The
Civil Procedure Bill 2010 was recently introduced into the Victorian Parliament and is expected to become law by early August 2010.
The Bill has noble intentions. It sets out to encourage parties to use reasonable efforts to resolve disputes without going to court. It also seeks to improve the behaviour of litigants in order to reduce legal costs, the duration of legal proceedings and the wasteful depletion of court resources.
Pre-litigation requirements
The Bill requires parties to consider resolving disputes through honest and responsible negotiations. Disputing parties must not unreasonably refuse to participate in genuine negotiations or alternative dispute resolution (ADR). Parties or their lawyers are obliged to complete pre-litigation requirement compliance certificates, certifying that they have complied with the pre-litigation requirements or explaining why they have not been able to. If the court forms a view that a party has unreasonably failed to comply with the pre-litigation requirements, that may be taken into consideration when costs are determined.
Overarching obligations
The Bill imposes a number of overarching obligations on parties to litigation as well as their lawyers and their insurers. These obligations are intended to make civil litigation in Victoria less adversarial and more efficient, just and cost-effective. They include obligations to:
- act honestly;
- use reasonable endeavours to resolve disputes;
- minimise delays; and
- use reasonable endeavours to ensure that litigation costs incurred are reasonable and proportionate to the complexity of the matter in dispute.
The Bill requires each party to personally certify that they have read and understood the overarching obligations. It is clearly not intended that subrogated insurers be permitted to certify on behalf of insureds. The certification must be filed with the first substantive document filed by a party to a proceeding (such as a defence or a writ or a complaint).
The Bill appears to permit some flexibility for the filing of documents without an overarching obligations certification. However, it does not appear that only having one day left to file a notice of defence, for example, would be considered 'a matter of urgency'. Even if it is, the certification must then be filed as soon as practicable thereafter.
The Bill permits a proceeding to be commenced without a certification. However, it does not provide for a proceeding to be defended without a certification in the absence of the 'urgent' circumstances. We are concerned that civil registries in Victoria may refuse to accept defences without an accompanying certification.
The Bill provides that a court may take into account any failure to comply with any certification requirement when considering costs and other orders.
Practical impact for insurers
So how will all this effect insurers? Our view is that the impact on the behaviour of insurers involved in litigation will not be as great as predicted by some (including Rob Hulls, the Attorney General of Victoria). In our experience, insurers tend to be responsible, honest litigants focused on achieving early resolution of disputes (at least the insurers we act for!). Insurers are certainly not in the habit of incurring unreasonable and disproportionate legal costs.
Insurers will need to consider their internal pre-litigation procedures and ensure that they at all times act reasonably, make discovery of key documents (without discovering privileged documents) and are prepared to take advantage of any reasonable opportunities to engage in ADR.
Some aspects of the proposed legislation will be welcomed by the insurance industry because third party claimants will (in theory) be obliged to act reasonably, discover critical documents and give insurers an opportunity to resolve disputes before rushing off to litigate. A failure to do so will risk costs consequences.
In our view insurers have reason to be concerned about other aspects of the Bill. It is clear that the legislation will add to the red tape, and therefore the cost, of litigation. For example, when issuing a complaint for $12,000 in the Magistrates' Court or filing a defence to a Supreme Court Writ, it will be necessary to file:
- an overarching obligation certification (made by the insured);
- a certification that there is a proper basis for every allegation and denial (made by the solicitors); and
- a certification by each person involved in the dispute that the pre-litigation requirements have been complied with (which arguably needs to be made by the insurer and the insured, but can be made on their behalf by their solicitors).
Insurers have reason to be particularly concerned about the requirement that insureds personally certify that they have read, and understand, the overarching obligations. You can imagine that there will be a multitude of circumstances in which it will be very difficult, if not impossible, to obtain a signed overarching obligations certification from an insured in time to file a defence. For example, the insured might be uncontactable, might have difficulty comprehending the overarching obligations (are they to be published in a variety of languages?) or might simply neglect or refuse to make the certification and return it in time for a defence to be filed. The same difficulties will arise when pursuing subrogated recoveries.
Of course, insureds rarely have the conduct of civil proceedings. By certifying that they have read and understand the obligations in relation to the conduct of the litigation, it is arguable that insureds are in effect certifying that they will comply with the obligations. It would be difficult to criticise an insured for refusing to make this certification in relation to a proceeding they have no control over.
The easy fix would be for the Bill to be amended so that the certification can be made by the party which has the conduct of the litigation (the insurer) or their solicitors (although that will reveal the insurer's interest to the Court).
Insurers should examine policy wordings and consider whether they need to be amended to make it explicit that insureds have an obligation to cooperate and assist with these pre-litigation and certification procedures.