MCMURRAY -v- AIG INSURANCE AUSTRALIA LTD [No 2] [2018] WASC 391 (14 December 2018)

The grounds relied upon by Holgersson in support of its argument that the court should depart from the usual orders as to costs

1. Holgersson points out that Mosman Bay opposed Holgersson's application for an order for security of costs and in doing so put in issue all of the following arguable matters going to the question of whether security for costs should be ordered:[42]

(a) Mosman Bay denied that Holgersson had reached the jurisdictional threshold to obtain a security for costs order.

(b) Mosman Bay disputed that its financial position warranted an order being made.

(c) Mosman Bay purported to provide a full and frank statement of its financial position as called for by the authorities but did not do so.

(d) Mosman Bay's sole director and shareholder, David Walling, the one person who stands to gain by any success in the fourth party proceedings, failed to provide a full and frank disclosure of his personal financial position as called for by the authorities.

(e) Mosman Bay submitted that its impecuniosity was caused by or contributed to by Holgersson's conduct.

(f) Mosman Bay submitted that its claim against Holgersson was in substance defensive.

1. Holgersson claims that Mosman Bay was only successful on the last ground, namely that its claim was in substance defensive. He says that Mosman Bay failed on all other matters. It is claimed that the substantial majority of the work leading up to the hearing of the application and almost all of the time spent on the hearing itself was focused on the unsuccessful matters. It is argued on behalf of Holgersson that if one were to consider portioning the work, in percentage terms, that about 90% of the work done, up to the hearing and the hearing itself, dealt with the unsuccessful matters.

1. The usual rule as to costs is that costs are to follow the event, that is, the successful party to an action (or application) is entitled to recover his or her costs.
2. Although costs will normally follow the event, this is not necessarily the case in circumstances where a party, although generally successful in the matter has, by the introduction of some issue or issues on which it failed, increased the costs of the proceedings. In that event, pursuant to O 66 r 1(3) of the Rules of the Supreme Court 1971 (WA), the court may order the successful party to pay the costs of the issues on which he or she failed.
3. An 'issue' in O 66 r 1(3) does not mean a precise issue in the technical pleading sense, but means any disputed question of fact or law.[43]
4. Order 66 r 1(3) only applies where the failed issue has increased costs.
5. Costs in relation to a dispute over an issue of fact should not be awarded unless the evidence on that issue can be distinguished without difficulty from the evidence on other issues.[44]
6. It is to be expected that a generally successful party will fail on some issues.[45] In a case in which the generally successful party has failed on only a minor issue, which did not materially add to the costs of the conduct of the proceedings, it would not ordinarily be appropriate to depart from the general rule, unless the conduct of the generally successful party in relation to that issue had been unreasonable. In the event of unreasonableness, different considerations may apply.[46]
7. The Court of Appeal has made it clear that orders for costs in respect of certain discrete issues should not be made as a matter of course and that the successful party should satisfy the court that there are good reasons why it should not pay the other party's costs. In Bowen v Alsanto Nominees Pty Ltd, the Court of Appeal said:[47]

It is clear that while the court has a broad discretion as to costs, generally costs will follow the event: Rules of the Supreme Court 1971 (WA), O 66 r 1(1). It is incumbent upon the unsuccessful party to satisfy the court that there are good reasons why it should not pay the other party's costs: Nikolaou v Papasavas, Phillips & Co (No 2) [1989] HCA 11; (1989) 166 CLR 394, 407.

The court may, in the exercise of its discretion, order that a successful party recover only a portion of its costs where that party has been unsuccessful in respect of certain discrete issues. But that should not be done as a matter of course. To embark as a general practice upon an analysis of which party was successful on each issue, or necessarily to deprive a successful party of some portion of its costs if it has lost on a particular issue, would be likely to add further uncertainty and complexity to the outcome of litigation, derogate from the prospect of settlement, and oblige the court to hear lengthy and frequent arguments in relation to costs as an additional burden on its resources and the costs of the parties: see MacKinnon v Petersen (Unreported, NSWSC, 19 April 1989) (Cole J); Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [67] [68] (McHugh J). Litigation is timeconsuming, expensive and burdensome enough already.

