Supreme Court New South Wales

• Medium Neutral Citation: Belcastro v Gabriel Nakhl & Ors [2014] NSWSC 1305
• Hearing dates: 11/07/2014
• Decision date: 24 September 2014
• Jurisdiction: Common Law
• Before: Campbell J

Decision

See [53]

• Catchwords: PROCEDURE - civil - pleadings - adequacy of pleadings; CORPORATIONS LAW - insolvency - leave to continue proceedings against companies in liquidation; PROCEDURE - civil - joinder of defendants - joinder of insurers of defendant corporations
• Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth), s 12GF; Competition and Consumer Act 2010 (Cth); Corporations Act 2001 (Cth), s 500, 562, 601AG; Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6; Uniform Civil Procedure Rules 2005 (NSW), rr 6, 14
• Cases Cited: Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd (2009) 26 VR 148; Banque Commerciale SA En Liquidation v Akhil Holdings (1990) 169 CLR 279; Castlemaine Tooheys Limited v South Australia (1986) 161 CLR 148; Chubb Insurance Co of Australia Ltd v Moore [2013] NSWCA 212; 302 ALR 101; Correa v Wittingham [2003] NSWCA 263; Emanuele v Australian Securities Commission (1997) 188 CLR 114; Employers Reinsurance Corp v Ashmere Cove Pty Ltd [2008] FCAFC 28; 166 FCR 398; Gee v Burger [2009] NSWSC 149; Kirby v Sanderson Motors Pty Ltd (2001) 54 NSWLR 135; McGuirk v University of New South Wales [2009] NSWSC 1424; National Mutual Fire Insurance Co Limited v Commonwealth [1981] 1 NSWLR 400; Owners - Strata Plan 62658 v Mestrez Pty Ltd [2012] NSWSC 1259; Project Bluesky Inc. v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355; Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749
• Category: Interlocutory applications
• Parties: Vincent Paul Belcastro (First Plaintiff); Joanne Belcastro (Second Plaintiff; Gabriel Nakhl (First Defendant); SydFa Pty Ltd (In Liq) (Second Defendant); Sydney Financial Advisors (In Liq) (Third Defendant); Australian Financial Services Ltd (In Liq) (Fourth Defendant); MJN Holdings Pty Ltd (Fifth Defendant); Maguy Bernadette Nakhl (Sixth Defendant); Richard Fong (Seventh Defendant)
• Representation: Counsel: M Ashhurst SC (Plaintiffs); S Donaldson SC with L Edwards (Proposed Ninth, Tenth, Eleventh and Twelfth Defendants); R Yezerski (Proposed Eighth, Thirteenth, Fourteenth, Fifteenth and Sixteenth Defendants); Solicitors: Emily Max Lawyers (Plaintiffs); Moray and Agnew (Proposed Ninth, Tenth, Eleventh and Twelfth Defendants); Norton Rose Fulbright (Proposed Eighth, Thirteenth, Fourteenth, Fifteenth and Sixteenth Defendants)
• File Number(s): 2013/371629

Judgment

1 The Amended Notice of Motion filed on 1st April 2014 (ANOM) which came before me for hearing on 11th July 2014 contains 34 prayers for relief concerning 7 different topics. On hearing, however, Mr Ashurst SC, who appears for the plaintiffs, restricted the relief sought to three matters, broadly corresponding to prayers 1, 9, 14, 20 and 25 of the ANOM. An order corresponding to prayer 9 was pronounced by consent, Mr Yezerski, of counsel, appearing for the parties concerned with that order.

2 The remaining live claims are as follows:

(a) a grant of leave pursuant to s 500(2) Corporations Act 2001(Cth) permitting the plaintiffs to continue proceedings against three corporations now in liquidation, being the second, third and fourth defendants;

(b) joinder under Rule 6.24 Uniform Civil Procedure Rules 2005 (UCPR) of the professional liability insurers of one of those three corporations, the second defendant, for the period 23rd February 2012 to 9th March 2013;

(c) joinder under the same rule of the insurers of the same corporation for the period 10th March 2013 to 9th March 2014.

3 There is no contradictor in respect of the first claim, but evidence has been tendered setting out the attitude of the liquidators of the corporations. Effectively, they neither consent to nor oppose the orders on the one hand, or indicate preparedness to submit to the orders of the Court on the other, which amounts to the same thing.

4 Mr Donaldson SC and Mr Edwards appear for the insurers of the second defendant, which oppose the orders sought joining them as parties. Mr Donaldson acknowledges the Court has power under Rule 6.24 UCPR to make the orders sought, but submits that the occasion for the exercise of that power has not arisen. His argument is substantially based upon what he says is the unsatisfactory form of the proposed amended Statement of Claim, which is so non-compliant with the Rules that it has a "tendency to cause prejudice, embarrassment or delay in the proceedings": Rule 14.28 UCPR.

