Counsel for appellant: Mr T R Anderson QC

Counsel for respondents Pastro: Mr D G W Howard

Solicitors for respondents Pastro: Duncan and Hannon

Counsel for respondent Voivodich: Mr P C Heinrich

Solicitors for respondent Voivodich: Baker O'Loughlin

JUDGE1 KING CJ This appeal concerns the costs of third party proceedings in an action in the District Court. The appellant is an insurance company. It was sued by the first respondents under their policy with the appellant for indemnity with respect to damage caused by fire at their restaurant. The appellant denied liability on the grounds that the damage had been caused by arson for which the first respondents were responsible and that there had been no disclosure of previous insurance claims. The first respondents filed and delivered a Reply in which they denied arson. They pleaded that they had made proper disclosure in that the female first respondent had advised the appellant's agent, the second respondent, that she could not remember all previous claims and that he should obtain the information from her previous insurance broker, in response to which advice the agent had indicated that he would do so.

The second respondent was an insurance agent carrying on business on his own account. He acted as agent for the appellant in the transaction with the first respondents. In consequence of the first respondents' plea the appellant issued a Third Party Notice to the second respondent claiming to be indemnified against any amount which it was required to pay to the first respondents.

There was trial on all issues before a District Court judge. The learned judge found that the allegation of arson had been proved. He also found that the first respondents had disclosed in the proposal form only two previous insurance claims. They had also disclosed another previous claim to the second respondent which he had not included in the proposal but that of itself would not have been sufficiently significant to entitle the appellant to escape liability. There were in fact fifteen previous claims. His Honor found that the female first respondent did not tell the second respondent to contact her previous broker and that the previous claims were deliberately and fraudulently concealed. He dismissed the claim of the first respondents. The third party claim was therefore also dismissed. The learned judge awarded costs to the appellant against the first respondents. He awarded costs to the second respondent against the appellant. He refused to order that the appellant recover against the first respondents the costs which it was required to pay to the second respondent. This appeal is against that refusal.

The general rule as to costs is that they are in the discretion of the Court; Rule 101.01. Rule 37.12 provides that "the Court may give such directions as to costs as between a third party and other parties to the action as the justice of the case may require." The discretion as to costs is wide and subject only to the limitation that it must be exercised judicially and on grounds connected with the litigation; Donald Campbell and Co v Pollak (1927) AC 732, Cretazzo v Lombardi (1975) 13 SASR 4, Potts v Moran (1976) 16 SASR 284 per Bray CJ at p.307. As the discretion to award costs, like other judicial discretions, must be exercised judicially, the courts have developed principles for the guidance of judges in exercising the discretion. The basic guiding principle is that costs ordinarily follow the event. The application of that principle to unsuccessful third party proceedings presents difficulties as the diverse outcomes of the decided cases indicate. There is no great difficulty where a third party claim by a defendant is unsuccessful because the defendant has failed to establish its right to recover from the third party the amount which it is required to pay to the plaintiff, or the amount which it would have been required to pay if the plaintiff's claim had been successful. In such cases the defendant is ordinarily required to pay the costs of the third party and cannot recoup them from the plaintiff. Where, however, the third party claim fails solely because the plaintiff has failed in its claim against the defendant, the position is more complex. The principle that costs follow the event dictates that ordinarily the defendant is liable for the costs of the successful third party. It does not assist, however, in my opinion, to resolve the question whether the defendant is to be allowed to recoup those costs from the plaintiff. The third party claim has not been an issue between the plaintiff and the defendant and there has therefore been no "event" in relation to it as between the plaintiff and defendant. Other guiding principles must be sought.

It is helpful to recall the objects of the third party procedure established by the Rules. They were stated in Barclays Bank v Tom (1923) 1 KB 221 at p.224 as follows: "The object of the third party procedure is then in the first place to get the third party bound by the decision between the plaintiff and the defendant. In the next place it is directed to getting the question between the defendant and the third party decided as soon as possible after the decision between the plaintiff and the defendant, so that the defendant may not be in the position of having to wait a considerable time before he establishes his right of

indemnity against the third party while all the time the plaintiff is enforcing his judgment against the defendant. And thirdly, it is directed to saving the extra expense which would be involved by two independent actions. With these objects in view the third party order usually provides that the third party may appear at the trial between the plaintiff and the defendant."

