Murphy & Allen v SwinbankSwinbank v Cleary

Costs 67 Both parties have addressed detailed submissions in relation to costs. 68 The insurers seek an order for costs in the main proceedings and an order that those costs be on an indemnity basis in respect of the various defendants from various dates between 2 March 1999 and 29 July 1999, being dates fixed by reference to Schedule 1 to the insurers' written submissions, which in turn identifies a number of Calderbank letters and details a number of settlements. Annexure 'A' to the affidavit of Ms T.M. Hobson provides details. On the basis that the Court would not be disposed to proceed to determine the good faith proceedings, the insurers seek an order for costs in relation to the good faith proceedings and an order that those costs be on an indemnity basis, either from their inception or from 15 February 1999. 69 The Trustees assert that the appropriate orders are that the Trustees pay the insurers' costs of the main proceedings on a party/party basis and that the insurers as cross-claimants in those proceedings, pay to the Trustees as cross-defendants in those proceedings, costs of the cross-claim on a party/party basis. As to the good faith proceedings, the Trustees claim that if the Court be not disposed to proceed to determine the good faith proceedings, the appropriate order is for the insurers who were the plaintiffs in those proceedings to pay to the Trustees who were the defendants in those proceedings, their costs on a party/party basis. The Trustees submit that if the Court is disposed to proceed to determine the good faith proceedings, then the costs of these proceedings should abide the result. 70 It is clearly unnecessary in a judgment relating to costs to repeat matters to be found in the reserved judgment. That judgment serves to identify the issues and the findings and the reasons for those findings. 71 Both parties addressed detailed submissions in relation to the reasons which caused the good faith proceedings to be commenced and in relation to their respective approaches to the appropriate costs orders. To my mind, it is first appropriate to look at the main proceedings. Before turning to those proceedings, it is appropriate to recall the general principles which obtain in relation to costs. 72 Costs are dealt with in section 76 of the Supreme Court Act. Costs are in the discretion of the Court (section 76(1)(a)). The Court has full power to determine by whom and to what extent costs are to be paid (section 76(1)(b)). Costs follow the event except where it appears to the Court that some other order should be made (Part 52A Rule 11). 73 The Court may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on an indemnity basis (section 76(1)(c)). The former basis is defined in Part 52A Rule 2 as being the 'party and party basis'. 74 Since the amendments to the costs rules contained in Part 52A, indemnity costs have been circumscribed by the 'reasonableness' concept. Part 52A Rule 37(b) provides that where costs are payable on an indemnity basis all costs shall be allowed (except to the extent that it appears that they are of an unreasonable amount or have been unreasonably incurred). 75 As such, the new rules which only provide for costs on a party and party basis or on an indemnity basis do not recognise the concept of costs on a solicitor/client basis but the old concept of reasonableness formerly imported into such solicitor/client costs is now imported into the concept of indemnity costs. 76 The general principles which inform the Court's discretion to order costs which must be exercised judicially, were referred to in detail by the High Court of Australia in Oshlack v Richmond River Council (1997) 152 ALR 83. As McHugh J pointed out at paragraph 67 (page 101): 'The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation. As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. . . .' 77 In the joint judgment of Gaudron and Gummow JJ their Honours stated at paragraph 44 (page 95) : 'It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a "solicitor and client" basis or on an indemnity basis.' 78 Turning to the main proceedings, the insurers rely upon their Calderbank offers which were not accepted. As I have said, the offers are set out in Schedule 1 appended to the insurers' written submissions, although I accept the Trustees' submission that the initial letters of 2 March 1999 did not include offers of compromise. The Court has, of course, power to order costs on an indemnity basis in the exercise of its discretion and irrespective of whether an Offer of Compromise or a Calderbank letter has been furnished. 79 The insurers further rely in support of their claim for indemnity costs upon the submission that the claim under the third policy year is said to have had no real prospects of success. The insurers further rely in relation to their claim to indemnity costs upon the fact that the year 3 insurers clearly stated their position in relation to indemnity costs following the discharge of injunctions in their favour by Hunter J on 15 February 1999. 