Amashaw Pty Limited v Marketform Managing Agency Ltd

Background

1. The background to, and fundamental issues in, the litigation are set out at [1] to [5] of my earlier reasons. For convenience, I repeat those paragraphs: 1 HIS HONOUR: The plaintiff (Amashaw) operates a BP Service Station at Loftus. Amashaw's directors are Mr Tony Sleiman and his wife Mrs Susan Sleiman. Since 2001, that service station has been managed by their son, Mr Pierre (also known as Peter) Sleiman. 2 The defendant (Marketform) is the manager of an underwriting syndicate at Lloyds, and is sued in that capacity. Ignoring the syndicate and, for convenience, treating Marketform as the underwriter, Marketform issued a policy of combined liability insurance in favour of Amashaw in December 2011 (for a period of six months), and renewed that policy in June 2012. Subject to various conditions, the policy as issued and renewed insured Amashaw against, among other things, "Damage" caused by "Pollution". Marketform is now called Neon Underwriting Ltd. Nothing turns on the change of name. 3 On 3 June 2013, during the currency of the renewed policy, there was an explosion in a Sydney Water sewer main running in a laneway to the north of the service station. It is common ground that the explosion was caused by the ignition of petrol vapour, and that the only possible source of that vapour was petrol from Amashaw's service station. At about the same time, petrol was detected in other nearby works, including a stormwater line owned by Sutherland Shire Council (the Council), a sewer underneath Loftus railway station owned by RailCorp, and a Telstra services pit. Again, it is common ground that Amashaw's service station was the source of the petrol products found in those locations. 4 Amashaw undertook work to deal with the damage caused by the petrol that had escaped, and further work to prevent the further escape of petroleum products. It claims indemnity for the cost of those works under the renewed policy. Marketform denies liability. 5 The essential disputes are whether there was any loss that fell within the terms of the policy; the quantum of any insured loss; and whether Marketform was entitled to reduce its liability to nil, pursuant to s 28(3) of the Insurance Contract Act 1984 (Cth), by reason of a breach of Amashaw's duty of disclosure pursuant to s 21(1) of that Act.
2. The first of the "essential disputes" to which I referred (loss within the terms of the policy) involved, among other things, a submission put for Marketform that if, contrary to its principal position, it were liable under the policy, that liability would extend only to what its Counsel Mr Elliott called "restorative works", and not to what he called "preventative works". I dealt with that issue at [149] to [160] of my earlier reasons, and found in Marketform's favour.
3. The parties agreed that the cost of the restorative works was, in round figures, $274,000 before interest. The full amount for which indemnity was claimed (including the cost of the preventative works) was a little under $1.2 million before interest.

The submissions on costs

1. In the usual way, each party sought to analyse and dissect my reasons for the purpose of showing that it had achieved a substantial success. For Amashaw, Mr Brennan of Counsel submitted that it should have all its costs. He submitted that Amashaw's monetary success was not inconsiderable, and that the issue on which it had failed - its claimed entitlement to the cost of the preventative works - was not clearly dominant or separable.
2. Mr Brennan referred to a "Calderbank" [2] offer made by Marketform on 22 March 2017 - not much more than a month before the commencement of the hearing. By that letter, Marketform offered to settle for $150,000 inclusive of costs. As Mr Brennan submitted, his client's evidence (including expert evidence) was complete by that date, and its costs must have been seen to be substantial. Mr Brennan noted that Marketform had accepted that the total amount Amashaw had paid for two claims in respect of the escape of petrol - by Sydney Water and by Rail Corp - exceeded $102,000. (There were claims made by others, which is why the total amount awarded for the cost of restorative works exceeded $274,000 before interest.)
3. Mr Brennan accepted that because the amount recovered was less than $500,000, UCPR r 42.34 was enlivened. However, he submitted, his client had been justified in commencing and continuing the proceedings in this court, because its total claim was, as I have said, a little under $1.2 million.
4. For Marketform, Mr Elliott of Counsel submitted that his client had been "largely successful", because it had succeeded in repelling the claim for the cost of preventative works. He submitted that the preventative works issue was "properly characterised as a dominant issue by virtue of its quantum", and that it was an issue that had required his client's expert to undertake a detailed consideration and analysis of a substantial volume of documentary evidence. The latter point may be accepted; so, too, may its unspoken corollary: which was that as a result (because Amashaw did not dispute the analysis), the court was spared a lengthy and tedious investigation of its own.
5. Mr Elliott submitted that the real cause of the litigation in this court was Amashaw's "unwavering dedication to the pursuit of the large claim which failed". He referred to an offer of compromise served by Amashaw on the last day of the hearing, offering to settle for $1 million together with costs.
6. Mr Elliott submitted that had Amashaw dropped its claim for the cost of the preventative works, it is likely that the matter would have been resolved (and, I add, certain that it would not have been litigated in this court).
7. Mr Elliott submitted that r 42.34 should operate, because the commencement of proceedings in this court was not warranted. Nor did it matter, he submitted, that Amashaw maintained the larger claim, because "that would, in substance, amount to a contention that [Marketform] should pay [Amashaw's] costs on the basis that it was reasonable… to pursue a particular and large claim", in respect of which Marketform was "entirely vindicated".
8. Mr Elliott drew attention to the fact that Amashaw had been asked to indicate the likely amount of its costs, but had declined to do so. He submitted that the court could comfortably infer that its costs would exceed substantially the amount of the judgment, and that to order Marketform to pay those costs would be out of all proportion and unjust.
9. For all those reasons, Mr Elliott submitted, the proper order was that each party should bear its own costs.

