Did the appellant claim indemnity for its costs incurred in defending the claim against it?
30 With the failure of Ms Edwards' claim against the appellant, indemnity for damages and costs payable to her fell away. The appellant accepted that the respondent's insurance did not entitle it to indemnity for the costs payable to Group 4 on the first cross-claim. The appellate dispute was over its own costs incurred in the proceedings. The affidavit filed pursuant to Pt 51 r 8 of the Rules spoke of billed costs to 31 May 2006 in excess of $182,000. No doubt some of the costs should be attributed to the appellant's cross-claims and some of the costs were incurred in relation to the appeal. It still seems an astonishing amount.
31 The respondent submitted that the appellant had not claimed indemnity for its own costs, and therefore the judge was not in error in dismissing the third cross-claim as she did; it said that dismissal was inevitable because there was no question of indemnity for damages and costs payable to Ms Edwards, and that it was not necessary for the judge to explain what was obvious.
32 If attention be confined to the third cross-claim as framed, the appellant did not claim indemnity for its own costs. It alleged a claim to "indemnity for any damages awarded against the Defendant" (para 7), and claimed in terms indemnity for damages and costs "which may be recovered against the Defendant" (para 9).
33 The claim even in this respect was not well framed. It was not a claim to specific performance, and the District Court had no jurisdiction to order specific performance. It was a claim to damages, an insured's cause of action where the insurer denies indemnity being for unliquidated damages for breach of contract (see Penrith City Council v Government Insurance Office of New South Wales (1991) 24 NSWLR 564 at 568 and cases there cited). The claim to indemnity for damages and costs could be understood as a claim for damages in the amount of any damages and costs recovered against the appellant; how orders would be made when the amount of the costs was yet to be ascertained need not presently be considered. But even on this understanding, the costs were any costs recovered against the appellant. They were not the appellant's own costs.
34 However, attention can not be confined to the third cross-claim as framed. If an extended claim to the appellant's own costs was asserted and raised for decision at the trial, it was open to the judge to permit amendment of the statement of claim to take up the extended claim. Depending on the respondent's response, the judge might have declined to permit amendment and so declined to decide whether the appellant was entitled to indemnity for its own costs, or she might have permitted amendment and decided that matter. This could have occurred without formal regard to amendment: the realities of litigation must be recognised. Assertion and raising for decision of the extended claim would call for consideration by the judge, even if her conclusion was that, because it was not within the third cross-claim as framed or for other reasons, she should not decide the matter.
35 From the transcript of submissions at the hearing, an extended claim to the appellant's own costs was asserted, and the respondent responded to it without taking any point that it was outside the framing of the third cross-claim. The appellant's submissions understandably focussed on indemnity for damages and costs recovered against the appellant, and in consequence the respondent's submissions did the same. But both parties went further, and Group 4's submissions on its claim against the respondent provided the context of a claim in relation to its own costs with which the appellant's claim was linked.
36 Counsel for the appellant addressed first. When he had concluded his submissions on the appellant's liability to Ms Edwards, he made his submissions on the cross-claim against Group 4. His submissions went only to indemnity or contribution: as earlier noted, the contractual claims were not maintained.
37 Counsel then turned to "the position in relation to Mr Fordham's client", Mr Fordham being counsel for the respondent. He said that it was the appellant's position "that it is in fact covered by the insurance policy issued by Mr Fordham's client". Counsel submitted to the effect that the appellant was a principal for which Group 4 was carrying out work, that by the letter of 26 May 2003 the respondent had agreed to indemnify the appellant although subject to a limitation because Ms Edwards was Group 4's employee, and that the limitation was incorrect because the appellant was entitled to be indemnified as a principal as if a separate policy had been issued to it. These submissions rested upon the Schedule in the policy and/or General Clause 1, with the emphasis on the latter.
38 Counsel for the appellant concluded his submissions, Rothmans being a reference to the appellant by a former name -
"We say this only probably comes into it because we still maintain, your Honour, there should be a verdict for the defendant in this case. But at the end of the day, the insurer would be required to pay Rothmans' costs of these proceedings as part and parcel of the indemnity . It may well be the question of recovery of costs from the plaintiff at the end of the line but we have the protection, we say, of this insurance policy and it would cover our costs .
Unless there is anything further, your Honour. I have tried to anticipate what the arguments will be. If there is anything further that comes out." (emphasis added)
39 Counsel for Group 4 addressed next. His submissions included that under the respondent's insurance Group 4 was entitled to its "costs and expenses". Counsel submitted to the effect that, by the letter of 26 May 2003, the respondent had refused to provide indemnity, that it had "repudiated [the contract of insurance] because it refused to defend the proceedings", and that it therefore could not rely on the absence of the request to incur legal costs and charges and other reasonable expenses referred to in General Clause 3(b) of the policy. The indemnity claimed by Group 4 thus extended to Group 4's legal costs and expenses incurred in defending the appellant's cross-claim against it; this is material to an understanding of the submissions in due course made by counsel for the appellant.
40 The solicitor for Ms Edwards addressed next. In concluding, he said that he "won't go into the issue about costs, your Honour". The transcript at this point becomes opaque; it is difficult to understand when, in the subsequent discussion involving the judge and all legal representatives, they were referring to costs orders to be made for and against parties to the proceedings, or to insurance indemnity against costs. It may be that the participants had differing things in their minds.