In addition, while parties should be encouraged to consider carefully what matters they put in issue, justice may not be served if by too ready a resort to deciding questions of costs according to success on particular issues, parties are dissuaded by the risks of costs from canvassing all issues which might be material to the decision in the case: Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282; NRMA Ltd v Morgan (No 3) [1999] NSWSC 768 [24].

1. It is clear that Mosman Bay failed on the threshold issue. The threshold issue was invoked by Holgersson's application (made pursuant to s 1335 of the Corporations Act 2000 (Cth)) requiring the court to evaluate evidence led by the applicant (Holgersson) to see whether that leads to a reason to believe the corporation (Mosman Bay) will be unable to pay the costs of the defendant (Holgersson).[48] It is well established that the threshold for meeting this issue is low.
2. In construing the issue whether the financial position of Mosman Bay warranted an order of security being made, after considering all of the evidence relevant to Mosman Bay's financial position I found:[49]

In considering the second factor, that is, assessing the likelihood of Mosman Bay being unable to pay Holgersson's costs, I accept that Mosman Bay is a legal entity of substance. It runs a successful building construction business and has shown by its credit rating and its financial returns that it pays its debts. I also accept that Mosman Bay has the capacity not to be impecunious. Whether it could become so appears to be a matter within the control of Mr Walling and may well depend upon the future dividends that he pays himself from the future cash reserves of the company. This is a factor that weighs in favour of an order for security.

1. As to the claim by Holgersson, that Mosman Bay itself and Mosman Bay's sole director failed to provide full and frank disclosure of Mosman Bay's and Mr Walling's personal financial position; I did not make a finding that can be properly characterised in this way.
2. As to Mosman Bay's and Mr Walling's personal financial position, I observed that:

(a) some of the financial information Mosman Bay put before the court was deficient;[50]

(b) Mr Walling had not responded to evidence given by Holgersson's solicitor, Mr WinburnClarke about a conversation Mr WinburnClarke had with a solicitor employed by Mosman Bay's former solicitors on 8 September 2017 that it was the intention of Mosman Bay not to take any active steps either in the third party or fourth party proceedings because it had no funds and was likely to go into liquidation;[51]

(c) as at the end of the financial year in 2018, the capital reserves of Mosman Bay had been depleted (by the payment of substantial dividends to Mr Walling);[52]

(d) that Mr Walling is the person standing behind Mosman Bay who is likely to benefit from the litigation but he had not offered any security or personal undertaking to be liable for the costs of the fourth party proceedings. I did, however, observe that counsel (for Mosman Bay) had informed the court that Mosman Bay could raise $200,000 if it needed to provide a bank guarantee but it would be an impost on the company or, alternatively, a personal guarantee for that sum could be given.[53]

1. As to Mosman Bay's claim that its impecuniosity was caused, or contributed to, by Holgersson's conduct, as Mosman Bay points out this issue was the subject of only brief submissions of evidence and occupied little time at the hearing and cannot be said to be an issue that materially added to the cost of the proceedings.
2. Mosman Bay was, however, successful in defending the application on the grounds that in substance it was not a plaintiff in the fourth party proceedings as the proceedings are defensive.
3. This was a factor found to heavily outweigh the financial capacity of Mosman Bay to satisfy an order for costs or a lack of a personal undertaking by Mr Walling to be liable for the costs of the fourth party proceedings.
4. The finding that Mosman Bay was not in substance a plaintiff was found to be decisive and but for the finding that the proceedings are defensive, I would have made an order for security.[54]

Conclusion - Mosman Bay should be awarded its costs

1. As Mosman Bay points out, the contention that Mosman Bay was in a defensive position was:

(a) raised in writing during the conferral on the issue of security for costs by a letter from the solicitors for Mosman Bay to the solicitors for Holgersson, dated 29 June 2018.[55] By letter dated 18 July 2018, Holgersson's solicitors rejected Mosman Bay's contention that Mosman Bay was in substance in a defensive position and referred to the fact that the first defendant, AIG Insurance Australia Ltd, made allegations against Simmos Home Improvements Pty Ltd rather than the first fourth party and referred to the differences in the causes of action relied upon by AIG Insurance Australia Limited respectively and raised an issue in respect of pt 1F of the Civil Liability Act 2002 (WA).[56] The latter issue was not pursued in the application and the other issues raised by Holgersson's solicitors on this point were found to be immaterial;[57]

