Ace-Semi Trailer Sales Pty Ltd v Zurich Australia Insurance Ltd

Ace-Semi Trailer Sales Pty Ltd v Zurich Australia Insurance Ltd - [2009] NSWCA 381 - NSWCA 2009 case summary — Zoe

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(5) For the avoidance of doubt, this section applies and is taken always to have applied to the recovery of compensation or damages, whether or not the compensation or damages were paid under an award or judgment. For example, compensation or damages may be paid under an agreement. 3 Miles was paid workers compensation for his injury by Ace, which by the time of the judgment below (19 December 2008) amounted to about $760,000. Miles at no time sought common law damages against Ace. 4 On 15 December 2005, Ace commenced proceedings against Zurich seeking an indemnity under s 151Z(1)(d). Paragraph 14 of Zurich's defence was as follows: Further, or in the alternative, in the event that [Zurich] is found to have a liability to [Ace] to indemnify and/or contribute in respect of payment made to or on behalf of [Miles] in respect of his injuries sustained in the accident on 10 July 2002, then such damages should be reduced proportionately by reason of [Ace's] breach of duty owed to [Miles]. 5 On 11 April 2006, Miles commenced proceedings against Zurich claiming common law damages. 6 On 19 May 2008, Ace served on Zurich an offer of compromise in Ace's action offering to settle that action for $575,000. Zurich did not accept that offer. 7 On 5 June 2008, Zurich filed an amended defence in Miles' action which added par 13 as follows: In further answer to the whole of the statement of claim [Zurich] says that any loss to [Miles] as alleged (which is not admitted) was wholly or partly caused by the negligence of [Ace], and pursuant to Section 151Z(2) of the Workers Compensation Act 1987 (NSW) damages are to be reduced by the amount of contribution which [Zurich] would have been entitled to recover from Ace as joint tortfeasor. 8 It is to be noted that this misstates the effect of s 151Z(2)(c), which is that the reduction is to be the amount by which the contribution that Zurich would, but for Part 5 of the WC Act, be entitled to recover from Ace exceeds the amount of the contribution actually recoverable, that is, the amount recoverable by reason of s 151Z(2)(d). However, no point was taken about this. 9 On the same day, Zurich filed a cross-claim in the action brought by Miles, seeking contribution from Ace under s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946. In its defence to that cross-claim, Ace pleaded workers compensation payments made to Miles. 10 In Miles' proceedings, it was agreed between the parties that Miles' entitlement to damages against Zurich, unaffected by s 151Z(2)(c), was $3.4 million; and that his entitlement to damages against Ace calculated under Pt 5 of the WC Act was $677,393. 11 There was then a single contested hearing of both proceedings, in which the issue was apportionment of responsibility as between Ace and Zurich; and on 11 December 2008 the primary judge gave judgment apportioning the responsibility at 35 per cent against Ace and 65 per cent against Zurich. 12 In the result: (1) Judgment was entered for Miles against Zurich for $2,447,088 (applying to $3.4 million the reduction required by s 151Z(2)(c)). (2) Out of this, about $760,000 was to be paid to Ace pursuant to s 151Z(1)(b). (3) Zurich became entitled to $237,088 on its cross-claim against Ace (35 per cent of $677,393). (4) Ace became entitled in its action against Zurich to interest on workers compensation payments it had made to Miles, amounting to $235,177 (and a further $38,598 arising from an error, which is immaterial for present purposes). 13 As regards costs, the primary judge: (1) Ordered Zurich to pay Miles' costs of his proceedings against it. (2) Ordered Ace to indemnify Zurich in respect of 25 per cent of Miles' costs. (3) Ordered Ace to pay Zurich's costs of its cross-claim against Ace. (4) Ordered Zurich to pay Ace's costs of Ace's proceedings against Zurich. 14 By this application, Ace challenges orders referred to in (2), (3) and (4) above, in respect of (4) contending that those costs should be on an indemnity basis from 20 May 2008. 15 In relation to (3) and (4), Ace's contentions were that Zurich's cross-claim was unnecessary in the light of Zurich's defences in the two actions; and that the overall result for Ace against Zurich in both proceedings was far more favourable to Ace than the offer of compromise which Zurich did not accept. 16 In order to evaluate these contentions, it is necessary first to observe that acceptance by Zurich of Ace's offer of compromise would not have precluded it from relying either on par 13 of its defence to Miles' action or on its cross-claim against Ace in that action. 17 It is true that Zurich relied on Ace's negligence in par 14 of its defence to Ace's action, but the issue raised by that paragraph went to issues properly raised in that case in only one, or possibly two, of the following ways, but in no other way: (1) The greater Ace's negligence, the lower the total damages payable to Miles, as a result of s 151Z(2)(c), and therefore the lower the limit created by the parenthesis in s 151Z(1)(d); (2) Arguably, as between Zurich and Ace, "the amount of those damages" in the parenthesis in s 151Z(1)(d) could be the proportion of the damages which Zurich would be ordered to pay, as between Zurich and Ace, not the totality. 18 The most those issues could do in the proceedings between Ace and Zurich would be to reduce the limit in s 151Z(1)(d): they could not otherwise reduce the amount of the indemnity payable by Zurich to Ace or give effect to any contribution recoverable by Zurich from Ace (see par [20] below). Accordingly, acceptance by Zurich of the offer of compromise could not have resulted in an estoppel, or even an Anshun estoppel, preventing Zurich from cross-claiming against Ace in the Miles proceedings. 19 Applying the above considerations to the figures in this case, what Ace's negligence could have meant in Ace's claim against Zurich was to reduce the limit in s 151Z(1)(d) from $3.4 million to $2,447,088 (if the argument suggested in the second possible issue referred to above failed) or to $2.21 million (if the argument suggested in the second possible issue succeeded). The application of either of those limits would not in this case have had any effect; but if, for example, Ace's responsibility had been assessed at 95 per cent, the limit would have applied to restrict the amount of the indemnity. 20 Contribution from Ace could be obtained by Zurich by a claim by Zurich against Ace, but not by any defence by Zurich to Ace's claim pleaded prior to any judgment obtained by Miles. Contribution depends on Zurich being "liable" within the meaning of s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act; and that could only occur if and when Miles obtained judgment against Zurich in his action against Zurich. Thus Zurich could make a claim for contribution by a cross-claim against Ace in Miles' action; but could not take any other kind of proceedings seeking contribution from Ace until Miles had obtained judgment against it: see Baldry v Jackson [1976] 1 NSWLR 19, Civil Procedure Act 2005 s 22. 21 All this means that Zurich's acceptance of the offer of compromise would not have avoided the three-way contest in Miles' action, and would not have result in any substantial savings of costs at all; and certainly could not have affected what was the proper costs order in Miles' action. 22 I accept that there should not be too narrow a construction put on "order … no less favourable" in UCPR 42.14; but I do not think this can be established by reference to the outcome of other proceedings, in respect of which acceptance of the offer of compromise would have made no savings of costs. Similarly, if the offer of compromise were treated as a Calderbank offer, acceptance would not have reduced costs; so it could not either justify indemnity costs in Ace's action against Zurich, or in not giving Zurich its costs of its cross-claim against Ace. 23 Accordingly, in my opinion, there was no error by the primary judge in giving Ace the costs of its claim against Zurich on the ordinary basis, or in giving Zurich its costs of its cross-claim against Ace. 24 As regards Miles' costs, as between Miles and Zurich there was no severable issue on which Zurich won. On the issue of Ace's negligence, both Miles and Zurich had some success, Miles in limiting it to 35 per cent and Zurich in getting it up as far as 35 per cent. On ordinary principles, costs follow the event, and the event was a judgment for over $2 million in favour of Miles, with no severable issue that increased the costs which Zurich won. 25 On the question whether Ace should contribute something towards Zurich's liability for Miles' costs, there are two possible routes to this result: (1) Simply as an exercise of the costs discretion in relation to Miles' claim against Zurich; (2) As part of the recovery of contribution under s 5 of the Law Reform (Miscellaneous Provisions) Act. 26 It appears that the primary judge adopted the first route. However, in my opinion, there is no possible justification on that basis. Ace made no contribution to the costs as between Miles and Zurich that was not appropriate as part of its defence of Zurich's cross-claim, and Ace has properly been held to be liable to Zurich for those costs. Ace could not be considered to have intermeddled in any way as between Miles and Zurich, and there is in my opinion no basis for making an order that Ace, being a non-party in the proceedings between Miles and Zurich, should contribute to the costs of the proceedings as between Miles and Zurich. 27 However, there could be a possible basis as part of the recovery of contribution. Under s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act, Zurich is entitled to recover contribution from Ace; and under s 5(2), the amount of that contribution is to be "such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage. The basis of Ace's liability for contribution is that Ace "would, if sued, have been liable in respect of the same damage". That makes it relevant to what is just and equitable to consider what Ace's liability, if sued, would have been, including its liability in respect of costs. 28 Relevant to this question are clauses 89 to 93 of the Workers Compensation Regulation 2003, which are as follows: 89 Costs where claimant no less successful than claimant's final offer

