Isles v Alpine Designer Homes Pty Ltd

Supreme Court of NSW|2024-10-23|Before: Stevenson J, Ball J

Solicitors: Michael Bowyer Advisory (Plaintiffs/Applicants) Gilchrist Connell (Defendant/Respondent) File Number(s): 2023/465008

JUDGMENT

The plaintiffs, Mr Andrew and Ms Victoria Isles, are the registered proprietors of a property in Clareville.
On 22 December 2023 they commenced these proceedings against the defendant, Alpine Designer Homes Pty Ltd ("Alpine"), seeking damages in relation to alleged defects in the Clareville property caused by building work undertaken in 2015 and 2016 by Alpine with the plaintiffs' predecessors in title.
Alpine is named as an insured under a Public and Products Liability Policy (the "Policy") issued by ATC Insurance Solutions Pty Ltd ("ATC") as agent for Certain Underwriters at Lloyds (the "Underwriters").
Without prejudice to its and the Underwriters' rights under the Policy, ATC retained Gilchrist Connell to act for Alpine in these proceedings.
On 24 April 2024, Alpine went into voluntary administration. The proceedings were thereby stayed by reason of s 444E of the Corporations Act 2001 (Cth) (the "Act").
On 22 May 2024, the Administrator made a report to creditors in which he stated: "I have liaised with the Company's pre-appointment insurance broker and been advised of a number of potential claims against the Company, for which I understand the Company's insurer is assessing whether coverage applies, summarised as follows: Contingent Liabilities Estimated $ Notes Andrew & Vicky Isles (Clareville - Supreme Court Proceedings) 1,750,000 Disputed by Director and currently being defended by lawyers for Company's insurer"

…" (Emphasis added.)