It is the policy of the Court to avoid multiplicity of proceedings (s.27 Supreme Court Act 1935) and third party proceedings are conclusive to the avoidance of multiplicity.

In many cases, the nature of the plaintiff's claim or the allegations in support of it make it reasonable, even necessary, for the defendant to bring in the third party. The plaintiff's case, if established, would be the foundation of a successful claim against the third party. It is essential, in such circumstances, for the defendant to have the third party bound by findings in favour of the plaintiff. If it is not so bound, the defendant might be unable, perhaps due to non co-operation of the plaintiffs in the first proceedings, to establish the plaintiff's allegations in subsequent proceedings against the third party. The defendant might be left in the position of being found liable to the plaintiff, but of being unable, in subsequent proceedings, to recover from the third party, notwithstanding that the foundation of the defendant's liability to the plaintiff would also establish the third party's liability to the defendant. Such a prospect makes it entirely reasonable, even necessary, for the defendant to institute third party proceedings. The defendant, in such cases, is virtually forced by the plaintiff's allegations, in order to protect itself, to bring in the third party. If in the circumstances postulated, the plaintiff fails to sustain its allegations, in consequence of which the third party claim is dismissed with costs, the defendant has incurred the costs of the third party claim by reason of the unfounded allegations of the plaintiff. It seems to be fair and just, in those circumstances, that the plaintiff should be required to indemnify the defendant in respect of those costs.

I think that a guiding principle for the exercise of the discretion in such cases may be formulated as follows. Where the nature of the plaintiff's claim, or allegations in support thereof, render it reasonable, having regard to the purposes of third party procedure, to bring in the third party, and the third party claim is unsuccessful solely by reason of the failure of the plaintiff to sustain its claim or the relevant allegations, the defendant should ordinarily recover from the plaintiff the costs of the third party claim including those which the defendant is ordered to pay to the third party. The emphasis is on the word "ordinarily". The discretion is unfettered and a variety of factors may properly enter into the exercise of it.

This appears to be the principle which underlies a number of the decisions in which the defendant has been awarded such costs; Edginton v Clark (1964) 1 QB 367; Thomas v The Times Book Co Ltd (1966) 2 All ER 241; Cattan Ltd v Michaelides and Co (1958) 2 All ER 125; Henry v AGC Ltd (1985) WAR 137. The latter two cases were of the "string of contracts" type. In the Cattan case Diplock J said at p.128: "That is the normal way in which costs should be dealt with in this kind of action where there is a string of contracts in substantially the same terms. In saying that, I am not excluding the possibility that there may be special reasons for departing from the normal practice. Whether it was reasonable for the defendant to bring in a third party at all is always a question to be considered, and that is a matter on which a lot of facts may be relevant."

These cases are to be distinguished from a case such as Paron v Fry (No. 2) (1990) 1 QdR 550 in which the Court founded on the principle that "where parties should not have been brought in the party doing so should ordinarily bear the costs." Although Diplock J in Cattan's case was referring specifically to "string of contracts" cases, he formulated the test in terms of the reasonableness of bringing the third party in, and I see no reason to distinguish that type of case from other cases in which it is reasonable to bring in the third party; Johnson v Ribbins (1977) 1 All ER 806.

The learned District Court judge commenced his reasoning on the point with this sentence: "The starting point is that costs should follow the event unless there is some good reason to depart from this, and thus ordinarily the defendant should have to bear the costs of the third party proceedings which it has instituted, but has not succeeded upon."

I am unable to agree that the learned judge's conclusion that the defendant should have to bear, as between plaintiff and defendant, the costs of the third party proceedings, follows from the premise which he adopted as the starting point. What follows from the prima facie principle that costs follow the event is that the defendant is liable to the third party for the costs of the unsuccessful third party proceedings; Johnson v Ribbins supra. It says nothing as to liability for those costs as between plaintiff and defendant. Indeed in Johnson v Ribbins in which it was held by the English Court of Appeal that the "normal rule" that costs followed the event entitled the third parties to an order for costs against the defendant, it was accepted that the defendant could add those costs to their costs against the plaintiff.

His Honor acknowledged that there was a discretion to allow the defendant to recover from the plaintiff the costs payable to the third party, but based his decision upon the following proposition: "In those cases where the plaintiff has been made responsible for the third party's costs the court had found that the nature of the claim brought by the plaintiff against the defendant made it inevitable or necessary that the defendant would have to institute the third party proceedings."