Factual Background to the claim

5 The factual background to the claim is set out in the affidavit of Mr Belcastro affirmed on 7th December 2013. For the purpose of deciding this application, I will take Mr Belcastro's account at face value without making any judgment about it.

6 Mr Belcastro is a flat-glass tradesman in his own business. He and Mrs Belcastro by their industry and frugality over some decades amassed substantial capital for investment. These investments eventually came to be undertaken through a trust named the Belcastro Unit Trust of which Mr Belcastro is now the trustee; and the Belcastro Super Fund of which Mr and Mrs Belcastro are the trustees. For about 20 years they had relied upon their accountant and one of his associates for financial advice and management of their investments. The advisor died in 2009 and his business was acquired by the first defendant in these proceedings, Gabriel Nakhl, who assumed his relationship with the Belcastros.

7 Mr Nakhl conducted his business through the second to fourth defendants which were licensed financial service providers. The different company may have been active at different times. He was an authorised representative of the licensee company. The companies are named SydFA Pty Ltd (SydFA), Sydney Financial Advisers Pty Ltd, and Australian Financial Services Limited, all of which are now in liquidation.

8 Mr and Mrs Belcastro were hoping to put themselves in a position to retire early from the business. After they retained him, they took Mr Nakhl's advice to establish the self-managed superannuation investment fund and one of his companies became the initial trustee.

9 The plaintiffs' case is that Mr Nakhl was expressly instructed that the Belcastros' "monies must be secured and invested conservatively, especially Mrs Belcastro's". Very specific instructions were given about the type of risk that each of Mr and Mrs Belcastro were prepared to run. The case is that Mr Nakhl gave clear assurances, indeed guarantees that he would adhere to the instructions given by Mr and Mrs Belcastro. They relied upon him to take care of their investments and comply with their wishes. They say he breached his retainer using their money according to his own wishes, investing in schemes to his own liking, not theirs.

10 In the early part of February 2013, Mr Belcastro told Mr Nakhl that he proposed to retire at the end of the year as his "back is gone" from years of hard work. Mr Nakhl then assured him about the income stream available on retirement from the investments. However, on 19th February 2013, Mr Belcastro received an email from a lawyer employed by the Australian Securities and Investments Commission advising him that ASIC had obtained interim freezing orders against Mr Nakhl. These orders extended to the funds held for Mr and Mrs Belcastro. From inquiries made then, Mr Belcastro became aware of facts which lead him to believe that money had been withdrawn by Mr Nakhl from his investments and used in other investments. On 20th February 2013, Mr Belcastro demanded the immediate return of all of the money invested with Mr Nakhl.

11 By reason of the causes of action pleaded in the proposed Amended Statement of Claim, Mr and Mrs Belcastro claim they have suffered significant losses amounting to $818,004.59 from the Belcastro Super Fund and $1,232,830 from the Belcastro Unit Trust.

The proposed amended statement of claim

12 Mr and Mrs Belcastro claim damages from Mr Nakhl and his associated corporations for breach of contract, breach of fiduciary duty, misrepresentation, unconscionable conduct of various types, in negligence and for various statutory causes of action which I will not list fully but they include breaches of the duties owed by licensed financial services providers under s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth), and arising under the Australian Consumer Law forming part of Competition and Consumer Act 2010 (Cth) . Statutory causes of action under six separate enactments are pleaded.

13 Amongst the remedies sought is a declaration that the 9th, 10th, 11th and 12th Defendants are liable to indemnify SydFA "in respect of the judgment sought against the second defendant by the plaintiffs in these proceedings." As explained by Mr Ashurst, this declaration is sought on what he referred to as the Ashmere Cove principle (see Employers Reinsurance Corp v Ashmere Cove Pty Ltd [2008] FCAFC 28; 166 FCR 398).

14 The case against SydFA's insurers is set out at [11] to [14] and [336] to [344] of the proposed Amended Statement of Claim. The whole pleading covers 95 pages excluding formal and preliminary parts.

15 The 9th and 10th defendants underwrote the professional indemnity policy for SydFA for the 2012/2013 year. The 2013/2014 policy was underwritten by the 9th, 10th, 11th and 12th Defendants.

16 In terms the claim against the insurers of SydFA invokes s 6 Law Reform (Miscellaneous Provisions) Act 1946 (NSW); s 562 Corporations Act 2001; and s 601 AG of the same Act. I interpolate that the prayer for leave under 6(4) of the 1946 Act contained in the ANOM was not pressed at the hearing.

