British American Tobacco Australia Ltd v Eagle Star Reinsurance Co Ltd

CATCHWORDS: Insurance - defendant's costs of defending proceedings - whether claimed in statement of claim - whether claim raised in submissions for decision although not in statement of claim - whether failure to give reasons for not deciding claim or why claim failed - whether miscarriage of justice - whether appeal court would decide claim - held raised for decision, inadequate reasons, new trial. D

Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430; Edwards v Insurance Office of Australia Ltd (1933) 34 SR 88; GLG Australia Pty Ltd v The Nominal Defendant (No 2) [2004] NSWCA 282; CASES CITED: Hadid v Redpath (2001) 31 MLVR 152; Mifsud v Campbell (1991) 21 NSWLR 725; Penrith City Council v Government Insurance Office of New South Wales (1991) 24 NSWLR 564; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; Soulemezis v Dudley (Holdings) Ltd (1987) 10 NSWLR 247.

PARTIES: British American Tobacco Ltd - Appellant Eagle Star Reinsurance Co Ltd - Respondent

COUNSEL: G Watson SC & T T Baw - Appellant S Donaldson SC & E Muston - Respondent

SOLICITORS: Colin Biggers & Paisley - Appellant Hunt & Hunt - Respondent

LOWER COURT JURISDICTION: District Court

LOWER COURT MEDIUM NEUTRAL CITATION: (Ashford DCJ, 14 July 2004, unreported)

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40099/05 DC 849/02

GILES JA HODGSON JA TOBIAS JA

Friday 23 June 2006 BRITISH AMERICAN TOBACCO AUSTRALIA LTD v EAGLE STAR REINSURANCE COMPANY LTD Judgment 1 GILES JA: The appellant was the defendant in proceedings in the District Court. It cross-claimed against the respondent, alleging that it was entitled to indemnity under insurance. The claim against the appellant failed. Its cross-claim against the respondent was dismissed and it was ordered to pay the respondent's costs. 2 In this appeal the appellant contends that the judge erred in failing to consider the cross-claim so far as it claimed indemnity for its costs incurred in defending the claim against it, or if her Honour did consider the cross-claim in failing to give reasons for her decision in that respect. The respondent contends that the cross-claim did not extend to indemnity for the appellant's costs of defending the claim against it, so that neither consideration nor reasons in that respect were required, and that in any event the appellant was not entitled to the indemnity.

The proceedings in the District Court 3 The appellant was the occupier of premises at Granville. The judge described the premises as "a large site comprising various buildings and with open ground". The appellant engaged Group 4 Securitas Pty Ltd ("Group 4") to provide security services with respect to the premises. Ms Joanne Edwards was employed by Group 4 as a security officer, and was assigned to duties at the appellant's premises. 4 By a statement of claim filed on 18 February 2002 Ms Edwards alleged that on 22 February 1999, in the course of carrying out her duties as a security guard at the premises, she twisted her leg as she "stepped on a concealed incline, uneven surface or into a hole" on a grass covered field and suffered injury, and that her injury was caused by the negligence of the appellant. 5 In a cross-claim filed on 11 October 2002 the appellant cross-claimed against Group 4 on three bases. The first was a claim for indemnity or contribution pursuant to the Law Reform (Miscellaneous Provisions) Act 1946. The second was a claim for indemnity under a provision of a contract pursuant to which the security services were provided. The third was a curious claim to entitlement to indemnity under insurance which that contract obliged Group 4 to effect and maintain for the appellant's benefit, alternatively a claim to damages for breach in failing to effect and maintain that insurance. 6 In a second cross-claim Group 4 claimed indemnity under separate insurance from two insurers, Allianz Australia Workers Compensation (NSW) Ltd ("Allianz") and the respondent. Allianz was Group 4's worker's compensation insurer and the respondent was its liability insurer. The second cross-claim was not in the appeal papers, and the extent of indemnity claimed under the respondent's insurance is unclear. It appears from the submissions to which I later go that Group 4's cross-claim against the respondent extended or was treated as extending to its costs of defending the cross-claim against it. 7 In a third cross-claim filed in court on 22 March 2004, the first day of the hearing, the appellant claimed from the respondent indemnity under the same insurance as that on which Group 4 relied in the second cross-claim. We were informed that "it had long been discussed during the preparation for the hearing that this would occur". 8 Important to the appeal was the framing of the third cross-claim, relevantly - "7. Pursuant to the terms of this policy, the Defendant claims indemnity for any damages awarded against the Defendant because of any finding of negligence arising out of the alleged incident which is the subject of the Plaintiff's Ordinary Statement of Claim from the Cross Defendant to the Third Cross Claim.