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This Subdivision does not apply to costs payable in or in relation to proceedings that are ancillary to proceedings on a claim for work injury damages, and a court is to award costs in such ancillary proceedings in accordance with the rules of the court. 29 The effect of these clauses was considered in Estate of the late M T Mutton v Howard Haulage Pty Limited [2007] NSWCA 340 at [251]-[263], where Ipp JA (Spigelman CJ agreeing) expressed the view that it would not be just and equitable for the employer to be ordered to pay some part of the plaintiff's costs against the other tortfeasor if, in hypothetical proceedings against the employer, no costs would have been ordered against the employer. 30 In my opinion, the chance that, in such hypothetical proceedings, costs would have been ordered against Zurich by reason of cl 89 (whether with or without assistance from cl 92) must be considered remote and speculative; and in my opinion, such a remote and speculative chance could not be a sound basis for ordering Zurich to pay some part of Miles' costs as a just and equitable contribution under s 5 of the Law Reform (Miscellaneous Provisions) Act. 31 I do not think this is altered by cl 93: even if the contribution proceedings were to be regarded as ancillary proceedings, the question being addressed is not what order for costs should be made in the contribution proceedings, but rather what contribution is to be recovered under s 5. 32 I would follow the dicta in Mutton; and in accordance with those dicta, I think there should be no contribution recovered in respect of costs. 33 Although Mutton was not referred to the primary judge, in my opinion error by the primary judge is shown, because the primary judge made the order that he did as an exercise of the costs discretion, not as part of the recovery of contribution. I would allow the appeal on this aspect only. 34 As regards the costs of the appeal, in my opinion the appeal has had some substantial success; and the general principle, in such circumstances, is that the appellant should have its costs of the appeal, except to the extent that the cost of both parties have been increased by severable issues on which the appellant was not successful: see James v Surf Road Nominees (No 2) [2005] NSWCA 296 at [31]-[33] (per Beazley, Tobias and McColl JJA), Turkmani v Visvalingam (No 2) [2009] NSWCA 279 at [9]-[13] (per Hodgson JA, Beazley JA and McColl JA agreeing), and Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (per Beazley, Ipp and Basten JJA). In my understanding, the cases of Cross v Queensland Newspapers Pty Ltd (No 2) [2008] NSWCA 120 and Baker v Towle [2008] NSWCA 73 referred to by Basten JA, do not detract from this principle. 35 I think the issues in this matter were severable. The general costs of the appeal include filing fees, costs of written submissions, brief on hearing, costs of preparation of books, and other solicitor's costs. The issues on which the appellant lost would I think, very approximately, have doubled the costs of written submissions (on both sides), have increased the work of preparation of books (appellant's costs only) by about 50%, and had a much lesser effect on the other solicitor's costs and brief fees (on both sides). My assessment is that these increases would amount to about one-half of the general costs of the appeal that would otherwise be payable by the respondent. Accordingly, in my opinion the appropriate order is that the respondent Zurich pay one-half of the applicant Ace's costs of the application and appeal. 36 BASTEN JA: The issues raised by this application derive from serious injuries suffered by Mr Jason Miles in a workplace accident. Mr Miles is not a party to the application, which is concerned with disputes between his former employer (the applicant) and the insurer of the company (now deregistered) on the premises of which the accident occurred (the respondent). The issues all concern the costs orders made by the trial judge, Hoeben J, in the Common Law Division: Miles v Zurich Australia Insurance Limited (No 2); Ace-Semi Trailer Sales Pty Ltd v Zurich Australia Insurance Limited (No 2) [2009] NSWSC 55.

