Carroll v United Super Pty Ltd

Supreme Court of NSW|2018-07-04|Before: Slattery J

Judgment

This is the Court's second judgment in these proceedings. The Court gave its first judgment on 4 April 2018: Carroll v United Super Pty Ltd [2018] NSWSC 403. The Court's first judgment set aside decisions of a superannuation trustee (the first defendant) and an insurer (the second defendant) in forming an opinion that the plaintiff was not totally and permanently disabled under an insurance policy which the second defendant issued to the first defendant.
The parties could not agree upon costs. They asked the Court to determine that question. This second judgment deals with the issue of costs. This judgment does not repeat the background to the proceedings but should be read with the Court's first judgment. Events, matters and persons are referred to in both judgments in the same way.
Evidence and submissions on the issues of costs were heard in a short supplementary hearing on 4 July 2018.
Mr A. Coombes of counsel continued to appear for Mr Carroll, instructed by Mr S. Firth of Firths Compensation Lawyers. Ms B. Nolan of counsel continued to appear for the first and second defendants respectively, the Trustee and Hannover, instructed by Mr M. Iacuzzi of Turks Legal.
The parties were initially at issue about the period for which interest should be paid on the benefit of $104,000 under Insurance Contracts Act 1984 (Cth), s 57. But the period was ultimately agreed and the quantum of interest was resolved in orders that were made on 9 July 2018 in chambers after the hearing. The Court made orders and notations in chambers as follows: 1. Order that the second defendant pay interest to the plaintiff in accordance with s 57 of the Insurance Contracts Act 1984 from 7 June 2013 until 2 May 2018 in the sum of $30,618.74; and 2. The Court notes the amount in Order 1 was paid by the second defendant on or about 20 June 2018.
Two issues were argued at the costs hearing: (1) whether costs should be awarded on the indemnity basis against either defendant due to the service of offers of compromise or for other reasons; and (2) whether the plaintiff is disentitled from recovering all or part of his costs by reason of his conduct of the proceedings.

