Ivan Mabbett v Watson Wyatt Superannuation Pty Limited & Anor

Darrell Cullen v ZLB Behring LLC (2006) NSWSC 359 CASES CITED : Degman Pty Limited (In Liquidation) v Wright (No 2) (1983) 2 NSWLR 354, Harrison v Schipp [2001] NSWCA 13 Oshlack v Richmond River Council (1998) 193 CLR 72

Ivan Mabbett (Plaintiff) PARTIES : Watson Superannuation Pty Limited (First Defendant) AMP Life Limited (Second Defendant)

Mr G Beauchamp (Plaintiff) COUNSEL : Mr R Potter (First Defendant) Ms V Heath (Second Defendant)

Firths (Plaintiff) SOLICITORS : DLA Philips Fox (First Defendant) Minter Ellison (Second Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

Wednesday 7 May 2008 ex tempore Revised 13 May 2008

50196/07 Ivan Mabbett v Watson Wyatt Superannuation Pty Limited & AMP Life Limited JUDGMENT 1 The reserved judgment in these proceedings was delivered on 1 May 2008. The parties were required to bring in short minutes of order, the Court having indicated in the last paragraph of the reserved judgment that at that time costs may be argued. Hence the only issues presently before the Court concern the making appropriate orders and a decision as to the principled exercise of the Court's discretion with respect to the question of costs. Essentially the only matters that has been the subject of debate before the Court has been the question of costs. 2 It is common ground that the Court's power under section 98 of the Civil Procedure Act 2005 to determine by whom and to what extent costs are paid is a broad discretion [Oshlack v Richmond River Council (1998) 193 CLR 72] that is one that is exercised in accordance with established principles and the rules. Pursuant to UCPR rule 42.1, if the Court makes any order as to costs the order is to be that costs follow the event unless it appears that another order should be made. The question which arises in this case is, as I say, what is the principled exercise of the discretion in the somewhat unusual circumstances which prevail. 3 Mr Beauchamp, on behalf of the plaintiff, has submitted that the appropriate costs order is that each party pay its own costs. 4 It is inappropriate to revisit the findings in the principal judgment, but clearly enough the insurer's contentions on the construction issue were rejected: [see paragraph 39]. Again clearly enough, the reasons found that at least one of the grounds relied upon in the insurer's initial decision, and indeed the only ground expressly cited in the second decision, was based on a misconstruction of the contractual terms. Paragraph 58 of the reasons constitutes the rejection of the insurer's contention that the mere fact that the plaintiff had resigned prior to his injury made it impossible for him to sustain an injury on his final day of work which would cause his absence from employment with the employer within the subsequent six month period. At this stage it is of course common ground that in terms of the second limb of the TPD definition, the second defendant succeeded and the plaintiff failed. 5 A careful reading of the reserved judgment will disclose that there were a number of very close matters for detailed consideration. 6 Ms Heath, appearing for the second defendant, has contended that there are reasons why the second defendant is entitled to an order that the whole [or such part as the Court may deem appropriate] of its costs be paid by the plaintiff on an indemnity basis. This submission requires one to return to the principles which inform the exercise of the discretion to order indemnity costs. 7 In Harrison v Schipp [2001] NSWCA 13, the Court of Appeal had occasion to revisit the proper approach to the award of indemnity costs. Giles JA at 132-137, with whose judgment Handley and Fitzgerald JJA agreed, emphasised the type of delinquency in the conduct of the proceedings necessary to be established in order to make good a departure from the ordinary basis on which costs should be assessed. The making of deliberately false allegations in a defence [which may occur together with prolixity, prevarication and/or the gross prolonging of the litigation] may give rise to an occasion for the exercise of the Court's discretion by the making of an indemnity costs order. 8 Ms Heath has submitted that the indemnity costs order ought be made on a number of bases. She has particularly sought to rely on what is suggested to have been relevant delinquency said to have caused the litigation to be brought and continued, as well as on an unaccepted Calderbank offer, which the second defendant has submitted was unreasonably rejected by the plaintiff in the circumstances. 9 The submission concerning the suggested delinquency related to and in the proceedings has been as follows:

i. That prior to the proceedings the plaintiff failed to disclose information critical to the proper assessment of his application for a TPD benefit which, if disclosed, would have led to the articulation by the second defendant of further indisputably correct bases for its decision to decline payment of the claim. The submission is that this information included the January 2002 certificates of Dr Ng, the true history of his employment at A B and C and the nature and fact of his current employment. The submission is that it should be concluded that if the plaintiff had complied with his duty of good faith and fair dealing in the claim prior to the litigation that the proceedings would never have been brought.

ii. The submission is that on an objective view of the evidence, in the circumstances the plaintiff ought to have known that the evidence of Dr Gurgis had no probative value and that without favourable explanation of the contradiction of the plaintiff's medical case in Dr Ng's January 2002 certificates, the plaintiff's case that he was totally and permanently disabled was doomed to failure. Hence the proposition that the proceedings were commenced and continued by the plaintiff who, properly advised, should have known that he had no reasonable chance of success and that the proceedings were futile.

