Dean v Phung

Supreme Court of NSW|2015-07-03|Before: Beech-Jones J

Judgment

On or about 19 December 2001 the plaintiff, Todd Owen Dean, suffered an injury at his work, including to his face and teeth. In January 2002 he attended upon the defendant, Dr Mark Phung, at his dental surgery. It suffices to state that thereafter Dr Phung performed dental services on Mr Dean that were grossly excessive.
Mr Dean sued Dr Phung for damages. Dr Phung was insured by Guild Insurance Limited ("Guild Insurance") who indemnified him and instructed "Guild Lawyers" solicitors on his behalf. (Guild Lawyers later changed its name to Meridian Lawyers.)
At first instance Mr Dean succeeded in negligence and obtained a judgment for damages against Dr Phung calculated in accordance with the Civil Liability Act 2002 ("CLA") (Dean v Phung [2011] NSWSC 653). However the trial judge rejected Mr Dean's claim in trespass to the person and for an award of damages including exemplary damages that was determined without regard to the constraints imposed by the CLA. Mr Dean successfully appealed (Dean v Phung [2012] NSWCA 223). The Court of Appeal found, inter alia, that Mr Dean succeeded in battery and was entitled to damages including exemplary damages that were not calculated in accordance with the CLA.
Following the Court of Appeal's judgment Guild Insurance declined to further indemnify Dr Phung. Although it had already paid the judgment entered in Mr Dean's favour at first instance, it declined to pay Mr Dean's costs of the proceedings at first instance or any of the further amounts awarded by the Court of Appeal. Dr Phung has since been made bankrupt.
By two notices of motion, Mr Dean sought an order under s 98 of the Civil Procedure Act 2005 that Guild Insurance pay his costs of his proceedings at first instance. He contends that Guild Lawyers on behalf of Guild Insurance effectively represented to him that insurance cover would be afforded to Dr Phung even if a finding of fraud or deliberate misconduct was made against Dr Phung and that induced him to maintain those allegations in his pleading. For the reasons that follow I do not accept that they made that representation. Otherwise Mr Dean has not established that any aspect of Guild Insurance's conduct of the proceedings on behalf of Dr Phung warrants a costs order being made against it.