17 The averments expressing the plaintiffs' case against SydFA's insurers are brief and, I think, not especially informative. [337] pleads the existence of a policy of professional indemnity insurance and sets out, by way of particulars, the operative part of the insuring clause. [338] avers the following:

By reason of SydFA professional negligence, and other breaches and statutory contraventions by it referred to in the relevant paragraphs above the plaintiff has suffered loss and damage.

There is no express repetition and recital of the matters said to constitute "breach of professional duty" within the operative words of the insurance clause, nor is there is any attempt in [338] to equate its terse content with those words idea in the policy.

18 By [339] there is an averment that the plaintiffs made a claim on 19th February 2013 when Mr Belcastro demanded the immediate return of their funds. Understanding this averment depends upon the particulars which incorporate the earlier pleadings in [127], [128], [133] and [137] - [139], appearing under the heading "the plaintiffs' discovery of the defendants conduct and aftermath".

19 [339A] and [339B] advance alternatives to [339] by averring the plaintiffs made a claim in writing to SydFA, first on 17th March 2013 and secondly, by commencing proceedings on 10th December 2013. These alternatives are capable of engaging the second policy only, but there is no attempt to distinguish between them, notwithstanding that the 11th and 12th defendants are only concerned with the second policy.

20 [340] is in the following terms:

In the relevant circumstances pleaded above in respect to SydFA, the plaintiffs say that:

a. They are entitled to recover damages from SydFA;

b. SydFA is entitled to be indemnified by SydFA's insurers under relevant policies in respect of a plaintiffs' claim for damages referred to in a. hereof (same as above for AFSL);

c. They are entitled to a charge on all insurance monies that are or may become payable by SydFA Insurers to SydFA in respect of SydFA liability to them pursuant to s 6 of the Law Reform (Miscellaneous) Provisions Act 1946; (same as above for AFSL).

Particulars:

(i) Charge attached on all money claimed as:

1. Losses were discovered in February 2013;

2. In the alternative the losses were discovered at that time and were not ascertainable before that time;

3. In the alterative they were not ascertainable as a result of Mr Nakhl's concealment.

d. They are entitled to enforce the charge referred to in "c." hereof by way of an action against SydFA Insurers.

The words "(same as above for AFSL)" are at best cryptic, but are presumably some reference to [224] to [232] and in particular [228] by which paragraphs the claim against Australian Financial Services' insurers, represented before me by Mr Yezerski, is expressed. The form of that part of the pleading is substantially the same. There is nothing to identify "the relevant circumstances" referred to in the chapeau.

21 Claims are then made under s 562 and 601AG of the Corporations Act. The averments "repeat and rely on paragraphs [350] to [353] above" (sic). This is beyond cryptic, [350] to [353] are not above but below the pleading against SydFA's insurers and relate to part only of a pleading in "professional negligence" against parties, the fifth and sixth defendants, not said to be parties to the contract of insurance issued by SydFA's insurers. Comparing the pleading against SydFA's insurers to the pleading against AFSL's insurers( [224] to [232]) casts no light on what might possibly be meant. The claim under s 562 asserts a right to an order that SydFA, or its liquidator, not the insurers, pays the proceeds of the insurance to the plaintiffs; and under s 601AG that the insurers pay an amount to them that was payable to SydFA under the policy.

22 So far as the s 601AG claim is concerned, there is no averment that SydFA "is deregistered". And Exhibit "B" establishes that it is in liquidation and that the liquidators "neither consent nor oppose" an application for leave to proceed. I interpolate that it therefore seems unlikely that SydFA will be deregistered before these proceedings are completed. The reliance upon s 601AG seems otiose.

The terms of SydFA's insurance

23 By reference to the policy wording produced in Exhibit MP 1, SydFA was insured by the 9th and 10th Defendants from 23rd February 2012 to 23rd February 2013; and by them and the 11th and 12th Defendants from 9th March 2013 to 9th March 2014. The period of cover for the first policy was subsequently extended to 9th March 2013, the date of the commencement of the second policy. Each policy is styled Professional Indemnity Insurance and the insuring clause is in a familiar form for that category of liability insurance. It provides:

We agree to indemnify the insured for any claim for compensation first made against the insured and reported to us during the insurance period in respect of any civil liability resulting from any breach of professional duty by the insured in the conduct of its professional business.

Claim is defined to mean:

(a) Any civil proceeding brought by a third party against the insured for compensation; or

(b) A written demand by a third party for monetary damages.

24 There is an extension for some cases of fraud and dishonesty that would otherwise be excluded by exclusion 7.14: see clause 3.1.

25 The commencement of proceedings by Statement of Claim on 10th December 2013, prima facie engages the second policy, but that policy is less advantageous to the plaintiffs because the limit of indemnity is $2 million for any one claim, and in the aggregate during the period of insurance. The limit is $5 million for the 2012/2013 policy.