I am unable to agree that that is the appropriate test. The words "inevitable" and "necessary" do appear in the cases, but only to state that the third party proceedings were inevitable or necessary in the particular case. I do not find in the cases any warrant for using those words as a test which must be satisfied in order to justify an order of the kind under discussion. The test applied by Diplock J in the Cattan case was the reasonableness of bringing in the third party and I consider that to be the appropriate test.

In one sense the difference is merely semantic. In most cases it is reasonable to bring in the third party precisely because that has been made inevitable or necessary by the plaintiff's allegations. That however is not the sense in which the learned judge used those words. He said: "In this matter the defendant was attempting to hedge its bets in taking the third party proceedings. It wanted to cover itself against the possibility that the plaintiffs may have succeeded in their allegations about the disclosure of previous claims to the third party, and, in that event, to

be able to make immediate recovery against the third party if those allegations had been well founded. If it had been

prepared to rely wholly upon the denials of the third party of the plaintiff's allegations, it would not have brought the third party proceedings. The plaintiffs could themselves have joined the third party as an additional defendant on an alternative cause of action for the same relief, but they elected not to do so. While the plaintiffs' action against the defendant was the precipitating cause of the third party proceedings, in the circumstances of this matter there was no necessity or

inevitability for those third party proceedings because of the course which the plaintiffs had taken. They were merely

a tactical manoeuvre by the defendant in an effort to protect itself if its defence of non disclosure failed because of any default of the third party. The defendant could have allowed the plaintiffs action to go to trial, and, if it had failed in its defence because of adverse findings about the conduct of the third party, it could have then brought a separate claim against him. It was to protect itself against the additional cost and delay involved in that possibility that the third party proceedings were brought. However, the responsibility for this cannot be brought home to the plaintiffs in such a way that the general judicial discretion of the court on costs

should be exercised to make them responsible for the costs of the third party proceedings."

The motives which the learned judge attributed to the appellant merely reflect the legitimate purposes of third party proceedings. To say that "there was no necessity or inevitability" in the course taken is to use those words in a sense which renders them inappropriate as a relevant test. That use of the words disregards the necessity which the first respondents' claim and allegations placed upon the appellant to bring in the second respondent in order to protect its interests.

I think that there was a twofold error of principle. The first was a mistaken application of the normal rule that costs follow the event. The second was the adoption of the principle that the third party claim must be inevitable or necessary, in the sense in which the judge used those words, in order to justify the order. The learned judge's exercise of the discretion as to costs has therefore miscarried and this Court must exercise the discretion afresh.

The need for the appellant to bring in the second respondent by Third Party Notice was created by the first respondents' allegations, held to be unfounded, that the second respondent was told of other claims and agreed to seek information concerning them from the former brokers. If those allegations had been substantiated and the first respondents had succeeded in their false denial of arson, the appellant would have been held liable to the first respondents; the allegations would have provided, however, the foundation of a claim for recovery over against the second respondent. In those circumstances, it was reasonable, indeed necessary for the protection of its interests, for the appellant to have its claim against the second respondent for indemnity litigated in the same proceedings as the first respondents' claim. In such circumstances, the ordinary way of exercising the discretion would be to allow the appellant to recoup its costs liability to the second respondent from the first respondents. There are no countervailing considerations. The considerations mentioned by the learned judge as militating against the order do not have that affect. They merely reflect the proper purposes of third party proceedings. It is fair and just, having regard to the circumstances of the case and the proper objects of third party proceedings, that the appellant should recoup its costs. In my opinion the appeal should be allowed. The orders for costs made by the learned judge should be affirmed and there should be an additional order that the costs to be paid by the plaintiffs to the defendant include the defendant's costs of the third party proceedings and the costs which the defendant has been ordered to pay to the third party.

JUDGE2 BOLLEN J This is an appeal by the defendant against the refusal of the trial Judge to order that the plaintiffs (the first respondents) indemnify it for the costs of the third party proceedings, payable by the appellant to the second respondent.

The appeal proceeded "on" an Amended Notice of Appeal received by consent on the day of the hearing. On that day counsel for the second respondent appeared, announced that the second respondent had no interest in the outcome of the proceedings and, with the leave of the Court, withdrew.

