Lawcover Insurance Pty Ltd v Leonardo Carlo Muriniti & Robert Duane Newell

Construction of contracts

1. The High Court (French CJ, Hayne, Crennan and Kiefel JJ) set out key principles of determining objectively the rights and liabilities of parties under a contract in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 (Electricity Generation) at 656-657: The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
2. The High Court endorsed this statement of principle in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 (Mount Bruce Mining) at [46]-[49] per French CJ, Nettle and Gordon JJ, and [109] per Kiefel and Keane JJ. Adding to this, the majority noted at [50]: Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.
3. Mount Bruce Mining was most recently approved by the High Court in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 (Ecosse) at [73] and cited by the New South Wales Court of Appeal in Jemena Gas Networks (NSW) Ltd v AGL Energy Limited [2017] NSWCA 266 at [22].
4. In Ecosse, the High Court (Kiefel, Bell and Gordon JJ) provided further guidance on the construction of commercial contracts at [16], citing Electricity Generation: It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35] and the cases at fn 58; [2014] HCA 7). In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35] and the cases at fn 60).
5. Earlier, Gibbs J also relevantly summarised principles on construction of contracts in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 (ABC v Australasian Performing Right Association) at 109: It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust,' even though the construction adopted is not the most obvious, or the most grammatically accurate'.
6. This passage was most recently cited by the New South Wales Court of Appeal in CSR Limited v Adecco (Australia) Pty Limited [2017] NSWCA 121 at [155] per McColl JA.
7. Gibbs CJ later articulated similar principles in Australian Casualty Co. Ltd v Federico (1986) 160 CLR 513 at 520-521, a case concerning the construction of an insurance policy: 6. The ordinary rules of interpretation apply to a policy of insurance. As in the case of any other commercial contract, a court may depart from the strictly literal meaning of a particular expression to place upon it an alternative construction which is more reasonable and more in accord with the probable intention of the parties if the words will bear that construction: McCowan v. Baine (1891) AC 401, at p 403; see also McGillivray & Parkington, op.cit., at pp 436, 437 (pars.1037, 1039) and Sutton, Insurance Law in Australia and New Zealand (1980), p.294, par.8.45. Further "the trend is, if anything, to adopt a liberal interpretation in favour of the assured, so far as the ordinary and natural meaning of the words used by the insurers permits this to be done": Halsbury, 4th ed., vol.25, par.594, note 1, cited in Mount Albert City Council v. New Zealand Municipalities Co-operative Insurance Co. Ltd. (1983) NZLR 190, at p 193.
8. In Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, the majority (Gleeson CJ, McHugh, Gummow and Kirby JJ) held at [15]: In McCann v Switzerland Insurance Australia Ltd, after observing that, as a commercial contract, a policy of insurance should be given a businesslike interpretation, Gleeson CJ added: "Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure".
9. The New South Wales Court of Appeal also summarised principles of construction relevant particularly to insurance contracts in Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561 at [127]-[129], also citing Gibbs J's passage from ABC v Australasian Performing Right Association at [129]. Where two meanings are open, "it is proper to adopt that meaning that will avoid consequences that appear irrational and unjust": Public Transport Commission of New South Wales v J Murray-More (NSW) Pty Ltd (1975) 132 CLR 336 at 350 (Gibbs J). The same judge also said that "in the event of an ambiguity in the instrument it is proper to give it a construction that would avoid irrational consequences that it is unlikely that the parties intended": Distillers Co Bio-chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 11. Those principles were applied, in construing an exclusion in an insurance policy, by Gobbo J, with whom Murray J agreed, in Carlingford Australia General Insurnace Ltd v EZ Industries Ltd [1988] VR 349 at 352-353. To similar effect is the rule stated by Gibbs J in Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 at 109: "if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious or the most grammatically accurate'". Although Gibbs J was in dissent, the rule is well-settled: see for example Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 at [69]). As McColl JA there observed, "[t]he court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust". The question is always one of construing the contractual text, having regard to context and purpose. There will inevitably be questions of judgment as to what is impermissible rewriting and what is orthodox preference between two constructions both of which are open.

Insurance Contracts Act - duty to act in utmost good faith

1. Carter v Boehm (1766) 3 Burr. 1905 is the seminal statement articulating the notion of good faith in insurance contracts. In summing up, Lord Mansfield stated at 1909-1910: Insurance is a contract based upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only; the underwriter trusts to his representation and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risque [risk] as if it did not exist. Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary.
2. Section 13 of the Insurance Contracts Act 1984 (Cth) (Insurance Contracts Act) has now made the duty of good faith an implied statutory term in every general insurance contract in Australia. The section relevantly includes: (1) A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. (2) A failure by a party to a contract of insurance to comply with the provision implied in the contract by subsection (1) is a breach of the requirements of this Act. …
3. In TAL Life Ltd v Shuetrim (2016) 91 NSWLR 439 (TAL v Shuetrim), Leeming JA recorded the history of this obligation at [49]: [49] The obligation to act in utmost good faith, of course, predates statute. As Emmett J said in AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185; 146 FCR 447 at [88]-[89], the concept of utmost good faith or uberrima fides has always been present in the law of insurance, and encompasses notions of fairness, reasonableness and community standards of decency and fair dealing, and may be breached by capricious or unreasonable conduct which falls short of dishonesty. That part of his Honour's reasons was agreed with by Moore J and, on appeal, by Gleeson CJ and Kirby and Crennan JJ: CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36; 235 CLR 1 at [15] and [128].
4. Section 13 was also considered by the Full Court of the Western Australian Supreme Court in Beverley v Tyndall Life Insurance Co Ltd [1999] WASCA 198 - a case cited in TAL v Sheutrim at [187] - where Malcom CJ stated at [6]: An insurer to whom a claim is made is called upon to adjudicate on the merits of the claim to determine whether the circumstances are such to give rise to the insurer's own liability to indemnify the insured against a loss. One reason for the requirement that the insurer must act with the utmost good faith is that in the assessment of a claim under a policy the insurer is in a very real sense acting as a judge in the insurer's own cause. As the cases referred to by Ipp J demonstrate, in these circumstances the duty of good faith must extend to a duty to act fairly and reasonably in the assessment and determination of the question whether the insured has made out a claim under the policy which the insurer is bound to indemnify: cf The Distillers Company Biochemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 29-32 per Stephen J.

Insurance Contracts Act - section 52

1. Section 52 of the Insurance Contracts Act relevantly provides: 1) Where a provision of a contract of insurance … purports to exclude, restrict or modify, or would, but for this subsection, have the effect of excluding, restricting or modifying, to the prejudice of a person other than the insurer, the operation of this Act, the provision is void. (2) Subsection (1) does not apply to or in relation to a provision the inclusion of which in the contract is expressly authorised by this Act.
2. The approach to applying section 52 (in the context of a 'contracting out' of section 51(1)(c) of the Insurance Contracts Act) was described by the Western Australian Supreme Court (McLure P, with whom Newnes JA and Beech J agreed) in Hancock Family Memorial Foundation Ltd v Lowe [2015] WASCA 38 at [89]: The correct approach is to first determine whether the relevant provision infringes s 52 and if so, only have regard to those terms of the liability insurance contract that are not void under s 52 for the purpose of s 51(1)(c).
3. Section 52(1) was also considered, albeit briefly, by the High Court in Akai Pty Ltd v People's Insurance Co Ltd (1996) 188 CLR 418 at 426, where Dawson and McHugh JJ observed: That sub-section strikes down contractual provisions which would exclude, restrict or modify the operation of the Act. An exclusive jurisdiction clause is not such a provision: the Act has no operation where the parties have agreed to have their disputes determined by the courts of another jurisdiction in circumstances where effect should be given to their intention by an Australian court. The fact that s 52(1) only strikes down provisions which would prejudice a person other than the insurer also reveals that there is no legislative intention that parties should not be free to choose their forum, for it is perfectly conceivable that the choice of a non-Australian forum may benefit a person other than an insurer.