8. The Cross Defendant to the Third Cross Claim has failed to indemnify the Defendant in respect of the claim brought by the Plaintiff.

9. The Defendant claims against the Cross Defendant to the Third Cross Claim: (a) Indemnity for any damages, interests [sic] and costs which may be recovered against the Defendant;

(b) In the alternative to the proceedings [sic] sub-paragraphs, contribution towards any verdict, interests and costs which may be recovered against the Third Cross Claimant, pursuant to Section 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 as Amended. (c) Interest pursuant to Section 83A of the District Court Act;

(d) Costs." 9 On the last day of the hearing, at the close of submissions, there was filed in court the respondent's defence to the third cross-claim. It included - "5. As to paragraph 7 of the Notice of Third Cross Claim the First Cross Defendant to the Third Cross Claim admits that the Cross Claimant claims indemnity as pleaded, but denies any entitlement to such indemnity.

6. The First Cross Defendant to the Third Cross Claim admits paragraph 8 of the Notice of Third Cross Claim

7. The First Cross Defendant to the Third Cross Claim denies that the Cross Claimant is entitled to the relief sought in paragraph 9 of the Notice of Third Cross Claim." 10 The hearing occupied seven days from 22 to 31 March 2004. At the conclusion of submissions the judge reserved her decision, but on the basis that "costs" would be dealt with on a later occasion. As will be seen, what was meant by this is obscure; I will return to it. I will also return to the submissions made to the judge, an understanding of which is material to whether the appellant's claim against the respondent as framed in the third cross-claim was enlarged. 11 Judgment was given on 14 July 2004. It is not necessary to describe why the judge held that Ms Edwards' claim failed. The reasons did not include consideration of any of the cross-claims. They ended - "61. There will be a verdict for the defendant. 62. I dismiss the cross claims. 63. Plaintiff to pay Defendants [sic] costs. 64. The matter is stood over for further submissions on costs 23 July 2004." 12 The judge delivered a further judgment on 22 June 2005. Why there was delay and when the "further submissions on costs" were made did not appear. A transcript of the further submissions was not available, and there was no evidence going to what was put by way of further submissions. 13 The judge began her reasons of 22 June 2005 - "HER HONOUR: I gave judgment on the substantive application in this matter finding the plaintiff had not established a case and therefore entering a verdict and judgment for the defendant and ordering the plaintiff pay the defendant's costs. At that time I dismissed the cross-claims and made no further costs orders. At the request of the parties I heard further submissions in respect of the cross-claims and costs and I now revisit those orders." 14 She noted Ms Edwards' claim and the various cross-claims, with respect not entirely accurately, and some aspects of the defences of Group 4 and Allianz. She then said - "Eagle Star Reinsurance held some liability for Group 4 and was on risk as at the date of the plaintiff's injury. There was no denial of indemnity. Each insurer was requested by Group 4 to consent to the incurring of legal costs and expenses as required under the policy in respect of defending the claim, but gave no response, choosing instead to have separate representation for each insurer. No reason was advanced for such an action. The claim was hotly contested. I have considered the further material which has been submitted in respect of the cross claims and the costs thereto. On the submissions now made I see no fact or circumstance to warrant the making of any Bullock Order. Having considered the submissions made by each party I vary my orders previously made in respect of the cross-claims and costs orders. Again I see no fact or circumstance to cause me to make any other order than the usual one that costs follow the event." 15 The judge said that on the first cross-claim there would be a verdict for Group 4 with the appellant to pay its costs, and on the second cross-claim there would be a verdict for Allianz with Group 4 to pay its costs. There was no reference to Group 4's claim against the respondent part of the second cross-claim. Her Honour's reasons for these dispositions were not explained. 16 The judge then said - "On the third cross-claim being BAT against Eagle Star, Eagle Star held a policy to indemnify in respect of any contractual liability. Both insurers were present at the claim. Neither gave written consent to incur the costs and no reasons were advanced for doing so. However, it appears to me that on the facts and circumstances of the claim there should be a verdict for the cross-defendant, Eagle Star, the cross-claimant (BAT) therefore to pay the cross-defendant costs." 17 The judge pronounced formal orders in conformity with what she had said, including - "On the third cross-claim BAT against Eagle Star, there will be a verdict for the cross-defendant, Eagle Star. The cross-claimant, BAT, to pay the cross-defendant, Eagle Star's costs." 18 The omission to dispose of Group 4's claim against the respondent was drawn to her Honour's attention, and was rectified, perhaps strangely with an order that the respondent pay Group 4's costs. The judgment was given orally. With respect, it was confused, and its confusion casts initial doubt on the judge's reasons.

