Remain, Reform or Repeal?

Key Points
  • Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) permits a plaintiff to sue an insurer directly in certain circumstances where a person is unable to recover damages from a defendant because, for example, they are impecunious for some reason.
  • The NSW Law Reform Commission has raised a number of concerns with respect to the utility, practicality and wording of the section.
  • The NSW Law Society has made a number of submissions to the NSW Law Reform Commission, including a suggestion that the section be re-worded in a more contemporary drafting style.


In February 2016 the NSW Law Reform Commission was briefed to review section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (“section 6”) and consider whether it ought to be amended or repealed in light of a number of concerns with respect to its wording and modern utility.

In summary section 6 provides a mechanism by which a person, where they are unable to recover damages from a defendant (such as where the defendant company has been wound up), can bring an action directly against the defendant’s insurer.

Observations of the Law Reform Commission

In its April 2016 ‘Consultation Paper’, the Law Reform Commission makes a number of observations regarding Section 6, including:

  • at common law (and before section 6 was introduced) a plaintiff had no right to the benefit of a defendant’s insurance policy given that only the parties to any contract of insurance can enforce it;
  • a number of Courts have expressed their dislike of section 6, including Justice Kirby’s characterisation of it as being “undoubtedly opaque and ambiguous” and the NSW Court of Appeal having described it as “somewhat enigmatic” and unclear; and
  • Section 6 was enacted 70 years ago in a different legislative and insurance environment.
The Law Reform Commission’s proposals

In its ‘Consultation Paper’ The NSW Law Reform commission proposes 5 options to address the issues created by section 6, including:

  1. Leave section 6 as it is on the basis that the Courts have over time sufficiently clarified any uncertainties associated with it;
  2. Retain the structure of section 6 but clarify any areas of uncertainty;
  3. Retain the thrust of section 6 but reform areas of perceived inadequacy, such as by providing that an insurer is not entitled to deny liability on the basis that a defendant has not met policy obligations (so as to be consistent with section 54 of the Insurance Contracts Act 1984 (Cth));
  4. Repeal section 6 entirely on the basis that existing regimes and the common law sufficiently address the needs envisioned by section 6, and/or on the basis that current insurance practices and regulation sufficiently address risks that were posed in 1946 that no longer exist.
  5. Retain the thrust of section 6 but re-write it in a contemporary drafting style while taking into account and addressing the various concerns.
Submissions made by the NSW Law Society

Earlier this year the NSW Law Society made a submission to the NSW Law Reform Commission expressing its views in relation to the proposed options and supporting ‘option 5’ above and noting that the current wording of section 6 has caused significant issues with respect to its application and interpretation.

The Law Society submitted that the ‘leave’ requirement in subsection 4 of Section 6 should be removed and replaced with a statutory remedy as of right (and possibly reflecting the drafting style of s601AG of the Corporations Act 2001 (Cth) or s51 of the Insurance Contracts Act 1984 (Cth) so as to prevent the unnecessary costs associated with an application for leave, and to avoid an inconsistent exercise of the Courts’ discretion where factual circumstances may be similar.

In the alternative, the Law Society expressed its support for ‘option 4’ above on the basis that, amongst other things, contemporary statutory remedies created since the introduction of Section 6 provide a remedy directly against an insurer (such as section 51 of the Insurance Contracts Act 1984 (Cth).

Conclusion

The NSW Law Reform Commission and the NSW Law Society make a number of interesting observations with respect to section 6 and its perceived shortcomings. While there is a strong argument for at least significant reform (if not a repeal) of section 6, it must be remembered that such amendment has the potential to significantly alter the operation of the substantive law in this area.

The NSW Law Reform Commission’s project is ongoing however the Commission is no longer accepting submissions.

Post by Patrick Hodgetts

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