Whether Costs Should Be Awarded on the Indemnity Basis

The plaintiff claims an entitlement to an order for indemnity costs on the basis of the service of two offers of compromise on the defendants. The first offer was served on 5 February 2015 and the second offer on 5 October 2016.
The plaintiff contends: that both offers were compliant with Uniform Civil Procedure Rules 2005 ("UCPR"), r 20.26; that the defendants permitted both offers to expire; and that the outcome of the proceedings was no less favourable than the terms of each offer, so that in the result, the plaintiff should have an order that the defendants pay the plaintiff's costs of the proceedings on an indemnity basis, either from 6 February 2015, or alternatively from 6 October 2016. The plaintiff claims to be presumptively entitled to an order for indemnity costs by reason of the operation of UCPR, r 42.14(2). Alternatively, the plaintiff contends that if the second offer of compromise does not conform with UCPR, r 20.26, that it should be treated as a Calderbank offer and the plaintiff also relies upon it as such an offer.
Both offers of compromise were made in the context that the plaintiff claimed a fixed disability benefit of $104,000. The 5 February 2015 offer of compromise generally conformed with the requirements of the rules and offered to settle a claim on the basis that Hannover paid the Trustee, and then the Trustee paid the plaintiff, the sum of $102,000.
The second offer of compromise of 6 October 2016 was in similar terms, except that the amount the plaintiff indicated he would accept was $90,000. The second offer of compromise remained open until 21 October 2016.
The defendants contended it was not unreasonable for them not to accept either offer: the February 2015 offer, because it did not represent a genuine element of compromise; and the October 2016 offer, because there was a reasonable basis for it to suspect that the plaintiff was engaging in regular remunerative work and indeed, whether or not the plaintiff was engaged in such work remained unaddressed and unexplained in the plaintiff's case prior to 4 November 2016, despite some evidence that he was.
It is not necessary to decide whether the first offer contained a genuine element of compromise, although it is certainly doubtful that it did when determined objectively according to the circumstances of the case at the time: Leach v The Nominal Defendant (QBE insurance (Australia) Ltd) (No. 2) [2014] NSWCA 391 at [42].
Both offers of compromise face the same obstacle: the late service of the plaintiff's evidence.
The final hearing of these proceedings commenced on Monday, 7 November 2016. But on 4 November 2016, the plaintiff served an affidavit explaining various work related activities in which he had been involved which were, by then, the subject of pre-trial enquiry by the defendants ("the 4 November 2016 affidavit"). Rather than adjourn the hearing, the defendants and the Court accommodated the additional evidence. The defendants served extra subpoenas to deal with this evidence. Ms Nolan cross-examined on material she already had and on additional material brought in under the extra subpoenas. This made for a disorderly trial. But it nevertheless meant the hearing dates were not wasted.
The additional evidence was important in the outcome of the proceedings. It was the first time that the plaintiff had given an explanation on affidavit of the commercial activity in which he had been involved, including both what he had attempted to do and what his limitations were. The plaintiff submits that the defendants had already started investigation of these matters well before the expiry of the offer of compromise on 21 October 2016. Whilst that is true, until the defendants had the plaintiff's account of what he said he was doing in these commercial activities and what his limitations were, the defendants were not in a realistic position to assess their prospects of success in the proceedings.
The nature of the plaintiff's other commercial activities and the importance of the 4 November 2016 affidavit are fully detailed in the first judgment. In my view, it was reasonable for the defendants to reject the second offer of compromise expiring on 21 October 2016. The reasonableness of rejecting an offer is to be assessed at the time and not with the benefit of hindsight: Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344 at [8]. Without the 4 November 2016 affidavit, the defendants were not able to adequately assess the real strengths and weaknesses of the plaintiff's case, and consequently, their own prospects of success in the proceedings.
In my view, the plaintiff is not entitled to indemnity costs on the basis of either offer of compromise.
The plaintiff advanced an alternative argument for indemnity costs. This alternative argument was put just against the Trustee. The plaintiff argued that, to the extent that he is not otherwise entitled to indemnity costs against the defendants on the basis of an offer of compromise or a Calderbank letter, his costs should be borne on the indemnity basis by the Trustee. The plaintiff argues that the Trustee was under an obligation to bring these proceedings for the benefit of the plaintiff, either on the basis of its general law duties, or under Superannuation Industry (Supervision) Act 1993 (Cth) ("SIS Act"), s 52(7)(d), which requires the Trustee to "do everything that is reasonable to pursue an insurance claim for the benefit of a beneficiary, if the claim has a reasonable prospect of success". The plaintiff invited the Trustee on at least two occasions to bring proceedings against Hannover to pursue the plaintiff's rights under the Policy, but the Trustee did not do so.
This argument is not persuasive. It fails at several levels. In the first place, the plaintiff did not propound and develop the case against the Trustee of a breach of SIS Act, s 57(2)(d). The plaintiff did not attempt to show that at a particular point of time, the Trustee should have come to the conclusion that the claim had reasonable prospects of success and that those prospects were sufficiently strong that the Trustee would have been justified in spending trust funds (which would otherwise be available for other beneficiaries of the fund) in pursuing the plaintiff's claim.
None of these issues were explored in the trial against the Trustee. The case was simply not conducted that way. The case was devoted to issues: at, what is known in this class of litigation, the stage 1 enquiry, as to whether the Trustees' decisions could be vitiated; and whether at the stage 2 enquiry, the plaintiff had established that he was TPD within the Policy. In my view, it is not open to the plaintiff now to seek indemnity costs on the basis that a breach of SIS Act, s 57(2)(d) has been established in its favour.
And in the second place, even if the plaintiff could surmount this obstacle and re-open the issues of whether he had prospects of success sufficient for the Trustee to be compelled to litigate, because of the plaintiff's late service of the 4 November 2016 affidavit, the plaintiff has other difficulties. The Trustee has a compelling argument that right up until the trial commenced, the Trustee had evidence that the plaintiff was doing work inconsistent with his TPD status but did not have an adequate explanation as to why the plaintiff's limited attempts to undertake that work were indeed consistent with his TPD status. From the Trustee's perspective, until then, the plaintiff's case may well have looked an unlikely candidate for the success that it ultimately achieved.
In my view, there is no basis for an award for indemnity costs against the Trustee using SIS Act, s 57(2)(d).