Section 98 of the Civil Procedure Act

Mr Dean seeks to invoke s 98 of the Civil Procedure Act, which relevantly provides that: "(1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."
The power to award costs against a third party can be exercised when it is "just in all the circumstances of the case" (QBE Insurance (Australia) Ltd v Hotchin [2013] NSWSC 315, at [54] per Bergin CJ in Eq; "QBE"). Although the exercise of the power is reserved for "exceptional cases" (FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 per Basten JA at [214]; "FPM"), the expression "exceptional" in this context means "no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit at their own expense" (QBE at [55] Bergin CJ in Eq citing Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39; [2004] 1 WLR 2807 at 2815 [25]).
In a passage from QBE, relied on by both parties, Bergin CJ at Eq described the categories of cases that fall within s 98 as follows: "[56] Section 98 is the statutory recognition of the 'long asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where the person is the effective litigant standing behind an actual party' thus making the person the 'real litigant' or the 'real parties' rather than the 'nominal party' liable for costs: Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 188 per Mason CJ and Deane J and at 202 per Dawson J. A general category of cases in which costs may be awarded against a non-party has been identified to include a receiver of a company, an insolvent person or a 'man of straw', a person who has played an active role in the litigation and a person who has an 'interest in the subject of the litigation': Knight v FP Special Assets Ltd at 192-193 per Mason CJ and Deane J. [57] In FPM Constructions v Council of the City of Blue Mountains Basten JA, (drawing heavily on what Mason CJ and Deane J said in Knight v FP Special Assets Ltd at 192-193) said at [210]: 'What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria: (a) the unsuccessful party to the proceedings was the moving party and not the defendant; (b) the source of funds for the litigation was the non-party or its principal; (c) the conduct of the litigation was unreasonable or improper; (d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and (e) the unsuccessful party was insolvent or could otherwise be described as a person of straw.' [58] These criteria are not closed or exhaustive: and it is not necessary for each criterion to be present before a costs order may be made under s 98 of the Act: Gore v Justice Corporation Pty Ltd [2002] FCAFC 83; (2002) 119 FCR 429 at 437 [23] and 451-452 [62]. It will depend upon the particular circumstances of the case as to whether such an order is justified.'"
In [57] of this extract Bergin CJ in Eq cited Basten JA's distillation in FPM of typical factors that might warrant an order against third parties. In FPM at [214] Basten JA noted that these factors "should not ultimately be treated as separate and independent factors" and that "[e]ach requires an evaluative assessment of factors which will clearly tend to interact".
In HRX Pty Ltd v Scott [2013] NSWSC 451 at [56] Bergin CJ in Eq nominated that one circumstance in which a costs order might be made against a third party was "that the non-party had been the cause of the proceedings in that such proceedings would not have been undertaken had it not been for the non-party's intervention". Thus in Selig v Wealthsure Pty Ltd [2015] HCA 18 ("Selig") an insurer who initiated and conducted an appeal in the name of an insured that was ultimately unsuccessful was ordered to pay the successful party's costs even though the cover provided by the policy of insurance was not sufficient to meet the insured's liability to pay those costs (Selig at [44] to [46]).
The position of insurers was also considered in Murphy v Young & Co's Brewery Plc [1997] 1 WLR 1591 ("Murphy") and TGA Chapman Ltd v Christopher [1998] 1 WLR 12 ("Chapman"). In Murphy an order for costs was not made against an insurer of the plaintiff under a legal expenses policy. The successful defendant sought costs from the plaintiff's insurer beyond the amount of the cover provided by the relevant policy. Phillips LJ observed that where "an unsuccessful defendant's costs are funded by insurers who have provided cover against liability, which is not subject to any relevant limit" then whether a costs order will be made against the insurer will depend on a number of considerations including the "conduct of the litigation" (at 1601H). In relation to an insurer who is subject to a limit, Phillips LJ observed (at 1602E): "More generally, I am not persuaded that it will always be appropriate to order liability insurers to pay the plaintiffs' costs where they have unsuccessfully defended a claim made against their insured if the result of such an order will be to render them liable beyond their contractual limit of cover. It seems to me that the appropriate order may well turn on the facts of the particular case."
In Chapman an insurer was ordered to pay the costs of a plaintiff who successfully sued the insured even though the cover had been exhausted. Although the limit on the insured's liability was considered to be a relevant factor (Chapman at 19C per Phillips LJ), a number of other features warranted the making of the order namely that it was the insurers who determined that the claim would be fought, funded the defence of the claim, conducted the litigation, that the defence failed and that, critically, "the insurers fought the claim exclusively to defend their own interests" (Chapman at 20F-H per Phillips LJ).
As I will explain, although some of the factors noted in Chapman were relied on by Mr Dean, the focus of his application concerned the manner in which Guild Insurance conducted Dr Phung's defence and what it stated was the scope and extent of the insurance coverage that was being offered to him. It was not suggested that Guild Insurance caused the proceedings to be prolonged but that instead Mr Dean was misled into pursuing a case that led to findings that entitled Guild Insurance to deny cover. As a matter of principle this could amount to the conduct of litigation in a manner that was "unreasonable or improper" in the sense discussed in FPM at [210] (see [8]). To consider this further it is necessary to describe the course of Mr Dean's proceedings in some detail.