26 In the exhibit to the affidavit of the plaintiffs' solicitor affirmed on 20th May 2014 (Tab 2) the insurer's solicitor, by email, makes the following statement:

Certain circumstances that may give rise to a claim on behalf of your clients SMSF against SydFA were notified during the currency of the 2012/13 policy issued to SydFA by DUAL on behalf of the insurers.

I take SMSF to be an acronym for Self-Managed Superannuation Fund. DUAL appears to be short for DUAL Australia Pty Ltd, which on the evidence seems to be a local underwriting agency for "certain underwriters at Lloyd's". Slender as this evidence may be, for present purposes it provides a basis for an assertion of a "written claim" within the meaning of the policy having been made during the currency of the 2012/2013 period, which on the face of it would not be satisfied by Mr Belcastro's oral demand.

Applicable principles

27 It is unnecessary for me to detail the considerations informing a grant of leave under s 500(2) of the Corporations Act as that matter is not hotly contested and I will grant the orders, stating my reasons at the end of this judgment.

28 Mr Ashhurst and Mr Donaldson were in furious agreement about the principles informing my decision whether to order the joinder of SydFA's insurers under Rule 6.24. They strongly disagreed about whether the occasion for their application had yet arisen. Both learned Senior Counsel accept that the principles discussed in the Ashmere Cove case govern this case. The course of decision has moved on somewhat since then and the principles have been fully expounded by Lindsay J in Owners - Strata Plan 62658 v Mestrez Pty Ltd [2012] NSWSC 1259 under the epithet of "the Anjin line of cases", a reference to Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd (2009) 26 VR 148: see Mestrez at [44] - [59]. His Honour summarised the key aspects of the reasoning, and the principles, underpinning the Ashmere Cove principle at [54] in the following terms:

The reasoning underlying Anjin, and its antecedents, can be summarised as follows in an NSW context:

(a) When an insurer has denied indemnity, the insured can, uncontroversially, file a cross claim against it for the purpose of enforcing their contract.

(b) It would be an abuse of the processes of the court if a third-party Plaintiff, without a cause of action against the insurer, simply sought to join the insurer as a co-defendant with an insured defendant against which the Plaintiff had a cause of action.

(c) However, the interests of justice, and the convenient administration of justice, may authorise an order that an insurer be joined as a co-defendant with its insured, whether on the application of the third-party Plaintiff or otherwise, if:

(i) the insurer has denied liability to indemnify the insured against the Plaintiffs' claim.

(ii) there is a bona fide dispute as to the entitlement of the insurer to deny liability.

(iii) there is a substantial impediment (including insolvency on the part of the insured) standing in the way of the proceedings being conducted simply by the Plaintiff against the insured defendant, with a cross claim filed by the defendant against the insurer.

(iv) the dispute as to the liability or otherwise of the insurer to indemnify the insured defendant can properly be made the subject of a grant of declaratory relief pursuant to the Supreme Court Act 1970 (NSW), s 75.

(v) there is, in particular, a true legal controversy between the Plaintiff and the insurer such as would ensure that each of those parties might reasonably be relied upon by the court to serve as a contradictor for the other.

(vi) joinder of the insurer as a co-defendant with its insured might reasonably be relied upon to avoid a multiplicity of proceedings, and to enable all matters in controversy between the parties (namely, the Plaintiff, the insured and the insurer) to be completely and finally determined.

(d) A true legal controversy between the Plaintiff and the insurer may be taken to exist where, on the facts of the particular case, there is a realistic prospect of s 562 of the Corporations Act having scope for operation.

(e) A decision to allow joinder of the insurer as a co-defendant is one which is discretionary and fact-based, not available as of right.

29 As I have said, but for the objections Mr Donaldson takes to the proposed pleading itself, he agrees that these principles would be engaged in the circumstances of the present case.

30 I repeat that the real contest is about the adequacy of the proposed pleading as against SydFA's insurers, which I have analysed above at [14] to [22], not uncritically. The parties accept that relevant principles are summarised by McLaughlin AsJ in Gee v Burger [2009] NSWSC 149 at [19] - [21], which I will set out for completeness:

At the outset, it should be recognised that liberal use of the power to amend (in the instant case, to amend a pleading) is one of the hallmarks of the modern judicial system. Nevertheless, the Court will not grant leave for the amendment of a pleading where the amended pleading is itself liable to be struck out.