Construction of the Policy

1. The Plaintiff submits clause 21, while "curiously drafted," only becomes relevant once Lawcover has formed some view about pursuing an appeal or not. In other words, clause 21 presupposes Lawcover forming a view about how to proceed, and seeking the insured's consent to that course before implementing the final decision (Plaintiff's closing submissions [58]). The Plaintiff characterises this view as "preliminary," since the final decision occurs only after the clause 33 process is offered to the insured and it elects either to pursue it or not (Plaintiff's closing submission [61]).
2. The Defendants submit clause 21 requires the insurer to seek consent of the insured before making any decision, recognising the interests of the insured and the legitimate expectation of contextually reasonable consultation (Defendants' closing submission [17]-[18]).

Plaintiff's submissions

1. The Plaintiff submits Lawcover complied with the Policy as it made a preliminary decision not to appeal from Judgment No 11 on 11 April 2017, and notified Mr Newell and Mr Muriniti of that decision on the same day. The Plaintiff notes that had a clause 33 independent lawyer determined an appeal was appropriate, Lawcover would have been bound to appeal (Plaintiff's closing submissions [62]).
2. In the alternative, the Plaintiff submits that even if the decision made by Lawcover is characterised as a final decision made prior to seeking Mr Newell and Mr Muriniti's consent, it is of no consequence. According to the Plaintiff Mr Newell and Mr Muriniti never had any interest in invoking clause 33. The Plaintiff points to the numerous occasions Mr Newell and Mr Muriniti were granted extensions to invoke clause 33, and their "disingenuous and baseless assertion" there was no issue between the parties capable of invoking that clause. The Plaintiff notes both Mr Newell and Mr Muriniti conceded there was a dispute between the parties about whether to appeal, albeit a "sham dispute" according to Mr Newell. Mr Muriniti asserted he did not want to invoke clause 33 because he wanted to better understand Lawcover's position, while Mr Newell asserted he did not want to invoke clause 33 as he believed from as early as 2015 the process would be corrupted (Plaintiff's closing submissions [63]-[70]).
3. The Plaintiff submits, given the Defendants failure to exercise their clear contractual remedy for challenging Lawcover's position to not appeal from Judgment No 11 within the required period, they are deemed to have consented to Lawcover's stated position (Plaintiff's closing submissions [71]).
4. In filing their own appeal from Judgment No 11, the Plaintiff submits Mr Newell and Mr Muriniti are in breach of clause 16 of the Policy containing an implied negative stipulation Mr Newell and Mr Muriniti as the insured would not act inconsistently with Lawcover's conduct of the claim and the right and obligation to appoint lawyers and act in associated proceedings (Plaintiff's closing submissions [72]).

Defendants' submissions

1. The Defendants submit "[i]t is beyond sensible dispute that a decision by the Plaintiff not to appeal was conveyed by email on 11 April 2017." The Defendants submit the email is a decision in unequivocal terms, rather than (as I understand it) an invitation for consultation, and thus clause 22 was never invoked because clause 21 was not adhered to (Defendants' closing submissions [16]).
2. The Defendants also submit the Plaintiff has an obligation to indemnify the Defendants for the costs of the appeal even if they pursue the appeal themselves. The Defendants submit there is nothing to suggest the insured's right to indemnity for costs abates by reason that the insured is compelled to appeal itself. The Defendants accept they have an obligation to act towards the Plaintiff with utmost good faith, but submit this means the Policy does not place the Plaintiff in an invidious position so far as it concerns the appeals filed by the Defendants (Defendants' closing submissions [74]-[80]).
3. The Defendants also set out what they term the "inadequacy of Clause 33 solution," in order, it seems, to justify why they did not seek to exercise their contractual right to invoke clause 33.
4. The Defendants note clause 33 requires the lawyer to only take into account the legal issues in the claim and the costs, but not the interests of the insured. Further, the lawyer, unlike the insurer, is not required to act in utmost good faith. The Defendants also highlight the fact there is no basis to challenge the lawyer's determination under clause 33 except on terms of the contract and thus the lawyer's decision is the final word. According to the Defendants, if the lawyer's decision on whether persons are "likely to be held liable to the claimant" is based on "utterances in collateral judgments" then "the Clause 22 regime is a prescription for arriving at perverse outcomes with legal impunity" (Defendants' closing submissions [44]-[51]).
5. The Defendants further submit the Policy does not provide for any right to prevent the appeal, and if it did it would be void by reason of public policy. According to the Defendants, whether or not Lawcover is obliged to pursue an appeal has nothing to say about whether the insured should be prevented from conducting the appeal which Lawcover itself is no longer obliged to pursue (Defendants' closing submissions [71]-[73]).

Discretionary considerations

1. The Plaintiff also provides a list of reasons why discretionary considerations do not weigh against the Defendants being restrained from appealing.
2. The Plaintiff submits Lawcover will be required to bear the financial consequences of the appeal as there does not appear to be an effective mechanism to allow the Defendants to run the appeal themselves at no risk to Lawcover. An indemnity has been granted, clause 34 means Lawcover cannot cancel or avoid the Policy and there is no ability to come to an arrangement between Lawcover and the Defendants which would protect Lawcover against direct claims by the successful costs claims since under section 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), those costs claimants may make claims directly against Lawcover (Plaintiff's closing submissions [73]-[74]).
3. The Plaintiff also submits an appeal is very unlikely to assist in improving the Defendants' reputations, and would in fact more likely result in causing additional harm to their reputations, and the possibility of a further referral for disciplinary action. The Plaintiff also points to the numerous judgments making adverse findings against the Defendants in submitting there is little by way of reputation to rescue (Plaintiff's closing submissions [75]-[79]).
4. Thirdly, the Plaintiff submits the Defendants lost their appeal rights by embarking on a "facile, disingenuous approach" to whether there was a dispute with Lawcover. The Plaintiff notes Lawcover drew the Defendants' attention to their Policy rights on numerous occasions, and they simply decided to run the risk of loss of ability to run the appeal (Plaintiff's closing submissions [80]).

