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Supreme Court 20 March 2007

Healy v Luke

[2007] NSWSC 244

Assault & violence
PRACTICE & PROCEDURE CLAIM FOR DAMAGES FOR ASSAULT

Citation: Healy v Luke [2007] NSWSC 244
Court: Supreme Court of New South Wales (Equity Division, Corporations List)
Date: 20 March 2007
Judge(s): Austin J

Background

The plaintiff, suing by his tutor, commenced proceedings in the Common Law Division seeking damages for assault, negligence, breach of contract, and breach of statutory duty. The claim arose from an alleged assault at a Sydney hotel on 6 August 2003, in which the plaintiff alleged a manager employed at the premises used excessive force against him.

The second defendant, the company said to own and operate the hotel, was in external administration. The plaintiff sought either leave to proceed against the company as a defendant in administration, or leave to sue its insurer directly under the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). All three defendants were represented by solicitors acting on instructions from the insurer, Trenwick International Ltd, which had indicated it would provide only limited indemnity.

  • Whether the second defendant was subject to a stay of proceedings requiring leave under the Corporations Act 2001 (Cth), given the nature of its external administration.
  • Whether the plaintiff had an arguable case against the second defendant sufficient to justify direct action against the insurer under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).
  • Whether there was sufficient reason to permit the plaintiff to sue the insurer directly, rather than pursuing the insured company to judgment first.

Decision

Corporations Act leave application: unnecessary

The court first identified a problem with the Corporations Act limb of the motion. The company was in a members' voluntary winding up under Part 5.5 Division 2, not a voluntary administration under Part 5.3A. Section 440D, which the plaintiff invoked, applies only to voluntary administrations. The statutory stay provisions in ss 471B and 500(2) apply to court-ordered windings up and creditors' voluntary windings up respectively, but no equivalent stay applies to a members' voluntary winding up. The leave application under the Corporations Act was therefore unnecessary.

Arguable case (Issue A)

Austin J applied the three-question framework from Schipp v Cameron. On the first question, the statement of claim disclosed an arguable case against the second defendant: it alleged the company owned and operated the hotel, employed the first defendant as manager and security, and was primarily and vicariously liable for the assault. The court accepted this was arguable if the pleaded facts were proved.

As to the insurance policy, the court examined the terms carefully. The policy responded to compensation for personal injury (which the policy defined to include assault) in connection with the business. The insurer's letter had characterised the exemption somewhat inaccurately. On a proper reading, the policy excluded liability only where the assault was directed by the insured, unless that direction was for the purpose of preventing danger to persons or property. Whether any exemption applied would turn on facts to be established at hearing.

Sufficient reason for direct action (Issue B)

On the second question, the court noted that the defendants' solicitors had acknowledged, in correspondence, that the company retained only a small amount of funds relative to the likely damages if the plaintiff succeeded. That letter was sufficient evidence to create substantial doubt as to whether the company could meet a judgment. Granting leave would avoid the plaintiff having to run a second action against the insurer after obtaining judgment, with all the attendant cost and delay. Austin J concluded this was precisely the kind of case the legislative purpose of s 6(4) was designed to address, namely, to allow direct access to an insurer where enforcement might otherwise be frustrated.

Orders Made

  • Leave granted under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) to commence proceedings against the insurer directly.

Key Takeaways

  • A members' voluntary winding up under Part 5.5 Division 2 of the Corporations Act does not attract the stay-of-proceedings provisions in ss 440D, 471B, or 500(2); leave to proceed against such a company is unnecessary.
  • Under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), a plaintiff seeking leave to sue an insurer directly must satisfy the court there is an arguable case against the insured and a sufficient reason to bypass the insured.
  • Correspondence from a defendant's solicitors acknowledging the company holds only modest funds relative to likely damages can constitute sufficient evidence of financial doubt to satisfy the "sufficient reason" requirement for direct action against an insurer.
  • Careful reading of the policy terms is required: the court here found that the insurer's own description of the applicable exclusion did not accurately reflect the policy wording, and the scope of potential indemnity was broader than the insurer's correspondence suggested.
  • The legislative purpose of s 6(4) is to permit direct access to insurers in cases where enforcement of a judgment against the insured might otherwise be frustrated, consistent with the principle stated in National Mutual Fire Insurance Co Ltd v Commonwealth [1981] 1 NSWLR 400.

Legislation and Cases Referenced

Legislation
- Corporations Act 2001 (Cth), ss 440D, 471B, 500(2)
- Law Reform (Miscellaneous Provisions) Act 1946 (NSW), ss 6(1), 6(4)
- Liquor Act 1982 (NSW)

Cases
- Catto v Hampton Australia Ltd (in liq) (1998) 29 ACSR 225
- Dixon v Royal Insurance Ltd (1991) 105 FLR 129
- Manettas v Underwriters at Lloyds (1993) 7 ANZ Insurance Cases 61-180
- National Mutual Fire Insurance Co Ltd v Commonwealth [1981] 1 NSWLR 400
- Schipp v Cameron (1995) 8 ANZ Insurance Cases 61-256