80 The judgment of Hunter J on 15 February 1999 was an interlocutory judgment handed down in a fairly unusual situation, outlined by his Honour where his Honour dismissed the Trustees' claims for declaratory relief as to their alleged entitlement to rectification, released the Trustees and Messrs Cleary & Hoare from their undertakings to the Court not to enter into any agreement having the effect of assigning rights under the 1991 policies of insurance and granted the Trustees leave to amend the main proceedings to add claims under the 1991 insurance policies. His Honour stated at page 9 of the judgment: 'As I have earlier stated, if in relation to the other matter raised by Senior Counsel it proves that there is no substance when the facts are adduced in the proposed claim by the trustees under the third policy then that is a matter that may be addressed in terms of indemnity costs, an application which would be fortified by the application by Senior Counsel today seeking, in advance, such an order. At least that has the effect of recording a claim for indemnity costs at this early stage.' 81 Clearly enough, counsel appearing for the insurers before Hunter J, claimed that the claim under the third policy was doomed on that occasion and Hunter J recognised this as an early warning to be ultimately taken into account should the insurers succeed and the Trustees fail in relation to the Trustees' claim under the third policy year. This has now occurred. It has occurred in my view, in circumstances in which the claim in respect of the third policy year was commenced and continued in disregard of known facts. I accept as correct the Insurers submission that the facts which gave rise to the successful known claims circumstances defence and to the successful prior notification defence were known to the Trustees prior to their decision to amend the proceedings and to make a claim in respect of the third policy year. Those facts were that Mr Scanlan 'clearly became aware during his examination on 19 June 1990 of circumstances which were capable of giving rise to a claim of the nature of that later pursued by the Trustees in the Cleary & Hoare proceedings no. 5870 of 1994 [reserved judgment page 152 paragraph 439). Further, the Court found "The Trustees' recording of the essence of the charge and the pleadings is essentially misleading in this context. The 7 August 1990 notification was, in my view, a notification of the circumstances which gave rise in due course to the civil proceedings" [judgment page 158 paragraph 454]. 82 The judgment of Hunter J handed down on 15 February 1999, includes the following: 'Senior Counsel for the insurers has frankly informed the Court that the real basis for his clients' opposition to the course being followed by the trustees is twofold, namely, that any claim under the third policy is misconceived as under the terms of earlier policies notice of circumstances giving rise to the very claim that is sought to be made in respect of the third policy was given and, under the terms of those policies in respect of which the notice was given, any claim thereafter made is deemed to be made from the time that such notice was given.' [page 5] 83 The insurers make the point, as I accept, that this was a very substantial case requiring considerable preparation. They point out that the offer of most of the defendants was to pay money as well as foregoing costs. They point out that whilst the offer of those year 3 insurers who were not otherwise sued was for a dismissal with no order as to costs that did involve a significant compromise in litigation of this scale. They point out that the offer to forego all pre-offer costs was a significant compromise on the end result, that is that the Trustees pay both the pre and post-offer costs and cite in this regard Wilkinson & Ors v Feldworth Financial Services Pty Ltd [unreported, Rolfe J, Supreme Court of New South Wales, 17 December 1998 at page 22]. 84 The Trustees point our that the Calderbank letters were written from 23 July 1999 (17 days before the hearing) to 6 August 1999 (3 days before the hearing). The Trustees point out that the offers were open for very limited periods of time ranging from 7 days (including week-ends) to parts of a day. A convenient table setting out these periods of time is set out in paragraph 4 of the Trustees' written submissions which records the duration of relevant offers from particular insurers as running from one day duration of offer to a seven day duration of offer. This table must however be reconciled with Annexure 'A' to Ms Hobson's affidavit which details the first and second rounds of counter offer. 85 The Trustees also submit that no offer of compromise was made under the Supreme Court Rules as an offer made under Part 22 must remain open for at least 28 days [Part 22 Rule 3(2)]. 86 The Trustees submit that the evident purpose of this requirement is to give the party to whom the offer is addressed, sufficient time to consider it. The Trustees submit that this is of particular significance where, as is said to have been the case in these proceedings, the offers, with one possible exception, were made within 14 days preceding the commencement of the hearing on 9 August 1999. 