Defendants' submissions

1. The Defendants plead in paragraphs 1(c) and 1(e) of the cross summons Lawcover acted in bad faith such that it is prevented from relying on its decision not to appeal from Judgment No 11. The Defendants set out the particular allegations of bad faith at Exhibit P1, which are primarily premised on the Defendants asserting their prospects for success on appeal are excellent.
2. In summary, as I understand it, the Defendants' bad faith allegations are: 1. The personal costs applications against the Defendants were hopeless and bound to fail and there was no case to answer: [14], [22], [29(d)], [37]; 2. Neither Lawcover nor Lawcover's lawyers took steps to point to the impropriety in making the costs application: [4], [10], [11], [13], [17], [18], [19], [20]; 3. The conspiracy allegations were never examined by Lawcover, Mr Lloyd, or Lawcover's lawyers: [21]; 4. Mr Lloyd failed to present an adequate defence to the personal costs application: [26]; 5. The 11 April advice was inadequate and infected with bias in favour of the conclusion it reached with reckless disregard to whether it was correct: [29], [33]; 6. There was a breach of the policy as Mr Newell and Mr Muriniti did not have an opportunity to canvas the proposed decision and exchange views: [30], [31]; 7. Mr Newell and Mr Muriniti were kept in the dark as to Lawcover's position in managing the claims against them: [33], [34], [42]; 8. Lawcover's failure to provide further explanation after 11 April 2017 meant there could not have been a bona fide decision not to appeal: [37], [38], [39]; 9. Any disagreement between Mr Muriniti, Mr Newell and Lawcover would be incomprehensible to a lawyer engaged under clause 33 as the 11 April advice required explanation which had not been given by Lawcover: [40], [41]; and 10. An appeal was bound to succeed: [37].
3. The Defendants expanded upon several of these allegations in closing submissions.
4. The Defendants submit Lawcover breached its duty of utmost good faith in failing and later refusing to provide any real reasons for their decision not to pursue an appeal. The Defendants characterise Lawcover's reasons as "illusory" as they turned on whether the appeal was hopeless and or had no reasonable prospects of success (Defendants' closing submissions [19]-[20]).
5. The Defendants also submit they were kept in the dark as material information was never provided to them by Lawcover's lawyers for the purposes of the personal costs applications and there was never any explanation as to why this was the case (Defendants' closing submission [22]-[23]).
6. The Defendants submit they have "reasonable apprehensions" that the process under clause 33 can be corrupted given there is "a large range of powerful people" who "are lined up against the progression of the claim" (Defendants' closing submissions [24]). Further, the Defendants note the decision of the parties to bring personal costs applications was a "bewildering decision" and the fact Lawcover's lawyers "did not lift a finger to defend the Defendants" explains why the Defendants are anxious in relation the appointment of an independent lawyer under clause 33 (Defendants' closing submissions [24]-[27]).
7. The Defendants also summarise their case to "dispel the glibly submitted idea that the notion of the conspiracy can be a "fevered imagining"" and submits Lawcover has a vested interest in the conspiracy allegation disappearing if for no other reason than it has to pay for it (Defendants' closing submissions [29]-[43]).
8. The Defendants further extensively set out reasons for why an appeal is viable to support their claim for why they should not be restrained in pursuing the appeal. The Defendants rely on Michael Wilson & Partners Limited v Nicholls (2011) 244 CLR 427 (Michael Wilson & Partners) in asserting the principles of Rippon v Chilcotin (2001) 53 NSWLR 198 (Rippon v Chilcotin) do not apply to their appeal, and even if the principles might apply, they would need to be subjected to a rehearing giving the factually dense analysis required to invoke the principles in Rippon v Chilcotin (Defendants' closing submissions [55]-[58]).
9. The Defendants also detail why Mr Faulkner's position on whether Rippon v Chilcotin would sustain an abuse of process (preclusion) finding was "entirely misguided" and Lawcover's decision not to appeal on 11 April 2016 was "fundamentally flawed" (Defendants' closing submissions [59]-[64]).

Plaintiff's submissions

1. The Plaintiff dismisses the Defendants' allegations of bad faith largely as baseless. The Plaintiff sets out multiple grounds sufficient to justify the Court's exercise of a discretion in favour of a personal costs order in rejecting the Defendants' contention they have strong prospects of success on appeal (Plaintiff's closing submissions [87]; [91]-[93]).
2. In dismissing the further allegations of bad faith, the Plaintiff submits the Personal Costs Applications were properly brought and involved no impropriety as is plain from Sheahan J's judgment and orders in Judgment No 11, with no suggestion Lawcover or Lawcover's lawyers acted inappropriately. In addition, the Plaintiff relies, among other documents, on Mr Yeldham's letter to Mr Muriniti of 17 July 2017 as showing there is no basis for the Defendants alleging Lawcover never examined their conspiracy allegations (Plaintiff's closing submissions [94]-[98]).
3. The Plaintiff further submits Mr Lloyd made reasonable and appropriate submissions in defence of the Personal Costs Applications, and Mr Newell sat at the bar table and took no issue with Mr Lloyd while he made oral submissions. The Plaintiff also notes there is no evidence of any bias or recklessness on the part of Lawcover's lawyer's, Mr Yeldham or Mr Lloyd, nor was the matter put to Ms Baxter in cross-examination. Further, the Plaintiff maintains the Policy does not require Lawcover to "consult," canvas or exchange views, and in any case Lawcover did provide a copy of the advice on which its views were based (Plaintiff's closing submissions [99]-[102]).
4. The Plaintiff submits there is also no basis for any allegation Lawcover kept the Defendants in the dark, and on the contrary they were well informed about the conduct of their defence of the Personal Costs Applications, with Mr Lloyd making it clear to the Defendants he would not be advancing the conspiracy case in defence of the costs claims. Further, Ms Baxter came to a proper, reasonable and considered view as to whether to appeal, and there was no need, nor requirement, for the Defendants to be engaged in a continued consultation, or receive even more detailed explanations regarding the appeal decision (Plaintiff's closing submissions [103]-[104]).
5. The Plaintiff also highlights how clause 33 would have enabled both parties to put in submissions they wanted the independent lawyer to consider in response to the Defendants' assertion the 11 April Advice required explanation which had not been given by Lawcover making the parties' disagreement "incomprehensible." Further, the Plaintiff submits there is no basis for the allegation an appeal was bound to succeed, as is evident in the cogent and compelling reasons set out in Judgment No 11 (Plaintiff's closing submissions [105]-[106]).
6. In response to the Defendants' specific attack on Judgment No 11 regarding the application of Rippon v Chilcotin, the Plaintiff submits the points of distinction in Michael Wilson do not apply in this case as the Defendants were seeking to set up essentially the same conspiracy allegations as had already been determined, and were seeking to do so in the very same proceeding. Further, an extended re-litigation abuse of process was still open even if the Rippon v Chilcotin re-litigation type abuse of process was incorrectly found, as the findings of abuse of process went much further than mere reliance on that case (Plaintiff's closing submissions [107]-[114]).
7. In response to the Defendants' other main attack on Judgment No 11 regarding the Young Costs Application having a proper basis and evidentiary foundation, the Plaintiff cites passages from various of the Judgments which show there was no proper evidentiary and legal basis for the conspiracy claims (Plaintiff's closing submissions [115]-[117]).
8. The Plaintiff also relies on multiple grounds in response more generally to the Defendants' allegations of bad faith set out at [120] in its closing submissions, which include the following. The Plaintiff submits Lawcover conducted the defence in a professional, competent manner, with no adverse comment made about the conduct of the Defendants' defence by Lawcover's lawyers and Mr Lloyd (in contrast to the adverse comments made by the LEC, Court of Appeal and Federal Court of Mr Newell and Mr Muriniti). Similarly there is no substance to the Defendants' allegation Lawcover's defence of the Personal Costs Applications was inadequate, especially in light of the unorthodox, highly ambitious and misconceived nature of the Young Costs Applications. If the Defendants sought to raise an issue about the defence conducted by Lawcover, they could have done so during the hearing.
9. Further, the Plaintiff submits Judgment No 11 resulted from the Defendants' own conduct while acting for Mrs Young, and the Defendants' arguments fail to recognise the principles of finality and the binding effect of earlier judgments. The Plaintiff also submits it is not appropriate for the Court to revisit any findings by Sheahan J in these proceedings.