The principles regarding the striking out of a pleading, or the dismissal of proceedings, upon the ground that no reasonable cause of action is disclosed are well settled. (See General Steel Industries Inc v Cmr for Railways (1964) 112 CLR 125, especially the judgment of Barwick CJ.) The power of summarily striking out a pleading or dismissing a claim, or of summarily depriving a party of the opportunity of having a final hearing of the cause of action which it desires to propound, should be exercised with caution and only in the clearest of cases. Time and again Courts of the highest authority have cautioned against denying a party the opportunity to place his or her case before the court in the ordinary way and after taking advantage of the usual interlocutory measures. (See, for example, Agar v Hyde [2000] HCA 41 ; (2000) 201 CLR 552 at 575, where Gaudron, McHugh, Gummow and Hayne JJ observed that contested issues should not be summarily decided except in the clearest cases; Batistatos v Roads and Traffic Authority (NSW) [2006] HCA 27 ; (2006) 226 CLR 256 at 275; John Fairfax Publications v Hitchcock [2007] NSWCA 364 ; (2007) 70 NSWLR 484 at 487, 490, 527, 528-529.)

In exercising the discretionary power of the Court, provided by s 64 of the Civil Procedure Act 2005, and implied by r 19.1 of the Uniform Civil Procedure Rules 2005 (to grant the leave to amend), as sought by the Plaintiffs, or by r 14.28 (to strike out the pleading) and r 13.4 (to dismiss the proceedings), as sought by the First Defendant, it is necessary only that the Court be satisfied that the claim of the Plaintiffs is arguable. It is not necessary that a party in the position of the present Plaintiffs establish that at a final hearing the party will undoubtedly succeed in its claim.

31 Mr Donaldson says the pleading is liable to be struck out as offending Rule 14.28 UCPR, as I have said, because it has a tendency to cause prejudice, embarrassment or delay. Mr Ashhurst emphasises that the power to strike out should be exercised with caution, and in only the clearest of cases.

32 Mr Donaldson pointed out that there is no evidence that indemnity has been denied by the insurers. At the same time he frankly acknowledged "it was very unlikely that indemnity would be extended" (20.20T). He submitted that the pleading as against his clients was affected by "twin vices". They were a lack of clarity in the pleading, and the claims for relief, and then a lack of an attempt to link the pleading to the insuring clause. This prejudiced the insurers in formulating a defence that enabled them to properly raise matters in answer to, or exclusion of, the plaintiffs' claim. Mr Donaldson submitted that the narrative contained in the proposed Amended Statement of Claim as a whole was unnecessarily tortuous and prolix. This made it hard to judge how much of what was said against SydFA was also said against the insurers in circumstances where some heads of claim against SydFA must necessarily fall outside the policy's cover. The pleading did not meet the basic requirements of the rules that "a party's pleading must contain only a summary of the material facts on which a party relies and not the evidence by which those facts are to be proved"; Rule 14.7 UCPR; and brevity so far "as the nature of the case allowed": Ruled 14.8 UCPR.

33 Mr Ashhurst argued that from the detailed argument of Mr Donaldson, it was clear that the insurers understood the nature of the claims made against SydfFa. If this was so, then those claims which it said fell outside the insuring clause, either by way of interpretation of it, or by way of express exclusion, could be identified and spelt out in a properly drawn defence. Senior Counsel argued "whether or not a pleading could be better is not the test" (28.35T). Mr Ashhurst rejected a question from me that the failure to seek leave under s 6(4) of the 1946 Act itself was a reason not to permit the averments against the insurers to proceed in their present form. Both Mr Donaldson and Mr Ashhurst observed that given the decision in Chubb Insurance Co of Australia Ltd v Moore [2013] NSWCA 212; 302 ALR 101, s 6 may become redundant as a means of joining an insurer to proceedings which have their foundation in a "claims made and notified" policy like those in question here.

Consideration

34 It is not necessary for me to review the principles of law concerning the adequacy of the pleadings, they have been fully discussed in many places, including the decision of Johnson J in McGuirk v University of New South Wales [2009] NSWSC 1424 at [21] - [35]. I have borne these principles in mind. However, it is well to keep a basic rule at the front of one's mind. In Banque Commerciale SA En Liquidation v Akhil Holdings (1990) 169 CLR 279, Mason CJ and Gaudron J said at 286:

The function of pleadings is to state with sufficient clarity the case that must be met ... in this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and incidentally, to define the issue for decision. The rule that, in general relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. (Citations omitted).

35 In Kirby v Sanderson Motors Pty Ltd (2001) 54 NSWLR 135 (at [20] to [21]) Hodgson JA considered the interplay of the predecessors of Rules 14.7 UCPR and 14.4 UCPR. The latter providing that the plaintiff must plead any matter which if not pleaded specifically may take the defendant by surprise:

It might appear that these rules do not require that causes of action be stated in pleadings: the requirement is to have a statement of material facts, and indeed to have only such a statement. However, in my opinion -

(1) "Material" means material to the claim, that is, to the cause orcauses of action which are relied on.