(i) the events leading to Mosman Bay commencing proceedings against Holgersson including Mr Walling's understanding of insurance arrangements in respect of renovations of the house;

(ii) the events leading to the partial denial of indemnity by the third defendant, Tokio Marine & Nichido Fire Insurance Co Ltd;

(iii) the circumstances giving rise to the painting subcontract;

(iv) the matters relevant to the cause of the fire; and

(v) the fact that Holgersson was himself insured by CGU Insurance pursuant to a policy under which he would be expected that liability would be accepted, and which would give liability for dual insurance with Tokio Marine; and

1. Thus, Holgersson's assertion that 90% of the work, performed leading up to and including the hearing itself, dealt with the financial issues is, as Mosman Bay points out, not correct.
2. The only issues upon which it can properly be said that Mosman Bay failed is the issue going to Mosman Bay's and its director, Mr Walling's, financial position.
3. It could be said that Mosman Bay should have conceded the jurisdictional issue, so that the only substantial issue that required consideration by the court in determining whether it should exercise its discretion to make an order for security was whether the proceedings were defensive. This was an issue that was not only ultimately decisive, but an issue that was squarely raised at an early stage by Mosman Bay's solicitors in correspondence during conferral in respect of the application for security.
4. However, I am not satisfied that Holgersson has shown that there are good reasons why it should not pay Mosman Bay's costs. Had Holgersson accepted that Mosman Bay was in a defensive position, the application for security of costs should not have been made, or pressed. For this reason it is not in the interests of justice to make the orders sought by Holgersson.
5. I will make the orders sought by Mosman Bay.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

Research Associate/Orderly to the Honourable Justice Smith

[1] Affidavit of Byron Andrew WinburnClarke sworn 31 August 2018 [16].

[2] Prior to the decision given by Chaney J in McMurray v AIG Insurance Australia Pty Ltd [2018] WASC 144 Mosman Bay had indicated that it did not propose to defend the third party proceedings brought against it by AIG. Following the decision being delivered by Chaney J on 10 May 2018, Mosman Bay ceased to be represented by solicitors for Tokio and determined that it should defend the third party proceedings.

[3] Affidavit of Rachel LeeAnne Lamb affirmed 13 November 2018, Annexure RLL3.

[4] Affidavit of Rachel LeeAnne Lamb affirmed 13 November 2018, Annexure RLL3.

[5] Affidavit of Rachel LeeAnne Lamb affirmed 13 November 2018, Annexure RLL3.

[6] McMurray v AIG Insurance Australia Pty Ltd [2018] WASC 144.

[7] Johnson v Ribbins [1977] 1 WLR 1458; [1977] 1 All ER 806, 809; applied in Commercial Developments Pty Ltd v Mercantile Mutual Insurance (Workers' Compensation) Ltd (1991) 5 WAR 208, 215 (Malcolm CJ, Pidgeon & Rowland JJ agreeing).

[8] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [24] (Pidgeon & Owen JJ).

[9] Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19 [31], (Corboy J applying Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301.

[10] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [24] (Pidgeon and Owen JJ).

[11] Warren Mitchell Pty Ltd v Australian Maritime Officers' Union [1993] FCA 774; (1993) 12 ACSR 1; (1993) 11 ACLC 1238.

[12] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [24] (Pidgeon & Owen JJ) applied in Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 [68] [69] (Kenneth Martin J, Pullin JA agreeing).

[13] Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19 [35].

[14] Affidavit of Byron Andrew WinburnClarke sworn 31 August 2018, Annexure BC1.

[15] Affidavit of Byron Andrew WinburnClarke sworn 9 November 2018 [3].

[16] Affidavit of David William Walling sworn 11 October 2018 [3] [7].