Dean v Phung

The factual background to these proceedings was not in dispute. What follows is largely taken from the Plaintiff's submissions.
Following his work accident, Mr Dean first attended upon Dr Phung on 16 January 2002. The grossly excessive "treatment" he provided was paid for by Mr Dean's employer's workers compensation insurer.
On 17 January 2008 a statement of claim was filed on behalf of Mr Dean's employer, Advanced Arbor Services Pty Ltd (the "Advanced Arbor proceedings"). It sought recovery from Dr Phung of payments he had received from the workers compensation insurer. On 16 December 2008 Mr Dean filed a statement of claim against Dr Phung seeking damages for breach of contract and negligence. He also pleaded that the treatment provided by Dr Phung "was performed without the plaintiff giving his informed consent and was an assault and battery and trespass to the person".
Both proceedings were listed for hearing before Johnson J on 25 March 2009. During the openings, Senior Counsel for Dr Phung told the Court: "That treatment and advice provided by the defendant to Mr Todd Dean was so inexcusably bad as to constitute a novus actus interveniens as to terminate the relationship between the injury sustained by Mr Dean on 19 December 2001 and the consequences of the treatment provided to Mr Dean by the defendant."
The next day Senior Counsel for Dr Phung admitted that "Mr Dean's treatment [was] not reasonably necessary". An amended defence was filed which admitted breach of contract, breach of duty of care, and resultant injury to Mr Dean in the form of "devitalisation of each and every tooth", "root canal therapy upon each and every tooth" and "crowning of each and every tooth". However the allegation of assaulted was denied and Dr Phung maintained a contention that Mr Dean's claim was statute barred.
After these admissions were made, counsel for Mr Dean was given leave to withdraw from the proceedings temporarily. It was envisaged that Mr Dean would appear again after judgment was delivered in the Advanced Arbor's proceedings so the hearing of his claim could proceed.
On 2 December 2009 Johnson J gave judgment in the Advanced Arbor proceedings (Advanced Arbor Services Pty Ltd v Phung [2009] NSWSC 1331). His Honour entered a verdict of $220,302.00 against Dr Phung with costs (at [138]). His Honour published a short judgment in Mr Dean's proceedings and ordered that they be listed for directions (Dean v Phung [2009] NSWSC 1333).
At a directions hearing on 31 March 2010 Johnson J stated that he had determined that it was not appropriate that he proceed to hear Mr Dean's proceedings any further.
On 13 July 2010 Mr Dean's solicitors provided a proposed Amended Statement of Claim ("ASOC") to Guild Lawyers. It included a claim for aggravated and exemplary damages.
There was correspondence between the parties' solicitors about the amendments. Mr Dean placed particular reliance on this correspondence, and so I will address it in detail. On 13 July 2010 Guild Lawyers advised that the amendments were opposed. On 22 July 2010 they wrote further noting that the claims for aggravated and exemplary damages were excluded by s 21 of the Civil Liability Act 2002 and suggesting that the proposed ASOC should specify the basis upon which the claim was made.
On 28 July 2010 Mr Dean's solicitors responded that their client's claim was that Mr Phung's acts "were intentional acts done with the intent to cause injury to the Plaintiff" and that by operation of s 3B(1)(a) of the CLA his causes of action were not subject to the limits on damages it imposed.
On 16 September 2010 Guild Lawyers again wrote to Mr Dean's solicitors about the amendments. They contended that Mr Dean could no longer contend that he had a contract with Mr Phung because of a finding made by Johnson J in the Advanced Arbor proceedings that a contract existed between Mr Phung and Arbor. They also contended that "in order to establish a claim for aggravated damages you must establish the facts which establish the element of an intentional tort".
On 22 September 2010 Mr Dean's solicitors responded. They did not accept that the relevant finding of Johnson J necessarily precluded the existence of a contract between the plaintiff and the defendant but, nevertheless, stated that "we see no need to press the case in contract". They also contended that the existing statement of claim including the paragraph alleging a battery "make plain the elements of the intentional torts and the basis upon which the plaintiff advances his claim". The letter enclosed a further version of the ASOC which reflected these comments.