(2) The requirement of a statement of material facts does not exclude the allegation of legal categories, such as duty of care, fiduciary duty, trust and contract.

(3) The general requirement to avoid surprise means that material facts must be stated in such a way that a defendant can understand the materiality of the facts, that is, how they are material to a cause of action.

Accordingly, even on the basis of these rules which are common to the District Court and the Supreme Court, I do not take cases such as Konskier as establishing that there is never any requirement to do more than set out facts. Where there is a danger of surprise, which arises particularly where there is lack of precision and clarity in the pleading, it may well be appropriate torequire a plaintiff, either in a statement of claim or in particulars, to explicitly relate the facts it pleads to specified causes of action.

(Emphasis added)

This statement of principle has continuing vigour under the Uniform Civil Procedure Rules. It may be taken as indicating that where, on the basis of the same facts, a number of different causes of action are said to arise, there is an obligation on the part of the party whose pleading is called into question to demonstrate that it is well organised so that those matters going to each relevant legal category are clearly identifiable. This may extend to showing the differing application to various causes of action of facts common to some or all of them. Repetition or recitation may be called for where the same fact is material to more than one legal category relied on; especially where, as here, the pleading is long and complex. The responding party ought not to be left in a position where it must guess about the legal significance of an averment, or a particular. Generally, material facts should be pleaded rather than merely included in a pleading as a particular of another material fact. The question is not what the defendant has made of the statement of claim but rather what reasonably can be made of it.

36 These considerations are relevant to the pleading against the insurers discussed at [14]-[22] above. I accept the argument of the insurers that the effect of this pleading is to do no more than say everything pleaded previously in this voluminous document goes to show that SydFA is in breach of its professional duty within the meaning of the policy. To my mind, to plead in this fashion is not to state the material facts relied upon against SydFA's insurers in such a way that SydFA's insurers can understand how what has gone before is material to the cause of action SydFA would have had on either policy against the insurers: what is in question, of course, is the liability of the insurers to indemnify under the policy.

37 Moreover, as I have tried to demonstrate above, in many respects the pleading does not make grammatical sense. One is left to guess what is meant by much of, and what allegations are sought to be incorporated in, the pleading against the insurers. An example of this is the reference to other paragraphs of the Statement of Claim out of sequence which when considered with the pleading against the insurers seems to have nothing whatsoever to do with the claim against the insurers. These are more than mere infelicities of language.

38 Given that the liability of at least the 11th and 12th defendants will depend upon which of the policies, if either, and to what extent, applies, it is necessary that SydFA's entitlement to cover under each be spelt out separately. The separate material facts said to engage each policy, and why, must be identified, by repetition and recital if appropriate.

39 There are two other substantive points. First, it is obvious from the evidence led by the plaintiffs that s 601AG is not engaged. SydFA has not been deregistered. And, as I have said, the likelihood is that it will not be at least until the proceedings are completed. There is certainly no evidence that deregistration is on the cards. That claim cannot be justified even if only to cover all possible contingencies. Naturally, that pleading should not be allowed to proceed.

40 I do not regard it as a proper exercise of my discretion to allow a pleading to go forward which, so far as I can make out (see [16] and [20] above), seeks to enforce the statutory charge created by s 6 of the 1946 Act, unless the plaintiff frankly, and first, faces up to the requirement to obtain leave under s 6(4). It is unsatisfactory, with great respect, to simply leave the question whether leave under s 6(4) may or may not be required hanging until some future time. It has been clear law since the decision of the Court of Appeal in National Mutual Fire Insurance Co Limited v Commonwealth [1981] 1 NSWLR 400 "that a failure to obtain the leave of the Court in advance (of commencement) invalidates the action and renders it incapable of being revived by leave retrospectively given": at 408 by Glass JA, Moffitt P and Samuels JA agreeing. This approach has inured beyond the decision of the High Court of Australia in Emanuele v Australian Securities Commission (1997) 188 CLR 114.

41 The continued force of the decision in National Mutual, which is binding on me anyway, is demonstrated by its application in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [93]. See also Correa v Wittingham [2003] NSWCA 263 at [78] - [83] by Gleeson JA, Barrett JA and Tobias AJA agreeing.

42 It is one thing for the plaintiff to prefer the Ashmere Cove principle to avoid the complexities of Chubb v Moore, and quite another to leave the question of the applicability of the statutory charge in a state of suspended animation from which it cannot be revived as this case proceeds. That situation is embarrassing within the meaning of Rule 14.28.

43 In McGuirk at [35] Johnson J said:

It is not the function of the court to draw or settle a party's pleading. The court is confined to the function of ensuring that pleadings are within the rules and fulfil the functions for which they exist. Objectionable matter that is so mingled with other matter may lead to the conclusion that the pleading as a whole would tend to embarrass the fair trial of the action [and] ought be struck out (Citations omitted).

