Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd
(1988) 165 CLR 107[1988] HCA 44
(Judgment by: Deane J)
Between: Trident General Insurance Co Ltd
And: McNiece Bros Pty Ltd
Judges:
Mason CJ
Wilson J
Brennan J
Deane JDawson J
Toohey J
Gaudron J
Subject References:
Insurance
Judgment date: 8 September 1988
Judgment by:
Deane J
At the time of the establishment of this Court, the common law of England and of this country was long settled in its insistence upon the principle of privity of contract, that is to say, the general rule that only the parties to a contract are bound by, and entitled to enforce, its terms.
Thus, in the first edition of "Principles of the English Law of Contract" published in 1879, Sir William Anson commenced a sometime tentative identification of the limits of contractual obligation (Pt.III, ch.I, p.195) with the unequivocal statement that we "may safely lay down the general rule that a person, who is not a party to a contract, cannot be included in the rights and liabilities which the contract creates so as to enable him to sue or be sued upon it" (see, to the same effect, Pollock, Principles of Contract at Law and Equity, 1st ed. (1876), at pp.167, 190-191). "This", Professor Anson went on to say, "is not only established by decided cases, but seems to flow from the very conception which we form of contract." In sub sequent editions of the work published before his death in 1914, Professor Anson consistently stressed that "the general rule" of privity constitutes "an integral part of our conception of contract".
2. In the course of the present century, the "decided cases" have served only to reinforce the principle of privity of contract as a fundamental rule of the common law. Those subsequent cases include decisions of the House of Lords, of the Privy Council and of this Court. In the House of Lords and Privy Council, the principle has been described as "fundamental", "elementary", "established", "as well established as any in our law" and "firmly built into the structure of English law" (see Dunlop Pneumatic Tyre Company, Ltd. v. Selfridge & Company, Ltd. [1915] AC 847 , at p 853; Vandepitte v. Preferred Accident Insurance Corporation of New York [1933] AC 70 , at p 79; Midland Silicones Ltd. v. Scruttons Ltd. [1962] AC 446 , at pp 467-468, 473, 494). In this Court, the requirement of privity as a general rule has never been doubted.
The closest one comes to any questioning of the doctrine in any judgment in this Court is in an obiter comment of Windeyer J. in Olsson v. Dyson (1969) 120 CLR 365 , at p 393 that "it may be that someday this Court ... will see the way clear" to find a right of action at common law for the third party beneficiary under a contract. That comment was made in the light of Lord Reid's suggestion in Beswick v. Beswick [1968] AC 58 , at p 72 to the effect that, if the matter were not dealt with by legislation, the House of Lords "might find it necessary to deal with" the absence of any such right of action. Lord Reid's comment must, however, be read in the context that the four other members of the House of Lords in Beswick (Lord Hodson (p.80), Lord Guest (p.85), Lord Pearce (pp.92-93) and Lord Upjohn (p.95)) clearly regarded the rule of privity as fundamental and settled. Equally important, Windeyer J's passing speculation in Olsson about what might happen at some future time was preceded by the statement (at p.393) that the doctrine of privity "is now firmly established and it binds us" and followed by the conclusion (ibid.) that "(w)e must take the law as it is and refuse to recognize a ius tertii arising by way of contract".
3. Other cases in this Court confirm the fundamental nature and binding character of the common law rule that a third party is neither bound by nor entitled to enforce the terms of a contract between others. Indeed, in Wilson v. Darling Island Stevedoring and Lighterage Co. Ltd. (1956) 95 CLR 43 , at p 67 Fullagar J., in a judgment which attracted (at p.52) the entire concurrence of Dixon C.J. and the subsequent entire approval ("with every line and every word") of Viscount Simonds (see Midland Silicones Ltd., at p.472), went so far as to suggest that there was no true exception at common law to that rule which he described as a "general principle ... applied in many cases" and a "rule ... accepted by the House of Lords and by the Privy Council". In the same case (at p.80), Kitto J. spoke of "the elementary general rule that the only persons entitled to the benefits or bound by the obligations of a contract are the parties to it." Again, in Coulls v. Bagot's Executor and Trustee Co. Ltd. (1967) 119 CLR 460 , Barwick C.J. referred (at p 478) to the general rule of privity of contract as one which "must be accepted", while Windeyer J. described (at p.494) the common law rule that "only those who are parties to a contract can sue upon it" as being "(f)or us ... incontrovertible".
