The Supreme Court of Queensland recently delivered judgment in a case scrutinising an insurer’s involvement in proceedings and whether it amounted to an abuse of process.

Background

The Plaintiffs entered into an agreement with the First and Second Defendants in 2010 for the sale of a business. The Plaintiffs allege the agreement was entered based on a number of misrepresentations made by the Defendants in breach of the Trade Practices Act 1974. Proceedings were instituted against the First and Second Defendants and against the solicitors for the First and Second Defendants (the Third and Fourth Defendants).

The proceedings between the Plaintiffs and the Third and Fourth Defendants were resolved by way of a Deed. The Deed stipulated that a payment was to be made to the Plaintiffs by the Third and Fourth Defendants’ insurer, Lexon. Unusually, the Deed also included a clause that required Lexon to allow its solicitors to have conduct of the Plaintiffs’ proceedings against the First and Second Defendants.

The Defendants Contention

The First and Second Defendants applied to the Court to strike out the proceedings, restrain the solicitors appointed by Lexon from acting or stay the proceedings until such time as the alleged abuse of process was resolved.

The Defendant argued that the terms of the Deed allowing Lexon to appoint solicitors to act for the Plaintiffs interfered with the administration of justice as:

  1. There was a real possibility that the Plaintiffs’ case would be bolstered by use of confidential or privileged information communicated to the insurer when the insurer was conducting the defence on behalf of the Third and Fourth Defendants that would result in an impermissible use of confidential information.

  2. The information available to Lexon’s solicitors would assist the Plaintiffs’ response to the amended defence of the First and Second Defendants.

  3. Lexon’s interest was not to benefit the Plaintiffs by achieving the best result for the Plaintiffs. Rather, it was in Lexon’s interest to:

(a) hold the First and Second Defendant liable and not the Third and Fourth Defendants liable,

(b) further to influence the proceeding so as to recover the sum paid on behalf of the Third and Fourth Defendants.

The Decision

In circumstances where an insurer has a legitimate interest in the continuation of proceedings in respect of it’s insured, courts have recognised that provisions allowing for the insurer to have control over the litigation do not amount to an abuse of process.2

The Court found that this particular scenario was not analogous to the usual scenario of an insurer retaining a solicitor to act in the interests of both the insurer and insured.

As the Deed provided the insurer with the authority to not only direct the Plaintiffs to continue the proceedings against the First and Second Defendants but also to amend the proceedings in any manner reasonably required, it gave rise to the very real possibility of Lexon impermissibly intermeddling in the conduct of the proceedings by the Plaintiffs against the First and Second Defendants to protect Lexon’s interests.

The Court concluded that the Plaintiffs’ proceedings against the First and Second Defendants, under the direction and authority of the insurer for the Third and Fourth Defendant pursuant to the Deed of Settlement, gave rise to an “impermissible intermeddling in the proceeding”.

It was determined that the level of intermeddling was of a magnitude where the appropriate remedy was to stay the proceedings for abuse of process whilst the intermeddling remained operative.

Comment

The decision of Boddice J serves as an appropriate reminder for solicitors (and insurers) to:

  1. Be conscious of obligations whilst involved in litigation, not just to clients but to the Court and the administration of justice.
  2. Be aware that a conflict of interest can arise when serving or attempting to serve two or more interests that are not compatible, which may often materialise in the midst of litigation already afoot.
  3. Consider the significance of the material on hand relevant to the proceedings when acting against a former client. It does not need to be directly relevant – it can simply be material that can be used to the other party’s detriment.