On 23 September 2010 Mr Dean's solicitors again wrote to the defendant's solicitors. They enclosed a further version of the proposed ASOC and stated: "We have made two further amendments, out of an [abundance] of caution, intended to make clear the basis upon which the plaintiff puts his case in assault and battery, namely that the plaintiff's 'consent' to the procedures performed by Dr Phung was vitiated by its having been obtained by Dr Phung's fraudulent misrepresentations to the plaintiff that the 'treatment' was reasonably necessary."
Consistent with this statement the enclosed iteration of the proposed ASOC expressly pleaded that Mr Dean's consent to Dr Phung's treatment "was obtained fraudulently by the defendant". Like the other versions noted in [22] and [26], this iteration maintained a claim for aggravated and exemplary damages.
On 5 October 2010 Guild Lawyers wrote to Mr Dean's solicitors. The letter referred to a directions hearing before the Registrar on 28 September 2010. It included the following statement: "Further to the [directions hearing before the Registrar], we enclose herewith a Notice of Motion which sets out the action that the Defendant will take in the event that you are allowed to amend your pleadings in accordance with the proposed Amended Statement of Claim under cover of your letter of 23 September 2010. Also enclosed is a copy of the Affidavit of Ms Dransfield in support of the Notice of Motion. As our Senior Counsel advised [Counsel for Mr Dean], in the event that you are allowed to proceed on an Amended Statement of Claim claiming exemplary or aggravated damages you should be aware that the insurer for whom we act will not indemnify Dr Phung in relation to any amount of exemplary or aggravated damages which a court may award. We have advised Dr Phung of this situation and we have indicated to Dr Phung that if you are allowed to proceed on the Amended Statement of Claim then he should seek legal advice over his position. This may include the need for separate representation. We note that if this occurs, it will occur by reason of your amendments to the Statement of Claim and we shall seek any costs that may be incurred from your client." (emphasis added)
On 14 October 2010 Registrar Howard granted leave to Mr Dean to file an ASOC which pleaded claims for aggravated and exemplary damages and a vitiation of any consent to undertake the dental treatment by reason of fraud.
The ASOC was filed on 15 October 2010. An amended defence was filed by the defendant on 21 October 2010. Dr Phung continued to admit that he breached his duty of care to Mr Dean and that he suffered injury, loss and damage by reason of that negligence. However, he denied any assault or battery and further denied that Mr Dean's consent to dental treatment was fraudulently obtained.
The hearing commenced before Hislop J on 7 February 2011. At the commencement of the hearing Senior Counsel for Dr Phung stated: "Your Honour will have seen, in some documents that Mr Hooke sent up to you, that the insurance situation with Dr Phung is that, in respect of exemplary and aggravated damages, the insurance does not cover Dr Phung. Dr Phung is separately represented and is sitting behind me. I am instructed by both solicitors, Messrs Carroll and O'Dea, who are acting for Dr Phung, to appear in the whole matter and to defend the whole matter. "
On 30 June 2011 Hislop J delivered judgment (Dean v Phung [2011] NSWSC 653). His Honour noted that Mr Dean did not pursue his claim in contract but pressed his claim in contract and trespass to the person. His Honour also noted that Mr Dean did not pursue his claim for aggravated damages but maintained a claim for exemplary damages (at [1]), and that Dr Phung admitted liability in negligence but denied the claim for trespass to the person (at [10]).
Hislop J held that it had not been established that Dr Phung's "involvement was dishonest and fraudulent rather than simply incompetent" and that "it [had] not been established that s 3B(1)(a) [of the CLA] has application" (at [29]). This finding precluded any award of exemplary damages (CLA; s 21). His Honour assessed Mr Dean's damages in accordance with the CLA in the amount of $1,388,615.20 (at [70]). His Honour entered judgment against Dr Phung for that sum and ordered him to pay Mr Dean's costs (at [70]).
Mr Dean appealed. Before the appeal was heard the judgment entered against Dr Phung was paid to Mr Dean. The costs order remained outstanding.