4. Professor Anson's description of the rule of privity as "an integral part of our conception of contract" can be readily explained by further reference to the first edition of his classic textbook (at p.195):
"A contract is an agreement between two or more persons, by which an obligation is created, and those persons are bound together thereby. If the obligation takes the form of a promise by A to X to confer a benefit upon M, the legal relations of M are nevertheless unaffected by that obligation.
He was not a party to the agreement. He was not bound by the vinculum juris which it created, and the breach of that legal bond cannot affect the rights of a party who was never included in it."
This explanation of the general rule remains valid to the present day.
Indeed, it corresponds with that advanced by Barwick C.J. in Coulls (at p.478) when his Honour commented that he would "find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another". As those explanations make clear, the rule of privity is not properly to be seen as a rule of exclusion of rights of action which would otherwise exist. It is a statement or reflection of an aspect of the nature of a contract, namely, that a contract between two or more parties does not, of itself, directly confer rights or impose liabilities upon persons who are not parties to it. If a third party is to be entitled to rights and subject to obligations in relation to a contract to which he is a stranger, those rights and obligations must have some basis, either in statutory provision or in common law principle, beyond the mere contract. They cannot be based merely on the contract since the contract, of itself, directly operates only between the parties to it. On the other hand, if they arise by reason of the operation of some other principle or some statutory provision, the rule of privity will have nothing to say to them. It is in that context that it would seem accurate to say, as Fullagar J. (Wilson v. Darling Island Stevedoring, at p 67) and Lord Reid (Midland Silicones Ltd., at p 473) have suggested, that there are no true exceptions at common law to the rule of privity.
5. Circumstances can undoubtedly arise in which accepted processes of legal reasoning require a court, usually a final appellate court, to reverse the development of the law by disowning established principle. However, where the established principle is as entrenched, by authority and in legal conception, as is the principle of privity, such a reversal can only be justified by precisely defined and compelling reasons advanced as part of a plainly identified process of legal reasoning.
No such reasons are available to justify a wholesale abrogation of the general common law rule of privity of contract. Indeed, I do not understand the contrary to have been suggested in the present case either in the courts below or in argument in this Court.
The New South Wales Court of Appeal, in upholding the learned trial judge's decision that the third party insured ("McNiece") was entitled to maintain proceedings for indemnity against the insurer ("Trident"), did not purport to displace the requirement of privity as a general rule. In argument in this Court, senior counsel for McNiece expressly affirmed that he did "not, of course, invite (the Court) to abrogate the doctrine of privity in its totality." What the Court of Appeal has held, and what McNiece has sought to maintain, is that, within the context of the general rule, a limited exception should be recognized in the field of liability insurance to enable a third party, who is specified or referred to (whether by name or otherwise) in the contract of insurance as a person to whom the insurance cover extends, to maintain a common law action against the insurer if "the court is satisfied" that it was "the intention of the parties" that the third party should have enforceable rights under the policy (see the judgment of Hope J.A., with which Priestley J.A. agreed, in the Court of Appeal reported in (1987) 8 N.S.W.L.R. 270, at pp.273-274).
6. It must, of course, be conceded that there has been considerable contemporary criticism by distinguished lawyers of the absence, in common law jurisdictions outside the United States of America, of any general direct right of action in a third party to enforce a promise contained in a contract between others. Much of that criticism has been advanced in the context of a call for legislative reform and has not been directed to seeking to lay a foundation for a judicial reversal of the law by some acceptable process of legal exegesis. Even in that context however, that criticism has (at least if viewed with the benefit of hindsight) often been flawed by an incomplete perception of the extent to which the practical effect of the rule of privity is confined and qualified, and to which the injustice which the rule might otherwise cause is precluded, by the application and development of other principles.
