On 27 August 2015, I published reasons for judgment in this matter: Panos v FSS Trustee Corporation [2015] NSWSC 1217. I dismissed Mr Panos' claim. However, there were features of these proceedings that might justify a costs outcome other than that the costs of the proceedings should follow the event, so that an order would be made that Mr Panos pay the defendants' costs. I gave the parties liberty to make submissions as to the proper costs orders that the court should make.
In my earlier reasons for judgment, I called the first defendant the "Trustee", and the second defendant the "Insurer", and I will continue to use those terms.
As my reasons for judgment were necessarily lengthy and complex, I will assume an understanding of those reasons for the purposes of this present judgment.
The Trustee submitted to the order of the court, save as to costs. It did not take part in the hearing. The Trustee has advised that it does not wish to make any submissions concerning the costs of the proceedings.
Because of its submission, it is plain that no order for costs should be made against the Trustee. I have assumed from the fact that the Trustee does not wish to be heard on costs, that it is content for no costs ordered to be made in its favour against either of the other parties. I will therefore make an order in respect of the proceedings in so far as they involved the Trustee that there will be no order as to costs, with the intent that the Trustee and the other parties will pay their own costs of that part of the proceedings.
That leaves the necessity for the court to decide the appropriate costs orders as between Mr Panos and the Insurer.
The Insurer succeeded in the proceedings. It has filed written submissions. Mr Panos has also filed written submissions.
The position adopted by the Insurer reflects the fact that the proceedings were initially fixed for hearing on 11 March 2014. Up until shortly before that time, the Insurer had not made a determination of Mr Panos' TPD claim. Consequently, Mr Panos pursued a claim of constructive denial of his claim. However, at the beginning of the hearing, the Insurer informed McDougall J that it had decided to reject Mr Panos' claim. It was necessary for the hearing date to be vacated.
The Insurer accepts that it should pay the costs thrown away by reason of the vacation of the first hearing on 11 March 2014, on the ordinary basis.
The Insurer submitted a draft order that provided for the Insurer to pay the costs referred to in the preceding paragraph, and otherwise for there to be no order as to the costs incurred up to and including 11 March 2014, with the intent that the parties shall bear their own costs that were not thrown away as a result of the vacation of the first hearing. The draft orders provided for the plaintiff to pay the Insurer's and the Trustee's costs incurred after 11 March 2014 on the ordinary basis. The Insurer apparently assumed that the Trustee would seek an order for costs against Mr Panos. As I have explained above, the Trustee has not sought that order.
The Insurer has also advised the court that, notwithstanding that Mr Panos declined to accept a number of offers to settle his claim against the Insurer, the Insurer did not pursue any claim that any costs order made against Mr Panos be on an indemnity basis.
Mr Panos' position is that he should be ordered to pay no more than 20% of the Insurer's costs, capped at $20,000 in accordance with s 98(4) of the Civil Procedure Act 2005 (NSW), and that the Insurer should be ordered to pay 80% of Mr Panos' costs.
Mr Panos has supported this position by relying upon a significant number of arguments in par 3 of his submissions. I have taken into account all of those arguments, although I will not refer to all of them in these reasons. I paraphrase below the principal arguments relied upon by Mr Panos:
1. The Insurer only advised the court that it had made the decision on Mr Panos' TPD claim on the first day of the first hearing. That not only lead to the vacation of the hearing, but changed the basis upon which Mr Panos was required to pursue his claim. The Insurer acted in its own interest by "manipulating the landscape of the original proceedings strategically placing itself in a position to frustrate [Mr Panos'] case of constructive denial, at the last minute, and in doing so breached its duty of utmost good faith to" Mr Panos. It should be recorded that I did observe at par 235 of the judgment that the Insurer's last-minute efforts to give Mr Panos procedural fairness, and to deny his claim, did involve a breach of its duty of utmost good faith.
2. The Insurer "unreasonably, unduly and unnecessarily protracted the litigation by its conduct" and "there was no basis, apparent reason or justification for it taking so long to make its determination".
3. The Insurer's delay in determining Mr Panos' claim unnecessarily obliged him to commence legal proceedings. Mr Panos claims that a reasonable time for the Insurer to have taken to assess his claim was 3 to 4 months, relying on Sayseng v Kellogg Superannuation Pty Ltd [2007] NSWSC 857; (2007) 213 FLR 174.
