Murgolo v AAI Ltd t/as AAMI

Factual background

1. The background and facts relating to the proceedings are set out in the principal judgment and it is not necessary to repeat them in full. I have adopted the same descriptions of the parties herein as used in my earlier judgment. Given that AAI's application for indemnity costs is based on the unviability of Mr Murgolo's case, it is necessary for me to briefly set out the issues in dispute.
2. Mr Murgolo brought proceedings against AAI seeking damages pursuant to s 601AG of the Corporations Act 2001 (Cth) in respect of liability that he alleged was owed to him by the second defendant, Class Welding, for a workplace injury. He claimed that by an insurance policy, AAI agreed to indemnify Class Welding in respect of all liability that the company became legally liable to pay for compensation for personal injury, subject to the terms and conditions of the policy.
3. AAI sought summary dismissal pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") on two distinct bases: that the proceedings are statute-barred by virtue of s 50C(1) of the Limitation Act1969 (NSW) and that the principle of res judicata applied.
4. I found in favour of AAI. I was satisfied that Mr Murgolo believed that a case against Class Welding could be established on the balance of probabilities by the commencement of the 2013 proceedings at the latest. This meant that I was satisfied that he knew of the relevant facts in s 50D(1)(b) of the Limitation Act at least five years prior to the commencement of the 2018 proceedings: see [77] of the principal judgment.
5. I also considered whether the actions of Mr Murgolo's then solicitor, or the solicitor for GIO, or the directors of Class Welding (NSW) were relevant to the question of the discoverability of who the correct defendant was. I held at [88] that Mr Murgolo first "knew" that Class Welding had caused the injury he suffered shortly after the accident and the fact that he was later advised by his solicitor to discontinue proceedings against Class Welding did not alter that fact.
6. Finally, I was satisfied that the judgment entered against Class Welding (NSW) merged the cause of action into the judgment and the fact it that was a default judgment did not undermine the application of the principle of res judicata: at [101]. I was not satisfied that the principle of res judicata arose in the matter given that it was not the same party which had had judgment entered against it (Class Welding (NSW)) which then sought to rely on it. Nor did I consider the proceedings against AAI to be an abuse of process. Rather, the proceedings had simply been brought out of time: at [106].

AAI's submissions

1. AAI submits that the "event" in the subject case was the dismissal of the proceedings. Accordingly, in its submission, the starting point is that the plaintiff should be ordered to pay AAI's costs of the proceedings, which includes the costs of the motion and the hearing on 15 February 2019. It submits those costs should be paid on an indemnity basis.
2. AAI submits the following two principles are relevant.
3. First, an order for indemnity costs is not made to punish an unsuccessful plaintiff for persisting with a case that fails, but to compensate a successful defendant for costs incurred, when the Court takes the view that it was unreasonable for the plaintiff to have subjected that party to the expenditure of costs: Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCA 424 at [20].
4. Secondly, indemnity costs can be ordered where a party has maintained proceedings that they should have known had no real prospects of success: Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; [1988] FCA 364. AAI submits this is one such case.
5. In seeking to persuade the Court of that position, AAI points to the fact that on 17 August 2017, prior to the commencement of these proceedings, AAI's solicitors wrote to the plaintiffs solicitors setting out why the foreshadowed claim would be statute barred. No response was received from the Mr Murgolo's solicitors. Mr Moroney wrote again on 3 May 2018. On that date, a response was received, and the proceedings were subsequently commenced on 28 May 2018.
6. AAI points to the fact that the Court determined that Mr Murgolo believed that a case against Class Welding (as opposed to Class Welding (NSW)) could be established on the balance of probabilities by the commencement of the 2013 proceedings on the basis that (at [17]): "(a) As he commenced proceedings against Class Welding, it was inferred that he had been given advice as to the prospects of that claim and he subsequently gave instructions to his legal representatives consistent with that advice to commence the proceedings. A s 347, Legal Profession Act 2004 certificate was given to certify that there were reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim for damages have reasonable prospects of success as was an affidavit verifying that the allegations of fact in the statement of claim were true: Murgolo v AAI Ltd t/as AAMI at [78]; (b) There was other contemporaneous documentation to establish that the plaintiff believed at that time that the injury was caused by Class Welding including the General Case Management document on 19 February 2013 signed by his solicitor: Murgolo v AAILtd t/as AAMI at [79]; (c) His evidentiary statement dated 2 October 2008 [sic: 2018] stated that he understood back at the time of the accident that it was Class Welding (rather than Class Welding (NSW)) which was contracted by Proline: Murgolo v AAI Ltd t/as AAMI at [80]."
7. In AAI's submission, all of the matters found by the Court were known to the Mr Murgolo prior to the commencement of these proceedings: this is not a case where the party has belatedly accepted the unlikelihood of success: Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 at 247. Upon receipt of the August 2017 letter it should have been apparent to Mr Murgolo's solicitors that the proceedings were statute-barred and had no real prospects of success. On this basis, AAI submits it deserves indemnity costs.

