Mobis Parts Australia Pty Ltd v XL Insurance Company SE

Supreme Court of NSW|2018-01-29|Before: Stevenson J, Cole J

Solicitors: Ashurst Australia (Plaintiff) McCabes Lawyers (First Defendant) Kennedys (Australasia) (Second Defendant) Hicksons Lawyers (Third Defendant) File Number(s): SC 2015/281297

Judgment

I gave my principal judgment in this matter on 29 September 2017 (Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 7) [2017] NSWSC 1321).
Since then I have published a number of supplementary judgments: Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 8) [2017] NSWSC 1507 and Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 9) [2017] NSWSC 1762.
These reasons assume familiarity with those judgments. I shall use the same abbreviations here as in those reasons.
These reasons deal with the question of costs and interest.

A Sanderson order?

As Mobis has established an entitlement to indemnity against XL under the Local Policy, it has no need to, and does not seek, any relief against AIG, UNIQA, or XL, under the Master Policy.
On the face of it, therefore, Mobis must pay AIG's and UNIQA's costs of the proceedings.
However, Mobis seeks a Sanderson order compelling XL to pay AIG's and UNIQA's costs directly.
There was no dispute before me that the following must be established before a Sanderson order is made (see Lackersteen v Jones (No 2) (1988) 93 FLR 442 at 449 (Asche CJ), applied in Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179 at [128] (Mason P, Stein and Haydon JJA agreeing), and ACQ Pty Ltd v Cook (No 2) [2008] NSWCA 306 at [36] (Campbell JA, Beazley and Giles JA agreeing): "1. It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant. 2. The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other. 3. While it is essential to find that the plaintiff has acted reasonably and properly that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion. 4. Finally, in considering whether to make such an order, the court should, in the exercise of its discretion balance overall two considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; secondly, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful."
The first two of these matters are established.
Mobis acted reasonably in bringing the claim against AIG and UNIQA and there is a substantial connection between Mobis's case against XL and its case against AIG and UNIQA.
Mobis was faced with XL's contention that XL was entitled to deny indemnity under the Local Policy by reason of the Faulty Design Exclusion. Mobis was thus faced with the possibility that XL would establish such an entitlement. Faced with that possibility, it was reasonable for Mobis, as a precaution, to seek indemnity under the Master Policy (which has no Faulty Design Exclusion), thus necessitating the joinder of AIG and UNIQA. The alternative would have been for Mobis to wait and see whether XL established an entitlement to rely upon the Faulty Design Exclusion and, in that event, to bring separate proceedings against AIG and UNIQA.
Further, when XL sought to amend its claim to rely upon the Faulty Design Exclusion, its senior counsel informed the Court that: 1. XL had authority, as lead underwriter of the Master Policy, to bind its co-insurers, AIG and UNIQA; and 2. the position of the underwriters under the Master Policy was that Mobis was a party to the Master Policy and that no "privity issues" would arise.
That assurance was a factor that Bergin CJ in Eq took into account in granting XL leave to amend its defence to rely upon the Faulty Design Exclusion: Mobis Parts Australia Pty Ltd v XL Insurance Company SE [2016] NSWSC 912 at [18].
I accept Mobis's submission that it was also a factor that led to Mobis making a claim under the Master Policy and joining AIG and UNIQA to the proceedings.
As I found that Mobis was entitled to indemnity under the Local Policy. I did not need to decide whether it was entitled to indemnity under the Master Policy.
However, because UNIQA (by then separately represented) did take the point, I also found that Mobis would not have been entitled to indemnity under the Master Policy. That was because, although Mobis was an "Insured Company" under that policy (see [657] - [688] of the principal judgment), its rights under the Master Policy could only be enlivened at the suit of the named Policy Holder, Mobis Slovakia (see [689] - [714] of the principal judgment).
That finding was in substance contrary to, and certainly inconsistent with, XL's statement to the Court that no "privity issues" would arise if Mobis were to make a claim under the Master Policy.
I also made a finding that, on the proper construction of the Master Policy, UNIQA was not liable under that policy for risks in Australia (see [725] - [740] of the principal judgment). That finding related to the Note to Art 3.1.3 of the Master Policy and related only to UNIQA. It did not constitute a finding that the Master Policy itself did not respond to risks in Australia.
Taking into account all those circumstances, I find that XL's conduct in seeking to invoke the Faulty Design Exclusion under the Local Policy, and assuring the Court and Mobis that no "privity issues" would arise should Mobis make a claim under the Master Policy, provides a sufficient and proper basis to order that XL, rather than Mobis, pay the costs of AIG and of UNIQA.
AIG played very little part in the conduct of the proceedings before me and was largely content to rely upon the manner in which XL resisted Mobis's claim. As I understand it, AIG sought to be independently retained throughout the hearing by reason of an apprehension that if (as happened) UNIQA were to establish successfully that it had no liability under the Master Policy, Mobis, and consequentially XL, might seek to contend that AIG was liable for the 20 per cent share of liability that would otherwise fall to UNIQA. As it turned out, that issue did not arise. I do not see this as a reason not to order that XL pay AIG's costs of the proceedings. The limited role AIG took in the proceedings will, no doubt, be a matter to be taken into account in the assessment of the quantum of those costs.
So far as concerns UNIQA, it is common ground that, by reason of an Offer of Compromise served by UNIQA on Mobis pursuant to UCPR r 20.26 on 1 May 2017, and a Calderbank letter sent the same day (in which UNIQA made a "walk away" offer), UNIQA should have its costs on an indemnity basis from 2 May 2017. During argument, I made clear that, unless I heard a submission to the contrary, "whoever pays UNIQA's costs must pay them on an indemnity basis" from that date. Neither Mobis nor XL made any such submission.