4. The Insurer was found to have breached its duty of utmost good faith in the manner in which it finally decided to reject Mr Panos' claim, and the court found that the Insurer's determination was invalid.
5. Shortly before the second hearing that commenced 9 February 2015, the Insurer made a second determination that it would reject Mr Panos' claim. It advised Mr Panos that it would rely upon this rejection at the hearing, and made attempts to do so, but it ultimately abandoned the attempt to rely upon the second determination because of forensic hurdles that it faced as a result of that determination having been made so close to the commencement of the second hearing that neither Mr Panos nor the Trustee had been given adequate time to consider and respond to it.
6. Mr Panos claims that the Insurer's shortcomings occupied the majority of the hearing, taking up almost 2 of the 3 days that the matter was heard. He submits that, out of the judgment of 133 pages, the court finally finished dealing with the conduct of the Insurer at about page 82.
The Insurer submitted that the present is not a case in which it is appropriate to depart from the general rule that the whole of the costs of the proceedings should follow the event. It submits that Mr Panos failed on a number of specific issues, as well as the overall outcome of the case. It refers to the observations made in the reasons for judgment about inadequacies in the way that Mr Panos' case was pleaded. It submitted that the issue of whether the Insurer's determination was invalid and the issue of whether Mr Panos met the TPD definition substantially overlapped. Both issues were dependent on the same question, being whether Mr Panos met the TPD definition, and rested upon much of the same medical evidence.
The Insurer did not specifically respond to Mr Panos' submission concerning the proportion of the hearing time that was devoted to what Mr Panos described as the Insurer's shortcomings. This is not a case, in my view, that lends itself in any reliable way to an attempt to divide the amount of time spent in dealing with isolated issues. That is because there is substantial force in the Insurer's submissions that there was considerable overlap in the issues and the evidence and proceedings relevant to the resolution of the issues.
In Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 Hodgson JA, with whom Allsop P and Macfarlan JA agreed, said:
[22] The principles to be applied are usefully summarised as follows in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]:
[38] The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this court in Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373. Those principles may be summarised as follows:
Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported).
In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal.
If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 at [27].
Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).
A separable issue can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].
Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2) , citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272.
These principles were applied in City of Canada Bay Council v Bonaccorso Pty Ltd (No 3) [2008] NSWCA 57 at [22] and most recently in Turkmani v Visvalingham (No 2) [2009] NSWCA 279.
In the same case, Hodgson JA had earlier made the following observations concerning how these principles may be applied differentially to plaintiffs and defendants:
[9] One further matter that was the subject of submissions was whether the principle that a successful party may be deprived of costs and may be ordered to pay the other party's costs, in respect of issues lost by the successful party where that issue was clearly dominant or severable, operates more strongly against a successful plaintiff: see Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 81 ALR 166 at 169; Richmond River Council v Oshlack (1996) 39 NSWLR 622 at 637; Hendriks v McGeoch [2008] NSWCA 53 at [104], Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [19]-[20], [38]-[39].
[10] In my opinion, generally this is so. Where a plaintiff's case fails, it may sometimes be appropriate to order the plaintiff to pay the costs of issues unsuccessfully raised by the defendant, even if those issues are severable, so long as the defendant acted reasonably in raising those issues. It is I think less often the case that a defendant would be ordered to pay the costs of severable issues unsuccessfully raised by an otherwise successful plaintiff. However, the requirements of s 56 of the Civil Procedure Act 2005 that parties assist the court to facilitate the just, quick and cheap resolution of the real issues on the proceedings, and take reasonable steps to resolve or narrow the issues in dispute, do apply to defendants as well as plaintiffs; and this is relevant to the exercise of the costs discretion.
The proper starting point in determining the costs orders that should be made in this case is the fact that Mr Panos' case has failed, and it failed for reasons that should have been apparent to Mr Panos, if not his legal representatives and treating doctors, from the beginning. Mr Panos' various injuries were debilitating, but not to the extent that Mr Panos claimed: see judgment pars 451 to 460. In retrospect, Mr Panos ought not to have brought this claim.
However, in my view, this case raised a substantial separable issue for the purpose of dealing with costs, and the Insurer's conduct in various ways substantially and unnecessarily increased both its and Mr Panos' costs, in some cases where the conduct justified criticism that the Insurer had not acted with utmost good faith.