Decision

1. Section 98(1) of the Civil Procedure Act 2005 (NSW) provides that subject to that or any other Act and to the Rules, costs are in the discretion of the court.
2. UCPR r 42.1 provides that subject to Part 42, if the Court is to make an order as to costs, it should order that costs follow the event unless some other order should be made.
3. Rule 42.34, to which I have referred already, provides: 42.34 Costs order not to be made in proceedings in Supreme Court unless Court satisfied proceedings in appropriate court (1) This rule applies if: (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied that: (a) for proceedings that could have been commenced in the District Court - the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted, or (b) for proceedings under Part 2 of Chapter 7 of the Industrial Relations Act 1996 - the commencement and continuation of the proceedings in the Supreme Court, rather than the Local Court, was warranted.
4. Rule 42.1 recognises the general and unfettered discretion given by s 98, but suggests what might be thought to be the customary manner of exercise of that discretion in circumstances where there is a discrete "event". Rule 42.34 suggests that, in the circumstances in which it applies, there is a good (but not absolute) reason for ordering otherwise (for the purposes of r 42.1).
5. The starting point, leaving aside r 42.34 for the moment, is that a plaintiff who succeeds at trial will generally recover costs, although the amount of the judgment in its favour might not have been the whole of the amount claimed. See the judgment of Macfarlan JA (with whom Meagher and Barrett JJA agreed) in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [3] . His Honour said at [27]: [27] Consistent with this rule, it has long been accepted that a plaintiff who obtains judgment at trial for a monetary sum will ordinarily be entitled to an order that the defendant pay his or her costs, notwithstanding that the plaintiff might not have recovered the whole of the amount he or she claimed. The circumstances of particular cases may warrant departure from this approach. In particular, where the defendant succeeded on a clearly dominant or separable issue, some variation may be warranted. In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38], this Court provided the following summary of presently relevant principles: "● Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). ● In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal. ... ● A separable issue can relate to 'any disputed question of fact or law' before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34]. ● Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272."
6. I do not think that it is particularly instructive to seek to compare the percentage success that Amashaw enjoyed in this case with percentage successes enjoyed by other plaintiffs in other cases, which were seen to be a basis for (or not inconsistent with) giving them a costs order. To do so would reduce the general discretion as to costs to some arid arithmetical exercise, with the outcome of the discretionary exercise dictated by rulings on dissimilar facts in unrelated litigious contexts.
7. I do not regard the preventative works issue as something that was clearly dominant or separable. There was one claim, for one polluting event, that was said to involve two separate consequences as to damages. I do however accept, as factually correct, Mr Elliott's submission that Amashaw's insistence on asserting the whole of its claim required his client, through its expert witness, to analyse a substantial amount of information, for the purpose of separating out the two broad categories of costs.
8. The significance of the preventative works issue is, however, somewhat different. In my view, it was an aspect of Amashaw's claim that could never have succeeded. It did not relate to any claim for indemnification, for loss or damage actually suffered, by any third party. On the contrary, it related (as the tag given to it by Mr Elliott suggests) to works undertaken by Amashaw to prevent the future escape of pollutants from its service station site, and thus to seek to ensure that there would be no further incidents of the kind that gave rise to this litigation. I do not understand how it could be said that the costs of undertaking those preventative works would fall within the ambit of a policy under which Marketform agreed to indemnify Amashaw for its liabilities to third parties in "Damages", including those arising from "Pollution" as defined.
9. In my view, Amashaw's insistence on maintaining this aspect of its claim - the only aspect that justified the matter's being heard in this court - provides no basis for deciding that its decision to commence and continue in this court was warranted.
