High Court of Australia dismisses insurers’ appeal to quash class action

The High Court of Australia (Australia’s highest court) has unanimously dismissed insurers' appeal from a decision of the New South Wales Court of Appeal concerning the constitutional validity of ss 9 and 10 of the Trans-Tasman Proceedings Act 2010 (Cth) (TTPA).  The TTPA was introduced to, amongst other things, make it easier to start court proceedings in Australia against a person in New Zealand. 

The effect of the decision is that class action proceedings arising out of a defective residential apartment building in Auckland, New Zealand may now proceed directly against insurers in New South Wales (NSW), Australia in reliance on the Civil Liability (Third Party Claims Against Insurers) Act 2017 (Claims Act).

Zurich Insurance PLC (Zurich) and Aspen Insurance UK Ltd (Aspen) (together, the Insurers) insured Brookfield Multiplex Constructions (NZ) Ltd (BMX NZ), which had designed and constructed the Victopia Apartments in Auckland.

Mr Dariusz Koper sought leave to pursue the Insurers directly in NSW in a class action proceeding as representative owner of the registered proprietors in the Victopia Apartments. The reasons for pursuing the Insurers in NSW included:

• BMZ NZ was in liquidation and the liquidator had insufficient funds to pursue the Insurers on behalf of creditors;
• If the liquidator was able to obtain funding, he would only be able to pursue claims in Australia (because of the exclusive jurisdiction clause in the Policy);
• the owners were shut out of pursuing the Insurers in New Zealand;
• NSW has a statutory regime which enables third party claimants to directly access insurance proceeds in certain circumstances.

Pursuant to section 4 of the Claims Act, a third party claimant may, in certain circumstances, bring proceedings in a court of NSW to recover the proceeds of insurance directly from insurers. If leave is granted under section 5 of the Claims Act, the insurers stand in the place of the insured in the proceedings.

At first instance, leave to proceed directly against the Insurers was granted. The Insurers appealed on the grounds that Mr Koper’s entitlement to bring the proceedings depended on whether he could have brought the claims against BMX NZ in a court of NSW. This was contingent on whether s 9 of the TTPA would have authorised service of the notional NSW proceedings against BMZ NZ in New Zealand.

The decision is important because the Court found the proceedings against the Insurers were properly brought despite the circumstances of the case having limited connection to NSW.

Background

The claim arose out of various building defects which were discovered in the apartments. The relevant events were as follows:

• October 2012: Mr Koper and other owners issued proceedings against BMX in the High Court of New Zealand seeking damages.
• December 2012: BMX NZ was placed into liquidation.
• March 2017: following a hearing in which BMX NZ played no active role, judgment was delivered in favour of the owners and they were awarded damages of NZ $53,124,719.76.
• June 2021: NZ$23,124,719.76 of the judgment sum remained outstanding.
• April 2021: Mr Koper filed a Summons in the NSW Supreme Court seeking leave to bring representative proceedings against the Insurers in order to recover the balance of the judgment sum.

Requirements for recovery directly from the insurer

Section 5 of the Claims Act requires a person who wishes to claim against an insurer under s 4 of the Claims Act to obtain leave of the Court. In this regard, the parties agreed Mr Koper was required to establish that:

1. He had an arguable case that the insured was liable to him;
2. The policy responded; and
3. The insured was not able to meet his claim in full.

Zurich accepted these conditions were met but resisted the application for leave on the basis that the NSW Supreme Court had no jurisdiction to entertain proceedings under the Claims Act, as the circumstances of the case had limited connection to NSW.

The primary judge concluded that the territorial “hinge” or criterion of operation of s 4 of the Claims Act depended upon whether Mr Koper’s underlying claim against BMX could properly have been brought in NSW in circumstances where:

• Mr Koper and BMX NZ were both domiciled in NZ;
• BMX NZ had no presence in Australia (and therefore could not be served in the jurisdiction);
• BMX NZ had not submitted to the jurisdiction of NSW;
• the relevant loss and damage occurred entirely in NZ; and
• service of the notional NSW proceedings would not have been authorised by schedule 6 of the Uniform Civil Procedure Rules 2005 (NSW).

