Energize Fitness Pty Ltd v Vero Insurance Limited [2012] NSWCA 213
Judgment date: 19 July 2012
Jurisdiction: Supreme Court of New South Wales Court of Appeal1
In Brief
- The General Steel Industries Inc v Commissioner of Railway (NSW)2 (General Steel)test for summary dismissal of proceedings is not the appropriate test to be used in respect of joining an insurer pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Act).
- To join an insurer an applicant must establish that there is an arguable case against the insured and an arguable case that the policy will respond.
- To assess whether an arguable case exists a court is entitled to consider evidence served supporting the pleaded case, rather than just the facts that have been pleaded.
Background
The substantive proceedings involved a case against the applicant, Energize Fitness Pty Limited (Energize), in relation to an accident that occurred whilst the plaintiff was using gym equipment. The barbell of a weights machine fell on the plaintiff's back. Energize were the operators of the gym. Energize brought cross-claims against Calgym Manufacturing Pty Limited (Manufacturing) and Calgym Equipment Pty Limited (Equipment) as the manufacturer of the gym equipment.
Both Equipment and Manufacturing were deregistered and Energize subsequently sought leave to join them pursuant to s 6(4) of the Act.
Manufacturing was incorporated on 15 October 1998 and held a liability policy with Vero Insurance Limited (Vero).
Equipment was not a named insured on the Vero policy and did not hold any other insurance. However, the Vero policy provided cover for subsidiaries of Manufacturing.
Evidence suggested that the machine involved in the accident had been manufactured prior to 15 October 1998.
Decision at Trial
The decision related to Energize's Notice of Motion to join Vero to proceedings pursuant to s 6(4) of the Act as insurer of Manufacturing and Equipment.
The principle on which the primary judge, Hulme J proceeded was that before leave is given under s 6 of the Act to join an insurer of another person said to be liable there must be:
- an arguable case against the other person;
- an arguable case that the policy responds;
- a real possibility that if judgment is obtained, the other person would not be able to meet it.
Hulme J held that the evidence before him was insufficiently strong to provide an arguable case that Manufacturing was the manufacturer of the machine and for that reason leave to join Vero as insurer of Manufacturing was refused.
With regard to Equipment, his Honour held that the second requirement that he identified was not satisfied because there was "simply no evidence that Equipment was a subsidiary of Manufacturing or that Vero insured Equipment".
Decision of Appeal
Energize submitted that the reference to an "arguable case" involved nothing more than, by reference to the pleadings, it appeared that there was an arguable case. Energize contended that the primary judge made an error of principle in not applying the test for summary disposal of an action contained in General Steel. The test in General Steel in relation to summary dismissal of an action is that the action must be "so obviously untenable that it cannot possibly succeed".
Campbell JA, with whom Allsop P and Meagher JA agreed, held that s 6(4) of the Act confers on a court an option to elect to grant leave to commence an action against an insurer. Accordingly the decision to grant leave or refuse leave is discretionary.
In relation to the General Steel test, his Honour held that the questions involved in an application for summary dismissal, and an application for leave under s 6 of the Act, are different. In the summary dismissal application, the question is whether an action that a litigant has been able to commence without any need for leave of the court should be brought to an end. In an application for leave under s 6 of the Act, the question is whether the court should permit a litigant to commence an action against a party who, in the absence of such leave, the litigant has no right to sue.
His Honour also noted that the onus operates differently in the 2 types of applications. In the summary judgment application, the evidentiary and persuasive onus of establishing that the action is doomed to fail is on the defendant who seeks the summary dismissal. By contrast, when an application for leave is made pursuant to s 6 of the Act, the evidentiary and persuasive onus of establishing that there is an arguable case that the insured is liable, and an arguable case that the policy responds, is on the applicant. Whether the court finds there is an "arguable case" will depend upon the facts and circumstances of the individual case, including any grounds on which the insurer proposes leave.
Energize also argued that the trial judge should not have considered the state and strength of the evidence in the application for leave and whether there was an arguable case should have been determined by reference to the pleadings alone. His Honour rejected this argument. His Honour held that authority and principles support a judge being able to consider evidence in an application for leave under s 6 of the Act.
He considered that the purpose of s 6 is to provide a filter against insurers being unjustifiably made parties in litigation that, apart form the grant of leave, they would be free to stay out of.
His Honour did note that the standard for when it is justifiable to bring an insurer in is fairly low, namely that there is an arguable case.
His Honour agreed with the trial judge that, based on the evidence, there was no arguable case that the machine was manufactured on or after Manufacturing's incorporation on 15 October 1998.
His Honour also considered there were no reasonable prospects of contesting his Honour's decision that there was no evidence that Equipment was a subsidiary of Manufacturing or that Vero insured Equipment.
Accordingly, the Appeal was dismissed with costs.
Implications
The decision highlights that, in order to join an insurer to proceedings directly, an applicant needs to have an arguable case against the insured party and an arguable case that the policy responds. The arguable case must be supported by evidence and not just pleadings alone.
This is a welcome decision for insurers who may now avoid being involved in proceedings where there is little prospect of succeeding against them.
Although, as pointed out by the court, the standard for joining an insurer is fairly low, the decision illustrates that s 6(4) of the Act provides an adequate filter against insurers being unjustifiably brought into litigation.
Footnotes
1 Allsop P, Campbell and Meagher JJA
2 (1964) 112 CLR 125
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