The insurance 19 There were in fact two liability insurers, the respondent as to 75 per cent and Lloyds Underwriters as to 25 per cent, with two policy documents combined by a page purporting to be executed on their behalves and to record their several agreements. It was unresolved at the hearing before the judge, but on appeal the appellant acknowledged that the respondent's obligation to indemnify was only as to 75 per cent of the subject-matter of indemnity. The policy documents were the customary assemblage of ill-matched and badly written clauses. 20 The insuring clause in the respondent's insurance recorded the respondent's agreement - "To indemnify the Insured against liability in the manner and to the extent provided in each Insuring Agreement hereto subject always to the Limits of Liability Conditions Exclusions and other terms of this Policy." 21 There were then three Insuring Agreements. Only Insuring Agreement (A), headed "Combined Public and Products Liability", is presently material. The other Insuring Agreements were headed "Directors' and Officers' Liability" and "Errors and Omissions Liability". 22 Insuring Agreement (A) provided as to indemnity - "Indemnity: To indemnify the Insured against such sums as the Insured shall become legally liable to pay (including liability assumed by the Insured under contract or agreement or charter party, but only to the extent the Insured is legally liable under such contract or agreement or charter party) arising out of Personal Injury, Property Damage and/or Advertising Liability (each as defined herein) caused by or arising out of any occurrence during the Period of Insurance and within the Territorial Limits specified in the Schedule in connection with the Insured's Business including the manufacture, sale, supply, handling or distribution by the Insured (or by others on behalf of the Insured) of goods, products or merchandise including containers thereof." 23 The Schedule included - "INSURED: Tempo Services Limited, Zip Cars Pty Limited, Group 4 Securitas Pty Limited, and/or subsidiary companies (now existing or hereinafter acquired, formed, taken over or incorporated) and associated and/or related companies (for whose insurance Tempo Services Limited are or become responsible, joint ventures and all other parties named or described in the records of Tempo Services Limited as being included herein and other entities named or described in the Policy) including all principals, contractors and sub-contractors all for their respective rights and interests. BUSINESS: Principally manpower and facilities management of every description incorporating but not limited to cleaning, security services, cash carrying, general maintenance and repair, food and catering services, fire fighting services, gardening, warehousing and distribution, laundry, portering, orderlies for health care services, mortuary attendants, administrative services, mail room management, facilities management for defence forces incorporating all of the above, couriers, property owners and occupiers and all ancillary associated or incidental activities including the business of principals, contractors and sub-contractors." 24 There were Extensions to Insuring Agreement (A), including - "6. Indemnity to Principals It is understood and agreed that should any claim be made against any person, corporation, statutory authority and/or organisation to whom the Insured has given an indemnity (hereinafter referred to as 'The Principal') for Personal Injury and/or Property Damage caused in the course of the Insured's Business, the Insurers will extend the indemnity provided by this Policy to indemnify 'The Principal' against such claims including costs incurred with the Insurers' consent, provided however that (i) the total liability of Insurers shall not exceed the Limit of Liability stated herein in regard to any one claim or series of claims arising out of one occurrence