In my judgment this statement is apposite in the present case. Leave should not be granted to the plaintiffs to bring forward the amended Statement of Claim attached to ANOM naming SydFA's insurers as defendants on the basis of the averments at [336] to [334] and I will not grant leave to file the Amended Statement of Claim in this form. I will, however, allow the plaintiffs an opportunity to re-plead their claim so far as it relates to those insurers. I wish to make it clear that notwithstanding a degree of prolixity in other parts of the pleading, given the lack of opposition to the rest of it, had this been a strike out application I would only have struck out the pleading against SydFA's insurers. The plaintiffs may wish to preserve the balance of their pleading and my orders will permit that.

The application of Ashmere Cove principle

44 Subject to the plaintiffs re-pleading their case about the liability of SydFA's insurer's to indemnify it, I am satisfied that the plaintiffs have made a case for joining the insurers under Rule 6.24. Adopting the approach of Lindsay J in Mestrez, and acknowledging that there was no strong opposition to the application of the principle from the insurers, my reasons for applying those principles to present case are:

(a) although indemnity has not been formally denied, the frank and proper concession by Mr Donaldson that it is extremely unlikely that the insurers would admit the claim conforms to one's legal experience. This is not to express cynicism, rather when faced with a complex and complicated claim, said to be worth millions, and in which the acts and omissions said to form the plaintiffs' entitlements span many years, and many different legal categories, not all of which may be covered by the policy, experience suggests that prudent insurers are likely to contest the claim, and, indeed, the issue of indemnity, unless the claim is clearly shown to be an accepted peril, not specifically qualified or excluded;

(b) in circumstances where the liquidators of SydFA are without funds to either actively defend the litigation or bring a cross-claim against the insurers, s 562 Corporations Act provides an appropriate legal context to permit the plaintiffs to seek a declaration that the insurers are liable to indemnify SydFA for its liability to them, if any. No abuse of process is involved. Joinder of the insurers as co-defendants in the current proceedings will avoid a multiplicity of proceedings enabling all matters in controversy between the parties to be completely and finally determined once and for all.

(c) the limited utility of s 6 of the 1946 Act in many cases involving "claims made and notified" liability insurance policies as illustrated by Chubb v Moore, supports the adoption of another legally available path lest plaintiffs who have a strongly arguable claim for redress go without an effective remedy. That possibility is not in the interest of justice, or, I might add, the administration of justice;

(d) there would be a substantial impediment standing in the way of obtaining a binding determination of the liability of the insurers to indemnify SydFA unless the plaintiffs were permitted to join them to these proceedings.

With respect it is unnecessary for me to consider Lindsay J's views about the "invocation of a more general equitable jurisdiction (at [57])" in the present context.

The application under s 500(2) Corporations Act 2001

45 I am satisfied that I should grant leave to the plaintiffs to commence, and proceed with, the proceedings against the second, third and fourth defendants under s 500(2) Corporations Act 2001.

46 In coming to this conclusion I have taken into account the views of the liquidator of each of the companies, which as I have stated already are to the effect that he or she neither consents nor objects to the order, but given the lack of available funds neither can take an active part in the litigation. The absence of the liquidators as active contradictors of the plaintiffs is not of itself a bar to the leave sought in circumstances where consent orders have already been made for the insurers of the fourth defendant, Australian Financial Services Limited, to be joined as defendants in the proceedings. Once the case against the insurers of SydFA is re-pleaded in accordance with orders I will pronounce, another active contradictor will be supplied. It is true that not all of the causes of action pleaded, in the end, are likely to be covered by the professional liability policies (of course, I make no final judgment about that), but it will be in the interest of the insurers to contest much of what is advanced by the plaintiffs against their various insured.

47 I accept that the causes of action pleaded in the proposed Amended Statement of Claim against the various insured raise serious questions to be tried: Castlemaine Tooheys Limited v South Australia (1986) 161 CLR 148 at 153 (albeit in a somewhat different context). The evidence of Mr Belcastro, affirmed in his affidavit of 7th December 2013, on its face supports the causes of action against the companies in liquidation.