Conclusion as to costs

I therefore propose to order that: 1. XL pay 80 per cent of Mobis's costs of the proceedings on the ordinary basis; 2. XL pay AIG's costs of the proceedings on the ordinary basis; and 3. XL pay UNIQA's costs on the ordinary basis up to and including 1 May 2017 and on an indemnity basis thereafter.

Interest on judgment

By reason of s 57 of the Insurance Contracts Act 1984 (Cth), XL is obliged to pay Mobis interest on $17,731,180 from "the day as from which it was unreasonable for [XL] to have withheld payment" at the rate prescribed by reg 32(1) of the Insurance Contracts Regulations 1985 (Cth) (agreed to be 5.5 per cent per annum).
Mobis submitted that interest should run from 25 July 2015, or alternatively 25 October 2015 (being three or six months from the date of the collapse) on the basis that these were reasonable periods "within which XL should have investigated the loss, made an unqualified admission of liability under the Local Policy and sought such material it reasonably required to quantify Mobis's indemnity under the policy".
This submission appears to me to oversimplify matters somewhat.
As Cole J said in Bankstown Football Club Ltd v CIC Insurance Ltd (Supreme Court (NSW), 17 December 1993, unrep), (cited with apparent approval by the High Court in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2), the section "is directed to a determination of the point of time at which empirically, it can be stated that it was unreasonable to decline to make payment [on] the presumption…that the insurer would be deemed to know of [its] obligation as ultimately determined".
Similarly, in Sayseng v Kellogg Superannuation Pty Ltd [2007] NSWSC 857 Nicholas J said at [7]: "…the question of reasonableness is to be judged by reference to the true position in respect of the claim with allowance to be made for the insurer to have a reasonable period of time within which to investigate the claim and to consider its position. The discretionary determination is to be made having regard to the particular circumstances of the case, including the probable issues which require investigation."
Mobis made claims for damage to the warehouse itself, damage to the contents and the stock within the warehouse, and for business interruption.
Determination of the date beyond which it was unreasonable for XL to withhold payment for those claims requires consideration of the circumstances in which XL sought, and Mobis provided, information in relation to those various categories of claim.
In that regard, XL directed my attention to the circumstances in which that information was sought and provided in the course of this litigation.
On the other hand, Mobis submitted that, had XL not asserted in June 2015 (erroneously as I have found) that its liability under the Local Policy was limited to the Australian dollar equivalent of EUR 10 million, it is likely a less adversarial and more consensual approach would have been adopted by both Mobis and XL (perhaps through consultation between their loss adjustors). Had that occurred, XL would have been placed in a position where it could have reasonably assessed the fair quantum of Mobis's claim earlier than transpired in the course of this litigation.
Adoption of that submission involves a high degree of speculation about an untestable hypothetical circumstance.
It may be that, had XL not denied liability under the Local Policy upon the basis that it should have had a hail limit, and on the further basis that the Faulty Design Exclusion was enlivened, information may have been sought and provided more quickly than in fact occurred. But I am not able to see how I could assess how much more quickly and efficiently matters would have progressed in that hypothetical circumstance.
I have concluded that the most reliable guide to these matters is the course of events in the litigation.