(ii) 'The Principal' shall as though he were the Insured observe, fulfil and be subject to the terms, limitations, Exclusions and Conditions of this Policy in so far as they can apply (iii) in the event that 'The Principal' is entitled to indemnity under any other insurance, this Policy shall only apply to the excess, if any, beyond the amount recoverable under such other insurance." 25 There were then Exclusions applicable to Insuring Agreement (A), including - "This Insuring Agreement shall not cover liability 1. for bodily injury, sickness or disease including any resultant death sustained by any employee of the Insured arising out of and in the course of his employment by the Insured under a contract of service or apprenticeship and for which the Insured is liable under any Workers' Compensation Statute or Regulation or at Common Law, … " 26 There were General Clauses to all Insuring Agreements, including - "1. The following shall be indemnified as if a separate policy had been issued to each (a) the personal representatives of the Insured in respect of liability incurred by the Insured (b) (i) any principal for whom the Insured is carrying out work and any other party to whom the Insured has given an indemnity in connection with the Business. (ii) any director, officer or employee of the Insured (c) the officers, committees and members, in their respective capacities as such, of canteen, social, sports, welfare, credit union and pre-school organisations, and medical first aid, fire and ambulance services and facilities, and the like, associated with or sponsored by the Insured.

(d) any director, officer or employee of the Insured in respect of private work undertaken by the Insured's employees for such director, officer or employee

(e) any director, officer or, employee for their personal liability in the course of the Business (including any member of their families or persons normally resident with them) whilst travelling or serving abroad in connection with the Business

(f) all of the parties named in the Schedule as the Insured. All of which, shall, as though the Insured, be subject to the terms of this Policy as far as they can apply. … 3. Insurers also agree to (a) defend any suit against the Insured alleging liability insured under the provisions of this Policy or alleging an infringement of the Trade Practices or Consumer Protection Acts (or amendments thereto) whether insured under the provisions of this Policy or not, and seeking recovery for damages on account thereof, even if such suit is groundless, false or fraudulent (b) indemnify the Insured for all legal costs and charges and such other reasonable expenses incurred at the Insurers' request including actual loss of salaries or wages for attendance of the Insured at hearings, trials or coronial inquiries whether civil, criminal or appellate, and such costs, charges and expenses shall be payable in addition to the Limit of Liability specified in the applicable Insuring Agreement where the liability is not insured under the provisions of this Policy. It is however understood and agreed that the Limit of Liability in respect of Insuring Agreement (B) is inclusive of costs, charges and expenses. In addition, if the Insured is unable to recover any or all such costs awarded against the plaintiff or appellant due to the said plaintiff's or appellant's inability to pay due to insolvency or other causes, Insurers agreed to indemnify the Insured for all such costs up to the Limit of Liability of Insuring Agreement (A)." 27 It is convenient to note at this point the only evidence of the respondent's denial of indemnity, a letter dated 26 May 2003 from the solicitors for the respondent to the solicitors for the appellant reading - "As you are aware, we act on behalf of Eagle Star Reinsurance Co Ltd. We refer to your client's email dated 7 April 2003 and presume it to intend to be claim for indemnity from our client [sic]. On that basis, we are instructed to respond as follows: 1. We refer to Clauses B9.1 and B9.3 of the undated and unsigned Security Services Agreement ("SSA") between Rothmans of Pall Mall Australia Limited and Group 4 Securitas Pty Ltd ("Group 4"). We do not propose to set out these clauses in their entirety and will assume for the purpose of discussion that the SSA provided by your client is the agreement governing the relationship between your client and Group 4.

2. Clause 9.1 of the SSA provides a Principal's indemnity only and is not intended to provide indemnity in respect of your client's separate acts of negligence which has contributed to the Plaintiff's loss. This is made clear by the wording of Clause B9.1(b)(i) which limits the indemnity to negligent acts of Group 4, or a breach of contract by Group 4, its employees or agents.

3. Clause B9(3) of the SSA requires your client to be named as a Principal for its respective rights and interests. It does not, however, require your client to be indemnified for its own acts of negligence. The Principal's indemnity in Clause B9.1 only reinforces the interpretation that the policy intended to be taken by Group 4 was for a Principal's indemnity cover only.