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Procedural history 40 Although the accident occurred on 10 July 2002, the worker did not commence proceedings for damages until 11 April 2006. Those proceedings were brought against the respondent: at no stage did the worker sue his employer. 41 The reason for the strategic decision not to bring proceedings against the employer is no doubt explained by the figures involved in this proceeding. Once the worker recovered damages, he was no longer entitled to compensation payments: s 151Z(1)(b). Accordingly, those payments ceased shortly after judgment at the trial, namely on 19 December 2008. At that stage the compensation payments were approximately $760,000, considerably in excess of the judgment which he could have obtained against his employer, as assessed for the purposes of s 151Z(2) in the proceedings against the respondent. 42 The second factor which affected the outcome of the damages claim was the apportionment of liability between the employer and the respondent. The trial judge apportioned that liability as to 65% against the respondent and 35% against the employer. This had a significant effect on the damages recoverable from the respondent, which was entitled to recover 35% of its liability from the employer. As a proportion of the respondent's liability, assessed at $3.4 million, that would have been a sum in the order of $1.2 million, or almost twice the assessed liability of the employer. 43 To ensure that an employer is not affected by such an apportionment in a manner inconsistent with the limitations imposed by Part 5, the contribution recoverable by the other tortfeasor is limited to the amount which would constitute that proportion of the damages assessed against the employer in accordance with Part 5: s 151Z(2)(d). In this case, that was 35% of $677,393, or $237,088. The Workers Compensation Act then provides that the damages recoverable by the worker from the other tortfeasor are reduced by the difference between the contribution recoverable by the other tortfeasor from the employer and the amount which would have been recoverable if the employer's liability had been assessed otherwise than under the provisions of Pt 5 of the Workers Compensation Act. The result in the present case was that the worker was entitled to a judgment against the respondent in the reduced sum of $2,447,088. 44 In these circumstances it is clear that the worker and the employer have a common interest in minimising the degree of responsibility apportioned to the employer. That however was not a particular feature of this case: it would be a usual feature of any similar litigation. 45 The other aspect of procedural complexity concerns the recovery of compensation payments. The Act permits a worker to claim both compensation and damages, but does not permit retention of both: s 151Z(1)(a). If, as will usually be the case, compensation payments have been made prior to the recovery of damages, the Act provides for the recovery of those compensation payments by the employer, as the party liable to make such payments under s 9 of the Workers Compensation Act. 46 Where the worker has received compensation and later recovers damages, he or she is liable to repay the amount of compensation out of those damages: s 151Z(1)(b). Where there is no other person potentially liable for the injuries suffered, this provision will discourage workers from taking proceedings against their employer for damages which are limited in amount by the provisions of Pt 5 of the Workers Compensation Act, unless they have a reasonable chance of obtaining a significantly higher amount by way of damages than the amount already paid and likely to be received in the future, by way of compensation. 47 Where a third person is involved and is liable to pay damages to the worker, the employer is entitled to be indemnified by the other person so liable: s 151Z(1)(d). The right to indemnity is not dependent upon the worker suing the other person, but the employer may need to take proceedings against the other person itself, in order to obtain the benefit of the indemnity. However, the cause of action pursuant to the indemnity arises immediately a payment of compensation is made to the worker. There is, therefore, a limitation period running against the employer in respect of each payment of compensation, from the moment the payment is made. 48 Shortly after the worker's three year limitation period had expired without proceedings being commenced against the other person, the employer commenced proceedings for indemnity against the respondent. Nor were those proceedings rendered otiose by the commencement, some months later, by the worker of his own proceedings against the respondent, claiming damages in respect of his injuries. Nevertheless, there were then two proceedings on foot, each of which depended for success on establishing that the respondent was liable in damages to the worker and on the amount of those damages. 49 On 19 May 2008 the employer served on the respondent an offer of compromise in the indemnity action, seeking to settle for $575,000 plus costs. The respondent did not accept the offer. 50 On 5 June 2008 the respondent filed a cross-claim in the worker's proceedings seeking contribution from the employer pursuant to s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ("the 1946 Act"). 51 The Workers Compensation Act makes provision for payments made under the indemnity both before and after the worker obtains judgment against the other person. Thus, a payment under the indemnity made before such a judgment gives rise to a defence in the proceedings brought by the worker and a payment made after judgment is a payment made in satisfaction of the judgment: s 151Z(1)(e) and (e1). 52 The Workers Compensation Act also makes provision for the situation in which the worker does not sue his or her employer, but only the other person, who may in turn be entitled to contribution from the employer: s 151Z(2)(e). In effect, the indemnity to which the employer is entitled as against the other tortfeasor is limited to the amount by which the compensation paid out exceeds the amount of the contribution which the other tortfeasor could recover from the employer. Where the compensation does not exceed the amount of the contribution, there is no indemnity, but the employer is entitled to set off by way of defence the amount of the compensation so paid. 53 While it is possible to identify the separate rights of the various parties in the manner set out above, there is a degree of factual inter-relationship. Thus, the employer's indemnity is available only where the circumstances causing the injury create a "liability in some person other than the worker's employer". The existence of such a liability may be contentious. Similarly, the amount of the indemnity is fixed according to the extent of the liability of the other tortfeasor to the worker. Again, that amount may be contentious. 54 Where, as initially was the case in the present proceedings, the worker does not sue either the employer or the other tortfeasor, indemnity proceedings by the employer against the other tortfeasor may require litigation of the liability of the latter to the worker, and the amount of his or her damages, in proceedings to which the worker is not a party. A similar awkwardness arises where the worker does sue the other tortfeasor in proceedings to which the employer is not a party, and where the tortfeasor seeks to reduce its liability in accordance with a calculation based on the damages which might have been obtained from the employer. 55 None of this analysis is contentious, but it needs to be identified in order to understand the issues presented in the present case.