41 However, when at one point the judge asked what counsel for the appellant and Group 4 wanted "to do about it", counsel for the appellant said that it "depends on what happens on the insurance policies" and the judge responded, "It's a bit all tied up". Counsel for the appellant agreed and said, "We will be seeking indemnity for our costs if your Honour was in favour of the defendant we would be seeking an indemnity … ", and at a later point counsel for Group 4 said that his submissions "go to orders of indemnity which really stand entirely apart from costs orders". It seems to me that when the judge proposed that "everybody may need to come back to address the costs issue further", and later said "if I leave out any costs orders from that verdict, it will be necessary to set aside some further time", her Honour had in mind receiving submissions both as to orders for costs and as to insurance indemnity against costs for the later occasion.
42 That appears to be what happened, see the judge's reference to "submissions in respect of the cross-claims and costs" in her reasons of 22 June 2005. But there was some further reference to costs in the submissions at the hearing, albeit with a late protest that costs were to be dealt with on a separate occasion.
43 Counsel for Allianz addressed next. His submissions included that Group 4 "should not have the costs of defending the cross-claim brought by [the appellant] on the grounds of no written consent to incurring such expenses was obtained from the insurer", a point which had been anticipated in the submissions of counsel for Group 4.
44 Counsel for the respondent then addressed. His submissions included as to the cross-claim brought by Group 4 -
"Mr Seton [counsel for Group 4] then took your Honour to the general conditions at page 22 and in particular item 3 which is the agreement to defend. Mr Parker [counsel for Allianz] took your Honour to the authorities on liability for costs. Costs in this policy are dealt with on the following page, A(b) at the top of 23, which again refers to costs incurred in this case at the insurer's request. There is certainly no evidence of that.
That then leaves the potential remedy for Group 4 as against my client, if there be one, for the breach of 3(a) and a claim for damages. But, of course, causally nothing flows from it because the claim was abandoned, so there is no damage. If your Honour were against me on that, despite what is said in the authorities that Mr Parker took your Honour to, and in (b), the only liability that's insured under the provisions is the potential contractual claim and the indemnity for costs that Mr Seton seeks would have to be limited to the defence of that claim. I say that doesn't arise because of the issues in the authorities and under 3(b) but, if I am wrong about that, a plain reading of the policy suggests that whatever costs under the policy that Mr Seton is entitled to would have to be limited to defending the claim covered by the policy which is that pleaded, the assumed liability on contract.
In respect of that, I raise - which I will come back to - the issue of whether or not, regardless of any indemnities provided to either of the cross-claimants who sue against my client, those costs ought to [sic] segregated and brought home against BAT given the fact that it was abandoned."
45 Counsel was responding to Group 4's claim for indemnity for its own costs, and the response is not entirely clear. Group 4 appears to have claimed that indemnity in the second cross-claim, and as has been seen it claimed it in submissions. When counsel for the respondent turned to the third cross-claim he appeared to accept that the appellant was in the same position, see below.
46 When counsel turned to the cross claim by the appellant he first put submissions against the availability of indemnity generally. Again the submissions are not entirely clear, but they appear to have been that General Clause 1 was answered by Exclusion 1.
47 Counsel's submissions concluded -
"Finally, your Honour, under the rules in relation to costs, and by analogy on costs on the indemnity sought under the policy, costs usually follow the event. But in circumstances where a claim has taken up significant parts of this trial in various ways and which led to a necessity for two insurers to be present in a case such as this, regardless of whatever other orders you might make, it is open to your Honour to vary that under the rules and discreetly section [sic] that part away so that those costs are payable by BAT. Unless there is any other matter.
PARKER: Your Honour, I thought we were going to deal with costs on a separate occasion.
FORDHAM: I have to deal with that in terms of, firstly, costs will be dealt with on a separate occasion, I appreciate that. However, dealing with the fact that two people are claiming indemnities for their costs if they can do so under the policy [sic] .
HER HONOUR: It can be revisited if needs be." (emphasis added)
48 There may be recording or transcription difficulties in this transcript. But two things may be said. First, in the last emphasised passage counsel for the appellant appeared to accept that the appellant was in the same position as Group 4 in claiming indemnity for its own costs. Secondly, counsel did not submit that the assertion by counsel for the appellant that the respondent "would be required to pay Rothman's costs of these proceedings as part and parcel of the indemnity", and later that the appellant would "be seeking indemnity for our costs if your Honour was in favour of the defendant", were not open under the third cross-claim.
49 The transcript does not include separate attention, by either counsel for the appellant or counsel for the respondent, to the policy so far as it dealt specifically with costs, see the incurring of costs with the Insurer's consent in Extension 6 or at the Insurer's request in General Clause 3(b). The question of incurring costs with the insurer's consent was at least touched upon as between Group 4 and the respondent. As between the appellant and the respondent indemnity for the appellant's own costs was not highlighted. In my view, however, it was raised before the judge, and was to be the subject of the submissions on the later occasion, without objection from the respondent.
50 It is unfortunate that there was no transcript or other evidence before us of the submissions leading to the reasons of 22 June 2005. By the later occasion it was known that Ms Edwards' claim had failed. The appellant is likely to have focussed on recovery of its own costs from the respondent, rather than take the chance of recovery of assessed costs from Ms Edwards, and to have made submissions accordingly. The judge referred to submissions "in respect of the cross-claims and costs". Her Honour's reference to the respondent's failure to consent to incurring costs, see above, probably reflects submissions on the terms of the policy in that respect. It is also unfortunate that the reasons do not allow an understanding of the submissions made, but they do not note any debate over the scope of the third cross-claim, which one would think would have been to the fore if the respondent had taken the point that an extended claim to the appellant's own costs was outside the third cross-claim.
51 In my opinion, the extended claim to the appellant's own costs was asserted and raised for decision at the trial. It appears to have been accepted by the respondent as before the judge. Consideration of the extended claim was called for, with explanation of why the judge declined to decide it or of the decision of the matter.