Abstract

Joinder of a Party in application for rectification of a policy

Article

JOINDER

Rule 6.24(1) of the Uniform Civil Procedure Rules 2005 (UCPR) provides: If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party.

If it is invited or proposes to make an order directly affecting the rights or liabilities of a non-party, that person is necessary to and should be joined in the action: John Alexander’s Club Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 at [131]. All persons materially interested in its subject matter generally should be joined in order to settle the controversy by binding all to the final determination.

The test is one of degree and ultimately judgment, with regard to practical realities and the nature and value of the person’s rights and liabilities which might be directly affected. That the person’s rights against or liability to a party to the proceedings be directly affected recognises that many orders of a court may affect others. The requirement of direct effect distinguishes the case from those where the effect on non-parties can be characterised as only indirect or inconsequential.

If there is an issue whether a necessary party has been joined, the orders sought in the proceedings are of essential relevance as to their effect upon that party, rather than whether that party is a party to a relevant contract

The party prosecuting the proceedings should choose the parties necessary to the Court’s making the orders sought, but to permit that party to transfer to another who might be affected the responsibility of deciding whether to apply to be joined could be productive of uncertainty and inconvenience. It could interrupt expensive litigation because that other had insufficiently understood the proceedings or through impecuniosity or some other reason was not adequately advised. News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410.

Natural justice requires that before a court makes an order that may affect a person’s rights or interests, that person should have an opportunity to contest it. It is the courts’ invariable practice to require joinder of such a person as a party if there is an arguable possibility that he or she may be affected by it. This also avoids duplication of hearings on the same issues and the spectre of inconsistent decisions by courts or the judges of the same court. But in natural justice, joinder is not always necessary because in equity, if no prejudice would be suffered without joinder, the party’s presence could be dispensed with: State of Victoria v Sutton (1998) 195 CLR 291. For example, if a Council prosecutes a lot owner and seeks an order that a staircase be demolished, the Owners Corporation though not a party to the proceedings would be directly affected by the demolition. But if it had been suitably notified and informed the court that it wished neither to be joined nor heard and that it supported the orders proposed, the practical impact on it would be low and its attitude clear, so the Court could properly make the order without joining it: Woollahra Municipal Council v Sahade [2012] NSWLEC 76.

In summary, a person who is directly affected by the orders sought in a proceeding is a necessary party, and that the obligation to join that person rests upon the person applying for them. Sometimes, merely giving notice to that person is sufficient but joinder rather than notice is the default position. Then, joinder is usually not a matter of discretion but a matter of obligation upon the party seeking the order. This approach accords with the rules of natural justice: Ross v Lane Cove Council (2014) NSWLR 34, [2014] NSWCA 50 at [51]- [57].

In rectification cases, all parties to the contract must usually be joined: Craddock Brothers v Hunt [1923] 2 Ch 136 at 153; Zdrojkowski v Pacholczak (1958) 76 WN (NSW) 503 at 509; Re Jay-O-Bees; Rosseau v Jay-O-Bees [2004] NSWSC 818 at [76], [109]; Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd [2009] FCA 131 at [6]; Oak Dedicated Ltd v ASIC [2009] VSC 665 at [11], [32]; Owners Corporation SP 78422 v Ware Building Pty Ltd [2015] NSWSC 1384 at [13]- [14]; Damien v Combined Home Loans Pty Limited (No. 2) [2016] NSWSC 825 at [6]. Though the parties not joined agreed to be bound by the Court’s judgment and orders, an order may be made if it would be unfair to the opposing party to permit them to come in and take advantage of the judgment without putting themselves under any possible liability as co-parties, or giving the opposing party the opportunity of challenging their right to take advantage of it by proving that they were cognisant of and had consented to the arrangement: Rigg v Standard Bank of Australia Ltd (1896) 22 VLR 419.

Rectification cases are simply a clear example of when joinder is appropriate, but circumstances may allow rare exceptions. The above cases say simply that the Court cannot, ought not or will not order rectification in the absence of the parties to the contract. They do not have the result that the Court lacks power to order rectification, but rather that it will not exercise that power if the parties affected are not joined. That does not preclude the exercise the power in particular circumstances notwithstanding the absence of a party to the contract. in particular circumstances. This may occur where the party is not affected by the orders sought in any realistic way. If in the circumstances it is unnecessary because the party, a company has long been deregistered and there is no useful purpose to be served by reviving it for the purposes of joining it as a party to a proceeding in which no relief is sought against it, an order may not be made: Jenkins v Visualeyes Pty Ltd [2005] VSC 218. In that case, adherence to a suggested rule that rectification cannot be ordered in the absence of all parties to the contract would have frustrated the granting of relief to which the plaintiff was otherwise entitled.

Non-joinder may be appropriate where the non-party has been informed of the proceedings, does not wish to be heard, does not consent to being joined, and agrees to be bound by any judgment so that the requirements of natural justice have been satisfied, the parties to the proceedings can be confident that the proceedings will not be interrupted by a late joinder and the judgment will bind all relevant parties: Ross v Lane Cove Council (supra); Woollahra Municipal Council v Sahade (supra). But if in an insurer’s application for rectification of an insurance policy covering several insured for an aggregate limit of cover, a non-joined insured has an ongoing exposure which may result in a claim under the Policy which would be affected by the erosion of the limit by the claim in the proceedings in which the insurer seeks rectification, the non-joined party’s wish not to participate is relevant but of little weight when compared to the insurers’ interest in having the judgment bind all insureds. Not all other insureds need be joined to the proceedings in order to be bound by any erosion of the aggregate, but there may be other considerations which adversely affect the insurer if the other insureds are not bound: Lendlease Bldg Contr v Insce Aust [2018] NSWSC 1595.

Parties will be bound in a rectification suit only if they are party to the proceeding as it is not a judgment in rem. It would not be coherent and would place the insurer in a position where the contract is rectified, but only as against some parties. But natural justice may be present if the non-joined party is fully appraised of the remedies sought and the potential impact they may have on its rights, and if it formally agrees to be bound by the judgment so that the Insurer is protected.

If the rectification sought would also result in adding another party to the policy, and if this would affect the insurer’s rights and liabilities and impose obligations and loss of rights on that other party, joinder may be necessary. This may be avoided by seeking rectification of the policy in a way that does not add the further party. Rule 6.20 of the UCPR does not apply if the proposed additional party is not a person “jointly entitled” to the same relief as the party. Further, an applicant need not seek to correct every mistake in order to rectify the error which is relevant, but only to the extent of its interest in the rectification. The other party could seek to add itself as an Insured if it wished: Lendlease Bldg Contr v Insce Aust (supra).