Enforceability of clause 21-23

1. While only raised in closing submissions, the Defendants also submit the regime in clauses 21-23 is unenforceable as an impermissible attempt to contract out of the provisions of the Insurance Contracts Act. The Defendants submit in so far as the clauses 21-23 regime contemplates the sub-contracting of decisions to a party with no real duty to the insured (being the clause 33 lawyer), and no adequate exposure to review, the clauses are unenforceable and void by reason of section 52 of the Insurance Contracts Act (Defendants' closing submissions [65]-[70]).

The Evidence

1. Ms Elissa Baxter was called for the Plaintiff, and Mr Newell and Mr Muriniti were called by the Defendants. However, in my view, much of the evidence was irrelevant. The main issue in this case is one of objective construction, and the particulars of bad faith go to documents and Lawcover's conduct rather than witness testimony and Mr Newell and Mr Muriniti's perception of this conduct. On these grounds, I do not propose to rehearse the oral or written evidence given by each witness, but will simply make references to such evidence where relevant.

Construction of the Policy

1. At the heart of this case is the construction of the Lawcover Policy. With one not unimportant exception, the terms of the Policy are clear enough.
2. No question arises here as to whether the Policy responds to the relevant claim. Lawcover has, right from the outset, accepted its liability to the Defendants under the Policy and has accordingly provided indemnity.
3. The precise issue between the parties is what their respective rights are under the Policy if in particular circumstances the insured is able to exercise a right of appeal. That situation will arise obviously where there has been a decision of the Court adverse to the insured.
4. In return for the grant of indemnity, the insured incurs a number of important contractual obligations. Clause 15, 16 and 18 provide as follows: The Insured Must Not Admit Liability Or Incur Costs 15. The insured agree that they will not, without our consent: (a) admit liability for a claim; (b) settle a claim; (c) incur any costs or expenses in connection with a claim. We Have Conduct Of The Claim 16. The Insured agree that: (a) we have the conduct of a claim against the insured, including its investigation, defence, avoidance, reduction, or, subject to clauses 20 to 23, settlement or any appeal; (b) we have the right to appoint lawyers to act in the conduct of the claim; (c) we have the right to refer a claim to any dispute resolution process and, subject to clause 20, to settle it as part of that process; and (d) we have the right to conduct the claim in the name of the insured. … Duty To Co-Operate 18. The insured agree, at their expense, to: (a) give us and any investigators and lawyer employed or appointed by us all information, documents and assistance we reasonably require; and (b) co-operate fully with us, and any investigators and lawyers employed or appointed by us. …
5. Clause 15 precludes the insured from making any admissions in relation to a claim, settling it, or importantly incurring any expenses in connection with the claim without the consent of the insurer. Leaving aside expenses which the insured is responsible for (clause 18) the insurer is placed in total control of all expenditure associated with any claim. This would involve the payment of any monetary compensation awarded against the insured and legal costs associated therewith, less the relevant excess.
6. Clause 16 identifies other important elements of the insurer's control over the conduct of the claim. The use of the term "conduct" in clause 16 makes it plain that at all stages, especially if litigation ensues, the insurer controls all aspects of it. This is further made clear by clause 16 (a). However, the reference to "clauses 20 to 23" provides an important qualification which I will turn to now. Deciding Whether To Settle 20. We will not settle any claim against any Insured without the prior consent of that Insured. However if that Insured does not accept our recommendations for settlement, the entitlement of all insureds to defence costs will cease and our liability to all insureds for that claim will be limited to the amount of the recommended settlement plus defence costs up to the date 14 days after the date on which the recommendation was made or, in the case of urgency, a date less than 14 days after the date on which the recommendation was made specified by us in writing at the time of making the recommendation. Deciding Whether To Appeal 21. We will seek the insured's consent before deciding whether or not to pursue an appeal. 22. If the insured do not consent to our decision as to whether or not to pursue an appeal the insured have 14 days within which to notify us that they require an opinion from a lawyer under clause 33. However, in case of urgency, we may require the insured to notify us within a shorter period specified by us in writing. 23. If the insured do not notify us under clause 22 they will be deemed to have consented. …
7. Before determining the objective meaning of these clauses, it is also important to note the following clauses: Lawyer's Opinion 33. The procedure for obtaining a lawyer's opinion is as follows: … (e) in the case of an opinion as to whether an appeal should be pursued the lawyer must take into account the legal issues in the claim and the costs of an appeal; … 34. We both agree to be bound by the lawyer's opinion. No Right To Avoid Or Cancel The Policy 35. We will not cancel or avoid the Policy.
8. Clause 20 provides the insurer will not settle any claim against the insured without the insured's prior consent. The clause is clearly intended to operate in circumstances where the insurer has formed a view the claim should be settled and settled on particular terms and conditions, which it presents to the insured as a "recommendation." It follows that having recommended settlement occur on those terms and conditions, the insured has a choice to either accept or reject that recommendation. The clause then provides an internal mechanism for when the insured does not accept the insurer's recommendation, effectively limiting Lawcover's obligations by capping its indemnity.
9. For perhaps obvious reasons, reputational being one of them, clause 20 provides a degree of autonomy to the insured, but at a cost which may not be insignificant. As Lawcover, by providing indemnity, becomes responsible for the financial outcome of an adverse result, it is permitted contractually, pursuant to this clause, to restrict its financial exposure if the insured rejects its recommendation. Equally however, Lawcover is given the ability to make that decision pursuant to the Policy, and in the event the recommendation is rejected, limit its exposure.
10. Clauses 21, 22 and 23 deal with the decision making process concerned with an appeal. These provisions operate where there has been a decision adverse to the insured at first instance.
11. On its face, clause 21 would appear to require the insurer to seek the insured's consent before making any decision in relation to whether or not to appeal. In other words, it may be thought to require the insurer to seek the insured's consent before embarking on any decision making process before pursuing the appeal, or alternatively, as the Defendants appear to construe it "consult with the insured" before reaching a decision whether or not to pursue an appeal (T12/11-20 of Transcript dated 1 November 2017). In my view, both positions are highly unlikely to be the intended construction. Clause 21 needs to be viewed in the immediate context of clauses 20, 22 and 23, and also of course in the context of the Policy as a whole.
12. Clause 22 proceeds upon the basis the insurer has made a decision whether or not to appeal. It is intended to deal with the situation where the insured does not consent to the insurer's "decision as to whether or not to pursue an appeal." In that event the insured is able to invoke the process envisaged by clause 33 by notifying the insurer within 14 days of its rejection of the insurer's decision to appeal or not, that it requires a lawyer's opinion under clause 33. However, pursuant to clause 23, if in full knowledge of the fact the insurer has made a decision and even in circumstances where the insured may not agree with that decision, a failure to provide the insurer with the requisite notification deems the insured to have consented to the insurer's decision.
13. The question is, therefore, what clause 21 contemplates. Does it contemplate the insured being "consulted" or asked to give permission to embark upon a decision making process? I think not. On such a construction, clause 21 envisages the insured consenting to a different decision to the decision referred to in clause 22. The insurer would therefore not only need to seek the insured's consent to embark on a decision making process as to whether or not to appeal, but, assuming that consent was granted, would also need to seek the insured's consent under clause 22 to pursue the decision they reached. Such a construction, in my view, is unreasonable, inconvenient, and contrary to a businesslike interpretation of the Policy.
14. Further, on this literal reading, it is difficult to conceive what reasonable grounds the insured may have for thwarting the insurer's desire to consider whether to appeal or not. In addition, if the insured was to withhold consent at this stage, the Policy has no provision dealing with the consequences of such a position. Such a construction would also leave it open to the insured to hold out the process of an appeal being lodged while costs are ticking over and time limitations on the drafting of notices of appeal are running. This reading would be contrary to the rules of the Court where it is incumbent on each party to move efficiently for a just, quick and cheap resolution of the issues; see sections 56-58 of the Civil Procedure Act 2005 (NSW).
15. Further, this construction sits awkwardly against other related clauses. Clause 20 (read together with clauses 15 and 16) makes plain the insurer does not owe a fiduciary duty to the insured and can take into account its own commercial interests. Further, clauses 22 and 23 which sit under the same heading as clause 21 ("Deciding Whether To Appeal"), clearly deal with the insured not consenting or staying silent on the insurer's decision to appeal or not, and not the insured consenting to the insurer's decision on whether to embark on a decision making process as to whether to appeal or not.
16. It seems to me while clause 21 is inelegantly worded, the most sensible construction is that the clause is predicated, at least by implication, upon the basis the insurer has made a decision as to whether or not to appeal, but that it will not actively pursue (by continuing or proceeding with) that course without giving the insured an opportunity to consent, or not, to that course. If the insured consents, then the insurer's decision is pursued. If the insured does not consent, clauses 22 and 23 will operate according to their terms.
17. In this respect, I do not agree with the Plaintiff's primary construction of clause 21 involving a "preliminary" decision. In my respectful view, there is only one decision the insurer must make. The insurer is entitled to decide whether to appeal or not without the consent of the insured, but the insurer is not entitled to act on or pursue that view before seeking consent of the insured. That construction in my view and in the words of Gibbs J "renders the clauses harmonious with each other," with clause 21 taking a similar pattern from clause 20, and operating consistently and cohesively with clauses 22 and 23, as well as the insurer's overriding control of the claim as outlined in clauses 15 and 16.
18. In passing, in my view nothing under clause 21 precludes the insurer from protecting its own interests and filing a notice of intention to appeal, pursuant to Division 3 of Part 51 of the UCPR prior to undertaking the process under clauses 21-23. Indeed, in my view arguably the duty to act in utmost good faith requires the insurer to file a notice of intention to appeal, irrespective of whether they decided to appeal or not. This point does not arise as a matter of fact in these proceedings, as Lawcover, pursuant to Mr Muriniti's instructions, filed a notice of intention to appeal on 11 April 2017. Further, the filing of a notice of intention to appeal is simply a temporary measure preserving the position of the parties should either of them wish to pursue an appeal, and does not in my view affect the operation of clauses 21-23.