48 I accept Mr Ashhurst's argument, that many of the factors identified by Gilmour J in Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749 at [29] as relevant to a favourable exercise of the discretion are established here, including the following:

(a) the case involves a large claim of over $2 million;

(b) the claim is serious involving comprehensive facts supported appropriately by evidence and is concerned with the loss of the lifesavings of Mr and Mrs Belcastro;

(c) the legal and factual issues involved are complex giving rise to a prospect that a proof of debt will be rejected, even if the subject matter of the claims is legally amenable to that alternative;

(d) in any event, given the evidence of the liquidators, the prospects of recovery will depend upon the availability of the insurance monies which, under the Act are earmarked in the winding up for third party claimants including the plaintiffs by s 562, and the insurers are likely to deny indemnity to the liquidators;

(e) the claims have more than arguable merit having regard to the evidence of Mr Belcastro;

(f) the proceedings will not result in prejudice to other creditors because of the potential availability of the insurance monies and the consideration that the liquidators are not the active parties in the proceedings;

(g) any necessary outstanding pre-trial procedures are unlikely to inconvenience the liquidators or involve them in any additional expense, given that the plaintiffs have secured much of the evidence required and the main thrust of the case will be engaging the insurance policies; and

(h) the likely attitude of the insurers renders litigation the more appropriate avenue in the first instance.

Necessary form of orders

49 In the course of argument, Mr Donaldson pointed out a possible difficulty in pronouncing the consent orders made on 7th July concerning the insurers of Australian Financial Services in circumstances where there is a live question about whether leave should be granted to file the Amended Statement of Claim, given his objections to the formulation of the case against his client-insurers. Notwithstanding the force of this argument, I was persuaded by Mr Ashhurst to enter the orders as Mr Yezerski consented. Accordingly, it has not been necessary for me to make any decision about the adequacy of the pleading, otherwise than in respect of Mr Donaldson's client. I should not be taken as implicitly suggesting that other material non-compliance is evident in aspects of the pleading not the subject of argument before me.

50 It seems to me that I should make orders under s 500 (2) of the Corporations Act; grant leave to the plaintiff to file the Amended Statement of Claim attached to the Notice of Motion on 1st of April 2014 excluding the claims for relief and averments directed at SydFA's insurers; and grant the plaintiff leave to re-plead as against SydFA's insurers having regard to my reasons.

51 As I am of the view that I should permit the plaintiffs to join SydFA's insurers once their pleading is in order, I consider that the requirements of s 56 Civil Procedure Act 2005 are better served by making orders now that facilitate their joinder. This will avoid further applications and unnecessary delay. In these circumstances it seems appropriate to bring the matter back before me for directions with a view to checking whether the plaintiffs have taken good advantage of the opportunity to re-plead which I have allowed.

52 I have not heard the parties in relation to costs. One view of it is that SydFA's insurers have won the only point substantially in issue which is whether the proposed pleading against them adequately complied with the rules. Another view is that I have been persuaded to permit the joinder of the insurers now rather than later after the insurers have satisfied themselves about the plaintiffs' re-pleading. The "event", therefore, may be characterised as something of a draw. This suggests that the costs of the parties should be in the cause. I will pronounce an order in that form but grant liberty to the parties to apply to vary that order by lodging written submissions within 14 days of today.

53 My orders are:

(1) Under s 500(2) Corporations Act 2001 (Cth) grant the plaintiffs leave, nunc pro tunc, to commence , and proceed with, these proceedings instituted by statement of claim filed on 10th December 2013 against SydFA Pty Ltd (in Liquidation) ACN 14005594, Sydney Financial Advisors Pty Ltd (in Liquidation) ACN 133317236 and Australian Financial Services Limited (in Liquidation) ACN 116900362.

(2) Grant leave to the plaintiffs to file and serve the Amended Statement of Claim annexed to the Amended Notice of Motion filed on 1st April 2014 excluding the following matters pleaded therein:

(a) The claim for a declaration of right against the ninth, tenth, eleventh and twelfth defendants appearing on page 3;

(b) Paragraphs 11 to 14, and 336 to 344.

(3) Grant leave to the plaintiffs to file a further amended Statement of Claim within 28 days of today, naming the proposed ninth, tenth, eleventh and twelfth defendants as defendants pursuant to Rule 6.24 Uniform Civil Procedure Rules 2005 and re-pleading in accordance with the rules its claim for a declaration that those defendants, and each of them, are bound to indemnify the second defendant under the terms of the professional indemnity insurance policy issued by it or them in respect of the second defendant's legal liability to the plaintiffs, if any;

(4) Except to the extent to which its prayers for relief have merged in the orders pronounced on 11th July 2014, and today, the amended Notice of Motion filed on 1st April 2014 is otherwise dismissed;

(5) The parties costs are costs in the cause;

(6) The parties to have liberty to apply in respect of the costs order by lodging written submissions not exceeding three pages in length seeking a variation of order (5) within 14 days;

(7) List the matter for directions before Campbell J on Friday 31st October 2014 at 9:30 a.m. at which time the parties are to bring in short minutes of order formulating an agreed timetable for the taking of remaining interlocutory steps in the proceedings.

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Decision last updated: 24 September 2014