87 The Trustees submit that the insurers, having not availed themselves of the statutory regime laid down by Part 22, have failed to explain why they did not do so. The Trustees' submission is that given that the insurers Calderbank offers gave less - in fact, in all cases, much less - than the 28 days required to be given under Part 22, and in circumstances where the Calderbank offers were made at a time when the Trustees must have been known to be preparing for hearing, the Court should be slow, absent some proper explanation, to give the insurers an outcome that they could not have obtained by following the statutory procedure. This is said to be particularly so where most of the insurers who made offers were involved as insurers for at least two and in many cases three of the insurance years in question. The Trustees' submission which I accept, is that where this was the case, analysis and consideration of any offer of compromise involved not just the year 3 issues but all issues in the proceedings. 88 The Trustees accept in their submissions that the Court may take into account a Calderbank offer when considering whether or not a special order should be made in relation to costs but that a special order for costs does not follow automatically. They point out that in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425, Rolfe J at 451 stated that' an order would usually be made in favour of the successful offer or from the date of the making of the offer'. The Trustees submit that that would only be where, in all the circumstances, the offer allowed a reasonable time - prima facie 28 days is suggested as a reasonable time - for its acceptance. The Trustees submit that where, as they suggest, this did not occur, then either no special order for costs should be made or if a special order is contemplated, it should date only from the expiry of the reasonable period - the Trustees submit that in this case the statutory analogue suggests 28 days from the making of the offers. The submission is then that this is such a small period of time that it does not justify making any special order. 89 To my mind, the Trustees' submissions do not take into account the strength of the insurers' position with regard to the strength of the insurers' claim in relation to Year 3 as outlined to Hunter J on 15 February 1999. That statement of the insurers did relate to the suggested misconceived claim under the third year policy and was accepted as such by Hunter J. The Trustees then submit that, to the extent that the insurers rely on the alleged hopelessness of the claim against the year 3 policies as a ground supporting a special costs order, that could at the most support such an order only in relation to the year 3 claims. The alleged hopelessness - even if found - is said not to have any possibility of infecting the rest of the claims. The Trustees also claim that there was a relatively minor amount of time and work devoted exclusively to year 3 issues and refer to the difficulty of isolating purely year 3 work and quantifying purely 3 costs and refer to the commonality of issues across the whole of the claim. 90 To my mind, the circumstances which obtain in terms of a combination of the insurers' submissions to Hunter J and his Honour's comments in relation to the possibility of indemnity costs in the main proceedings should the year 3 policy claim fail, the sending of the Calderbank letters although late and the circumstance that the facts which gave rise to the successful known claim circumstances defence and to the successful prior notification defence, were known to the Trustees prior to their decision to seek to amend the proceedings and make a claim in respect of the third policy year, together do warrant the making of an order for indemnity costs in respect of the various defendants from various dates between 2 March 1999 and 29 July 1999 but the appropriate order is to award only thirty percent of such costs. In short, I accede to the application by the insurers summarised in paragraph 1(b) of their written submissions (as corrected in oral submissions) but only to the extent of thirty percent of the costs which had been claimed on an indemnity basis over the relevant dates identified in that paragraph of the insurers' submissions. The balance of the insurers' costs of the main proceedings are to be ordered as payable on a party party basis. 91 The Court has now proceeded to determine the good faith proceedings. The Trustees have effectively succeeded in terms of the substance of the good faith proceedings. They had no alternative but to defend those proceedings. But for the fact that the good faith proceedings were essentially defensive in character, the appropriate order would be for the insurers to pay the Trustees' costs of the good faith proceedings. Some recognition requires to be given to the fact that the insurers succeeded in the main proceedings. Some recognition requires to be given to the reasonably discrete nature of the factual and legal issues litigated in the good faith proceedings. In my view, the appropriate order is for the insurers to pay two thirds of the Trustees' costs of the good faith proceedings. 92 As to the cross-claim in the main proceedings, the parties are agreed that as the insurers failed on their cross-claim to recover the $500,000 paid in October 1997, the appropriate order is that the insurers should pay the Trustees' costs of that cross-claim. 93 Short minutes of order should be brought in to reflect these reasons and to record the formal change in parties.

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Cases Cited (2)

Cited By (1)