On 25 July 2012 the Court of Appeal upheld Mr Dean's appeal (Dean v Phung [2012] NSWCA 223). The Court of Appeal addressed three issues namely (i) whether s 3B(1)(a) of the CLA was engaged; (ii) whether a defence of consent was available to Dr Phung to the allegation of assault; and (iii) whether Mr Dean was entitled to exemplary damages.
In relation to the first issue, Basten JA found that s 3B(1)(a) of the CLA was engaged in a case of medical treatment if it was not undertaken for a legitimate therapeutic or non-therapeutic purpose, and in this case it was sufficient to establish that Dr Phung "knew at the time of giving the relevant advice that the treatment was not reasonably necessary" (at [30]). His Honour found that Dr Phung "probably did not believe at the time that he carried out the treatment that it was necessary"(at [47]).
In relation to the second issue, Basten JA found that no consent was provided in circumstances where treatment "which was unnecessary … was presented as necessary" (at [65]).
However Basten JA added (at [67]): "If, contrary to the foregoing analysis, some kind of fraud is required on the part of the practitioner, I would draw the necessary inference that the dentist was at least reckless as to whether the treatment proposed was either appropriate or necessary for the purpose of addressing the appellant's discomfort …"
In relation to the third issue, Basten JA held that exemplary damages should be awarded, and determined the appropriate figure to be $150,000 (at [80] to [82]).
Beazley JA agreed with Basten JA (at [1]). Macfarlan JA agreed with Basten JA except that his Honour disagreed with Basten JA's conclusion that Dr Phung's "concessions that the treatment was unnecessary, yet was presented to the appellant as necessary, of themselves, indicated that the treatment constituted a trespass to the person" (at [88]). Instead his Honour considered that Basten JA's finding noted at [39] above that the consent was fraudulently procured was necessary and sufficient to support Mr Dean's case on trespass against Dr Phung (at [94]).
The Court of Appeal entered judgment against Dr Phung for $1,743,000 and ordered him to pay Mr Dean's costs of the appeal. The Court did not address whether damages not confined by the CLA including exemplary damages would have been awarded even if no liability for assault had been established (at [8] to [10] per Basten JA).
On 4 September 2012 Guild Lawyers wrote to Mr Dean's solicitors advising that Dr Phung's own solicitors would be dealing with the "issue of exemplary damages" and that "our insurer client has instructed us to inform Dr Phung that it will not be providing assistance in relation to the payment of additional damages".
On 7 September 2012 Mr Dean's solicitors responded seeking clarification of the extent to which Dr Phung would be indemnified. They stated that they understood Guild Lawyer's letter dated 4 September 2012 "to convey that indemnity remains in relation to the costs of the proceedings in the Common Law Division". They sought confirmation of the extent of cover and a copy of the relevant insurance policy.
On 14 September 2012 Guild Lawyers (now called Meridian Lawyers) responded. They advised that the "extent of our client insurer's declinature" was in respect of every liability of Dr Phung that had not been discharged by the payment noted in [35], namely the increase in the compensatory damages resulting from the judgment of the Court of Appeal ($204,385.00), exemplary damages, post judgment interest, costs in the Court of Appeal and costs at first instance. The letter stated that the declinature arose "from the specific findings of the Court of Appeal" and enclosed a copy of the relevant form of the Dentist Liabilities Insurance Policy (the "policy").
It seems that Mr Dean paid his costs from the funds received from Guild Insurance noted in [35]. On 25 February 2013 Hislop J ordered Dr Phung to pay interest on those costs from 3 August 2011 until they were paid (Dean v Phung (No 2) [2013] NSWSC 116). Dr Phung appeared for himself at the hearing of that application.
On 10 September 2013 Dr Phung was made a bankrupt.
On 30 September 2013 Mr Dean filed a notice of motion seeking orders that Guild Insurance pay the costs of the trial at first instance in accordance with the order of Hislop J on 30 June 2011 as well as the interest on those costs ordered to be paid on 25 February 2013. Curiously another motion seeking identical orders was filed on 5 March 2015.
On 27 November 2014 Dr Phung's trustee in bankruptcy advised that no funds would be made available to creditors.