4. Accordingly, and having regard to the above, our client extends indemnity to your client for those components of the claim for which your client is sought to be made liable for the alleged negligent actions of Group 4. 5. Our client expressly denies however: (a) indemnity for your clients [sic] independent negligent acts or omissions as owner and occupier of the premises giving rise to a liability to the Plaintiff, save for any liability arising from paragraph 4 above;

(b) indemnity for any liability arising from a finding that your client's relationship with the Plaintiff was analogous to that of a employer/employee giving rise to a non-delegable duty of care upon your client;

(c) a contractual indemnity." 28 The e-mail dated 7 April 2003 was not in evidence. It is apparent that the respondent did not wholly deny indemnity, and that the denial of "any entitlement to such indemnity" in para 5 of the respondent's defence had to be read subject to the letter of 26 May 2003. The denial of indemnity appears to have been on the basis that any entitlement to indemnity arose under Extension 6 providing for "Indemnity to Principals"; that the Insured for the purposes of the Extension was Group 4; that the indemnity given by Group 4 to the appellant was relevantly limited to negligent actions of Group 4; and that the respondent's indemnity to the appellant was therefore limited to where the appellant was liable for Group 4's negligent actions and did not extend to where the appellant was liable for its own negligent actions. On the facts of Ms Edwards' claim, however, that amounted to a denial of indemnity under Extension 6. It is a possible but not compelling inference that in the e-mail dated 7 April 2003 the appellant had relied only on Extension 6. 29 It should also be said at this point that in submissions before the judge counsel for the appellant said that he could not "maintain any contractual breaches". On appeal, different counsel for the appellant explained that the contract on which the appellant relied in the first cross-claim had expired and "that meant that an indemnity a specific indemnity provided by Group 4 to BAT did not apply"; he said that the appellant did not have a contractual indemnity, and did not rely on Extension 6 for indemnity under the insurance.

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.

Were the judge's reasons adequate? 52 The judge's reasons of 22 June did not meet the principles discussed in cases such as Soulemezis v Dudley (Holdings) Ltd (1987) 10 NSWLR 247, Mifsud v Campbell (1991) 21 NSWLR 725 and Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430. The deficiency is such that a further discussion of the principles is not necessary. 53 I have indicated initial doubt on the judge's reasons. The only clue as to her reasoning is her statement that neither of the insurers "gave written consent to incur the costs and no reasons were advanced for doing so". Only the respondent insurer was relevant at that point in the reasons. The judge otherwise said that "on the facts and circumstances of the claim" there should be a verdict for the respondent. This was manifestly inadequate. If the judge had in mind General Clause 3(b) referring to incurring "at the Insurers' request", she did not address its construction: did those words qualify legal costs and charges, or only other reasonable expenses? She spoke of consent, not request: what clause did she have in mind? Whatever the clause was, she did not address whether there had been refusal of indemnity whereby the respondent could not rely on absence of consent, see cases such as Edwards v Insurance Office of Australia Ltd (1933) 34 SR 88. She did not identify the relevant "facts and circumstances of the claim", in these respects or at all. 54 It can not have been, as the appellant suggested, that the judge held that the third cross-claim was dismissed because Ms Edwards' claim failed and there were no damages and costs payable by the appellant. The reference to consent to incurring costs was irrelevant to that reasoning, and in any event if that were the reasoning the judge failed to explain why she declined to decide the extended claim. It can not be seen from the reasons whether the claim to indemnity for the appellant's own costs failed because it was not within the third cross-claim as framed or on its merits, and in either case why.

What to do? 55 In its notice of appeal the appellant sought the substantive orders - "2. Set aside the order of Judge Ashford entering a verdict for the Respondent against the Appellant on the Third Cross Claim and in lieu thereof verdict for the Appellant against the Respondent on the Third Cross Claim.