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(a) indemnity with respect to plaintiff's costs 58 The plaintiff was successful in his proceedings against the respondent and was therefore entitled to an order (which is not in dispute) that the respondent pay his costs of those proceedings: Civil Procedure Act 2005 (NSW), s 98 and Uniform Civil Procedure Rules 2005 (NSW), r 42.1. So far as appears from the judgment, the plaintiff did not seek a costs order against his employer in those proceedings. The basis on which the respondent sought an indemnity from the employer was not clearly spelled out. 59 It may be noted at the outset that both the employer and the respondent submitted to the trial judge that he could approach the matter by making "a general order apportioning costs between them, based essentially upon the merits of their respective positions": at [22]. His Honour rejected that proposition and preferred to deal with each proceeding and each party separately. According to the trial judge, who was of course familiar with the manner in which the proceedings were run, the employer was an active participant in the contest between the plaintiff and the respondent and "positively advocated and supported the position of the plaintiff, particularly the plaintiff's submission that there should be no liability found against [the employer]", an issue which it lost, being found 35% liable for the injuries suffered. His Honour further asserted that the employer, in taking that stance, "did not restrict itself to defending the cross-claim": at [34]. 60 The distinction sought to be made is by no means self-evident, nor did the parties explain any more precisely what may have been intended. As noted above, the plaintiff and the employer undoubtedly had convergent interests in seeking to maximise the responsibility of the respondent. To the extent that it was unsuccessful, the employer was ordered to pay the respondent's costs of the cross-claim, an order which is also subject to appeal. Putting that issue to one side, the respondent was unable to identify in this Court any way in which the position taken by the employer was not appropriate and referrable to its defence of the cross-claim. On that basis, the employer should be entitled to succeed and order (4) in the worker's proceedings should be set aside. 61 The order might arguably have been justified on the basis of the right to contribution pursuant to s 5 of the 1946 Act. That principle was affirmed in James Hardie & Coy Pty Ltd v Wyong Shire Council [2000] NSWCA 107; 48 NSWLR 679 (Handley, Giles and Heydon JJA). However, that would involve a variation of order (5) which specified the amount of the judgment for contribution on the cross-claim. It was not suggested that that order included an amount by way of costs, although if it did, it would preclude a second order for payment of costs, which would amount to double recovery. In any event, order (5) was not the subject of the appeal. 62 The notice of appeal provided, in effect, no grounds. Nor was there any notice of contention filed by the respondent seeking to uphold the order on a different basis. However, the assumption underlying the submissions of both parties with respect to this issue was that the costs order was indeed to be approached on the basis that it formed part of the order for contribution. 63 On this basis, the employer argued that it was not just and equitable (being the language of s 5 of the 1946 Act in respect of the assessment of contribution) to require it to pay any part of the plaintiff's costs incurred in the proceedings against the respondent, because, if the plaintiff had sued the employer, he would probably not have recovered costs against the employer. Accordingly, if based upon a claim for contribution, no allowance should have been made for the costs incurred by the respondent in defending the claim. 64 The basis of the employer's argument is a regulation which provides that, subject to certain exceptions, "the parties to court proceedings for work injury damages are to bear their own costs": Workers Compensation Regulation 2003 (NSW), cl 91. Thus, even if successful, the plaintiff would not, subject to the exceptions to the rule, have recovered costs from the employer. Accordingly, the employer argued, it would be inappropriate to make it bear any part of the respondent's costs of resisting the proceedings brought against it. 65 The relevant exceptions to cl 91 are to be found in cll 89 and 90, set out at [28] above. 66 In Estate of the late M T Mutton t/as Mutton Bros v Howard Haulage Pty Ltd [2007] NSWCA 340, Ipp JA (Spigelman CJ agreeing) accepted that it would not be just and equitable for the employer to be ordered to pay some part of the plaintiff's costs against the other tortfeasor, if in hypothetical proceedings against the employer, no costs would have been ordered to be payable by it: at [261]-[263]. 67 In reaching that conclusion, Ipp JA concluded that the exceptions, which might have obtained a different result with respect to costs, did not apply. He noted that the mediation had not occurred, because the worker had not sued his employer. In that circumstance, he concluded it would not be just and equitable, as between the employer and the respondent, "to prejudice the [employer] on this issue": at [258]. That conclusion is appropriate, in circumstances where the proceedings were probably not brought because the worker did not have reasonable prospects of success against his employer. Ipp JA dealt with the further exception contained in cl 90(2) on the basis that it too was inapplicable, because on the assumed basis that proceedings had been brought, the worker would indeed have obtained an order or judgment on the claim. In fact, both the exceptions in cl 90 are irrelevant because, even if satisfied, they impose no obligation on the employer to pay costs. (No issue was raised in the present case as to whether the exception in cl 89 was also irrelevant because it imposed an obligation on the employer's insurer, and not on the employer.) 68 The respondent sought to resist this approach primarily on two bases. First, it contended that the hypothetical proceedings between the worker and the employer were not "court proceedings" within the meaning of cl 91 because "proceedings" are defined in cl 42 to mean proceedings before the Commission or the District Court. 69 The submission based on cl 42 should be rejected. In its terms, cl 42 only provides definitions for the purposes of Pt 10, which is headed "Restrictions on obtaining medical reports". Clause 91 appears in Pt 19. There is no equivalent definition in that Part, nor elsewhere in the Regulation relevant to Pt 19. 70 The second base on which the respondent resisted the employer's argument was that it had not been raised in the Court below. Reliance was sought to be placed on Coulton v Holcombe [1986] HCA 33; 162 CLR 1 and Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418. 71 There are a number of reasons for rejecting this submission. First, the appeal before this Court was by way of a rehearing pursuant to s 75A of the Supreme Court Act 1970 (NSW). There is, therefore, no jurisdictional reason for refusing to consider the issue: cf Ilvariy Pty Ltd v Moss [2009] NSWCA 207 at [25] (Handley AJA). Secondly, the point involves the application of the Regulation and does not turn upon any question of disputed fact. Thirdly, the only prejudice suffered by the respondent is in having to resist an appeal on a point which could have been taken below. If that were the only basis for overturning the decision of the trial judge, it could be met by depriving the employer of part of its costs. However, for reasons already given, the issue only arises on the basis that there was an alternative mechanism for supporting the order made by the trial judge, namely s 5 of the 1946 Act, whereas the order appears to have been made in exercise of the Court's power under s 98 of the Civil Procedure Act with respect to costs. 72 It should be added that neither party sought to put before this Court any material indicating the way in which the issue was raised and addressed below. Given the circumstances discussed above, and despite the prima facie principle established in James Hardie, it will probably be a rare case in which an independent tortfeasor would have any practical right to recover costs against an employer in circumstances where the worker had not sued his or her employer. Without further information, the Court should assume that the orders made by the trial judge accurately reflected the manner in which the issue was raised below, namely as a matter of costs, and not as a matter of contribution. 73 For these reasons, the employer is entitled to have order (4) set aside.