The Policy

The operative clause of the policy relevantly provided Dr Phung with "cover" for "any Claim including all legal costs and expenses for which [Dr Phung] become legally liable being a Claim: (i) made against [Dr Phung] during the Period of Cover shown in the Schedule" to the policy. A "Claim" is defined as a "demand or assertion of a right to compensation arising out of any act, error, omission or conduct and which is defined in legal proceedings instituted and served upon" Dr Phung.
Two exemptions to the Policy are of present relevance. First, clause 12 of the policy provided that Guild Insurance would not cover Dr Phung's civil liability arising from "any liability for exemplary or aggravated damages".
Second, clause 21 excluded cover from any civil liability arising from: "(i) any actual or alleged dishonest, fraudulent, criminal or malicious act or omission of [Dr Phung]; or (ii) wilful breach of any statute or regulation, contract or duty, or any act or omission committed or omitted or alleged to have been committed or omitted with a reckless disregard for the consequences by [Dr Phung] - save that these only apply to any person actually or allegedly committing or condoning any such act, omission or breach."
In the correspondence noted above Guild Lawyers did not identify which clause(s) of the policy was the basis for declining to (further) indemnify Dr Phung. The argument on this application focussed on clause 21. Counsel for Mr Dean, Mr Toomey, submitted that it can be inferred that the basis for declinature was the finding of fraud made by Basten JA noted at [39] above which was an alternative basis for his Honour (and Beazley JA) finding that s 3B(1)(a) was engaged. Counsel for Guild Insurance, Mr Shields, contended that it can be inferred that his client effectively waived its reliance on so much of subparagraph (ii) that allowed Guild Insurance to avoid cover in respect of allegations against him and instead reserved its position on coverage contingent on any findings that might be made about Dr Phung. He submitted that the principal basis on which Basten JA (and Beazley JA) found that s 3B(1)(a) was engaged (see [37] to [38]) was sufficient to amount to a "wilful breach of [Dr Phung's] duty" to his patient (and presumably it should be inferred that this was the basis for Guild Insurance declining cover).
At the hearing of this application there was some debate as to whether the Court could and, if so, should determine whether Guild Insurance was entitled to decline indemnity to Dr Phung as a result of the Court of Appeal's findings. This is not an application under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 and nor is it an action by Dr Phung or his trustee in bankruptcy to enforce the Policy or any estoppel or waiver that is said to arise in his favour. Nevertheless, in Chapman at 19C Phillips LJ considered that an "insurer's contractual limit of liability is a relevant feature" in applications of this kind (see [12]), and there is no reason why that statement would not extend to exclusion clauses.
Mr Toomey did not go so far as to submit that the Court should finally determine whether Guild Insurance were entitled to decline indemnity. Instead he contended that that "[i]t is far from certain that, based on the findings of the Court of Appeal, the insurer is even entitled to decline indemnity to [Dr Phung] in respect of the trial costs" bearing in mind that "it was unnecessary for the Court of Appeal to go so far as to make a finding of fraud".
Otherwise, the relevance of the policy to this application is its capacity to affect a determination of whether Guild Insurance's actions in declining indemnity were inconsistent with any statement it made to Mr Dean's legal representatives during the course of the proceedings. In that context the onus of proof on this application rests on the party making the relevant assertion. Guild Insurance has not provided any affidavit to explain its reasons for declining to further indemnify Dr Phung and, in the absence of it doing so, I will not draw any inferences as to its subjective reasons for doing so.
Nevertheless, Mr Dean bore the onus of proof on this application. He has not demonstrated that the only basis upon which Guild Insurance either in fact declined indemnity or was entitled to decline indemnity was the alternative finding of fraud made by Basten JA as noted in [39]. The basis nominated by Mr Shields noted in [53] is certainly a plausible basis for Guild Insurance's decision. In particular, the findings of Basten JA noted in [37] to [38] appear to provide a proper basis for Guild Insurance to decline further indemnity.
In the end result Mr Dean has not demonstrated that Guild Insurance's decision to decline to further indemnify Dr Phung was solely based on the fraud finding or was otherwise not justified.