7. Of its nature, the rule of privity operates within the confines of the law of contract. Within those confines, it neither operates to deny the validity of a promise to benefit a third party nor hinders proceedings by the promisee against the promisor for specific performance of such a contractual obligation. That being so, the chose in action constituted by rights to enforce the promise will, in some circumstances, be susceptible of assignment by the promisee to the third party. Nor does the rule of privity preclude the promisee from undertaking a collateral contractual obligation to the third party to institute and maintain such proceedings against the promisor for specific performance or to authorize the third party to maintain such proceedings for specific performance in the name of the promisee. If the promisee contracts as agent for a disclosed or undisclosed principal, the principal will ordinarily himself be, for the purposes of the requirement of privity, a party to the contract. If the terms of a contract incorporate a promise to benefit a third party in the form of an offer which is susceptible of being accepted by the third party, that third party can, at least if the consideration provided to the offeror under the head contract can be treated as having been provided (jointly or partly) by or on behalf of the third party (cf. Coulls, at pp.478-479, 486, 493), acquire direct contractual rights against the promisor by an appropriate acceptance of the offer.
8. If, within the confines of the law of contract, a third party who would be benefited by the performance of a contractual promise is left without redress, other principles of law operate (unhindered by the rule of privity) upon or within the context of contractual rights and obligations to avoid injustice in particular categories of case. The point can be conveniently illustrated by reference to a contract of the type involved in the present case, namely, a policy of liability insurance which includes a stranger to the contract among the persons whom the insurer promises to indemnify. If the insurer under such a policy induces, by his conduct, the third party to act to his detriment on the assumption that he is effectively indemnified under the policy, the insurer will, in an appropriate case, be estopped from denying the enforceability of such indemnity. Even if, in such a case, the assumption induced by the insurer is, upon analysis, an assumption as to future fact (e.g. that the third party will, in the event of liability within the period of the policy, be effectively protected by the policy) the doctrine of estoppel by conduct would, in my view, be applicable to preclude the insurer from raising the requirement of privity of contract (or from denying enforceability or the existence of a trust of the promise) as a basis for a departure from that assumption as to future fact (cf. Waltons Stores (Interstate) Ltd. v. Maher (1988) 62 ALJR 110, at pp 137-138; 76 ALR 513 , at pp 559-560). Again, if the insurer under such a policy has received the moneys payable for the promised indemnity but has then refused to indemnify the third party on the ground that the third party was not a party to the contract of insurance, the circumstances could conceivably be such as to give rise to a cause of action by the third party against the insurer founded upon principles of unjust enrichment (cf. Pavey & Matthews Pty. Ltd. v. Paul (1987) 162 CLR 221 , at pp 227, 256-257; Australia & New Zealand Banking Group Ltd. v. Westpac Banking Corporation (1988) 62 ALJR 292, at pp 295-296; 78 ALR 157 , at pp 161-163). The path by which relief would be granted in such a case might well involve some reassessment of the extent of curial powers, both statutory and inherent, to mould the relief appropriate to do justice in the circumstances of a particular case (note, in that regard, the discussion in Professor Peter Birks' article, "Restitutionary Damages for Breach of Contract", Lloyd's Maritime and Commercial Law Quarterly, (1987), 421, at pp.422ff.). It is, however, unnecessary in the present case to embark upon a detailed examination of questions of estoppel by conduct or to seek to identify what, if any, circumstances could found an action in unjust enrichment by the third party against an insurer who has refused to honour the indemnity which he has been paid to provide.
The reason why that is so is that it has not been suggested in the present case that Trident is estopped by its conduct from relying upon the rule of privity to deny liability to McNiece or that the circumstances are such as might arguably give rise to a right of action (in McNiece) founded on unjust enrichment. Nor has any reliance been placed, either in the judgments in the Court of Appeal or in argument in this Court, upon the doctrine of estoppel by conduct or (except to the extent that they are reflected in the law of trusts) upon principles of unjust enrichment.
If there be a doctrinal basis for the recognition by the Court of Appeal of a right of action in the third party assured to enforce the insurer's promise of indemnity in the present case, it must be found, either directly or by way of analogy, in the law of trusts.
