Notice provisions concerning claims against the Nominal Defendant

Nominal Defendant v Staggs [2010] NSWCA 224

Introduction

On 6 August 2010 the Court of Appeal considered section 36 of the Motor Accidents Compensation Act 1999. This was the first reported decision out of a NSW court that considered this section. The Court of Appeal provided instruction on practical approaches to the section’s stipulations. The judgment considered the sort of evidence that is capable of enlivening the section’s time restrictions and it offered commentary on the procedures that insurers have hitherto implemented when joining the Nominal Defendant as a tortfeasor.

Background

The defendant and the plaintiff were American Nationals on vacation in Sydney. On 14 March 2006 they hired a Harley Davidson motorcycle. Whilst proceeding north on the Warringah Freeway with the plaintiff as pillion, the defendant lost control of the motorcycle. The plaintiff was thrown to the ground and suffered severe head injuries. The defendant suffered significant orthopaedic and possible head injuries.

The defendant faced criminal proceedings. He pleaded guilty. He attributed the accident to an excessive braking manoeuvre and accepted sole responsibility.

The insurer did not identify a possibility that any other vehicle played a role in the accident. Investigators were commissioned by the insurer’s solicitors. The investigators encountered delays communicating with police officers. The investigator’s report subsequently identified a witness. This witness suggested that the defendant had responded to sudden deceleration of a hatchback in front of him. The witness identified that the hatchback braked suddenly in response to a merging manoeuvre by an unidentified four wheel drive.

The insurer’s solicitors formed a view that a claim against the Nominal Defendant, representing the four wheel drive (unidentified vehicle as a tortfeaser), might be feasible. Liability as between the defendant and the plaintiff was admitted.

The defendant, now returned to America, refused to respond to investigators and correspondence advanced by the insurer’s solicitors. Shortly after the accident his whereabouts became unknown. Evidence available from the defendant (arising from criminal proceedings that he did not attend) indicated remorse and a determination to accept unmitigated responsibility. The witness refused to co-operate with the insurer and, in writing, held the defendant exclusively responsible and opined that it was the responsibility of the defendant’s insurer to bear the consequences of the claim.

The insurer contemplated the requirements of section 36 of the Motor Accident Compensation Act 1999 concerning notification to the Nominal Defendant. The insurer’s solicitors advised that without the beneficial co-operation of the defendant (so that he would be prepared to apportion blame to another party) and the witness (the only person able to comment on the role of the four wheel drive) a claim against the Nominal Defendant was without prospect. The insurer considered that industry practice was that the Nominal Defendant (and hence the allocated insurer) would not be notified until a claim possessed reasonable prospects of success. It held the view that until such prospects existed a full and satisfactory explanation for delay (concerning the section 36 notice requirements) could be articulated.

The plaintiff commenced proceedings in the District Court (exemption from CARS obtained on basis of incapacity). The insurer obliged the plaintiff’s representatives to serve the statement of claim on the defendant, anticipating that the plaintiff knew the defendant’s location. The defendant then contacted the insurer and agreed to cooperate with its investigations. The insurer, upon the advice of its solicitors, subsequently determined that a claim against the Nominal Defendant bore reasonable prospects of success. Notice was issued accordingly.

The defendant’s Notice of Motion to extend time for notice to the Nominal Defendant was heard by Garling DCJ in the District Court. His Honour agreed that the decision to delay notice was appropriate. He found that explanations for delay were full and satisfactory. He found that due enquiry and search were adequate. He granted leave.

The Nominal Defendant appealed from this decision to the Court of Appeal.

Court of Appeal

Section 36 of the Motor Accident Compensation Act 1999 had not been considered by an appellate Court. It was the subject of a prior judgment out of the ACT Supreme Court.

The Court of Appeal, constituted by Giles JA, Hodgson JA and Basten JA, heard the matter on 6 August 2010. Their Honours set aside the orders of Garling DCJ and dismissed the defendant’s Notice of Motion.

The Court of Appeal provided objective opinion as to the quality of evidence that will enliven the running of time for purposes of section 36; it offered subjective opinion as to the character of the evidence proffered by the insurer and that evidence’s capacity to establish a full and satisfactory explanation for delay in giving the notice required by section 36.