Mr Murgolo's submissions

1. It was submitted that there are five reasons why this application for indemnity costs should be dismissed.
2. First, the case raised a novel point of law in that the plaintiffs contended that he was able to "un-know" relevant fact for the purpose of s 50D(1)(b) of the Limitation Act.
3. Secondly, the only matter put in issue was the effect of s 50D(1)(b) of the Limitation Act.
4. Thirdly, AAI was not successful on its alternate argument asserting that these proceedings were an abuse of process or the subject of principles of res judicata.
5. Fourthly, it does not follow the proceedings which are summarily dismissed ought necessarily be the subject of an indemnity costs order. Each application will turn on the factual context and circumstances.
6. Fifthly, it is not suggested that the letters dated 17 August 2017 and 3 May 2018 were Calderbank letters. Thus, in order for indemnity costs to be made the court would have to be satisfied that Mr Murgolo's conduct was such that an indemnity cost order is warranted.

Consideration

1. I set out the general principles relating to an award of costs at [111] of my earlier judgment but will re-state them here. Section 98(1)(a) of the Civil Procedure Act 2005 (NSW) provides that costs are in the discretion of the court. Section 98(1)(b) provides that the court has "full power to determine by whom, to whom and to what extent costs are to be paid". This discretion is subject to the qualification that it "must be exercised judicially in accordance with established principle and factors directly connected with the litigation": Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65], per McHugh J. Among the fetters on the discretion to award costs are the rules of the court contained in Part 42 of the UCPR. The usual rule is that costs follow the event, unless it appears to the court that some other order should be made: UCPR r 42.1. UCPR r 42.5 relevantly provides that if the court determines that costs are to be paid on an indemnity basis then "all" costs are to be allowed.
2. The relevant principles were discussed In Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 Basten JA (Giles JA and Young CJ in Eq agreeing) surveyed, in considerable detail, the relevant authorities relating to the conduct of the parties in awarding indemnity costs, in particular the conduct of the losing party: "[106] The modern approach to the question of awarding indemnity costs is often sourced to the judgment of Holland J in Degmam Pty Ltd (In liq) v Wright (No 2) [1983] 2 NSWLR 354. In cases where the winning party has acted extravagantly, thus running up unnecessary costs, it may be inappropriate to require the losing party to pay all of the winner's costs. However, the question of indemnity costs will usually arise in circumstances where it is the losing party which has behaved inappropriately. Degmam itself was a case in which the unsuccessful defendant made factual allegations which were "false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability … from herself": at 358. His Honour continued: 'As well as that, she so conducted herself in the proceedings, by multiplying allegation upon allegation, and by prevaricating in the witness box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues.' [107] These principles were applied in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202 ; 81 ALR 397 at 400-401, by Woodward J. His Honour referred to the case where an action had been commenced or continued in circumstances where "the applicant, properly advised, should have known that he had no chance of success": at 401. His Honour explained: 'In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.' [108] In later cases it has been emphasised that the circumstances identified in Degmam and Fountain are not to be treated as exhaustive of the cases in which indemnity costs may be awarded: see, eg, J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) [1993] FCA 42 ; 46 IR 301 at 303 (French J). It was sufficient, his Honour said, to enliven the discretion to award such costs that "for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case". An indemnity costs order will be warranted where proceedings were maintained by a party having "no reasonable prospect of success": see, eg, Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 (Powell J); Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242 at 273 (Mahoney JA). [109] The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257(S) (Pullin and Buss JJA, and Newnes AJA) held that an indemnity