Effect of the Policy

1. On the above construction, which, as I have said in my view is the only workable construction that can be given to clause 21, the Defendants' must be deemed to have consented to Lawcover's decision not to pursue an appeal, pursuant to clause 23.
2. Ms Baxter's email of 11 April 2017 to Mr Muriniti and Mr Newell (CB1/119-120) forwarded the advice of Mr Yeldham and expressly sought their consent on Lawcover's decision not to appeal Judgment No 11. On what in my view is the correct construction of the Policy, this email amounted to seeking the insured's consent under clause 21.
3. Mr Muriniti informed Lawcover by letter (sent by email) on 24 April 2017 they did not have his or Mr Newell's consent to not pursue an appeal (CB1/130-131), however he rejected there being any occasion for Lawcover to invoke either clause 22 of 33. Similarly on 3 May 2017, after being invited by Lawcover to invoke clause 22 and 33 by 4 May 2017 (CB2/868/869), Mr Muriniti again declined the offer, maintaining there was still no occasion for Lawcover to invoke the clause (CB1/130-131). Lawcover (via its solicitors Sparke Helmore) again extended the time for the Defendants to invoke clause 22 and 33 on 17 May 2017 (CB1/132-138). Rather than invoking clause 22 and 33, the Defendants by letter dated 24 May 2017 advised Lawcover Mr Newell intended to appeal Judgment No 11 in his own right, and Mr Muriniti did not intend to appeal but would seek appropriate declarations from the Supreme Court (CB1/132-138).
4. In my view, the Defendants' failure to notify Lawcover that they required an opinion from a lawyer under clause 33, engaged clause 23 and deemed the Defendants to consent to Lawcover's decision not to pursue the appeal.

Alleged grounds for the Policy not having this effect

1. As I understand it, the Defendants maintain there are several reasons beyond the issue of construction that they cannot have been deemed to consent to Lawcover's decision not to appeal. The Defendants allege (i) Lawcover engaged in bad faith on numerous grounds by seeking to invoke clause 33, (ii) clauses 20 to 23 and 33 of the Policy offend sections 13, 14 and 52 of the Insurance Contracts Act, and (iii) they are also entitled to run the appeal on their own costs.