On 25th July 1985 the first respondents (the plaintiffs in the action) purchased the business of a restaurant in Grenfell Street. They took over the lease of the premises. They entered into a partnership whereby they became equal partners in the partnership formed to run the business. Mara Pastro (the first named of the first respondents) became the manager of the business. She worked full time in it. Luciano Pastro (the second named of the first respondents) took no active role in the business save the doing of some maintenance work. Rudolpho Pastro (the third named of the first respondents) worked there as a wine waiter during weekends.

The appellant is an insurance company. The second respondent (the "third party" in the action) was an insurance agent. He carried on his own business. On 7th April 1988 he had entered into an agreement with the appellant (the defendant in the action) to become its agent to sell insurance for it in return for payment of commission.

On 8th February 1989 there was a fire at the restaurant.

The premises, contents and stock were damaged. At the time of the fire the first respondents were covered for damage by fire under a policy of insurance with the appellant which policy the second respondent had procured. The appellant refused to indemnify the first respondents under the policy. The appellant alleged that the first respondents, or someone acting for them, lit the fire. The appellant alleged also that the first respondents induced the appellant to enter into the policy by concealing material facts about previous claims.

The learned trial Judge found each allegation, ie arson and material non-disclosure, proved. Of the plea of arson the learned trial Judge said:- "On the whole of the evidence I am satisfied on the balance

of probabilities, and bearing in mind the seriousness of the allegation of arson and the presumption of innocence, that one or more of the plaintiffs either themselves, or more likely through the agency of some unknown person or persons, deliberately lit the fire in the restaurant for the purpose of obtaining the insurance moneys. Accordingly, one or more of the plaintiffs are guilty of fraud in the making of the claim, and thus it cannot succeed: Sutton "INSURANCE LAW IN AUSTRALIA", 2nd edition, 15.58-15.59. Therefore, their action must fail entirely."

Of the plea of non-disclosure the learned trial Judge said:

"...the plaintiffs' claim must also fail on the ground of non-disclosure of previous claims". The failure of the claim against the appellant meant that there was nothing against which the appellant could have indemnity or contribution from the third party (the second respondent). The third party proceedings were dismissed.

The appellant had brought in the third party alleging breach of contract and negligence on his part in (speaking very broadly) not getting full and accurate information about the past claims made by the first respondents. It alleged that had full and accurate information been obtained it would not have accepted the risk. The appellant sought against the second respondent:- "(a) a declaration that the defendant is entitled to be indemnified; (b) judgment for any amount or part thereof which may be found due from the defendant to the plaintiffs' as the Court sees fit. (c) judgment of the amount of any costs which the defendant may be judged to pay to the plaintiffs and for the amount of its own costs incurred in its defence to this action and of the proceedings against the third party herein."

The first respondents (plaintiffs) failed. Therefore, the claim of the appellant against the second respondent necessarily failed. The learned trial Judge did find that the second respondent was in breach of his duty in not including information given him about an earlier fire in a garage on the proposal form. But His Honour said:- "However, while I am satisfied that this fire should have been disclosed on the proposal, and that the third party was in breach of his duty to the defendant in not doing so, I am not satisfied on the evidence of Mr MacDonald and Mr Snewin that the mere disclosure of this relatively small fire, without reference to any of the other undisclosed claims or incidents, would have been of sufficient significance for the defendant to have refused to have insured the plaintiffs or to have increased the premium. Accordingly, even though the third party was in breach of his duty to the defendant in this respect no loss is shown to have flowed from it."

Judgment was delivered on 19th August 1993. On 26th August 1993 the learned trial Judge heard argument on costs. The learned trial Judge said:- "It was not disputed that the plaintiffs should be ordered to pay the defendant's costs of the action. In addition the defendant sought an order that the plaintiffs pay the third party's costs, or alternatively that the plaintiffs be ordered to indemnify the defendant against the costs which it had to pay to the third party. The third party sought an order for costs against the defendant. The plaintiffs opposed any order that they pay the costs of the third party proceedings. It was not disputed that the third party should recover his costs either from the defendant or the plaintiff.