Determination

Mr Toomey's written submissions contended that a number of factors in combination warranted the making of an order under s 98 of the CPA, two of which are that Dr Phung is insolvent and that Mr Dean paid $400,506.97 in costs out of his judgment monies. These matters can be accepted. Of themselves they do not warrant an order for costs against Guild Insurance (see [11]).
I have already addressed Mr Toomey's submission concerning the terms of the Policy. Otherwise, subject to considering the matters noted below, he did not demonstrate the existence of a sufficient number of the features that justified an order against the insurer as were found in Chapman (see [12]). Although Guild Insurance funded Dr Phung's defence and conducted the litigation on his behalf it has not been shown that it was they who determined the claim would be fought or that they "fought the claim exclusively to [defend] their own interests". To the contrary they appear to have advanced arguments against the claims for aggravated and exemplary damages, even though there was no dispute that they would not indemnify Dr Phung for those heads of damages.
Mr Toomey also contended that Mr Dean "succeeded in the Court of Appeal on the basis of admissions" at a time when the insurer was giving instructions. He further submitted that: "Unless the defendant gave instructions to make those admissions (in particular, the admission that none of the 'treatment' was necessary) in the knowledge that the insurer would rely on any consequential findings as a basis for declining indemnity, the making of such admissions by the insurer was an act taken by the insurer, contrary to the interests of its insured, from which it now seeks to benefit."
To state that Mr Dean succeeded in the Court of Appeal "on the basis of admissions" is not a complete statement of its reasoning. None of the admissions made on behalf of Dr Phung expressly referred to his state of mind at the time he provided dental services to Mr Dean. Instead, having regard to the admissions that were made, the Court of Appeal drew an inference that Dr Phung "probably did not believe at the time that he carried out the treatment that it was necessary" ([2012] NSWCA 223 at [47]). The drawing of that inference was not an inevitable consequence of the admissions made on behalf of Dr Phung. In any event there is no evidence that the making of the admissions and the consequences for Dr Phung were not discussed with him. As noted, Dr Phung was later separately represented. There is no evidence that his solicitors or his Trustee in Bankruptcy took any issue with the fact that admissions that had been proffered on his behalf to the Court ultimately contributed to indemnity being declined.
Mr Toomey also contended that, from the outset, his client maintained a claim of battery which is "an intentional tort capable of taking the matter outside the purview of the Civil Liability Act". This may be so, but at the time the admissions were made on behalf of Dr Phung, it was not clear that any of the pleaded allegations against him could have led to findings that engaged clause 21. A battery is not necessarily synonymous with a wilful breach of duty.
The critical matter said to support the making of an order of costs against Guild Insurance was set out in Mr Toomey's written submissions as follows: "The insurer's solicitors stated in correspondence, and senior counsel for the defendant stated in open court, that the limitation on the insurer's liability to indemnify extended only to aggravated and exemplary damages. At no time was it suggested by those representing the defendant (or the insurer) that indemnity would not extend to the payment of compensatory damages (excluding aggravated damages) and, by implication, the costs associated with the proceedings brought to recover those damages. Indeed, even after the Court of Appeal's decision in this matter, the solicitors for the insurer confirmed that their client insurer had not declined liability to indemnify the defendant in respect of his liability to pay compensatory damages to the plaintiff. It may be inferred that, had there been any suggestion that the insurer, having accepted liability to pay those compensatory damages, would decline liability to pay the costs associated with the proceedings to recover those damages, the plaintiff would not have risked his position concerning his costs, particularly having regard to their significant quantum." (emphasis added)
This contention was the essence of Mr Toomey's argument at the hearing. He contended that Guild Insurance through its solicitors had effectively misled his client to believe that it would not refuse to indemnify Mr Phung in the event that findings of fraud or their equivalent were made against him. He pointed to the letter dated 5 October 2010 (see [29] above) and the statement made by Senior Counsel for Mr Phung to the Court on 7 February 2011 (see [32]). At the time each of those statements were made, the relevant form of the statement of claim alleged that any consent given by Mr Dean to dental treatment was vitiated by fraud and that his claim otherwise fell within s 3B(1)(a) of the CLA. It was contended that, if Guild reserved the right to deny cover because some conduct might be found to fall within the exemption in clause 21, then it is to be expected that it would have said that in the letter of 5 October 2010, given that it also made reference to the absence of cover for exemplary and aggravated damages.
The letter of 5 October 2010 did not expressly state that the only matter affecting the grant of indemnity was Mr Dean's claim for aggravated or exemplary damages, nor did it expressly state that the cover would be provided even if findings amounting to fraud or similar misconduct were made against him. However, by expressly addressing the lack of cover for the claims for aggravated and exemplary damages in the latest iteration of the ASOC, did Guild Insurance imply that no issues affecting cover were raised by the balance of the proposed pleading?