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Absent proceedings brought by the worker, these matters would have had to be resolved in the indemnity proceedings: see Grant v Royal Rehabilitation Centre Sydney [1999] NSWCA 250; 47 NSWLR 263; Teuma v CP & TK Judd Pty Ltd [2007] NSWCA 166. However, it was likely and, by the time the respondent filed its defence, inevitable, that these issues would be addressed in the proceedings brought by the worker. 77 Taking a global approach to the issues to be resolved, there is merit in the proposition that the employer was largely successful, in so far as it had an interest in the proceedings, other than with respect to the extent of its liability for the injury. It ultimately obtained an undertaking from the worker to repay the bulk of the compensation payments; it recovered a judgment against the respondent in the indemnity proceedings, and that judgment was for an amount greater than the amount of the contribution ordered under the cross-claim. 78 However, that was not the approach taken by the trial judge and there is no challenge to the approach his Honour did take, which was to deal with the costs of the proceedings separately. Indeed, his Honour's approach was appropriate because of the failure of the parties to sort out their respective positions prior to trial. Once the worker commenced proceedings against the respondent, the indemnity proceedings could have been disposed of with appropriate undertakings. Similarly, so long as the employer agreed to be bound by the findings in the worker's proceedings, the cross-claim would have been unnecessary. Those steps not having been taken, the employer obtained an order for payment of its costs in the indemnity proceedings, in which it obtained a judgment against the respondent, but was required to pay the costs of the cross-claim, which it actively resisted, and in which it suffered a judgment. 79 In these circumstances, there is no basis for challenging the order with respect to the costs of the cross-claim. If this had been the only issue raised, I would have refused leave to appeal.