10. Accordingly, in my view, this is on the face of things a case where a costs order should not be made. Are there factors that suggest otherwise?
11. I accept Mr Elliott's submission that, had the claim been confined to the cost of the restorative works, it is likely that the parties would have resolved it. It is unlikely, in my view, that they would have engaged in litigation, the cost of which must inevitably be (and would have been seen likely to be) very much greater than the cost of those works. In saying that, I take into account that each party called an expert witness on the liability issues; each expert prepared a detailed report; the experts conferred and produced a joint report; and there was extensive concurrent evidence from the experts. The cost of that exercise alone must have been substantial; and this says nothing as to the cost of the other issues.
12. I do not regard Amashaw's failure to indicate the amount of its costs as having any particular significance. Since I am prepared to infer that those costs are likely to exceed the amount of the judgment in any event, the point to which that material was directed - proportionality - can be dealt with more simply. Bearing in mind Marketform's complete success on the preventative costs issue, it would in my view be disproportionate and unjust nonetheless to require it to pay, as well as its own no doubt substantial costs, the whole of the costs of Amashaw.
13. Mr Elliott's submissions did not touch on two issues, on which his client failed entirely. The first of those (in logical rather than pleaded order) was the defence of non-disclosure, calling in aid ss 21(1) and 28(3) of the Insurance Contracts Act 1984 (Cth). The second was whether there was any occurrence that fell within the ambit of the insuring clause.
14. I bear in mind that, as Mr Brennan submitted, Amashaw succeeded on those issues. However, it does not follow, from the fact of that success, that the commencement and continuation of the proceedings in this court was warranted. On the contrary, they are both issues that the District Court was and is well-equipped to hear and decide.
15. To my mind, the sole significance of the offers that each party made - Marketform's Calderbank offer and Amashaw's offer of compromise - is that each appears to have been overly confident of the strength of its case, and overly unwilling to consider further compromise. Having said that, I repeat what I have said above - it is likely that the position as to compromise would have been substantially different had Amashaw been prepared to limit its claim to the cost of the restorative works.
16. There are factors that suggest the prima facie position suggestion by r 42.34(2) should be adopted. They are, principally, the preventative works issue, and the expense to which undoubtedly Marketform has been put because of Amashaw's insistence on pressing it. The countervailing factors - that Amashaw has succeeded, and that it was required to litigate because of Marketform's position as to nondisclosure and as to the unavailability of indemnity under the policy - really go nowhere (in terms of r 42.34) because, as I have said, they are issues that could and, for a claim of $274,000, should have been heard and determined by the District Court.
17. Those matters must be put in context. When they are, and stepping back from the detail of the parties' submissions, and looking at the costs question in its entirety against the background of the hearing and my earlier judgment, I am of the view that the costs outcome suggested by r 42.34 should follow.
18. I have said already why, in my view, Amashaw was not justified in commencing and continuing proceedings in this court. There is no evidence of the basis on which it chose to do so.
19. The clear policy underlying r 42.34 is that proceedings that fall within the jurisdictional limit of the District Court should not be commenced in this court unless the complexity of the factual or legal issues justifies it (see for example State of New South Wales v Quirk [4] ). I accept, of course, that where relief (for example, of an equitable nature) is claimed that the District Court cannot give, or where a plaintiff was justified in thinking that its claim might exceed the jurisdictional limit of the District Court, then different considerations would apply. But as I have said, I do not regard the pursuit of the claim for preventative works as having been meritorious.
20. In the result, I conclude that there should be no further order as to costs.

Order

1. Subject to any existing costs order, I make no order as to costs, to the intent that each party should pay its own costs.

Endnotes

1. [2017] NSWSC 612.
2. Calderbank v Calderbank [1976] Fam 9.
3. [2014] NSWCA 425.
4. [2012] NSWCA 216 at [169] - [171]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 June 2017