9. In the course of his judgment in Wilson v. Darling Island Stevedoring, Fullagar J. (at p 67) pointed to the fact that "equity could and did intervene in many cases" involving circumstances in which the common law requirement of privity could operate unjustly "by treating the promisee as a trustee of a promise made for the benefit of a third party, and allowing the third party to enforce the promise, making the promisee-trustee, if necessary, a defendant in an action against the promisor". His Honour went on to comment (ibid.) that it is "difficult to understand the reluctance which courts have sometimes shown to infer a trust in such cases" (see, for a helpful discussion of the main earlier decisions, J.G. Starke, "Contracts for the Benefit of Third Parties" Pt.IV, Australian Law Journal, vol.22 (1948), 67 at p.69). That comment of Fullagar J. was, in my view, fully justified. Indeed, the "reluctance" of courts to find a trust in such cases seems often to have been caused by a misunderstanding of the nature of equity's requirement of an intention to create an express trust, or put differently, by a failure to appreciate the innate flexibility of the law of trusts (cf., per Cardozo J., Adams v. Champion (1935) 294 US 231, at p 237).
10. In equity, "intention alone will not constitute a trust obligation (and) ... mere conduct without such intention is ineffectual to impose it, or, as Lewin, 12th ed., at p.88, says, to 'impute' it" (per Isaacs J., Commissioner of Stamp Duties (Qld) v. Jolliffe (1920) 28 CLR 178 , at p 189 and see, now, Lewin, 16th ed., at p 35). The requisite intention to create a trust of a contractual promise to benefit a third party can, however, be formed and carried into effect (either by the contract itself or some other act) by a promisee who would be bemused by the information that the chose in action constituted by the benefit of a contractual promise is property and uncomprehending of the distinction between law and equity. In that regard, the analogy of Moliere's M. Harpagon who unwittingly spoke poetry or "verse" would arguably have been a more instructive one than that of M. Jourdain who merely spoke ordinary prose (see In re Schebsman (1944) Ch 83, at p 104). In the context of such a contractual promise, the requisite intention should be inferred if it clearly appears that it was the intention of the promisee that the third party should himself be entitled to insist upon performance of the promise and receipt of the benefit and if trust is, in the circumstances, the appropriate legal mechanism for giving effect to that intention. a fortiori , equity's requirement of an intention to create a trust will be at least prima facie satisfied if the terms of the contract expressly or impliedly manifest that intention as the joint intention of both promisor and promisee.
11. A trust can attach to the benefit of the whole contract or of the whole or part of some particular contractual obligation. In the case of a policy of liability insurance under which the insurer agrees to indemnify both a party to the contract and others, there is no reason in principle or in common sense why the party to the contract should not hold the benefit of the insurer's promise to indemnify him on his own behalf and the benefit of the promise to indemnify others respectively upon trust for those others. Where the benefit of a contractual promise is held by the promisee as trustee for another, an action for enforcement of the promise or damages for its breach can be brought by the trustee. In such an action, the trustee can recover, on behalf of the beneficiary, the damages sustained by the beneficiary by reason of breach. If the trustee of the promise declines to institute such proceedings, the beneficiary can bring proceedings against the promisor in his own name, joining the trustee as defendant.
12. An intention to create a trust of the benefit of a contractual promise can be evidenced and/or carried into effect by the contract itself or by action of the promisee aliunde. When the trust is created by the actual contract between promisor and promisee, the beneficiary can nonetheless properly be described as a stranger to the creation of the contract. Indeed, he may be quite unaware of its existence.