(i) Allegations of Bad Faith

1. The allegations of bad faith raised by the Defendants are wide reaching and somewhat unstructured. For the purposes of my findings, I will address the allegations in terms of those going to (a) concern about corruption of the independent lawyer process, (b) the conduct of Lawcover during and in the lead up to the Personal Costs Application, (c) the failure to give reasons and (d) the merits of the appeal. (a) Concern about corruption of independent lawyer process
2. In the course of the proceedings, one of the real reasons for the Defendants not wanting to invoke clause 33 of the Policy was revealed as being due to "reasonable apprehensions" Lawcover and the independent lawyer would corrupt the process. Although this concern was not raised in the correspondence with Lawcover at the time they were seeking to invoke clause 22 and 33, Mr Newell expressed his concern about the independent lawyer process in cross-examination (T130/39-44) that he had apparently held from as early as 2015 (T122/20-21), and persisted in asserting the claim in closing written submissions at [24] and following. Without rehearsing these allegations in full, the Defendants submit "a large range of powerful people are lined up against the progression of the claim" (at [24]) and that "the motivation to shut [the conspiracy allegation] down would be expected to be overwhelming" (at [26]).
3. There is simply no evidence to support the Defendants' "reasonable apprehensions" the independent lawyer regime would be corrupted. So far, the Defendants' conspiracy allegations - all routed in some allegation regarding the corruptness of Warringah Council but extending to different persons depending on the proceedings - have been dismissed on every occasion. Different variations of the conspiracy allegations have been labelled by Bromwich J as "fevered imaginings" (Young v Hughes Trueman Pty Ltd [2016] FCA 117 at [93]), by the Court of Appeal (Emmett AJA with whom Basten and Gleeson JJA agreed) as "completely without foundation" (Young v King [2016] NSWCA 282 at [90]), and by Smith J as "unarguable and should not, on any view, have ever been argued by members of the legal profession" (Young v Hughes Trueman Pty Ltd and Anor [2016] FCCA 989 at [18]).
4. In my view, the Defendants attempt somehow to draw Lawcover and the independent lawyer (who was never appointed) into its web of widely dismissed conspiracy allegations as an attempt to circumnavigate the Policy speaks to the baseless nature of the Defendants' case in this respect. On the evidence, there is no suggestion whatsoever of Lawcover somehow being complicit in the alleged conspiracy concocted by the Defendants, let alone any grounds for the Defendants' apprehensions about the independent lawyer process also being corrupted. (b) Conduct of Lawcover during and in the lead up to the Personal Costs Applications
5. The Defendants also allege Lawcover engaged in bad faith by keeping the Defendants in the dark and not adequately defending them during the Personal Costs Applications (Defendants' closing submissions [9]-[11], [22]-[23]). The Defendants assert Lawcover "did not lift a finger to defend the Defendants against the personal costs applications" (at [27]) and went as far to suggest the applicants may have had special knowledge Lawcover would not lift a finger to defend the Defendants. In my view, these allegations also have no substance.
6. The evidence plainly shows the Defendants were consulted with and their positions considered by Lawcover in the lead up to the Personal Costs Application. Mr Yeldham sent Mr Muriniti the draft submissions prepared by Mr Lloyd on 7 July 2016 (CB2/643-660), and a conference took place the following day between Mr Yeldham, Mr Lloyd and both Defendants (CB1/234-236). Mr Newell also confirmed he was provided with these submissions either at the conference or the night before (Affidavit of Mr Newell dated 26 August 2017 at [7]; T90/34-T91/12).
7. Mr Muriniti sent YPOL his thoughts on "conspicuously unfair" aspects of the findings in Judgment No 6, asking YPOL to ask Mr Lloyd "whether these observations can be incorporated in his submissions in some way as part of his submissions." YPOL replied on 11 July 2016 explaining after discussing Mr Muriniti's observations with Mr Lloyd, he thought it was best to not rely on the observations in the costs application. They further asked Mr Muriniti whether he was happy with the proposed final submissions, to which Mr Muriniti replied "I accept David's advice and otherwise I am happy with David's submissions" (Exhibit P2).
8. In my view, these exchanges directly refute the Defendants' contention they were kept in the dark about the way in which Mr Lloyd would defend the Personal Cost Applications, or that there was "no disclosure" that Mr Lloyd would not be drawing on Mr Muriniti's observations about the issues with Judgment No 6. The Defendants were sent the draft and finalised submissions, were told Mr Lloyd would not be using Mr Muriniti's observations in the Personal Cost Applications, and expressly approved of this approach and the finalised submissions.
9. Similarly, in my view there is no evidence supporting the Defendants' contention Lawcover did not properly defend the Defendants at the Personal Cost Applications. As is plain from Sheahan J's judgment and the orders in Judgment No 11, the Personal Cost Applications were properly brought, and Lawcover was right not to advise the Defendants the applications were baseless. Further, as the Plaintiff submits Mr Lloyd's defence in the Personal Cost Applications must be seen in the context of the evident weakness of the Defendants' case. Mr Lloyd was constrained by earlier findings of abuse of process, and the strength of the applicants' cases. The LEC may no adverse comment about the conduct of the Defendants' defence, and in my view there is no evidence suggesting Mr Lloyd and YPOL were anything other than professional, competent and proper. Further, Mr Newell sat alongside Mr Lloyd at the bar table during the application, and at no point made any objection to the defence by Mr Lloyd.
10. On these grounds, I do not accept Lawcover engaged in any form of bad faith in the lead up to and during the Personal Costs Applications. They kept the Defendants informed at all times, and were transparent in how they intended to conduct the defence, and conducted it in a professional and competent manner. (c) Failure to give reasons
11. The Defendants further contend Lawcover failed to provide sufficient reasons in deciding not to pursue the appeal, meaning Lawcover's discretion to make such a decision was "miscarried" and contrary to its duty of utmost good faith to provide reasons (Defendants' closing submissions [19]).
12. In my view, the reasons provided by the Plaintiff were in no way illusory. The YPOL Advice of 11 April informing the Defendants of Lawcover's decision not to appeal Judgment No 11 reads as a well-considered and comprehensive review of how Lawcover had reached its decision. It summarises and analyses Judgment No 11 and identifies potential errors before concluding the prospects of the costs orders being overturned on appeal was less than 50%.
13. I therefore reject the Defendants submissions Lawcover engaged in bad faith by failing to provide sufficient reasons in support of their decision not to appeal Judgment No 11. Not only have the Defendants failed to satisfy me Lawcover was obliged to provide reasons in satisfying clause 21, but even if such an obligation could be implied, I am satisfied Lawcover fulfilled this obligation by the YPOL Advice of 11 April 2017. (d) Merits of the appeal
14. As this case is purely concerned with whether the Defendants should be entitled to pursue an appeal, it is not essential, nor necessarily appropriate, for this Court to make any findings on the merits of the Defendants' case on appeal. However, as many of the Defendants bad faith allegations appear to be premised on the contention their prospects for success on appeal are excellent and Lawcover would be acting in bad faith in preventing them from running the appeal, I am minded to make the following observations.
15. First, by way of passing comment only, in the normal course of events where a judgment is sought to be set aside on the grounds of it being procured by fraud, generally the fraud is required to be pleaded as a separate and distinct cause of action. In Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 (Spies) at 700-701, Handley JA (with whom Mahoney JA and Clarke JA agreed) stated: Allegations of fraud must be made with specificity and with particularity.This rule and the reasons for its adoption have recently been re-emphasisedin the High Court and in this Court. In Banque Commerciale SA (In Liq) vAkhil Holdings Ltd (1990) 169 CLR 279 at 285, Mason CJ and Gaudron Jsaid: "It has long been recognized that fraud may take a variety of forms and is, on that account, incapable of precise definition. … it is this feature of fraud which underlies the rule of practice, … that fraud must be pleaded specifically and with particularity." See also Minister Administering the Crown Lands (Consolidation) Act and Western Lands Act v Tweed Byron Aboriginal Land Council (1990) 71 LGRA 201. The need referred to by Lord Buckmaster in Jonesco v Beard when departure from the established practice is permitted to state with the same clarity and specificity the particulars of the fraud relied upon means that a departure from the practice should not be allowed except in the simplest of cases. Where such an action is brought after trial the statement of claim (or summons in the Commercial Division) must allege facts which establish that the plaintiff has reasonable prospects of success. This requires the plaintiff to plead that since the judgment he has discovered fresh facts which alone, or in combination with previously known facts, raise a serious question to be tried. The statement of claim must also allege that the party entitled to the