The reported cases on whether an unsuccessful plaintiff should be ordered to pay the costs of third party proceedings taken by the defendant are not particularly easy to follow. There is no doubt that the court has power to make such an order and that it is to be made in the exercise of the general judicial discretion as to costs under Section 42 of the District Court Act 1991. The starting point is

that costs should follow the event unless there is some good reason to depart from this, and thus ordinarily the defendant should have to bear the costs of the third party proceedings which it has instituted, but has not succeeded upon: Lever v Golsby (1964) 5 NSWR 1833; Paron v Fry (No 2) (1990) 1 Qd R 550; Gold Coast Bakeries Pty Ltd v Heat and Control Pty Ltd (1991) 6 ANZ Ins Cas 61-036. However, there are also a number of cases where the courts in the exercise of the general judicial discretion have ordered that unsuccessful plaintiffs pay the costs of third party proceedings: Thomas v The Times Book Co (1966) 2 All ER 241 at 247, or that the defendant be indemnified by the unsuccessful plaintiff against the costs which it was ordered to pay to the third party: Cattan Ltd v Michaelides (1958) 2 All ER 125; Henry v AGC (1985) WAR 137; Johnson v Ribbons (1977) 1 All ER 806; Edginton v Clark (1964) 1 QB 367. In those cases where the plaintiff has been made responsible for the third party's costs the court had found that the nature of the claim brought by the plaintiff against the defendant made it inevitable or necessary that the defendant would have to institute the third party proceedings.

In this matter the defendant was attempting to hedge its bets in taking the third party proceedings. It wanted to cover itself against the possibility that the plaintiffs may have succeeded in their allegations about the disclosure of previous claims to the third party, and, in that event, to be able to make immediate recovery against the third party if those allegations had been well founded. If it had been prepared to rely wholly upon the denials of the third party of the plaintiff's allegations, it would not have brought the third party proceedings. The plaintiffs could themselves have joined the third party as an additional defendant on an alternative cause of action for the same relief, but they elected not to do so. While the plaintiffs' action against the defendant was the precipitating cause of the third party proceedings, in the circumstances of this matter there was no necessity or inevitability for those third party proceedings because of the course which the plaintiffs had taken. They were merely a tactical manoeuvre by the defendant in an effort to protect itself if its defence of non disclosure failed because of any default of the third party. The defendant could have allowed the plaintiffs action to go to trial, and, if it had failed in its defence because of adverse findings about the conduct of the third party, it could have then brought a separate claim against him. It was to protect itself against the additional cost and delay involved in that possibility that the third party proceedings were brought. However, the responsibility for this cannot be brought home to the plaintiffs in such a way that the general judicial discretion of the court on costs should be exercised to make them responsible for the costs of the third party proceedings.

Accordingly, the order for costs of the action will be: 1. That the plaintiffs pay to the defendant its costs of the action (but excluding those of the third party proceedings) as agreed or taxed; 2. That the defendant pay to the third party his costs of

the third party proceedings and of the action as agreed or taxed."

Despite the consequential lengthening of these reasons I think it better to set out the grounds of appeal rather than a summary of them. They are:- "AND the grounds of appeal are:- 1. That the Learned Trial Judge acted upon an incorrect principle in directing himself as to the proper order as to

costs. In particular the Learned Trial Judge found that in those cases where the plaintiff has been made responsible for the third party's costs the court had found that the nature of the claim brought by the plaintiffs against the defendant made it inevitable or necessary that the defendant would have to institute third party proceedings. In the alternative the Learned Trial Judge ascribed an incorrect meaning to the words 'inevitable' or 'necessary' insofar as they related to the institution of Third Party proceedings.

2. That the Learned Trial Judge misdirected himself as to the principles involving third party proceedings and in particular in his written reasons where he stated: 'The Defendant could have allowed the plaintiffs action to go to trial, and, if it had failed in its defence because of adverse findings about the conduct of the third party, it could have then brought a separate claim against him. It was to protect itself against the additional cost and delay involved in that possibility that the third party proceedings were brought. However, the responsibility for this cannot be brought home to the plaintiffs in such a way that the general judicial discretion of the court on costs should be exercised to make them responsible for the cost of the third party proceedings.'

