Janelle McWilliam & Anor v Integral Energy

Coshott v Woollahra Municipal Council [2008] NSWCA 176 at [12] CASES CITED : H Cousins & Co Ltd v D & C Carriers Ltd [1971] 2 QB 230 Logudice; Re section 130 District Court Act 1972 (1982) 2 ANZ Ins Cas [60-471] Lord Napier v Hunter [1993] AC 713

Janelle McWilliam - First Plaintiff PARTIES : William McWilliam - Second Plaintiff Integral Energy - Defendant

COUNSEL : Mr G Miller QC/Ms J Beck - Plaintiffs Mr R Montgomery - Defendant

SOLICITORS : Judd Commercial Lawyers - Plaintiffs Dibbs Barker - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20140/2006 - Jannelle McWILLIAM & Anor v INTEGRAL ENERGY AUSTRALIA

JUDGMENT 1 HIS HONOUR: Nature of Dispute By motion filed 27 February 2009 the first and second plaintiffs seek the following orders: "1. A declaration that the defendant is not entitled to deduct the sum of $542,955.27 from the sum of $950,657.50 (inclusive of interest) payable to the plaintiffs including the judgment amounts awarded by this Court on 19 December 2008. 2. A declaration that the defendant is only entitled to deduct from any amount awarded by the Court or settled between the plaintiffs and the defendant amounts of: (i) $259,019 being the amount paid by the NRMA to the first and second plaintiffs for the loss of their home ("the NRMA Insurance moneys"), and (ii) $66,250 being the amount paid by the GIO to the first and second plaintiffs for loss of home contents ("the GIO Insurance moneys")." 2 The other orders sought in the Notice of Motion have not at this stage been pursued. Consequently this judgment relates only to the above orders.