iii. The suggested further important delinquency of the plaintiff in the proceedings is said to have been his apparent failure to brief his medical experts with the true and complete history of his injuries, physical capacities and work history and critically to persist in relying on a report of Dr Ng that the plaintiff must have known required substantial qualification in light of her January 2002 certificates. The submission is that the effect of these failures was that the litigation proceeded on entirely false factual assumptions, including: a) that the plaintiff had never been certified fitted for full-time work since he left P&O;

b) that the plaintiff's work at A B and C was part-time;

c) that the plaintiff's capacity had not improved that he had left P&O;

d) that the plaintiff's present work was limited to advice (i.e. non-manual duties). 10 The submission is that the plaintiff knew the truth of these matters but that they were not revealed until cross-examination and the second defendant had an opportunity to carefully review the subpoenaed records. 11 It is very pertinent, it seems to me, to note that in Harrison v Schipp, even although the evidence of the particular parties was not accepted and they were found to have given false evidence and to have propounded false documents, the Court of Appeal holding was that the type of delinquency demonstrated did not approach that which was considered necessary to justify a special order as to costs in Degman Pty Limited (In Liquidation) v Wright (No 2) (1983) 2 NSWLR 354, but was rather a suggested form of delinquency in terms of the defendant's legal wrongdoing anterior to the litigation [albeit becoming the subject of the litigation]. 12 Of course, I further accept that the discretion to order indemnity costs is enlivened on occasion when delinquency in relation to the conduct of the litigation as well as the bringing of the litigation can be clearly established [cf Darrell Cullen v ZLB Behring LLC (2006) NSWSC 359 at 8-10]. 13 I reject the submission that it should be concluded that if the plaintiff had complied with his duty of good faith and fair dealing in the claim prior to the litigation, the proceedings would never have been brought. These matters are always questions raised with the benefit of hindsight. 14 There are real questions which are raised as to whether or nor the plaintiff ought to have known that the evidence of Dr Gurgis had no probative value and that without favourable explanation of the contradiction of the plaintiff's medical case in Dr Ng's January 2002 certificates the plaintiff's case that he was totally and permanently disabled was doomed to failure. That again is something which is put forward with what doubtless has to be the suggested benefit of hindsight. 15 To my mind however, the second defendant's proposition in relation to a form of delinquency of the plaintiff in the proceedings in terms of his failure to brief his medical experts with true and complete history of his injuries, physical capacities and work history is of substance. 16 There are questions, however, which need to be examined concerning the precise events which pre-dated, but only by a short time, the actual commencement of the hearing. Those matters are best referred to in relation to the Calderbank offer, which was an offer of $25,000 plus $20,000 costs made on 25 March 2008, open until 4 p.m. on 1 April 2008. The letter from by Minter Ellison is of course in evidence. Importantly, as I understand the parties both concede, the principle concerning the extent to which a Calderbank letter may be relied upon in aid of a claim to some or all of a party's indemnity costs is a need to look at whether or not the party which did not accept the offer acted unreasonably. Another way of course of putting the matter is whether or not the circumstances throw up an unreasonable rejection of the offer. 17 Here what appears to have occurred requires a close examination of the dates and times. The final hearing commenced on 2 April. The date of the Calderbank letter was 25 March and the letter was sent at approximately 5 p.m. on 25 March. That left four working days before the offer could be accepted or thereabouts. 18 Mr Beauchamp has taken the Court closely to the circumstances where, extraordinarily late in the piece, the second defendant, on 26 March 2008, issued a subpoena to the GIO. Despite an earlier return date, those documents were apparently not produced until 1 April and the plaintiff was granted first access to the GIO file until 2 p.m. on 1 April, in short the day before the final hearing commenced. 19 The GIO documents, as well as some other materials also provided following the issue of subpoenas, came to form a reasonably important part of the matters which were litigated. Mr Beauchamp's short proposition was simply that in the circumstances where his client had so very little time, as events occurred, prior to the commencement of the final hearing, to access the GIO documents, and as the period of time during which the Calderbank offer was said to be open was so limited, the appropriate finding should be that his client's rejection of the Calderbank letter offer or failure to accept the offer within time was not unreasonable. 20 In my view there is substance in that submission. It is well known that during the days immediately leading up to complex litigation, counsel and their solicitors are vitally concerned with the presentation of their respective cases, and whilst in some circumstances even a very late Calderbank letter may, if unreasonably rejected, result in some or all of the rejecting party's costs being required to be paid on an indemnity basis, it does not seem to me that in the present circumstances the Calderbank letter can be regarded as calling for such a decision in terms of costs. 21 One gets back to the central concerns that costs follow the event unless an otherwise order is made and to the acceptance which I have already indicated the Court gives to Ms Heath's submission in relation to the delinquency concerning the litigation having proceeded on false factual assumptions, where the plaintiff failed to brief his medical experts with the true and complete history of his injuries, physical capacities and work history, to which I have already referred. 22 The Court does have to balance in terms of the making of the final costs order the circumstance that in this case, as I see it, it is fair to particularly note that the plaintiff did succeed on some of the vital issues which were litigated, although at the end of the day the second defendant succeeded in relation to the matter which I have already referred to. 23 In all of the circumstances in my view the principled exercise of the Court's discretion is to order that the plaintiff pay 30 percent of the defendant's costs on a party/party basis and 10 percent of the defendant's costs on an indemnity basis. 24 In consequence, the orders of the Court in terms of the short minutes of order which have been passed to the Court for its use

2. The plaintiff to pay 30% of the second defendant's costs of the proceedings on a party-party basis and 10% of the second defendant's costs of the proceedings on an indemnity basis, as agreed or assessed.

3. The plaintiff to pay interest on costs from the date they are or have been paid by or on behalf of the second defendant until they are paid by the plaintiff at the rate prescribed pursuant to Schedule 5 of the UCPR.

4. Liberty to the second defendant to apply for other or further costs orders.

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.