Whether the Plaintiff is Disentitled From Recovery of All or Part of His Costs

The defendants submit that the plaintiff is not entitled to all his costs and should indeed pay part of the defendants' costs, because of his conduct of the hearing and because the 4 November 2016 affidavit showed that his previous evidence had been misleading.
The defendants rely upon the established principle that the general rule that costs follow the event may be displaced by evidence of disentitling conduct on the part of an otherwise successful plaintiff, which occasions unnecessary expense and unduly protracts the length of the hearing: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at 97 - 98 per McHugh J; GR Vaughan (Holdings) Pty Ltd v Vogt [2006] NSWCA 263.
The defendants submit that the contrast between the plaintiff's earlier affidavits and the 4 November 2016 affidavit, and inconsistencies in some of his evidence prolonged the hearing and caused increased expense and delay. The defendants submit that such conduct extended the hearing from a three day hearing to a nine day hearing, and that this is one of the rare occasions where a successful party is guilty of such misconduct in the litigation that he should be ordered to pay the unsuccessful opponent's costs of the additional six days of hearing: Ayran v Nguyen [2001] NSWCA 5 at [37] - [38]; Degmam Pty Ltd (in liq) v Wright (No. 2) [1983] 2 NSWLR 354 at 358.
Although this argument has some force, in my view, it overstates the effect of the plaintiff's late service of the 4 November 2016 affidavit. About six days was a reasonable trial estimate for this case because of the extent of the cross-examination of the plaintiff that was required on the defendants' case and because of the numbers of doctors who were to be cross-examined. This case was always going to go more than three days. In the end, it did not occupy nine full days. It was closer to eight full days, with between one and two of those days being accounted for by the disruption caused by the plaintiff's late service of the 4 November 2016 affidavit. But the defendants' point is well made that the proceedings would have been conducted in a more orderly fashion had all the affidavit evidence in support of the plaintiff's case been fully served at an earlier time.
In the first judgment, the Court has not found that the plaintiff was deliberately dishonest, although the Court did find some of his evidence to be unsatisfactory. Such costs penalty as should be considered here does not arise from any dishonesty on the plaintiff's part but from trial management from the late service of evidence. And in that respect, it is to be remembered that had the Court adjourned the hearing on 7 November 2016 because of the late service of this affidavit, there was a likely prospect that the plaintiff would have had to pay the defendants' costs thrown away by the adjournment. That would have meant that the plaintiff would have been deprived of some of his costs in any event.
In my view, the plaintiff should not pay any of the defendants' costs. But in recognition of how the plaintiff's conduct of the proceedings lengthened the hearing, the plaintiff should lose 20 per cent of his costs. The Court will order the defendants to pay 80 per cent of the plaintiff's costs of the proceedings on the ordinary basis.
There should, in my view, be no different order for the argument as to costs itself on which the defendants have been largely successful. The Court has approached the matter globally and any success the defendants have had on the argument as to costs is also accounted for in the discount of 20 per cent in the plaintiff's costs.

Conclusion and Orders

For these reasons the Court orders as follows: 1. Order that the defendants pays 80 per cent of the plaintiff's costs of these proceedings; 2. Order that the costs the subject of Order (1) are to be assessed on the ordinary basis; and 3. Note that this order for the payment of costs includes the costs of the argument in relation to costs.

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: 18 July 2018

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