This ultimately depended upon whether proceedings brought by Mr Koper in NSW could properly have been served on BMX NZ, relying on ss 9 and 10 of the TTPA, which provide for the service of an initiating document issued by an Australian court in NZ.

The Insurers argued that the external affairs power in s 51 (xxix) of the Constitution could not support a grant of jurisdiction to the NSW Supreme Court if the grant was not one of federal jurisdiction within the ambit of chapter III of the Constitution. The Insurers argued that the application of ss 9 and 10 of the TTPA to the case resulted in the invalid conferral, contrary to chapter III of the Constitution, of personal jurisdiction on the NSW Supreme Court in respect of a non-federal matter.

First instance decision

The primary judge (Rein J) granted leave to Mr Koper on the basis that s 9 of the TTPA would have authorised service of the notional NSW proceedings against BMX NZ in NZ and therefore the criterion of operation of s 4 of the Claims Act was satisfied or engaged. In doing so, the primary judge rejected the Insurers’ argument that ss9 and 10 of the TTPA were constitutionally invalid in so far as they purported to confer non-federal jurisdiction on the NSW Supreme Court, noting this argument was inconsistent with Flaherty v Girgis [1987] HCA 17.

Court of Appeal’s decision

Before the Court of Appeal, the Insurers re-made their unsuccessful first instance argument with some refinements and the primary issue was whether ss 9 and 10 of the TTPA conferred non-federal jurisdiction on the NSW Supreme Court.

In dismissing the appeal with costs, the Court (Bell CJ, Ward P and Beech-Jones JA agreeing) found the primary judge was correct to conclude that ss 9 and 10 of the TTPA were not to be read down so as to only apply to service of process which involved the exercise of federal jurisdiction, and were not otherwise invalid.

The Court found that the primary judge’s conclusion that BMX NZ could have been served with the notional NSW proceedings by reason of ss 9 and 10 of the TTPA warranted the grant of leave to proceed against the Insurers pursuant to s 5 of the Claims Act, on the basis that the criterion of operation of that Act was satisfied, as agreed by the parties.

In reaching these conclusions, the Court made the following important findings:

1. The external affairs power in s 51 (xxix) of the Constitution is capable of supporting the TTPA and should not be interpreted as removing from its scope the power to legislate for the service of process in NZ simply because the head of power in s 51 (xxiv) authorises laws with respect to the service and execution process within and throughout the Commonwealth; and
2. Sections 9 and 10 of the TTPA do not confer “subject matter” or federal jurisdiction on Australian courts to determine the underlying proceedings. Those provisions are instead concerned with “personal” jurisdiction, which is not a constitutional concept and therefore does not engage the negative implication in chapter III, to the effect that the Commonwealth Parliament may only vest a State Court with federal jurisdiction.

High Court of Australia decision

On 8 August 2023, the High Court of Australia unanimously dismissed the Insurers’ appeal. In so doing, it rejected the Insurers’ argument that ss 9 and 10 of the TTPA could not validly apply to an initiating document issued by the Supreme Court that relates to a civil proceeding in a matter in State jurisdiction.

Four Justices held that, subject to the Constitution, the service of process in proceedings involving the exercise of jurisdiction by a State court is within the legislative power of the Commonwealth Parliament under s 51(xxiv) of the Constitution, regardless of whether the jurisdiction to be exercised by the State court is federal jurisdiction or State jurisdiction.

Implications

This case illustrates that insurers who write business in NZ could be exposed to litigation in NSW even where the circumstances of the case have limited connection to NSW.

The practical effect of the judgment is that the primary judge’s decision to grant Mr Koper leave to commence the proceedings directly against the Insurers remains undisturbed.

Further reading

Zurich Insurance Company Ltd v Koper [2023] HCA 25

Read other items in the Australian Insurance Brief – August 2023