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(4) Order the applicant to pay 1/3rd of the respondent's costs in this Court. 86 MACFARLAN JA: This is an application for leave to appeal in relation to a judgment of Hoeben J of 20 February 2009 determining three issues relating to costs. The application was argued upon the basis that the Court will proceed immediately to determine the appeal in the event that leave to appeal is granted. As the issues determined by his Honour involve a considerable amount of money, are complex and are of some general significance, leave to appeal should be granted, subject to the qualification to which I later refer. 87 There were two sets of proceedings which gave rise to the costs issues. Both related to injuries suffered by Jason Stewart Miles (the "plaintiff") in an industrial accident which occurred on 10 July 2002. Hoeben J found in an earlier judgment of 11 December 2008 that the present applicant ("Ace") was 35 percent responsible and PJS Fabrications Pty Ltd ("PJS") was 65 percent responsible for the plaintiff's injuries. The present respondent ("Zurich") is the public liability insurer of PJS and for the purposes of the relevant proceedings stands in the shoes of PJS. Ace was the employer of the plaintiff. 88 After the accident, Ace paid workers' compensation to the plaintiff. By 19 December 2008, $761,196 had been paid. 89 On 15 December 2005, Ace commenced proceedings against Zurich seeking indemnity for the workers' compensation which it had paid to the plaintiff on the basis that PJS was a person other than the plaintiff's employer who was liable to pay damages in respect of the injury (see Workers Compensation Act 1987, s 151Z(1)(d)). 90 On 11 April 2006 the plaintiff commenced proceedings against Zurich claiming common law damages in respect of his injuries (the "liability proceedings"). He subsequently obtained an extension of the limitation period. 91 Steps that thereafter occurred were described by the primary judge as follows: "8 On 19 May 2008 Ace served on Zurich an Offer of Compromise in the indemnity action offering to settle that action for $575,000 plus costs. Zurich did not accept the Offer of Compromise.

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The Costs of Ace's Indemnity Action 93 The parties do not challenge the primary judge's order that Zurich pay Ace's costs of the indemnity action, save that Ace contends that the judge should have ordered those costs to be paid by Zurich on an indemnity basis as from 20 May 2008, this being the day following the day upon which Ace made the Offer of Compromise referred to in [8] of the judgment (see [91] above). 94 Zurich argued that Ace did not have any entitlement to indemnity costs because Ace had recovered less in its indemnity action ($235,177 plus $38,598) than the amount for which it offered to settle ($575,000): see Uniform Civil Procedure Rules 2005, Rule 42.14. On the other hand, Ace argued that, taking into account what had occurred in the liability proceedings, Ace had achieved a more favourable result than it would have achieved if its Offer of Compromise had been accepted. This was said to be so because in the liability proceedings the plaintiff had undertaken to repay to Ace out of the damages recovered from Zurich, the workers' compensation payments paid by Ace to him. What remained for recovery in the indemnity proceedings was only interest on the workers' compensation payments. 95 The primary judge did not accept Ace's contention, holding that it was appropriate to have regard only to the amount of the judgment in the indemnity action and was not appropriate to act on the basis that the amount of that judgment would have been higher than the Offer of Compromise if judgment in those proceedings had been entered before the plaintiff's damages proceedings were resolved (and therefore before the undertaking was given by the plaintiff to repay to Ace, out of the damages payable to him by Zurich, the amount of the workers' compensation payments made to him by Ace). 96 I agree with his Honour's view. Rule 42.14 only gives the maker of an unaccepted Offer of Compromise a prima facie entitlement to indemnity costs if the offeror "obtains an order or judgment on the claim concerned no less favourable to the [offeror] than the terms of the offer". Here the judgment obtained was less favourable to the offeror, as opposed to being "no less favourable". The language of the Rule does not permit an inquiry as to wider considerations, such as an outcome achieved by the offeror in other proceedings. Further, it does not in my view permit the Court to have regard to the judgment that would have been obtained by the offeror in subject proceedings if events had occurred differently than they did (see [95] above). 97 The primary judge also considered whether an order for indemnity costs would be justified if the offer were treated, not as an Offer of Compromise under Part 42, Division 3 of the UCPR, but as a Calderbank offer (see Calderbank v Calderbank [1975] 3 All ER 333). 98 The judge said in connection with this question: "28 In relation to the other matters raised by Zurich in opposition to it paying costs on an indemnity or solicitor/client basis, there is some force in the submission that acceptance by it of the Offer of Compromise would have done little, if anything, to reduce the length of the hearing. The plaintiff would have almost certainly run his action with a view to obtaining a judgment from the Court which significantly limited, if not entirely eliminated, any liability on the part of Ace. The other argument by Zurich that Ace had not at that time served any evidence on interest is without substance. It would have been clear to Zurich at that time that interest at the Supreme Court rate was payable and it could have easily worked out the approximate amount for itself.