benefit of the judgment was responsible for the fraud: see McHarg v Woods Radio Pty Ltd [1948] VLR 496; Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 and Boughen v Abel [1987] 1 Qd R 138. These principles have not hitherto been applied, so far as I am aware, to proceedings to set aside a consent judgment. However in my opinion they are also applicable in such a case although, for obvious reasons, it will generally be more difficult to set aside a judgment after trial. Indeed these principles merely work out in this type of case the ordinary requirements in deceit for inducement and reliance. If the judgment debtor knew that the representations were false, did not rely upon them or consented to judgment for other reasons he cannot impeach that judgment later simply because his circumstances have changed or he has changed his mind. The practical wisdom behind these principles is illustrated by what occurred in this case. The notice of motion set out the relief claimed but did not disclose the grounds relied upon, let alone plead the fraud and mistake specifically and with particularity. Initially it was not supported by any affidavit. Later an affidavit by the appellant was filed. This did not attempt to set out and prove a complete case of fraud or mistake with the specificity and particularity required. If the whole of the affidavit had been read without objection and accepted as true the appellant would still not have made out a prima facie case. Counsel for the appellant were compelled to call him as a witness and attempt to establish a prima facie case without the allegations relied upon ever having been pleaded or particularised in any way, let alone to the standard required by the principles applied in Banque Commerciale SA (In Liq) v Akhil Holdings Ltd. An opening by counsel to the Court, however elaborate, is not an adequate substitute for the prior formulation in writing of clear specific and particularised allegations of fraud.
16. At the time of writing this judgment, Spies was last cited by the Court of Appeal in McGinn v Cranbrook School [2016] NSWCA 226 at [32] per Gleeson JA (with whom Beazley P and Simpson JA agreed). This requirement is also reflected in the rules of Court, namely UCPR r 14.14(3).
17. In this case, the point appears to have been raised by Biscoe J, when Ms Young's NOM in its original form came before his Honour as the List Judge on 15 August and 19 September 2008. Justice Sheahan made reference to Biscoe J's position in Judgment No 2 at [65] and Judgment No 4 at [86] and [107]. His Honour went on to note in Judgment No 4 at [396]: The primary basis she relies upon to set aside those orders is the alleged conspiracy, which the authorities say should have been the subject of fresh/separate proceedings.
18. Justice Sheahan did not take the point further in Judgment 4, nor does it appear to have surfaced in subsequent proceedings. In my view it is an important part of the context for any appeal, although unsurprisingly the point has not been made by the Plaintiff in these proceedings.
19. The requirement to plead precisely is a safeguard against humbug. Indeed, the virtue of such a process is that the pleader has to articulate, in accordance with the rules of the Court and the authorities, the material facts that go to the cause of action. This will almost always expose the humbug. True it is the failure to bring separate substantive proceedings seeking to set aside a judgment allegedly obtained by fraud and instead seek that relief by way of a notice of motion is not necessarily fatal to the application; Spies at 696-697; Re Greenhills Securities Pty Ltd [2015] NSWSC 2021 per Brereton J at [7]. However, it is "generally preferable for the question of fraud to be tried in a new action" (Spies at 699 per Handley JA) and given the extent, seeming complexity and seriousness of the fraud alleged by the Defendants, in my view this is exactly the type of case where the ordinary and preferred procedure should have been followed.
20. Next, there is no difficulty in principle in bringing an application against a third party to pay the costs of the litigation. However, the authorities make it clear that whilst the Court has jurisdiction to order costs against non-parties to a litigation, and in doing so exercises a discretion, it is also clear this discretion must be exercised judicially and according to principle; Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 185, 192. Further, as noted by the Court of Appeal in Yu v Chao (2016) 91 NSWLR 190 at [137] and following, a costs order against a non-party should be "exceptional" with the Court's jurisdiction to do so "exercised sparingly." Although the categories are not closed an important factor is if the third party can be seen as the real party to the litigation. An obvious example would be a liquidator whose funding was necessary to run the litigation.
21. The basis for the application in this case was that, notwithstanding the outcome of the principal proceedings, not only that the successful party should pay costs, but certain parties hitherto, most of whom had not previously been specified, should pay the costs on an indemnity basis (see Judgment No 8 at [7]). In broad terms, the reason was participation in a conspiracy, in substance the same one Mr Newell and Mr Muriniti had attempted unsuccessfully to articulate for some time and which had been roundly condemned. Unfazed and undaunted, Mr Newell as principal architect, along with Mr Muriniti, sought yet again to deploy the same strategy against the Kings and others. To describe the strategy as bold is far too generous. It was, in my view, positively reckless.
22. On the basis of the materials before me, the Young Costs Application was an ambitious application which would have had the effect, if it succeeded, of turning the merits of Judgment No 6 on its head. In my view, only in the face of cogent evidence clearly contradicting the findings of the primary judgment would such a result be likely. Prima facie, on the material I have before me, the Defendants do not appear to be able to point to any such evidence supporting the advancement of their non-sequitur application.
23. On these grounds, the Defendants' decision to nonetheless attempt to pursue an appeal is, in my view, an example of a strategy that the best defence is a good offence. Adding parties to, in substance, the same rejected conspiracy could hardly, to any rational thinking person, enhance the prospects of Sheahan J warming to the idea. Indeed on one view enlarging the conspiracy to additional persons only detracts from the theory's plausibility.
24. The Defendants' client had over the years paid dearly for their irrational and reckless strategy. Pushing on with the application in the way they did raises, in my mind, real questions as to their judgment and more to the point their competence. To have imagined such a novel application could ever be made let alone have any remote chance of succeeding was not something together or alone they appeared to consider. The vigorous zeal they displayed has led to financial disaster for their client, now a bankrupt.
25. On its face, Mr Yeldham's opinion that prospects of success on appeal were less than 50% was objectively viewed, that of an experienced litigator, and both considered and reasonable. He identified error but rightly pointed out that would not alone suffice. He was indeed, to say the least, very kind to Mr Newell and Mr Muriniti. To say, as they both have, that it was not an advice, is disingenuous. It is painfully clear that any advice which was contrary to theirs would never be acceptable to them or regarded as reasonable. They did not want to hear anything at all which conflicted ever so slightly with their point of view of the world. Their stance was as unreasonable as it was absurd. They were never going to invoke operation of clause 33 because Mr Newell and to a lesser extent Mr Muriniti believed the independent lawyer would be corrupted in some way by Lawcover - a view plainly unsustainable in the mind of any rational person, let alone a legal practitioner.
26. The Defendants, in arguing the merits or "viability" of an appeal (and thus the alleged unreasonable nature of Mr Yeldham's advice) also seek to countenance the argument that an appeal may be an abuse of process by relying on Michael Wilson & Partners. In my view, the Defendants misunderstand the effect and limited application of Michael Wilson & Partners.
27. The case involved proceedings instituted against a party in a second forum when there were already proceedings against that party in another, where the High Court determined there was a flawed premise in the abuse of process argument (see [109]). The Defendants' claim, in my view, does not fall within similar reasoning. Unlike in Michael Wilson & Partners, the Defendants' claim they are seeking to rely on in appeal is essentially a re-agitation of the conspiracy allegations. The allegations may change in colour, but not in quality, and stem from allegations that have been widely dismissed on multiple occasions. The Defendants' argument on this point also fails to appreciate other classes of abuse of process the appeal may very well fall within, such as those already found against the Defendants in Judgment 9 at [93]-[96].
28. In my view therefore, rather than the Defendants' arguments on abuse of process supporting a finding a "rehearing is the obviously mandated outcome" (Defendants' closing submissions [57]), the issue of abuse of process is in fact a reason, among many others, why the appeal would likely fail and why Lawcover was not acting in bad faith in asserting the Defendants do not have the right under the Policy to pursue the appeal.
29. For these reasons, I am not satisfied Lawcover has engaged in bad faith on any level. The Defendants' allegations on this front are baseless, and provide no grounds for determining the Defendants are not deemed to have consented to Lawcover's decision not to appeal Judgment No 11.