It is neither necessary nor appropriate in this case for me to express any positive view about the validity of Mr Panos' claim that the Insurer should have processed Mr Panos' claim, and made a determination, within 3 to 4 months of the claim being made. It is the case, however, that the claim was made on 21 March 2012, and a determination was not made until 17 March 2014. Of that period of some two years, almost one year followed the filing of Mr Panos' statement of claim on 19 April 2013. The Insurer was not even induced to hurry up by the commencement of proceedings. No explanation was offered to explain this delay. It is in fact inexplicable and unjustified.
It is probably not possible to measure the effect of the somewhat haphazard way that the Insurer dealt with Mr Panos' claim in terms of the costs that it caused Mr Panos, but I am satisfied that Mr Panos would have suffered some increase in costs because of the inefficient way in which the Insurer dealt with his claim.
Until the first day of the first hearing, 11 March 2014, Mr Panos was required to pursue a claim of constructive denial based upon the history of the claim up until that date. It can be expected that, in the ordinary way, a considerable proportion of the costs incurred by Mr Panos related to the preparation for the hearing in the time immediately before 11 March 2014. The position taken by the Insurer, which I have set out above, recognises that it should be ordered to pay the costs thrown away by reason of the vacation of the first hearing. That is true, but the costs consequences of its conduct do not end there.
At the last minute, so to speak, the Insurer sent a 'procedural fairness' letter to Mr Panos, but gave him wholly insufficient time to respond to it, and then rejected his claim. I found that conduct to be a breach of its duty to act with utmost good faith, and ultimately I found that the Insurer's determination was invalid. The issue of whether the Insurer had accorded Mr Panos procedural fairness, and whether it had made a proper determination to decline his claim, was, in my view, a sufficiently separable issue to justify my treating that issue as one upon which the Insurer failed in these proceedings.
It is true that to a considerable extent the evidence that underlay this issue and the ultimate issue of whether Mr Panos satisfied the criteria to be entitled to the TPD benefit overlapped, but, in my view, the way that evidence was relevant to the two issues was sufficiently different in each case to justify treating the issues as separate ones.
From the time when the Insurer first declined Mr Panos' claim, Mr Panos had to pursue the two issues of whether the Insurer's determination was invalid, and if so, whether its continuing failure to make a proper determination was a new constructive denial. It may be that the new constructive denial case overlapped to a large extent with the original one, and built upon it to take into account the Insurer's subsequent conduct. However, in my view, Mr Panos was required to a large degree to recast his claim for constructive denial. In doing so he must have incurred significant legal costs.
The truth of this proposition appears to be recognised in the draft order attached to the Insurer's submissions, which provided for no order as to the costs incurred up to and including 11 March 2014.
The Insurer then made a second determination and rejected Mr Panos' claim. It asserted its right to rely upon this determination at the hearing, and took steps to be able to do so. It abandoned that attempt. This conduct must unnecessarily have increased Mr Panos' costs.
In these unusual circumstances, I have decided that the costs of the proceedings should be dealt with in the following way.
First, it is clearly proper for the court to act on the Insurer's acceptance that it should be ordered to pay Mr Panos' costs thrown away by reason of the vacation of the hearing on 11 March 2014.
I may have been prepared to entertain an application that these costs be paid on an indemnity basis, rather than the ordinary basis, in view of my finding that the Insurer did not act with utmost good faith. However, Mr Panos has not made any submission to that effect, and I do not think I should make such an order on my own motion.
Secondly, the circumstances warrant the court acting upon the Insurer's suggestion that no order for costs should be made for the proceedings up to 11 March 2014. That is because, as I have said above, the Insurer's conduct up to 11 March 2014, to a substantial degree, required Mr Panos to run a new constructive denial case after that date. However, as Mr Panos was ultimately unsuccessful in the proceedings, he is not entitled to an order for costs in his favour for the period up to 11 March 2014.
Thirdly, for the period after 11 March 2014 the Insurer is entitled to an order for its costs on the ordinary basis in respect of all issues in the proceedings other than the validity of its denial of Mr Panos' claim on 17 March 2014.