The objective element

The insurer submitted that an evidentiary burden must be surmounted before time begins to run for purposes of section 36. It argued that an inability to satisfy that evidentiary burden meant that, during the period that the evidence was not available, a full and satisfactory explanation for delay could be offered.

The insurer argued that it should not be obliged to issue a notice to the Nominal Defendant until it has sufficient evidence to support a claim. It argued that this evidence ought to approach a level required to establish reasonable prospects of success. It argued that in the absence of such evidence a full and satisfactory explanation for delay can be made out. It submitted that section 36(6), which requires that the Nominal Defendant be given “full details of the allegations” against it within 2 months of the giving of notice, implies that notice cannot be given until evidence of that quality is available or is likely to become available within 2 months.

The Court of Appeal dismissed these arguments. A party seeking to claim against the Nominal Defendant should not wait until it has sufficient evidence to substantiate that claim before it gives notice. It is not necessary to obtain evidence that is capable of establishing reasonable prospects of success.

The Court of Appeal held that in circumstances where there is a suspicion that a claim against an unidentified vehicle might emerge, the insurer should not wait until it has assembled evidence capable of converting that suspicion into a claim with reasonable prospects of success. The Court stated: “the notice…merely foreshadows an application for joinder…Clearly notification is required in circumstances where further investigations and advice may be necessary before an application to join can properly be made.” [52]

The Court of Appeal also decided that section 36(5) is to be construed in accordance with the accepted construction of section 109(3). An application offering a full and satisfactory explanation for delay beyond the statutory period must capture that period as well as all time passing thereafter. This particular issue was not contested in the proceedings.

The subjective element

The Court of Appeal rejected the insurer’s argument that the evidence before it did not reach a threshold capable of countenancing a claim against the Nominal Defendant. All that was required was evidence that an unidentified vehicle might have been involved and this evidence was available from an early stage in the investigations. The Court of Appeal found that there was a prima facie argument available at an early stage.

The insurer argued that evidence of potential negligence by an unidentified vehicle was so inconclusive that an obligation to perform further investigations (after initial investigations were unfruitful) was not enlivened (until such time as the Defendant’s cooperation was secured). The Court of Appeal rejected this characterisation of the evidence.

Implications for insurers and practitioners

In circumstances where, during the 3 month period prescribed by section 36(4), there is no evidence that an unidentified vehicle may have been negligent it must, in the author’s opinion, be held that this absence of evidence constitutes a full and satisfactory explanation. There must thus be an ‘evidentiary threshold’ that triggers time for purposes of notice to the Nominal Defendant. In the particular circumstances at hand the Court of Appeal rejected the insurer’s assessment as to when the evidentiary threshold was met. The effect of this rejection was to ensure that a ‘reasonable prospects of success’ evaluation should not be applied. The threshold might be described as “an appreciation of the possibility that (a party) might seek to join the Nominal Defendant” [25]. The Court of Appeal also rejected an argument that the insurer’s investigations were an adequate response to the limited evidence available.

It is incumbent on insurer’s to act quickly, as per Hodgson JA’s formulation:

“It follows in my opinion that generally an insurer … (1) should promptly consider and decide whether it wishes to investigate the possibility of a claim against the Nominal Defendant; and (2) if the decision is to investigate this possibility, should act so as if possible to be in a position, within the three month period, to make a decision whether to give notice…” [4]

There has been suggestion that this judgment connotes a ‘double standard’ in the Court of Appeal’s approach to limitation periods. This perception of double standards purports that whilst an unsophisticated claimant’s solicitor’s actions in respect of a limitation period will not be attributed to the claimant, in equivalent circumstances the consequences of an insurer’s solicitor actions will be visited upon the insurer because it is a sophisticated litigant. The Court of Appeal will presumably reject a suggestion that it applies a double standard. It did not do so. To suggest that a double standard was applied misunderstands the questions in issue and the reasons applied. In the proceedings before the District Court and the Court of Appeal it was not argued that time was allowed to lapse erroneously; there was no inadvertent delay; it was argued that the insurer and its solicitors had arrived at an approach to the section 36 notification requirements and that this approach was conditioned by the insurer’s observations of industry practices. Basten JA considered evidence as to these practices and opined: “if ‘what happens in these matters’ is not conducive to complying with statutory limitation periods, what happens must change. The mandate of the Parliament is not to be set at nought by the ‘practices’ of insurers or their solicitors.” [72]