A determination of whether such an implication was conveyed requires a consideration of all the circumstances including the commercial context and the imputed characteristics of the sender and the recipient (see Demagogue Pty Ltd v Ramensky [1992] FCA 557; 39 FCR 31 at p32 per Black CJ and p41 per Gummow J; Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458, esp at 475 per Gleeson CJ)
One difficulty in finding that the relevant implication was conveyed is that the letter refers to a conversation between counsel for the parties that was not the subject of evidence (see [29]). Otherwise the context of the communication is that it was a letter sent between opposing solicitors in litigation. The solicitors were pursuing mutually inconsistent objectives although, to an extent, they owed each other professional obligations of candour. Further, in a case such as this, such solicitors are taken to be reasonably familiar with at least the structure and typical terms of professional indemnity policies even though the precise terms of the policy had not been disclosed to Mr Dean's solicitors. It is in the nature of professional indemnity polices that they include a variety of exemptions that may or may not be engaged depending on the findings that may be made by the Court following a trial, especially findings of fraud or similar behaviour. Leaving aside waiver or estoppel, the usual position is that cover is provided by the insurer to the insured subject to the exclusions and exemptions in the policy. In many cases it is a difficult task in advance of a trial to determine, based on a pleading, whether such exemptions may or may not be engaged. Further the parties to such a communication are to be taken to understand that it would be a rare event for an insurer to waive any and all reliance on a clause that excluded cover for fraud or similar conduct on the part of an insured.
The topic being addressed by the relevant portion of Guild's letter of 5 October 2010 was the inclusion of additional heads of damage in the statement of claim and whether insurance cover was provided for those heads of damage. On its face the letter was directed to the scope of cover provided by Guild and whether it extended to the heads of damage sought by Mr Dean, and not to the operation of any exclusion clauses that were or could be dependent on factual findings. Neither the terms of the letter nor the surrounding circumstances warrant any conclusion that it impliedly addressed the latter.
The same reasoning applies in respect of the statement by Senior Counsel for Dr Phung to the Court on 7 February 2011 noted in [32].
In addition, I note that there is no evidence that anyone in Mr Dean's camp construed the letter of 5 October 2010 in the manner suggested on behalf of Mr Dean nor is there any direct evidence that they took or refrained from taking any action as a result. In that regard, Mr Toomey contended that, had Guild Insurance made it clear that it reserved the right to refuse to indemnify Mr Phung if a finding of fraud or similar was made, then Mr Dean would not have pressed his claim that the consent was vitiated by fraud: "Any allegation of dishonesty could have been withdrawn, your Honour, and the claim for aggravated and exemplary damages persisted with in any event on the basis on which the Court of Appeal ultimately found the case could succeed, that is be taken outside the purview of the Civil Liability Act, simply because the treatment being offered was not therapeutic and, therefore, there could be no consent to it."
This submission highlights the difficulty about the absence of reliance evidence being adduced on behalf of Mr Dean. It follows from [58] that even if no allegation that Mr Dean's consent was procured by fraud had been included in the ASOC, the findings of Basten JA noted at [37] to [38] (with which Beazley JA agreed) may have sufficed to justify Guild Insurance refusing indemnity on the basis that Dr Phung's actions constituted a "wilful breach of … duty" (see [52]). Thus it seems that the withdrawal of the pleading of fraud but a maintenance of the claim that s 3B(1)(a) of the CLA was satisfied would most likely have resulted in Guild Insurance denying indemnity in any event. However, in view of the conclusion in [69], it is not necessary to consider this further.

Delay

For the sake of completeness I note that Mr Shields submitted that Mr Dean had unduly delayed in bringing this application and that that was a factor warranting either its refusal or which may affect the relief that might otherwise be ordered. The first notice of motion was filed 20 days after Dr Phung was made bankrupt. Clearly he was the person primarily responsible for Mr Dean's costs at first instance. I do not accept that it was unreasonable to not file a motion until after it was clear that Dr Phung could not meet Mr Dean's costs.

Orders

It follows that Mr Dean's notices of motion must be dismissed. I will order him to pay Guild Insurance's costs of the motion. If either party seeks to vary that order then they can apply within the time provided for in Uniform Civil Procedure Rule 36.16(3A).
Accordingly the Court orders that: 1. the Plaintiff's notice of motion filed 23 September 2013 be dismissed; 2. the Plaintiff's notice of motion filed 5 March 2015 be dismissed; and 3. the Plaintiff pay Guild Insurance Limited's costs of the notices of motion.

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: 21 July 2015

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