You do not decide at the outset whether or not that is right or wrong. We do say it would be relevant to that question. If we could go to CE Heath v Pyramid Building Society [1997] 2 VR 256 - in the reasons of Justice J.D. Phillips at page 281, the last full paragraph:

But this argument is not in itself compelling. Appellants’ counsel contended that s. 117 gave rights only to the trustee in bankruptcy, but I think that that is too narrow a construction. Section 117 plainly preserves the proceeds of the insurance with which it deals against the claims of the creditors generally for the benefit of the third party to whom the bankrupt incurred the liability which is covered by the insurance. The section surely confers upon that third party a right to sue the trustee in bankruptcy once the trustee has received the proceeds of the insurance from the insurer –

and pausing there, I think everyone accepts that but it is the next part:

and it has been said, by some at least, that the third party may sue the insurer directly if the trustee in bankruptcy fails to recover from the insurer, at least if he joins the trustee –

which is perhaps the Lidden-type point. Now, we went with interest to his Honour Justice Derrington and Mr Ashton’s book on The Law of Liability Insurance for citation. There is no authority quoted for that proposition, and then the judge goes on:

I am prepared to assume, without deciding, that s. 117 confers upon the judgment creditor –

The judgment creditor he is talking about there, so perhaps I should point out, he may be assuming that you have already got judgment, although that is not clear at all –

a direct right of action against the insurer, should the judgment debtor, the insured, become bankrupt, but that is to say no more than that a justiciable issue may arise between the plaintiff and the insurers in this instance –

The other way in which we say there are direct rights is referred to by the Full Court in Ashmere Cove and I will just give the Court the reference. It is paragraph 66 which is – it is really an estoppel point. If the third party – if we obtained a declaration against CGU in this case we submit that declaration would bind CGU as between – at least between CGU and us and would mean that CGU could not relitigate that point and, in that sense, it gives us direct rights against CGU.

In this case it is true that separately the insured would still – CGU would still have the defences against the insured, non-disclosure and the like, that they take in this case. They would not have it subsequently. They would be Anshun for sure, but they are separate claims that they have against the insured and CGU are taking those claims in this proceeding. They have pleaded them. But at least to the extent referred to in paragraph 66 there would be the direct rights because CGU would be bound by that declaration.

We submit that if at the trial we seek the declaration and there was any hint that CGU were not going to pay, we would be entitled to seek the order from the court that CGU pay the insured, perhaps even seek an order that they pay us after deducting the expenses referred to in the section. We ask rhetorically why not? Now, while we have CE Heath open I just wanted to say something about Justice Ormiston’s grave doubts – page 270. It is about halfway down the page. It starts:

Before dealing with that question I should state that I do not think that the mere fact that the disputant is the liquidator . . . If the matter were not free from authority I confess I would have had the gravest doubt whether it was ordinarily appropriate –

It is not a power, it is not a jurisdiction question. It depends on the facts and circumstances –

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.

Now, of course, here we know that at least Trevor Crewe does raise an issue as to its meaning and effect because he wants to piggyback off us. He agrees that CGU were wrong in denying indemnity. Your Honour Justice Bell asked this question and we submit our friends in their submissions, when they quote from Ainsworth and the plurality in Ainsworth, they ignore the fact that what Ainsworth says is all you need is a real interest. We say it is difficult to conceive how anyone could seriously suggest we do not have a real interest. We would go so far as to say we are the only person with an interest because we are the beneficiary of the proceeds.

This point about declarations of right in section 36 we have dealt with in paragraph 4 of the outline of propositions we have handed up. We refer to Chief Justice Gibbs in Sankey v Whitlam. He refers to the fact that the word “right” is used in a sense that is wide and loose. We would also refer the Court – we have not included this in the note – to paragraph 205 of Justice Peter Young’s book on declaratory orders, 2nd edition, where Sankey v Whitlam is quoted from and, as the learned author points out, “rights” in this sense means matters of legal or equitable rights, as opposed to moral rights, social rights or purely political matters.

Your Honours, lastly, could I just take your Honours to CGU’s defence, which appears at appeal book 51, and the non-disclosure defences. So, the engagement by CGU with the insured – the contest between CGU and the insured starts at AB 54. The only thing that is absent is the procedural piece of paper which is the third party notice that one would ordinarily expect where the insured joins the insurer. CGU plead those matters in its defence to our claim. So CGU manifestly are in a position to and intend to deal with this matter at the trial whenever the trial takes place.

We also say, to the extent it matters, that the insured’s attitude in this situation is actually irrelevant. It is not very different to cases dealing with subrogation which are referred to in Meagher, Gummow and Lehane at paragraph [19-265] where an insurer has not provided an indemnity, the rights of the insured – it is not open to a party to go around releasing somebody else’s rights.

So, relevantly here, it would not be open to the insured, we would submit, to the directors or the director and the company, to enter into some deal with CGU where they accept the denial of the indemnity. So we go so far as to say that in a fact circumstance like this, the insured’s attitude is actually irrelevant. So we submit there is jurisdiction because there is a matter and there is power to grant the declaration because there is a justiciable controversy. Unless there is anything else, they are the submissions. If the Court pleases.

FRENCH CJ: Thank you, Mr Crutchfield. Mr O’Callaghan.

MR O’CALLAGHAN: Just one very brief point from me in reply. In relation to our learned friend’s point about the pleading, neither insured has engaged on the pleadings in relation to indemnity issues or in relation to the material non-disclosure and other issues that we have raised. So, to that extent, there is no controversy on the pleadings in any event, and we would say there is no other controversy for the reasons we have already given.

FRENCH CJ: Thank you, Mr O’Callaghan.

MR O’CALLAGHAN: If the Court pleases.

FRENCH CJ: The Court will reserve its decision. The Court adjourns until 9.30 tomorrow morning for pronouncement of orders and thereafter.

AT 12.11 PM THE MATTER WAS ADJOURNED