The Learned Trial Judge was in error in that he failed to take into account the principles enunciated in Barclays Bank v Tom (1922) All ER 279 at 280 per Scrutton LJ: 'The object of the third-party procedure is therefore, in the first place to get the third party bound by the decision given between the plaintiff and the defendant. In the next place, it is directed to getting the question between the defendant and the third party decided as soon as possible after the decision between the plaintiff and the defendant, so that the defendant may not be in a position of having to wait a considerable time before he establishes his right of

indemnity against the third party while all the time the plaintiff is enforcing his judgment against the defendant. And, thirdly, it is directed to saving the extra expense which would be involved by two separate independent actions. With these objects in view the third-party order usually provides that the third party may appear at the trial between the plaintiff and the defendant.

3. That the Learned Trial Judge erred in the exercise of his discretion as to costs under Section 42 of the District Court Act 1991 by failing to take into account: (a) That the Third Party proceedings resulted directly from allegations made by the plaintiffs in their Amended Reply; (b) The Third Party proceedings permitted the determination

of the issues between the defendant and the Third Party at the earliest possible time and on the same materials as were

before the Learned Trial Judge in the action between the plaintiffs and the defendant; (c) The Third Party proceedings avoided the possibility of the delay and expense associated with separate litigation between the defendant and the third party."

At the outset Mr Anderson QC, for the appellant, acknowledged that "when one appeals on a question of costs one faces an uphill battle". That is correct. But the battle can sometimes be won. Counsel is not in the position of the late Sisyphus.

Mr Anderson submitted that the learned trial Judge misdirected himself in "two fundamental respects". They appear in the Amended Notice of Appeal. If it be correct that the learned trial Judge has misdirected himself in a serious manner (I prefer "serious manner" to "fundamental respects") then his order may be set aside. But the uphill battle comes from the fact that the award or refusal to award costs is an exercise of discretion. An appellate court must be slow to interfere with an exercise of discretion especially, as here, where the primary Judge has given very careful thought to the matter. The appellate court must not interfere merely because its members think that they would have made a different order.

Mr Anderson, speaking consistently with the grounds of appeal, said that the learned trial Judge had "failed to have regard for the object and nature of what third party procedure is" and had fallen into error in not deciding that the issue of Third Party proceedings resulted from allegations made by the first respondents in the Amended Reply. Thus, two errors.

Mr Anderson referred, when speaking of the "nature of third party procedure", to the remarks of Scrutton LJ in Barclays Bank v Tom (supra). Mr Howard, for the first respondents, said:- "I can deal with one of my learned friend's submissions fairly briefly. In referring to Barclays Bank v Tom my learned friend is misconceiving the position. That case deals with circumstances in which it is appropriate and proper for third party proceedings to be instituted.

What it is not dealing with is when it is proper for an unsuccessful plaintiff to be lumbered with the costs of the third party, the defendant having failed in the third party proceedings."

Of course, Mr Howard is correct in saying that the remarks of Scrutton LJ were there directed to the appropriateness of taking third party proceedings at all. But I cannot agree that these remarks have no value in considering costs as we are here considering. I think that the remarks of Scrutton LJ are useful "on costs". I think that the learned trial Judge must have had in mind the principles enumerated by Scrutton LJ. I do not think it possible to say that he did not know of them. But his consideration of the issue of "costs of third party" does lead to the conclusion that he gave too little weight to those principles. I cannot follow the reference to "hedging bets" nor the remarks:- "If it had been prepared to rely wholly upon the denials of the third party of the plaintiff's allegations, it would not have brought the third party proceedings."

Certainly, the first respondents could, as His Honour says, have "joined the third party as an additional defendant on an alternative cause of action for the same relief...". But that would be inconsistent with all the principles mentioned by Scrutton LJ, especially with the idea of avoiding more than one hearing. The same comment applies to the remarks of the learned trial Judge that the appellant could have waited the result of trial and, if unsuccessful, have "brought a separate claim" against the second respondent.

But over and above all this is the submission that in effect His Honour did not apply the test which he propounded. I repeat remarks already quoted. His Honour said:- "In those cases where the plaintiff has been made responsible for the third party's costs the court had found that the nature of the claim brought by the plaintiff against the defendant made it inevitable or necessary that the defendant would have to institute the third party proceedings."