3. A declaration that the Respondent indemnify the Appellant.

4. Order the Respondent to pay the Appellant damages for breach of contract." 56 These orders were not satisfactory. Although invited to formulate orders which the District Court could have made to give effect to the indemnity in question the appellant did not proffer them. At the hearing of the appeal it drew back, and sought a new trial of the third cross-claim. 57 The respondent submitted that there should not be a new trial because the Court should not be satisfied that substantial wrong or miscarriage of justice had been occasioned (see Pt 51 r 23 of the Rules). It submitted that as a matter of construction of the policy and on the evidence at the trial the appellant was not entitled to indemnity for its own costs, and that if it made that good in the appeal the appellant had not been aversely affected by the judge's failure properly to deal with indemnity for the appellant's own costs. 58 In Beale v Government Insurance Office of New South Wales at 444 Meagher JA said - "Lastly, it is noted that an appealable error arising from inadequate reasons does not necessarily mean that a new trial is required. An appeal court is entitled to consider the matter and, if appropriate reasons are given, may itself decide the matter. Thus, if the only conclusion open on the evidence available at trial was the conclusion reached by the trial judge, then, notwithstanding an inadequate statement of reasons, the matter need not go to a new trial: NSW Insurance Ministerial Corporation (formerly GIO of New South Wales) v Mesiti (Court of Appeal, 1 December 1994, unreported)." 59 The important word is that the appeal court "may" itself decide the matter. The appeal court will not necessarily decide for itself the matter the subject of the inadequate reasons. More specifically as to Pt 51 r 23, there was a substantial wrong or miscarriage of justice because the judge failed to give adequate reasons: Hadid v Redpath (2001) 31 MVR 152 at 164. A respondent can not expect to have the appeal court hold that there was not a substantial wrong or miscarriage of justice by deciding the dispute for itself. There may, of course, be occasions when that is appropriate, but where there has been failure to give a reasoned decision of the dispute the proper occasion for a reasoned decision is ordinarily a new trial. 60 In the present case I do not think that this Court should decide whether or not the appellant was entitled to indemnity for its own costs, although it can and should decide one aspect of that question. 61 There are two steps in deciding the question. One is whether the appellant was entitled to indemnity under the respondent's insurance at all. The other is whether its damages for breach of contract included damages for breach by the respondent of an obligation to undertake the defence of Ms Edwards' claim or to pay the costs incurred by the appellant in that defence. 62 The first step involves the construction of the definition of "insured" in the Schedule and its relationship with Extension 6 and General Clause 1, in particular whether a principal in the definition had to be named or described in the records of Tempo Services Ltd and whether Extension 6 and General Clause 1 were expositions of being a principal or were free-standing. If the Extension or the General Clause was free-standing, the application of either then claims consideration. 63 There was raised with the parties whether this Court should at least decide the first step, with agreement that it could if it thought that appropriate. It is sufficient to say that, in my opinion, General Clause 1 is free-standing, as is shown by the reach of the indemnification beyond that otherwise found in the policy. The respondent submitted that, construing the policy as a commercial contract, the parties can not have intended such a wide scope of cover, and that Extension 6 pointed to cover restricted to entities to which the Insured had given an indemnity and would have no work to do if General Clause 1 extended cover to any entity for which the Insured was carrying out work. The duality in General Clause 1(b)(i) of any entity for which the Insured was carrying out work and any entity to which the Insured had given an indemnity can not, however, be put aside, and the unhappy assemblage of clauses makes an argument from the scope of Extension 6 weak; and in General Clause 1(c) and (d) in particular it is plain that there is extension of the cover beyond that under Insuring Agreement (B). Once this point is reached, it can not be doubted that the appellant was a principal for which Group 4 as (one of) the Insured was carrying out work. To that extent, this Court should decide the question. 64 The second step requires finding the obligation and its breach. It was not properly addressed by the parties at the trial. I have concluded that the appellant's claim to indemnity for its own costs was asserted and raised for decision by the judge. The judge might have declined to decide it in the circumstances of the framing of the third cross-claim and the manner in which the extended claim came out in submissions. While it does not appear that the respondent took objection, nor did the appellant apply to amend. What amounts to a discretionary decision remains to be made, and is not for this Court; it can not satisfactorily be made by this Court on the less than full understanding of what occurred at trial open on the materials before it. 65 On an assessment on the materials before this Court, neither the appellant nor the respondent gave proper thought to the basis for the extended claim or to the evidence and arguments material to it; nor so far as appears did the judge direct attention to those matters. Had attention been given to them, that may have warranted declining to decide the expanded claim. With full appreciation of the respondent's submission that the appellant should not be permitted, by a new trial, to mount what might turn out to be a better case for indemnity for its own costs, that is a consequence of any order for a new trial where there has been a miscarriage of the original trial or its decision; and the default (if that is a correct description) was not of the appellant alone, but also of the respondent in dealing with the extended claim when it emerged. Where there has been such a miscarriage, the Court should direct attention to a just result according to law. If this Court were to attempt a decision in the unsatisfactory state in which the trial before the judge was left, or at least was left so far as the materials before this Court permit an understanding, there may not be justice according to law. 66 In my opinion, therefore, there should be a new trial of the third cross-claim, but pursuant to Pt 51 r 23 on the condition that the appellant was to be indemnified as if a separate policy had been issued to it in accordance with General Clause 1.