Building claim

I have determined that XL should pay Mobis $15,116,537 in respect of Mobis's building claim.
XL paid Mobis $14,423,000 on 5 June 2015 (being the then Australian dollar equivalent of EUR 10 million) in purported satisfaction of all of XL's obligations under the Local Policy. That payment was not directed to any particular element of Mobis's claim under the Local Policy. However, as a matter of arithmetic, the payment was equivalent to some 95 per cent of the amount that I have awarded in respect of the building claim.
Further, as XL has pointed out: 1. Mobis incurred the cost of rectifying the building progressively throughout the course of construction; and 2. the final amount payable by XL to Mobis in respect of building damage only became apparent when the question of betterment of the building was resolved by my judgment of 7 November 2017: Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 8).
In these circumstances, I accept XL's submission that there should be no interest on the building claim.

Contents claim

I have determined that XL should pay Mobis $7,869,593 in respect of damage to contents in the warehouse.
XL submitted that assessment of the contents claim depended upon a number of matters, including provision to it of Mobis's Asset Register. Mobis did not provide XL with the Asset Register until 2 June 2016 when it was annexed to an affidavit served by Mobis in the proceedings.
I accept XL's submission that a reasonable period for the assessment of the contents claim was, in those circumstances, three months from 2 June 2016.
Interest should be calculated accordingly.

Stock claim

I have determined that XL must pay Mobis $6,162,823 for stock; an amount considerably less than Mobis claimed (see [10] above).
I accept XL's submission that it only became reasonable for XL to assess Mobis's stock claim after Mobis provided it with accurate records relating to the value of stock at the warehouse at the date of collapse.
XL adduced detailed evidence of service by Mobis of evidence on this topic, the changing factual assumptions adopted by its expert concerning stock and the various requests made by XL for information concerning the stock claim, and the provision of information in response to those requests.
The timing of these matters were summarised in XL's submissions on damage, annexed to these reasons (Annexure - XL's chronology (14.6 KB, pdf) Annexure - XL's chronology (14.6 KB, pdf)). Mobis did not dispute the accuracy of those matters.
Based on that chronology, I am satisfied that XL did not receive accurate records of the cost of replacement stock until 23 January 2017.
In those circumstances, I have concluded that a reasonable period for XL to assess the stock claim was by 2 March 2017, on which date it served Ms Daley's final report.
Interest should be assessed accordingly.

Business interruption

I have determined that XL must pay Mobis $5,414,131 in respect of business interruption.
Mobis maintained a separate account in which it recorded the costs it incurred due to the warehouse collapse.
Mobis did not provide XL with an account until it was served with the 2 June 2016 affidavit referred to at [56] above.
I accept XL's submission that a reasonable period for it to assess that document, and thus Mobis's business interruption claim, was three months from that date.
Interest should be calculated accordingly.

Conclusion

I invite the parties to bring in short minutes to give effect to these reasons and to make all other orders necessary to finalise the proceedings.

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: 01 February 2018

(Uniform Civil Procedure Rules 2005(NSW)r 42.1).

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