costs order must be justified by "some special or unusual feature of the particular case": at [5]. Nevertheless, in declining to make such an order, the Court merely held that the respondent could not be accused of "having some ulterior motive, or wilfully disregarding the facts or the law": at [7]. [110] In Colgate-Palmolive, Sheppard J sought to elucidate the principles to be derived from the earlier cases: at pp 232-233. [111] Nevertheless, more recent case-law generally shows a tendency to grant indemnity costs orders more readily than was the case in the past. That may be seen to be an element of a broader policy directed to limiting the litigation of cases where there are no reasonable prospects of success: see, eg, Legal Profession Act 2004 (NSW), Part 3.2, Div 10. Such a policy is also reflected in the presumption in favour of an order of indemnity costs where an offer of compromise in accordance with court rules has been made by one party but not accepted by the other and where the offeror has bettered the offer in the litigation. Although the court may otherwise order, the fact that the offeree may be at substantial risk as to an adverse costs order, to be assessed on an indemnity basis, if the offer is bettered, places a significant financial incentive favouring careful consideration of such offers and careful assessment of the benefits of settlement. [112] As appears from the discussion in Commonwealth of Australia v Gretton [2008] NSWCA 117 (Beazley JA, Mason P agreeing) at [48]ff, the test of unreasonableness, applied with respect to the consequences of refusing a Calderbank offer are likely to operate also with respect to other aspects of a party's conduct of litigation: see also Gretton at [117] (Hodgson JA), referring to Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 (Mason P, Clarke AJA agreeing). [113] While the general rule remains that costs should be assessed on a party and party basis, it is important that the standard to be applied in awarding indemnity costs not be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis, absent some blameworthy conduct on its part. A test of unreasonableness should not be upheld on other than clear grounds. Nevertheless, the evaluative judgment thus engaged was satisfied by the findings of fact made by the trial judge and not directly challenged on appeal, except on the basis of other grounds referred to above. In those circumstances, the discretionary power to award costs on an indemnity basis was engaged and it was not demonstrated on House v R principles that the discretion had miscarried."
3. Having regard to these principles, I am satisfied that the conduct of Mr Murgolo does not rise to the level as would warrant an order that the costs be paid on an indemnity basis in this matter. Although AAI relied upon the correspondence dated 17 August 2017 and 3 May 2018 in support of its argument for indemnity costs, it was not suggested that any offer was ever made. Rather, AAI simply pointed out that it did not believe that Mr Murgolo could bring these proceedings out of time. In circumstances where it is not the case that Mr Murgolo rejected any reasonable settlement offer and has found himself in a worse situation then, this application turns solely on his conduct.
4. The parties could not identify any other authority which had dealt with the novel point of law raised in this application. In those circumstances I was not satisfied that the proceedings were an abuse of process: see earlier judgment at [106]. In the circumstances of this case, I am not satisfied that Mr Murgolo's conduct in bringing these proceedings exhibited any "delinquency or unreasonableness" on his part: per McCallum JA (at [53]) in Insurance Australia Ltd v Dent [2019] NSW CA 134 describing the relevant conduct required to ground an order for indemnity costs. Furthermore, concessions were made on the part of Mr Murgolo which limited the scope of the motion before me: see at [63].
5. Mr Murgolo accepted in his written submissions on this cost dispute that he should be ordered to pay AAI's costs of the proceedings, including the costs of the notice of motion filed 23 October 2018, on an ordinary basis. Accordingly, I propose to make the alternate costs orders sought by AAI.

ORDERS

1. Order 2 of the six orders I made on 18 April 2019 is varied as follows: 1. The plaintiff is to the pay the first defendant's costs of these proceedings including the first defendant's motion filed 23 October 2018, on an ordinary basis.

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