[75]

29 It follows that I reject the submission by Ace that it is entitled to its costs of the indemnity action on a solicitor/client or indemnity basis. I do so because the judgment which it obtained in that action was significantly less than the Offer of Compromise. I am also of the opinion that Zurich was entitled to reject it because its acceptance would not have significantly, if at all, shortened the hearing of the plaintiff's case". 99 Again, I agree with the judge's view. 100 It is well established that indemnity costs will not ordinarily be ordered when a Calderbank offer has not been accepted unless the court considers that it was unreasonable for the offeree not to accept the offer (see for example Penrith Rugby League Club Ltd trading as Cardiff Panthers v Elliot (No 2) [2009] NSWCA 356 at [11]). There are a number of reasons why that condition was not satisfied in the present case. 101 First, as the primary judge said, acceptance of the offer would have done little, if anything, to reduce the length of the hearing. At the date of the offer it could have been anticipated, as transpired to be the case, that the primary contest in the two sets of proceedings would be the determination of the plaintiff's claims for damages and, if negligence were proved, the apportionment of responsibility between Zurich and Ace. The outcome of this contest would, and did, determine what cap was applicable in respect of Ace's claim for recovery from Zurich of workers' compensation payments made to the plaintiff. By reason of s 151Z(1)(d) Ace was only entitled to be indemnified up to the amount of the damages which the third party tortfeasor (Zurich) was found liable to pay to the plaintiff. The amount of that cap would be determined by the outcome of the plaintiff's proceedings and would not be affected by anything that occurred in Ace's indemnity proceedings against Zurich. In particular, settlement of those indemnity proceedings would not have obviated the need for the plaintiff to proceed with his claims, or indeed have shortened the hearing of the plaintiff's claims. 102 Secondly, the offer was to settle, for a fixed sum, Ace's claim for indemnity in respect of the workers' compensation payments made by Ace to the plaintiff, together with interest. The then current Statement of Claim in those proceedings was an Amended Statement of Claim filed on 28 March 2006. Acceptance of the offer as framed would not have settled any claim that Ace might subsequently have had for payments made after that date. Such a claim was likely to be made as workers' compensation payments continued to be made by Ace through to the date of the offer (19 May 2008) and in fact until 19 December 2008. Neither Ace nor Zurich would have been bound to apply to the recovery of those payments such assumptions as may have been implicit in the compromise of the claim for the earlier payments. 103 Thirdly, settlement of the indemnity proceedings would not have obviated the need for Zurich's cross-claim against Ace which was filed in the liability proceedings. That cross-claim sought contribution from Ace as a joint tortfeasor pursuant to s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946. The claim was thus one that Ace contribute to payment of such damages as might be awarded against Zurich in favour of the plaintiff. The claim was quite different from, and independent of, the claim brought by Ace against Zurich for indemnity for workers' compensation payments. Settlement of the latter would not have impacted upon the former. 104 Fourthly, the element of compromise embodied in Ace's offer implicitly incorporated an assumption as to what would be the outcome of the plaintiff's proceedings against Zurich and as to what, if any, responsibility for the accident would be attributed to Ace. It has not been demonstrated to the Court what that assumption was and that it reflected an outcome in the liability proceedings better for Zurich than what it subsequently achieved. At least because it was not apparent from the offer what that assumption was, acceptance of the offer could not have created any issue estoppel between Zurich and Ace relevant to Zurich's claim against Ace for joint tortfeasor contribution.

[76]

The Costs of Zurich's Cross-Claim against Ace 105 On its cross-claim against Ace in the liability proceedings, Zurich obtained a judgment for $237,087.55. This amount was agreed between the parties as the amount to which Zurich was entitled, assuming success on its cross-claim. It represented 35 percent of $677,393 which was the amount which the parties agreed would have been recoverable as damages under the Workers Compensation Act if the plaintiff had sued Ace. The primary judge held that there was no reason why the costs of the cross-claim should not, in the conventional fashion, follow the event. He accordingly made an order that Ace pay Zurich's costs of the cross-claim. 106 Ace contended both before the primary judge and on appeal that Zurich should however be deprived of its costs of the cross-claim because it acted unreasonably in pursuing it. I agree with the judge's conclusion that it did not and that the costs order was therefore appropriate. 107 Zurich's interests would not have been sufficiently protected by a defence which it filed in Ace's indemnity proceedings. That defence asserted that such liability as Zurich had to indemnify Ace should be reduced to the extent that the injuries suffered by the plaintiff resulted from breach of the duty owed by Ace to Miles as his employer. This defence sought to limit the indemnity obtainable pursuant to s 151Z(1)(d). That is, to the extent that Ace was responsible for the injuries, the damages payable by Zurich to the plaintiff would be reduced and the cap on the indemnity for workers' compensation payments obtained by Ace from Zurich correspondingly reduced. 108 For Zurich to recover contribution from Ace as a joint tortfeasor, it however needed to claim against Ace either by cross-claim in Ace's indemnity proceedings or by a cross-claim in the liability action. It was reasonable for Zurich to take the latter option as in that case, as was undoubtedly desirable, the plaintiff would be bound by the determination.

[79]