It would, however, be misleading to say that the promisor, in such a case, is a stranger to the creation of the trust in that the overall effect of the contract itself, to which he is a party, may be that the relevant promise is made by him to the promisee in the latter's capacity as trustee for the designated beneficiary or class of beneficiaries and that the intention to create a trust which the contract manifests and carries into effect is a joint intention of both promisor and promisee who might both be regarded as settlors. It is unnecessary to consider here what, if any, rights or obligations in relation to the trust might be enjoyed by or imposed upon the promisor in such a case. What is relevant for present purposes is that, in such a case, there will ordinarily be neither need nor occasion to seek to identify some independent intention (i.e. apart from that manifested in the contract) or action of the promisee. That is not, of course, to say that either the third party or the parties to the contract are restricted to the terms of the contract (to which the third party is a stranger) or precluded from relying on other circumstances to establish or negative the existence of a trust in the third party's favour in any dispute between the third party and one or more of the parties to the contract (see, e.g., Royal Exchange Assurance v. Hope (1928) Ch 179, at pp 185,195).
13. The question whether a particular contract itself creates a trust of the benefit of one or more of the promises which it contains is primarily a question of the construction of the terms of the contract. Those terms must, however, be construed in context and a trust of a contractual promise will obviously be more readily discerned in the terms of some classes of contracts than it will in others. It is difficult to envisage a class of contract in which the creation of such a trust would be more readily discernible than the type of contract which is involved in the present case, namely, a policy of liability insurance indemnifying both a party to the contract and others who are designated either by specific identification or by their membership of an identified group. In the case of such a policy, the terms of the contract itself will, in the context of the nature of insurance, ordinarily manifest an intention to the effect that each non-party assured is to be fully entitled to the benefit of the promisor's promise to indemnify him, that is to say, that the promisee should hold the chose in action constituted by the right to enforce that promise upon trust for the relevant non-party assured (cf. Jacobs' Law of Trusts in Australia, 5th ed. (1986), at pp.24-25). The intention so manifested will commonly be a joint intention of promisor and promisee. It would suffice, however, that it be the intention of the promisee alone.
14. The relevant terms of the policy of insurance in the present case are set out or summarized in the judgment of McHugh J.A. in the Court of Appeal and in the joint judgment of Mason C.J. and Wilson J. in this Court. It is unnecessary that I repeat them. It suffices to say that, in the context of the nature of liability insurance, those contractual terms manifest an unmistakable intention that each assured should be entitled to the benefit of the insurer's promise to indemnify it against the specified loss and should be itself entitled to insist upon enforcement of that promise. That intention is properly to be construed in legal terms as an intention that the chose in action constituted by the benefit of Trident's promise to indemnify each contractor and sub-contractor on the identified sites in respect of specified loss should be held by the promisee ("Blue Circle") upon trust for the relevant contractor or sub-contractor. Prima facie, the contract operated to give effect to that intention which it manifested. That being so, the prima facie effect of the policy itself in the events which occurred (i.e. McNiece becoming a designated contractor or sub-contractor) was to create a trust for McNiece of the benefit of Trident's promise to indemnify it against relevant loss. There is nothing in the material before the Court which could have the effect of negativing or modifying the creation or effect of that trust.
Indeed, in the context of the circumstances disclosed by that material, it is difficult to conceive of any real possibility of the existence of circumstances which could have had that effect. There are, however, two related difficulties involved in giving effect on this appeal to a conclusion that Blue Circle holds the benefit of Trident's promise to indemnify McNiece upon trust for McNiece. The first is that Blue Circle is not a party to the appeal. The second lies in the course which the proceedings followed in the courts below.
15. McNiece did not initially seek to base its action against Trident on the existence of a trust in its favour of Trident's promise to indemnify it. It succeeded at first instance on the basis that Blue Circle had acted as an agent for it and the other third party assured and that it had subsequently ratified the policy. The learned trial judge's finding to that effect was reversed by the Court of Appeal and McNiece has not sought to reinstate it in this Court. In the Court of Appeal, McNiece belatedly applied for leave to amend the pleadings to base its case on the existence of a trust. Blue Circle, which agreed to that course being adopted, was apparently added as a defendant. Trident, however, objected to reliance being placed upon the existence of a trust. It suggested that it might wish to call further evidence on that question. The Court of Appeal refused McNiece leave to amend its statement of claim to raise a claim of trust.
16. McHugh J.A., in a judgment from which I have derived much assistance, expressed the conclusion (at p.287) that in the case of a policy of liability insurance indemnifying both the promisee and designated third parties:
"Unless the terms of the policy or the surrounding circumstances compel the opposite conclusion, the inference is surely overwhelming that the promisee ... intends to hold the benefit of the insurer's promise on behalf of any assured as well as himself."