Factual Background 3 Jannelle and William McWilliam (the first and second plaintiffs) are the owners of a property known as "Mingara" at Stanwell Tops in New South Wales. On 25 December 2001 a fire started by the defendant swept across the property. As a result of the fire, the first and second plaintiffs' home and almost all of their possessions were destroyed. Some of that property was insured but most of it was not. In these proceedings the first and second plaintiffs claimed all of their loss, both insured and uninsured, from the defendant. 4 The defendant admitted breach of duty of care in its Defence filed 3 January 2006. 5 The first and second plaintiffs had two insurance policies. One, a home contents policy was with the GIO and the other, a home policy, was with the NRMA. Shortly after the fire, the plaintiffs claimed under these policies and in 2002 were paid out as follows: $66,250 under the GIO policy and $259,019 under the NRMA policy. 6 On 28 August 2007 the defendant advised the first and second plaintiffs that it had settled the claims made against it by those insurers. The letter was expressed as follows: "We refer to our previous correspondence concerning the above matter and confirm that our client has settled the claims for compensation made by both GIO General Limited and NRMA Insurance Limited. Accordingly any compensation for damages paid by our client to the plaintiffs will be reduced by the amount of the insurance moneys already paid to the plaintiffs by both GIO General Limited and NRMA Insurance Limited." 7 On 23 September 2008 the defendant made a "without prejudice" offer of settlement. In that offer the defendant stated that it had "taken into account" the "payments made by NRMA in the amount of $259,019 … and payments made by Suncorp/GIO in the amount of $65,950." 8 In October 2008 the first and second plaintiffs served Offers of Compromise. The covering letters stated as follows: "If this offer is accepted the first and second plaintiffs acknowledge that subject to the defendant providing proof of payment to the Government Insurance Office, the amount of $66,250 which was the amount paid by GIO to the first and second plaintiffs is deductible from this." "If this offer is accepted the first and second plaintiffs acknowledge that subject to the defendant providing proof of payment to the NRMA, the amount of $259,019 which was the amount paid by NRMA to the first and second plaintiffs is deductible from this." 9 In due course the first and second plaintiffs' claims in respect of home contents and loss of the home were settled. In a letter dated 12 December 2008 the defendant referred to its acceptance of the first and second plaintiffs' offer in respect of the home contents claim as follows: "We confirm the defendant will deduct the benefit of the value of subrogation for moneys paid to the plaintiffs by the NRMA and the GIO." 10 By letter dated 3 February 2009 the defendant offered to settle the loss of home claim as follows: "As anticipated we are now in a position to make a further offer to your clients in settlement of particular aspects of your clients' remaining claims. These offers are as follows: (i) $259,000 in full and final settlement of the plaintiffs' claims in respect of the destruction of the family home. …" 11 After those and other claims had been settled, the defendant sought to finalise its obligation to make payments under the settlements by letter dated 11 February 2009. That letter stated: "We refer to our previous correspondence concerning the above matter and the settlements reached on 19 December 2008 and 3 February 2009. We confirm the following settlement amounts … We have calculated the current value of subrogation (ie the moneys paid by the insurers to the plaintiffs) to be $542,955.27 (as at 19 December 2008). This amount should therefore be deducted from the above total …" 12 The plaintiffs sought clarification of how the amount of $542,955.27 was calculated. This request produced by way of response, a letter dated 20 February 2009 from the defendant as follows: " The precise basis upon which the deducted amount is calculated. Our letter dated 11 February 2009 (enclosing the settlement moneys) explained that we have deducted moneys paid to the plaintiffs by their original insurers with interest. … The calculation deducted interest on the three payments that the plaintiffs received from their original insurers at rates prescribed under Schedule 5 of the Civil Procedure Act 2005. The calculation contemplated the changes that took place on 1 March 2002 and 31 December 2006. Erring in favour of the plaintiffs, we took the date of payment as the date that the cheques were cleared into the plaintiffs' account (10 January 2002, 14 January 2002 and 31 January 2002), rather than the dates upon which the cheques were drawn or forwarded. Also erring in favour of the plaintiffs, we only calculated the interest deducted up to 19 December 2008. We have not included interest from 19 December 2008 to 4 February 2009 in regard to the settlement of the plaintiffs' dwelling and building materials claims. The precise legal and factual basis upon which the claimed entitlement to the deduction is made We understand from correspondence between the parties that the plaintiffs do not by this inquiry contest the right of (and indeed the expectation that) the defendant would make a deduction from monies paid in settlement of the claim on account of the doctrine of subrogation for payments made to the plaintiffs by their original insurers. Rather, we understand your inquiry to concern the defendant's right to deduct the sum as calculated, it being a sum greater than those original "principal" payments. As our correspondence dated 28 August 2007 and 19 July 2008 informed you, the defendant has settled with the plaintiffs' insurers the whole value of the plaintiffs' claims under those policies of insurance, including the insurer's rights to subrogation. The right of subrogation entitles a defendant to recover the amount due to it by subrogation prior to payment to the plaintiffs: Lord Napier v Hunter [1993] AC 713; Coshott v Woollahra Municipal Council [2008] NSWCA 176 at [12]. The fundamental basis of the doctrine of subrogation is that the assured be fully indemnified and never more than fully indemnified. In this case, given the plaintiffs have enjoyed the use and benefit of the monies paid to them by their original insurers, it would be unconscionable for them to also retain interest on monies so paid. This is because they have not suffered a loss in that sum for the intervening period: The Lord Napier case (supra) at 735-736). That interest is recoverable by subrogation is settled. H Cousins & Co Ltd v D & C Carriers Ltd [1971] 2 QB 230; Logudice; Re section 130 District Court Act 1972 (1982) 2 ANZ Ins Cas [60-471]." 13 Following receipt of the letter of 20 February 2009, the first and second plaintiffs filed this motion. Extensive written submissions, including replies, were received from both sides. Included in this material was a large folder of documents which contained articles and extracts from text books on the question of equitable estoppel. That folder contained more than 500 pages.

