Section 6 – further judicial considerations, further complexity

by DLA Piper

DLA Piper recently acted for LawCover a ‘section 6' case- Registrar-General of NSW v LawCover [2013] NSWSC 1471. The Supreme Court of NSW was asked to examine section 6 of the Law Reform Miscellaneous Provisions Act 1946 (NSW), in the context of payment of monies by the Registrar-General (R-G) pursuant to provisions of the Real Property Act 1900 (NSW)(RPA).

Nadia Pedulla commenced proceedings against her brother and his wife, alleging they fraudulently dealt with her property. She also sought compensation from the R-G, pursuant to provisions of the RPA. In turn, the R-G cross-claimed against the solicitor acting for the brother and his wife, Lewis Yee, alleging he was negligent. The Court found in favour of Ms Pedulla and ordered the R-G pay Ms Pedulla from the Torrens Assurance Fund . The Court also found in favour of the R-G against Mr Yee on the cross-claim.  

LawCover declined indemnity under Mr Yee’s policy, based on a fraud and dishonesty exclusion. The R-G then attempted to use Section 6 to recover the monies paid under the RPA to Ms Pedulla.

Three issues arose for consideration on the leave application: (1) when did the event giving rise to the claim within the meaning of Section 6 occur; (2) were the proceedings the R-G sought to commence at least arguable; and (3) was the R-G’s proposed claim an abuse of process.

Regarding issue (1), previous authorities have held that for Section 6 to be relied upon, the event giving rise to the claim for damages must have occurred prior to the commencement of the policy on which the claim is made. The R-G attempted to argue that the event giving rise to the claim was the commencement of the proceedings by Ms Pedulla against it. The R-G’s argument rested upon a contention that its right of subrogation provided for under s 133 of the RPA was somehow different to a right of subrogation under the general law. The Court disagreed with the R-G’s position and held the event was Mr Yee’s negligent conduct which caused Ms Pedulla’s loss. Thus the conduct occurred prior to the relevant policy. 

As for issue (2), the Court found that the operation of sections 128, 129 and 133 of the RPA created an insurmountable inconsistency which rendered the R-G’s proposition unarguable. Accepting LawCover’s submissions, the Court noted that the R-G suggested that section 133 allowed it to bring the claim against LawCover on the basis that there was a ‘compensable loss.’ However, ‘compensable loss’ is defined in sections 128 and 129 to exclude loss or damage for which indemnity is available under a solicitors’ professional indemnity policy. It was held the R-G could not argue that there was an indemnity under Section 6, because this would mean the loss suffered was not compensable under the RPA.

Regarding issue (3), the Court did not make a final determination but did observe that the proceedings may not amount to an abuse of process.

The case makes for good reading for a discussion on Section 6, the current case law on the topic and the complexities involved.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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