I am in general agreement with that conclusion subject only to the qualification that I would ordinarily see the intention to which his Honour refers as a joint intention of both promisor and promisee which is manifested by the policy of insurance. His Honour went further, however, and expressed the view that it could now be asserted that such "a trust will be invariably imputed in the case of a liability insurance policy".
For my part, I am not prepared to go so far. I can envisage circumstances in which the policy of insurance, construed in context, might make it plain that the insurer's promise to indemnify a third party was intended to confer no enforceable benefit upon that third party but was to be subject to the desires and requirements of the promisee alone. In circumstances where the cost and availability of insurance is commonly and significantly affected by claims history, I can see no acceptable process of legal reasoning which would justify the imputation to a promisee of an intention to create a trust of an insurer's promise to indemnify a third party in circumstances where the contract itself, construed in context, made clear that the intention of both insurer and promisee was that no trust should be created and that no enforceable rights should be conferred upon the third party. My disagreement with McHugh J.A. on this aspect of the matter precludes me from accepting his Honour's conclusion that a refusal to allow a non-party assured to sue directly on a written policy of liability insurance is no more than a matter of "form and procedure" (ibid.). In the exceptional case where no trust of the promise exists and where other principles, such as estoppel or unjust enrichment, are not available to found a cause of action, the refusal to allow such a third party to sue for the enforcement of a contractual promise is, in my view, in the absence of applicable legislation, a matter of entrenched law.
17. Hope and Priestley JJ.A. both expressed their agreement with the reasoning of McHugh J.A. However, the supplementary comments made by Hope J.A., with which Priestley J.A. expressed his concurrence, contain what appears to me to be an important qualification. In the last paragraph of his judgment, Hope J.A. was at pains to stress that the "step of allowing third parties to sue" for enforcement of a contractual promise in some cases "must be taken cautiously and only in circumstances where the court is satisfied as to the intention of the parties" (at p.274).
His Honour went on to express a conclusion that the present was "such a case" in that he was of the view that the policy of insurance "was entered into ... upon the expressed intention that the parties other than Blue Circle ... should have enforceable rights under it" (ibid.). It was within the context of that qualification and on the basis of that conclusion that Hope J.A., and presumably Priestley J.A., decided that McNiece could succeed in its claim for indemnity without there being any need for it either to rely upon a trust or to join Blue Circle as a party.
18. It should be apparent from what has been written above that the area of disagreement between Hope and Priestley JJ.A. and myself is narrowly confined.
Like their Honours, I am of the view that a third party assured under a policy of liability insurance will ordinarily be entitled to maintain proceedings to enforce the promise to indemnify him if the policy expresses or manifests an intention that the third party should have an enforceable right to insist upon the benefit of the indemnity. Like their Honours, I consider that the policy in the present case expresses or manifests an intention that McNiece should have such an enforceable right. Where I respectfully differ from their Honours is that, in the absence of applicable statutory provision, I am unable to take the final step of seeing McNiece's right to obtain the benefit of the indemnity as arising otherwise than under a trust of the benefit of the insurer's promise. My refusal to take the final step of recognizing, in a case such as the present and in the absence of some applicable statutory provision, a direct right of action in the third party against the insurer to enforce the contract is not based on an insistence upon matters of form or procedure. It flows from an inability to see such a direct right of action in contract otherwise than as inconsistent with the established legal position. For present purposes, a refusal to take that final step is significant in at least two distinct ways. First, the defeasibility and extent of the third party assured's rights under a trust of the insurer's promise are as defined by the law of trusts and not as laid down by some new judicial prescription. Second, the existence of an intention to create such a trust (manifested by a contract, not directly binding between the parties to it on the one hand and a third party on the other) could be negatived or modified by other circumstances. That being so, it would be unfair to hold in the present case that McNiece was entitled to succeed in an action against Trident on the basis of a trust without extending to Trident any opportunity at all of establishing the existence of further circumstances which could negative or modify the creation or effect of any such trust.