[17] Affidavit of Byron Andrew WinburnClarke sworn 31 August 2018, Annexure BC1, pages 14 17.

[18] Affidavit of Scott Robert Disley sworn 16 October 2018, Annexure SRD 3, pages 35, 40.

[19] Affidavit of Byron Andrew WinburnClarke sworn 31 August 2018 [25] and Annexure BC5.

[20] Affidavit of Scott Robert Disley sworn 16 October 2018, pages 4 - 45.

[21] Access to the information in the further affidavit of Scott Robert Disley affirmed 16 November 2018 is to be restricted by order of the court.

[22] Beach Petroleum NL v Johnson [1992] FCA 110; (1992) 7 ACSR 203, 204; see also Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19.

[23] Affidavit of Scott Robert Disley sworn 16 October 2018, page 10.

[24] Affidavit of Scott Robert Disley sworn 16 October 2018, Annexure SRD1, page 20.

[25] Affidavit of Scott Robert Disley sworn 16 October 2018, Annexure SRD1, page 20.

[26] Affidavit of Scott Robert Disley sworn 16 October 2018, Annexure SRD1, page 22.

[27] Affidavit of Scott Robert Disley sworn 16 October 2018, Annexure SRD1, pages 24 26.

[28] Affidavit of Scott Robert Disley sworn 16 October 2018, Annexure SRD1, pages 34 36.

[29] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [6].

[30] Veneziano Coffee Roasters WA Pty Ltd v Health Nut Café Pty Ltd [2018] WASC 363 [6].

[31] Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 [72] [74] (Kenneth Martin J).

[32] Melunu Pty Ltd v Claron Constructions Pty Ltd [2004] NSWSC 1064 [31] (Brownie AJ); applied in Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [45].

[33] Affidavit of Rachel Lee-Anne Lamb affirmed 13 November 2018, Annexure RLL10.

[35] Affidavit of David William Walling sworn 11 October 2018 [22] [23] and Annexures DWW14 and DWW15.

[36] Australia and New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305 (S).

[37] Australia and New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305 (S) [22] - [24].

[38] SP Hay Pty Ltd v Allcorp Pty Ltd [2004] WASC 77 [23] (Master Newnes).

[39] Aquatown Pty Ltd v Holder Stroud Pty Ltd [1995] FCA 1667; (1995) 18 ACSR 622, 623 (Sundberg J); applied in Australia and New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305 (S) [19] [22].

[40] First fourth party's application for orders for security of costs, filed 13 September 2019.

[41] The background facts of the pleaded cases in the principal proceedings, the third party proceedings and the fourth party proceedings are set out in McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391 [12] [29].

[42] First fourth party's submissions (costs), filed 14 March 2019 [2] - [7].

[43] McKechnie v Connell (Unreported, WASC, Library No 940023, 20 December 1993) (Nicholson J).

[44] Brazendale v Kenna [1961] TASStRp 26; [1961] Tas SR 199, 208 (Crisp, Crawford & Cox JJ).

[45] McKay v Commissioner of Main Roads [No 7] [2011] WASC 223 (S) [179] (Beech J).

[46] Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) v Hannell [2007] WASCA 158 (S) [7] (Martin CJ, Steytler P & McLure JA).

[47] Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S) [5] [7] (McLure P, Newnes & Murphy JJA).

[48] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [24] (Pidgeon & Owen JJ).

[49] McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391 [69].

[50] McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391 [48], [61].

[51] McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391 [44(f)].

[52] McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391 [62].

[53] McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391 [75].

[54] McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391 [89].

[55] First third party's submissions on the costs of the first fourth party's application for security for costs, filed 9 April 2019 [10]; Affidavit of Byron Andrew WinburnClarke, sworn 31 August 2018, annexure BC6, pages 37 40.

[56] First third party's submissions on the costs of the first fourth party's application for security for costs, filed 9 April 2019 [11]; Affidavit of Byron Andrew WinburnClarke, sworn 31 August 2018, annexure BC8, pages 43 44.

[57] McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391 [86].