36 Taking those matters into account, together with how the matter was conducted at trial, it seems to me that an appropriate contribution to the plaintiff's costs by Ace should be 25%". 110 The plaintiff and Zurich were each partly successful in the proceedings brought by the plaintiff against Zurich. The plaintiff succeeded in proving that Zurich was 65 percent responsible for the plaintiff's injuries and Zurich was successful in having it found that, as to 35 percent, it was not responsible for those injuries, that percentage being Ace's contribution to the injuries. As Zurich was not successful on any discrete issues which might have warranted a special costs orders, it was understandable that, as the plaintiff succeeded in obtaining a substantial award of damages, Zurich was ordered to pay his costs of the proceedings. Likewise, it was understandable that Ace would be ordered, as it was, to pay Zurich's costs of its cross-claim against Ace, Zurich having obtained a substantial monetary judgment on that cross-claim. 111 The extent of Zurich's liability to the plaintiff was an issue which was involved in Zurich's pursuit of its cross-claim against Ace. It was appropriate in those circumstances for Ace to concern itself in the course of the hearing with the litigation of the issue. Indeed, at least one of the purposes of Zurich bringing its claim against Ace as a cross-claim in the plaintiff's proceedings against Zurich was no doubt to ensure that Ace would be bound by the outcome of those proceedings. 112 As the primary judge pointed out, Ace "positively advocated and supported the position of the plaintiff, particularly the plaintiff's submission that there should be no liability found against Ace" (Judgment [34]). The judge said that that issue "was lost decisively by Ace and the plaintiff". However, for the reasons given in [110] above, that was not sufficient to deprive the plaintiff of his costs against Zurich. The fact that there was what the judge described as a "somewhat extreme position which was optimistically put forward on behalf of the plaintiff" (Judgment [34]) did not mean that the plaintiff, in a circumstance in which he recovered substantial damages, was not entitled to the benefit of the ordinary rule that costs follow the event. 113 Ace's support of the plaintiff's position that Zurich was wholly responsible for the plaintiff's injuries was to some extent unsuccessful as Zurich was held to be 65 percent responsible and Ace 35 percent responsible. I do not see why in these circumstances it was not open to the primary judge, in exercise of his discretion as to the making of costs orders, to order Ace to pay 25 percent of the costs payable by Zurich to the plaintiff. Zurich had had to bring the cross-claim to pursue its rights against Ace and in so doing had had to prove that Ace bore its share of responsibility for the accident. This it did by defending the plaintiff's claim, in part, successfully. The principle that costs ordinarily follow the event pointed towards permitting Zurich to recover at least a proportion of those costs from Ace. It was within the judge's discretion to adopt a percentage of 25 percent rather than that of 35 percent which would have precisely mirrored the finding as to Ace's share of responsibility. 114 A successful cross-claimant for contribution from a joint tortfeasor is ordinarily entitled to recover not only the costs of its cross-claim but also the costs payable by it to the plaintiff (see for example G E Dal Pont, Law of Costs, 2nd ed. (2009) at [11.33] and the cases there cited). An order of the type made by his Honour is in my view a rational way of dealing with a situation in a case such as the present where the plaintiff (and therefore also the cross defendant who has chosen to support him with a view to minimising its liability on a cross-claim) has been only partially successful. I accordingly do not consider that there was any error in the exercise of the judge's discretion. 115 As is apparent from the judge's reasons referred to in [109] above, his Honour made the order that Ace indemnify Zurich in respect of 25 percent of the costs payable by Zurich to the plaintiff in exercise of his general costs discretion. Another basis upon which the costs indemnity order might arguably have been justified was raised for the first time on appeal. This was that the right of contribution from a joint tortfeasor conferred by s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 extends to the costs payable by the cross-claimant tortfeasor to the plaintiff (see for example, James Hardie & Coy Pty Ltd v Wyong Shire Council [2000] NSWCA 107; (2000) 48 NSWLR 679; Estate of the Late M T Mutton v Howard Haulage Pty Ltd [2007] NSWCA 340 at [50], [251-63]). 116 Zurich relied in argument on the appeal upon the obiter dicta of Ipp JA (with whom Spigelman CJ agreed) in Mutton to the effect that it would not be "just and equitable", in the sense referred to in s 5, to order under that section that contribution be paid in respect of costs payable by a tortfeasor to a plaintiff where that contribution was sought from a person such as the plaintiff's employer who would not in ordinary circumstances be ordered to pay the plaintiff's costs of proceedings brought against it by that plaintiff. The reason why this may be so in the case of an employer is that Clause 91 of the Workers Compensation Regulation 2003 provides that "[e]xcept as provided by the Subdivision, the parties to court proceedings for work injury damages are to bear their own costs". Various exceptions are stated, including a situation where a plaintiff obtains a judgment no less favourable than his or her final offer at a mediation conducted under the Workplace Injury Management and Workers Compensation Act 1998. Ipp JA expressed the view that the employer in Mutton would not have been ordered to pay the plaintiff's costs if the plaintiff had sued the employer. It is sufficient in the present case to conclude that the prospect of the plaintiff here obtaining his costs if he had sued his employer Ace for damages was speculative. On the authority of Mutton, it would not in those circumstances be just and equitable to order Ace to contribute under s 5 to the plaintiff's costs. Accordingly, s 5 does not provide an alternate basis on which the judge's order can be supported. 117 Ace also sought to call in aid Clause 91 as a basis for vitiating the primary judge's exercise of his general discretion as to costs, despite Clause 91 not having been relied upon (in this, or in fact any, respect) before the judge. Zurich argued that Clause 91, although not in terms applicable to a claim between tortfeasors such as Zurich and Ace, was a relevant factor to take into account in the exercise by the Court of its costs discretion. 118 In my view Ace should not be permitted to put this argument for the first time on appeal. First, Ace requires leave to appeal because the issues in question before this Court relate only to costs. Secondly, the result of Ace not raising the point at first instance is that this Court has been deprived of the judge's view as to the significance, or lack of significance, of this factor. This is important because the judge had considerable knowledge of the proceedings, and of the manner in which they were conducted. Thirdly, whilst recognising the authority of Mutton in relation to s 5, my view is that it would be a rare case in which Clause 91 would constitute a reason for declining to make what the court, after considering all the circumstances of the litigation including its conduct and outcome, regarded as the appropriate costs order to be made in the exercise of the court's general discretion as to costs.

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Judgment (86 paragraphs)

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