Consideration 14 The defendant's position is succinctly set out in its letter of 20 February 2009. The position which it has adopted is incorrect and involves a wrong application of the principles of subrogation. The defendant is only entitled to deduct from the settlement monies the amounts of $259,019 and $66,250 paid to the first and second plaintiffs, under their insurance policies. It is not entitled to deduct interest on those amounts calculated from the dates when payments were made. Accordingly, the first and second plaintiffs are entitled to the declarations which they seek. 15 An analysis of what occurred makes that result inevitable. 16 The first and second plaintiffs suffered loss to their property as a result of a fire caused by the negligence of the defendant. The first and second plaintiffs claimed under two policies of insurance in respect of their losses. Payments were made under those policies by the insurers. Upon payments of those amounts by the insurers, the insurers were subrogated to the rights of the first and second plaintiffs against the defendant. 17 Although the detail is not known, it is clear that the two insurers made a claim against the defendant on the basis that they had made payments to the first and second plaintiffs pursuant to policies of insurance held by them. The claims made by the insurers against the defendant were settled by the defendant. By virtue of that settlement the defendant acquired the rights of those insurers. 18 The losses suffered by the first and second plaintiffs as a result of the fire exceeded the coverage provided by the two policies of insurance. Accordingly, the first and second plaintiffs brought proceedings against the defendant for the whole of their loss, including the home and contents for which they had already received payment under their insurance policies. Once the defendant settled with the insurance companies, the defendant was entitled to deduct from any judgment or settlement achieved with the first and second plaintiffs the monies already paid under the policies, either under the principle of subrogation, or under the principle preventing double compensation. 19 In those circumstances, the defendant's submission in the letter of 20 February 2009 that "Given the plaintiffs have enjoyed the use and benefit of the monies paid to them by their original insurers it would be unconscionable for them to also retain interest on the monies so paid. This is because they have not suffered loss in that sum for the intervening period" is wrong. The first and second plaintiffs suffered their loss at the time of the fire. Part of that loss was met when they received the insurance monies, but the balance of their loss continued until a settlement was achieved with the defendant. Insofar as the first and second plaintiffs were concerned the only effect on them of the receipt of the insurance monies is that part of their loss had been satisfied and they could not claim against the defendant for interest on that part of their loss covered by the insurance payments. Under no principle of law nor as a matter of logic can the receipt by the first and second plaintiffs of the insurance monies be properly characterised as a receipt entitling the defendant to interest. 20 The defendant's submission can be looked at in another way. By paying out the claim by the insurers, the defendant was subrogated to their position. That position was of an insurer which had paid out a claim to its insured. The insurer in those circumstances had no right to claim from its insured interest on the payment which it had made to that insured unless and until that insured received full payment from the tortfeasor in respect of the damage which it had suffered and such payment included the amounts covered by the insurance pay out. That did not occur until the claims were settled as between the first and second plaintiffs and the defendant in February 2009. Accordingly, the insurers (and therefore the defendant) had no entitlement to claim interest from the first and second plaintiffs. 21 On neither approach did the defendant have any right to deduct from the settlement figure agreed with the first and second plaintiffs any more than the amounts paid by the insurers, i.e. $259,019 and $66,250.

Costs 22 In an application of this kind, costs would normally follow the event. In this case, however, substantial costs were incurred by the first and second plaintiffs in raising and arguing issues which were largely irrelevant to their success on the motion. 23 The submissions, on behalf of the first and second plaintiffs, assumed the correctness of the defendant's proposition but raised as its "primary submission" that the principles of equitable estoppel applied so that the defendant should be estopped from taking the point. In essence, the submission on behalf of the first and second plaintiffs was that the defendant had consistently represented that only the insurance monies were to be deducted from any settlement figure and had never raised the question of interest until after settlement had been achieved. The submission relied upon a detailed analysis of the correspondence which had passed between the parties leading up to the final settlement of the matter. The factual background in this judgment provides but a brief summary of that correspondence. 24 The submissions relating to equitable estoppel were extensive in canvassing issues of fact and law. 25 In one of their secondary arguments, the submissions of the first and second plaintiffs went close to challenging the basis of the defendant's submission but did not in terms do so (first set of submissions, paragraphs 93-106). There were also submissions directed to lack of good faith. 26 The defendant replied to those submissions in an eight page document on 20 March 2009. This generated a further eleven pages of submissions from the first and second plaintiffs, which were directed almost entirely to the equitable estoppel issue and failed to raise the fundamental flaw in the defendant's argument. 27 As indicated in the factual summary, when the motion came on for hearing before the Court on 16 April 2009, a substantial folder of authorities, articles and extracts from text books relating entirely to equitable estoppel was handed up in Court. 28 The troubling matter, from the Court's point of view, is that the first and second plaintiffs have succeeded on an issue which was not in terms raised in the lengthy and detailed submissions put on their behalf. In contrast, the defendant's submissions although wrong, were succinct and to the point. For the reasons already indicated, the folder of cases, articles and extracts from textbooks was irrelevant. 29 It seems to me that in these somewhat unusual circumstances, the fact that the first and second plaintiffs succeeded on a basis which was raised, but faintly if at all, and that substantial resources were expended on irrelevant issues, needs to be reflected in the costs order. On the other hand, the first and second plaintiffs did succeed and the need for this motion only arose because of an incorrect approach by the defendant. 30 I have no difficulty in allowing the costs of the first and second plaintiffs for senior and junior counsel but I do not think they should have all of their costs. I propose to award to them 65 percent of their costs.

Orders 31 The orders which I make are as follows:

1. I declare that the defendant is only entitled to deduct from any amount awarded by the Court or settled between the first and second plaintiffs and the defendant amounts of: (i) $259,019 being the amount paid by the NRMA to the first and second plaintiffs for the loss of their home; and (ii) $66,250 being the amount paid by the GIO to the first and second plaintiffs for loss of home contents.

2. The defendant is to pay 65 percent of the first and second plaintiffs' costs of this motion, such costs to include the costs of senior and junior counsel. **********

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