I do not wish to be understood to accept so narrow a test. But Mr Anderson accepted the test for the purposes of this case. He said "let that be so, still His Honour has wrongly applied it" (my words). Mr Anderson said that perhaps one should put "inevitable" aside. He said that it was necessary for the appellant to take third party proceedings. In support of that submission Mr Anderson referred to paragraph 8 of the Amended Reply of the first respondents (plaintiffs). This relates to the issue of "non-disclosure". Paragraph 8 is:- "8. The plaintiffs allege that with respect to the signing of the insurance proposal by the plaintiff Mara Pastro on 21st November 1988:

8.1 The proposal was signed at the invitation of one Bruno Voivodich ('Voivodich'). 8.2 Voivodich described himself on the proposal as 'B. Voivodich Insurance Agent'. 8.3 In the premises, Voivodich was acting as agent of the defendant herein in presenting the insurance proposal to Mara Pastro for approval and signature. 8.4 Mara Pastro told Voivodich that she could not remember details of all previous claims and advised Voivodich to contact her previous broker, Perryman O'Grady Philpott, for further details with regard to the same. 8.5 Voivodich advised Mara Pastro that he would contact Perryman O'Grady Philpott for details of previous claims. 8.6 Voivodich did not advise Mara Pastro as to the importance, significance and relevance of her answer to question 10 under the section entitled 'General Information' in his proposal, and/or that the proposal should not be signed and presented until all details of previous claims had been ascertained and recorded in the proposal. 8.7 Voivodich left Mara Pastro with the belief that he would communicate with Perryman O'Grady Philpott and complete any further necessary detail relating to the plaintiffs' claims history. 8.8 The plaintiffs could be reasonably expected to rely on the conduct of Voivodich and did rely upon his conduct in good faith. 8.9 The defendant is responsible for the conduct of its agent pursuant to Section 11 of the Insurance (Agency and Brokers) Act 1984 and is not entitled to avoid liability under the Insurance Contract on the ground of alleged non-disclosure or concealment of material facts."

Mr Anderson said that by this plea, especially that in paragraph 8.7, the first respondents say:- "In other words, if you, the insurance company, say I was guilty of non-disclosure, it wasn't my fault because I told the insurance broker and he was on notice and he knew there were previous claims and he should have made enquiries."

In my opinion, once that was said the appellant necessarily looked to the second respondent for indemnity. The appellant necessarily issued Third Party proceedings. Indeed, it was at least almost inevitable that it should do so. No doubt later action could have been taken. But, in my opinion, the issue of third party proceedings was necessary. It was the right thing to do. And the issue of third party proceedings was caused by the allegations of the first respondents (the plaintiffs). If I may say so I think that in the course of submissions by Mr Howard, King CJ hit the nail on the head. After some discussion Mr Howard said and the Chief Justice responded thus:- "MR HOWARD: It's a decision the insurance company may make, but when making it, it is necessary for the insurer to take account of the normal risks of litigation. KING CJ: No doubt, but it's forced on it by the plaintiff making a false claim, isn't it? It's the plaintiffs' case, it's the plaintiffs' allegations which force the insurance company into the Third Party proceedings. What else can it do from a practical point of view? His Honour said, well, the insurance company could wait and if the case goes against it then institute proceedings against the agent. It's unrealistic. For the thing to succeed against the agent, it would have to rely on the evidence of the

plaintiff in the present proceedings and they mightn't have been very co-operative witnesses."

Mr Howard relied quite heavily on Paron v Fry (No.2) (1990) 1 Qd R 550 at page 551. Kelly SPJ said (as Mr Howard mentioned):- "I must say that I can see no reason in principle why the plaintiff, even though unsuccessful against the defendants, should have to pay the costs of the unsuccessful third party proceedings brought by the defendants, albeit that it was the plaintiff's claim against the defendants which led to the third party proceedings being instituted."

But immediately above that passage after referring to two old English cases, His Honour said:- "However what was said by the Lord Chancellor and by Lord Blackburn may be regarded as giving some indication that where third parties should not have been brought in the party doing so should ordinarily bear their costs."

That case of Paron v Fry (No.2) deals with a third party who should not have been brought in. The second respondent here was properly and necessarily brought in.

I would allow the appeal. I would make the order in the Amended Notice of Appeal, namely, that the first respondents (plaintiffs) indemnify the appellant (defendant) for the third party's costs of the Third Party proceedings.

JUDGE3 MULLIGHAN J I agree that the appeal should be allowed for the reasons given by the Chief Justice and I agree with the orders he proposes.