19. Nor, in my view, does there exist any acceptable justification for the alteration of that established legal position by the creation, by judicial decision as distinct from legislative reform, of a direct right of action in a third party assured under a policy of liability insurance to enforce a contract to which he is not a party. As has been seen, it has long been the settled law of this country that it is of the very nature of a contract that it does not, of itself, confer any direct right of enforcement upon a person who is not a party to it. In the light of the provisions of s.48 of the Insurance Contracts Act 1984 (Cth), the only real point to be served by the judicial creation of such a direct right of enforcement would seem to be its retrospective application to any hard cases that might have arisen before the commencement of that Act. Even that doubtful point is, however, of doubly doubtful validity since it is far from apparent that there are, in fact, any such outstanding cases in which an insurer, who has invoked absence of privity to decline indemnity to a third party assured, is beyond the reach of doctrines of trust and estoppel or the principles of unjust enrichment.
Moreover, the consequences of the creation of such an exception to the rule of privity are far from clear even in relation to the present case unless one treats the right of the third party to enforce the contract as being unconditional and indefeasible. If, for example, such a direct right of action of the third party assured could be terminated by the promisee or insurer or both up until the time when the third party had acted on the basis of the promise or when the third party has given notice to the insurer that he has accepted the benefit of the promise, there has been no investigation in the present case of the question whether McNiece ever acted to its detriment on the basis of the policy or gave such notice or, for that matter, was even aware of the existence of the policy at any relevant time.
20. Accordingly, it is necessary to decide what are the appropriate orders which should be made for the disposal of the appeal in view of my conclusion that the policy itself prima facie created a trust in McNiece's favour of the benefit of Trident's promise to indemnify it. Were it not for the refusal of the Court of Appeal to allow McNiece to formulate its claim on the basis of a trust, the appropriate order would, in the light of that conclusion, be that the appeal should be dismissed. In that regard, the fact that Blue Circle was apparently not requested by McNiece to institute proceedings as promisee-trustee should be seen, as between McNiece and Trident, as a matter of mere procedure which should not, of itself, be allowed to preclude the proper resolution of the real dispute. The question arises whether, in view of that refusal of the Court of Appeal and of my conclusion that McNiece must rely upon the existence of a trust to succeed in the action against Trident, the appeal should be allowed and the action dismissed leaving it open to McNiece to institute new proceedings. With some doubt, I have reached the conclusion that that course should not be followed in all the circumstances.
The refusal of the Court of Appeal to permit McNiece to propound its case on the basis of an express trust must be viewed in the context of McHugh J.A's expressed view that a trust will "invariably" be imputed in a case such as the present and of the Court of Appeal's ultimate conclusion that McNiece was entitled to succeed on the appeal to that court in any event. The matter has now proceeded, as a result of the further appeal by Trident, to a determination by this Court of the essential questions of law involved. The course of any new proceedings could be complicated by the need to determine (for purposes of issue estoppel) the precise scope of the issues determined by the present proceedings. As I have pointed out, it is difficult to conceive of any real possibility of the existence of circumstances which could negate or modify the effect of the intention to create a trust which the policy of insurance itself manifests. It appears to me that, in all the circumstances, it would be wrong to force McNiece, which succeeded both at first instance and in the Court of Appeal, to institute such new proceedings at this stage. The appropriate course is to give McNiece leave to join Blue Circle as a respondent to the proceedings in this Court and to stand the matter over to allow McNiece to file a notice of contention alleging the existence of a trust and to allow Trident, if it can, to place before this Court material showing that it has an arguable case, based on further evidence, that there are circumstances which have the effect of precluding or modifying the trust which the policy of insurance would otherwise have sufficed to create. If, as would seem likely, Blue Circle files a submitting appearance and Trident is unable to place such material before the Court, the appropriate order would then be for the appeal to be dismissed. If Blue Circle does not submit as a defendant or Trident does place such material before the Court, it will be necessary for orders to be made remitting the matter to the Court of Appeal to determine the appropriate procedure for finally disposing of the dispute between the parties.