2. Set aside the verdict for the cross-defendant on the third cross-claim and the order that the cross-claimant pay the cross-defendant's costs.

3. Remit the third cross-claim to the District Court for a new trial on the condition that the appellant was to be indemnified as if a separate policy had been issued to it in accordance with General Clause 1.

4. Costs of the third cross-claim to be as ordered by the judge conducting the trial.

5. Respondent to pay the appellant's costs of the appeal. 68 HODGSON JA: I agree with the first four orders proposed by Giles JA and, except as indicated below, substantially with his reasons. 69 In my opinion, the necessity for this appeal arises to a large extent from the failure of the appellant properly to plead and present the case now sought to be made out. 70 The Statement of Claim never included a claim for damages for failure by the respondent to do something it was bound to do under the insurance contract, which left the appellant with liability for the costs of its successful defence of the plaintiff's claim. And no such claim by the appellant was clearly articulated at the hearing. 71 Had such a claim been properly formulated, the issues it raised could have been addressed by the primary judge, including the following: (1) Whether such a claim was included in the general indemnity against "such sums as [the appellant] shall become legally liable to pay arising out of Personal Injury". (2) Whether the respondent was in breach of its agreement to defend any suit against the appellant alleging liability incurred under the provisions of the policy. (3) Whether the indemnity expressed for all legal costs and charges was limited to legal costs and charges incurred at the insurer's request. 72 The appellant faces some hurdles on each of these questions. 73 In relation to (1), there are cases holding that the indemnity against liability in respect of personal injury given by compulsory third party insurance policies does not extend to liability to the insured's own lawyers for the costs of the unsuccessful defence of a claim for personal injury: GLG Australia Pty. Limited v. The Nominal Defendant (No.2) [2004] NSWCA 282 and cases there cited. The position in relation to a successful defence would be a fortiori. 74 In relation to (2), it is by no means concluded either by the letter of 26 May 2003, referred to by Giles JA, or by the respondent's admission of failure to indemnify. As regards the former, it is not clear that the appellant ever requested the respondent to defend the proceedings for it, or that the respondent's conduct made such request unnecessary: cf. Peter Turnbull & Co. Pty. Limited v. Mundus Trading Co. (Australasia) Pty. Limited (1954) 90 CLR 235. There appears to be no acceptance by the appellant of any alleged repudiation of the policy by the respondent. As regards the latter, the only indemnity being sought in the Statement of Claim was for damages awarded against the appellant, so the respondent's denial would appear to be limited to denial of that indemnity. 75 In relation to (3), it seems difficult to read cl.3(b) of the policy as extending to all legal costs and charges, while other reasonable expenses are limited to those incurred at the insurer's request. If legal costs and charges are not so limited, there seem to be no words appropriate even to relate them to liabilities or claims for liabilities insured under the policy. 76 Since the need for this appeal was caused primarily by the appellant's failures, the granting of leave and allowing the appeal must be considered as an indulgence. Of course, the respondent could have sought to have the matter clarified below, and could have not contested the appeal, so any claim to have its costs paid by the appellant is not particularly strong. 77 I would order each party to bear its own costs of the appeal. 78 TOBIAS JA: I agree with Giles JA. **********

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