(ii) Contravention of the Insurance Contracts Act

1. As stated (see [152] above) the Defendants also seek to claim they are not bound by the operation of clauses 21-23 and 33 of the Policy as those clauses are unenforceable pursuant to the Insurance Contracts Act. In my view, this argument reflects a misunderstanding of both the Policy and the Insurance Contracts Act.
2. As the Plaintiff submitted in closing, correctly in my view, the dispute resolution mechanism established under clauses 21-23 and 33 stands side by side the obligation to act in utmost good faith. The purpose and origin of many independent lawyer or "QC" clauses in professional indemnity policies is to protect the insured from having to face proceedings which, whether successful or not, might be damaging to his or her reputation; see Jonathan Mance, Iain Goldrein and Robert Merkin (eds) Insurance Disputes (2nd edn LLP, London 2003) at 18.208-18.213. For example, in West Wake Price & Co v Ching [1957] 1 WLR 45 (West Wake Price), Devlin J (as his Honour then was) observed at 49: …one of the main objects of the Q.C. clause is to give the assured additional cover, not only against costs of litigation but also as a protection against unwelcome publicity.
3. While the QC clause in West Wake Price applied in circumstances where the liability of the insured had been ascertained by judgment or settlement, it is plain in my view one of the overriding purposes of alternative dispute resolution procedures, such as the independent lawyer procedure in this Policy, is to enable the insured to limit, if he or she so wishes, further adverse findings in a superior Court.
4. Against this backdrop, in my view the regime under clauses 21-23 and 33 does not purport to exclude, restrict or modify the operation of the Insurance Contracts Act. First, it is important to consider from the outset the Policy makes plain the insurer is perfectly entitled to give consideration to their own commercial interests (see by analogy Groom v Crocker [1939] 1 KB 194 at 202-204 per Sir Wilfrid Greene MR). This is particularly evident from clauses 15 and 16 giving the insurer conduct of the claim and clause 20 enabling the insurer to decide whether to settle a claim. As noted by Leeming JA (with whom Beazley P and Emmett AJA agreed) in TAL v Shuetrim at [187]: An insurer is not a fiduciary, but may (as in the present case) be operating a business with a view to making a profit, and every decision it makes to grant or refuse a claim will go directly to its profitability. As Mr Rayment emphasised, by reference to what Malcolm CJ had said in Beverley at [6],"in the assessment of the claim under a policy, the insurer is [in] a very real sense acting as a judge in the insurer's own cause".
5. Indeed, the insurer is perfectly entitled to act in its own pecuniary interests in seeking to invoke the regime under clauses 21-23 and 33 of the Policy, and a decision to do so cannot, in and of itself, be considered as inconsistent with or contrary to its implied statutory and common law obligation to act in utmost good faith towards the insured. As noted, the assumption in clauses 21-23 of the Policy is that there has been an adverse decision against the insured. The insurer is entitled to seek to avoid the risk of costs from an unsuccessful appeal, and greater damages on appeal. In this case, such costs, on top of the estimated $1 million already estimated to have been spent on the costs application (T264/12-23), would likely be significant and the insured has every right to proceed with caution in agreeing to bear that financial risk. That entitlement however may be eclipsed by an expert opinion pursuant to clause 33, which only the insured can invoke pursuant to clause 22.
6. Further, clause 21 does not "compel the insured to invoke the Clause 22 and resort to an independent lawyer" as the Defendants argue it does (Defendants' closing submissions [66]). As explained, when faced with the insurer's decision of whether or not to pursue an appeal, the insured has three options. It may expressly consent to the insurer taking the steps to implement that decision, it may stay silent on the issue for 14 days and be deemed to have consented, or it may expressly not consent within 14 days. Only if the insured seeks to take the latter route will clause 33 be enlivened. The insured is in no way forced or compelled to take this course.
7. Further, adverting to an independent expert does not, in my view, do violence to the Insurance Contracts Act, in particular the duty to act in utmost good faith. Indeed, it enhances it. The independent expert merely provides a mechanism by which the impasse between the parties can be resolved in a cost effective way. Both parties agree on the choice of a lawyer (cl 33(a)), are entitled to make written submissions concerning their own interests (cl 33(b)), and agree to simply be bound by the expert opinion of the independent lawyer regardless of which party the opinion favours (cl 34).
8. Further, contrary to the Defendants' submissions, clause 33(e) does not preclude the independent lawyer from having regard to vital interests of the insured, but simply mandates that at the very least regard should be had to the legal issues in the claim and the costs of the appeal. There is nothing to suggest an independent lawyer, being bound by professional and ethical obligations that such a position holds, would not have regard to any submissions the insured may make under clause 33(b) regarding their vital interests.
9. On these grounds, I am not satisfied the regime established under clauses 21-23 and 33 is any way unenforceable as some sort of impermissible attempt under section 52 to contract out of the Insurance Contracts Act.

(iii) Ability for Defendants to run the appeal on their own costs

1. Finally, the Defendants appear to argue it would contrary to public policy to prevent the insured from conducting an appeal "which Lawcover is no longer obliged to pursue" (Defendants' closing submissions [73]). I do not accept this submission.
2. The plain reason why the Defendants cannot run an appeal at its own costs is because they must be held by their contractual obligation not to pursue such a course. In my view, this argument goes no further as a matter of proper construction. The Defendants are obliged by operation of their deemed consent under clause 23 to comply with the insurer's decision not to appeal Judgment No 11.
3. However, even if through some construction of the Policy the Defendants are entitled to run the appeal at their own costs, in my view Lawcover has grounds to shut the appeal down given it will inevitably be Lawcover who would bear the financial consequences of an appeal. The Defendants' primary position is that while they are entitled to run the appeal themselves, Lawcover is obliged to foot the bill. They openly concede (T24/4-6 of Transcript dated 1 November 2017) they would rely on clause 35 of the Policy if they were to run the appeal, preventing either party from cancelling or avoiding the Policy.
4. Further, as submitted by the Plaintiff, correctly in my view, Lawcover would remain exposed to direct claims by the successful costs claimants pursuant to section 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), as section 10 precludes Lawcover from relying on some arrangement outside the terms of the Policy to avoid that consequence.
5. On these grounds, I do not accept the Defendants are entitled to run the appeal so long as they bear the costs. They are contractually prevented from doing so, and Lawcover would nevertheless still be bound to provide indemnity and would risk being subject to direct claims from successful costs claimants.

Conclusion

1. In my view, the Policy, properly construed, means the Defendants have been deemed to have consented to Lawcover's decision not to appeal. Lawcover was entitled to reach this decision, and the Defendants were entitled to challenge this decision pursuant to clause 22 of the Policy. The Defendants chose not to exercise this contractual right, and were therefore deemed to have consented to Lawcover's decision and are thus prevented from pursuing an appeal.
2. The Defendants' attempt to continue a dispute with Lawcover so as to provide some legitimacy for not provoking clause 33 is the product of their irrational thinking rather than any honestly held view. They deliberately chose not to avail themselves of the clause 33 mechanism and in doing so, on the express construction of clause 23, should be seen as having consented to the appeal not being pursued.
3. Further, in my view for the reasons I have set out, the Defendants' allegations of bad faith, argument concerning the "contracting out" of the Insurance Contracts Act, and claim they could nonetheless run the appeal on its own costs carry no substance.
4. On these grounds, the Plaintiff is entitled to relief claimed under paragraph 3 of the summons. Further, the Plaintiff is entitled to a permanent injunction restraining the Defendants from taking any steps to prosecute their appeals from Judgment No 11, and an order requiring the Defendants take all steps reasonably required to ensure a solicitor appointed by Lawcover be recorded as the solicitor on the record for the Defendants in the appeals.
5. I invite the parties to prepare short minutes reflecting these findings, and, should the need arise, address me on the question of costs.

Amendments 17 November 2017 - Paragraph [103], change J to JJ (i.e. Hayne, Crennan and Kiefel JJ). Paragraph [107], quoting Gibbs J (first sentence of the quotation), change constructing to construing. Paragraph [111], change "Gibbs J passage" to Gibbs J's passage. Paragraph [116], after "Section 52" add "of". Paragraph [189], final sentence, change but to by. Paragraph [191], quoting, some spaces between words are missing: "re-emphasisedin", "Gaudron Jsaid". Paragraph [212], first sentence, delete "does not" (repeated). 21 November 2017 - [38] change "Kennedys, solicitors for the Kings" to Kennedys, solicitors for Stephen Perrens and Hughes Trueman Pty Limited." 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 November 2017