Fourthly, Mr Panos is entitled to an order that the Insurer pay his costs in relation to the validity of the denial on the ordinary basis.
Fifthly, although the effect of the Insurer's conduct concerning its second determination on Mr Panos' costs is probably not measurable in any reliable way, the costs order that is made should make some allowance for the additional costs incurred by Mr Panos.
It is not desirable that the court make costs orders in favour and against both Mr Panos and the Insurer that will commit those parties to a problematic and expensive assessment process directed to apportioning the costs of two issues that did have substantial degrees of overlap. The only appropriate course is for the court, doing the best it can, and as a matter of impression and judgment, to make a single costs order that reflects all relevant considerations for the period after 11 March 2014.
In my judgment the appropriate order to make, which reflects the failure of Mr Panos' claim, and all of the other matters considered above, is that Mr Panos should pay 30% of the Insurer's costs of the proceedings after 11 March 2014 on the ordinary basis.
Mr Panos did not offer any basis in his submissions for the court to place a cap on the amount of costs that he should be ordered to pay, and I will not make such an order.
I believe it is appropriate for me to make the following observations that may be relevant to any attempt by Mr Panos and the Insurer to agree the amount of the costs that should be paid by the other, or absent such agreement, to the assessment of the costs. It may be that ultimately these observations do not matter, as the Insurer's costs to which I refer were probably mostly incurred before 11 March 2014, so that the Insurer will be required to bear those costs itself as a result of the costs orders that I will make.
As I have explained in my earlier reasons for judgment, a substantial quantity of evidence was put before the court by the Insurer on the issue of whether Mr Panos satisfied the criteria under the Policy that would entitle him to receive the TPD benefit. Some of that evidence was collected by the Insurer after Mr Panos commenced the proceedings. In my view it is clear, however, that all of the evidence collected by the Insurer was collected in the process of its performing its obligation under the Policy to make a determination as to whether or not Mr Panos was entitled to the TPD benefit. At the time he made his initial claim to the Trustee, Mr Panos delivered a considerable amount of evidence to support his claim. That evidence was evidently passed on to the Insurer by the Trustee in support of the Trustee's claim under the Policy. Mr Panos made his claim on 21 March 2012 and he filed his statement of claim on 19 April 2013. The Insurer did not make a determination until 17 March 2014, after the first hearing was vacated. In the intervening period, Mr Panos submitted additional evidence to the Trustee from time to time, as it became available to him. That evidence was passed onto the Insurer. The Insurer also commissioned a significant number of reports from various medical and vocational experts. That process continued to some extent even after the first hearing was vacated. I formed the view that all of the process engaged in by the Insurer, whereby it collected evidence and responded to the submissions made from time to time by Mr Panos, was part of the performance of its obligation under the Policy to make a determination. All of the costs of this process were part of the Insurer's administrative costs of performing its obligations under the Policy. It did not appear to me that any of the evidence relied upon by the Insurer to establish that Mr Panos was not entitled to receive the TPD benefit could fairly be regarded as legal disbursements made by the Insurer for the forensic purpose of defending Mr Panos' claim. The Insurer, as did Mr Panos, simply made use of the evidence that had been prepared or collected for the administrative purpose of allowing the Insurer to make its determination.
For the sake of clarity I should state that the costs incurred by the Insurer in obtaining the surveillance videos referred to at pars 395 to 407 of my earlier reasons do not fall within the description contained in the preceding paragraph, and are proper disbursements incurred by the Insurer in the proceedings.
I will therefore make the following orders:
1. Order the second defendant to pay the plaintiff's costs thrown away by reason of the vacation of the hearing on 11 March 2014, such costs to include the preparation for the hearing and the hearing, and be payable on the ordinary basis.
2. Subject to order (1), there will be no order for costs of the proceedings up to 11 March 2014, with the intent that the plaintiff and the second defendant will pay their own costs of the proceedings for that period.
3. Subject to order (1), the plaintiff is ordered to pay 30% of the second defendant's costs of the proceedings after 11 March 2014 on the ordinary basis.
4. There will be no order for costs against or in favour of the first defendant, with the intent that all parties will pay their own costs of the proceedings in so far as they concerned the claim against the first defendant.
5. Grant liberty to the parties to apply in respect of any question that arises out of the implementation of these orders.
[2]
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Decision last updated: 18 December 2015