On 30 May 2024, the creditors of Alpine resolved that Alpine execute a deed of company arrangement. That was done on 19 June 2024.
By Notice of Motion filed on 10 July 2024, the plaintiffs sought leave to proceed against Alpine under s 444E(3) of the Act.
At the first return of that motion, on 19 July 2024, directions were made for the service of evidence and submissions in relation to the application. The motion was stood over to 23 August 2024.
On 31 July 2024, Carter Newell, acting for ATC, wrote to Alpine stating that they were instructed that the "Insurers", being a reference to both ATC and the Underwriters, accepted that the plaintiffs' claim against Alpine "falls within the indemnity clauses of the Policy", but that the Insurers had formed the "preliminary view" that: "… the rectification costs that the plaintiffs claim as damages against Alpine are excluded by the Products Exclusion and therefore the Policy does not respond to the claims made in the Proceedings."
On 6 August 2024, Alpine served an affidavit on the solicitors for the plaintiffs that annexed that letter.
Between 6 August 2024 and 23 August 2024, the plaintiffs' solicitors communicated with Carter Newell seeking ATC's and the Underwriters' agreement to be joined in the proceedings under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (the "Third Party Claims Act") and foreshadowed the plaintiffs' intention to amend their Notice of Motion of 10 July 2024 to add a claim for leave to proceed under the Third-Party Claims Act.
On 23 August 2024, Mr Newton, who appeared for the plaintiffs, informed Ball J that the plaintiffs proposed to seek leave to amend their Notice of Motion of 10 July 2024 to add a claim for leave to proceed against the Underwriters under the Third Party Claims Act.
The following exchanges occurred: "HIS HONOUR: No. I follow. So, the real question is whether you have an arguable claim against the insurer. Isn't it? NEWTON: What happened since the application was filed a couple of days before the evidence was due, the insurer sends a declinature letter saying we are not declining the premise on which the application for leave to support. HIS HONOUR: No. I understand. NEWTON: So your Honour has got the point, and the two applications in the notice of motion really raise the same issue. HIS HONOUR: But, really, in the light of what has happened, you are not going to be able to get order 1. The real question is-- NEWTON: You might well be right, your Honour. What we have done to a proposed order, we have been trying to short circuit that. This application was not intended to be proceeded with today. Since Monday, we weren't allowed to communicate with the Court until yesterday about that. But we have proposed orders in this form on Monday. We sought, effectively, this form. … HIS HONOUR: Mr Newton, it does seem to me sensible to just dismiss paragraph 1 of your notice of motion. If there is an argument about costs, well, I suppose that argument can be dealt with. NEWTON: The premise on which the application is resisted is there is no insurance. It's actually a disputed premise, but I accept that if we get-- HIS HONOUR: The reality of it is, you are going to get your leave unless the insurer can demonstrate that you don't have an arguable case. NEWTON: Has got an entitlement to disclaim. That's right. HIS HONOUR: Well, that's what it depends on. NEWTON: Quite. HIS HONOUR: Whether you have an arguable case. NEWTON: The declinature letter admits the response and relies on an exclusion. I am with your Honour about that. There is no doubt I submit that the insurer will be joined. The real issue is, if it is joined, we probably don't need the leave against the company. HIS HONOUR: Well, you don't. … NEWTON: … The real issue is about costs. On the evidence that's before your Honour at the minute, which we also need to firm up, this resistance has been funded by the insurer. There is going to be an argument or issue. HIS HONOUR: I understand that. If I dismiss paragraph 1 now, that makes it clear that the company is only here to argue about costs. NEWTON: Yes. Would your Honour give me a moment? HIS HONOUR: Yes. NEWTON: I wouldn't oppose that, provided our position in relation to costs is preserved, your Honour. HIS HONOUR: Well, I think that's a sensible course. … … HIS HONOUR: Yes. All right. What I have done is, I have just amended these orders which are not by consent, I have added paragraph 1A so that it reads: Dismiss paragraph 1 of the amended motion."
Thus, Ball J dismissed the plaintiff's application for leave under s 444E of the Act.
It is not clear from the final passage from the transcript to what Ball J was referring when he said "these orders which are not by consent". However, his Honour's exchange with Mr Newton that immediately preceded this observation makes clear that Mr Newton did not object to the dismissal of the plaintiff's claim for leave.
On 10 October 2024, orders were made, by consent, that the plaintiffs have leave to proceed against the Underwriters under the Third Party Claims Act.
I am dealing with an argument as to the costs of the plaintiffs' Notice of Motion of 10 July 2024, a matter in respect of which I have received a total of 32 pages of submissions.
This is not a case where the parties have settled a dispute, save as to costs. Accordingly, the principles that I summarised in Wonderful Pty Ltd v Faithful Investment Pty Ltd are not directly applicable. [1]
What has happened here is that the plaintiffs have accepted that there was no point proceeding with their claim for leave under s 444E of the Act and have acceded to, if not consented to, the dismissal of their claim for that leave.
That was doubtless due to the supervening event that ATC, and thus the Underwriters, had accepted that Alpine's claim fell within the Policy, albeit excluded by the products exclusion; thereby suggesting that there was at least an arguable basis for seeking leave to proceed under the Third Party Claims Act.
However, the fact is that the plaintiffs have not proceeded with their application for leave. Alpine is no longer to be involved in the proceedings.
Nonetheless, the plaintiffs seek an order that there be no order as to the costs of the plaintiffs' 10 July 2024 motion after its dismissal on 23 August 2024.
Mr Nelson, who appeared for the plaintiffs, submitted that the most "powerful reason" why no costs order should be made against the plaintiffs was: "… that the Insurers - not Alpine - will be the beneficiaries of any costs order against the plaintiff. Their change of position was the supervening event which modified the premises on which the 444E Application had been brought and caused it to be disposed of in the way described above. It would not be just for those Insurers to benefit from, and for the plaintiffs to suffer adverse costs because of, the Insurers' change of position following the filing of the 444E Application."
The "change of position" to which Mr Nelson referred was a "change" from the position notified by the Administrator on 22 May 2024 that he had been told that the Underwriters were "assessing whether coverage applies" to the position notified by Carter Newell on 31 July 2024.
It does appear that the Underwriters, by their agent, ATC, have been funding Alpine's costs of resisting the plaintiffs' claim, and thus of resisting the plaintiffs' application for leave to proceed under s 444E of the Act.
I accept that the plaintiffs' decision to agree to, or not oppose, the dismissal of its application for leave was premised on the prospect, realised as it turns out, of getting leave under the Third Party Claims Act to proceed directly against the Underwriters.
Nonetheless, ATC, as agent of the Underwriters, has incurred the costs of resisting the plaintiffs' application for leave under s 444E of the Act, being an application with which the plaintiffs did not proceed.
And as Mr Shearer SC, who appeared for Alpine, submitted: "There is no principle that a party entitled to costs should be disentitled to costs because a third party has paid those costs - whether it be a generous benefactor, a third-party financier, a third party under an indemnity or an insurer. Furthermore … the Plaintiffs knew that the insurer was considering its position before bringing the Motion. They nevertheless decided to bring it. The subsequent issue of the declinature letter [of 31 July 2024] against which the Plaintiffs maintained their application for leave, is hardly disentitling conduct. The pursuit of leave against Alpine was a distinct step."
Further, there was not in substance any "change in position" by the Insurers following the filing of the plaintiffs' Notice of Motion of 10 July 2024, save that, as is usual, the Insurers initially reserved their position and then formed the preliminary view expressed in Carter Newell's letter of 31 July 2024.
The costs that ATC, as agent of the Underwriters, has incurred in retaining Gilchrist Connell to act for Alpine have actually been incurred in circumstances where ATC's, and thus the Underwriters', position as at 23 August 2024 continued to be that the Policy did not respond to the plaintiffs' claim.
The plaintiffs should pay Alpine's costs of the plaintiffs' Notice of Motion of 10 July 2024.

Endnote

[2024] NSWSC 472 at [2]. 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: 30 October 2024

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