Plaintiff v Defendant

For Berkley Insurance Company (trading as Berkley Insurance Australia)

1 By summons filed 8 December 2023 ('summons'), the plaintiff, Fairbank Haven Pty Ltd ('Fairbank'), sought orders pursuant to r 36.01 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ('Rules') substituting Berkley Insurance Company (trading as Berkley Insurance Australia) ('Berkley') as the sixth defendant to the proceeding. That application was opposed by Berkley.

2 Argument was heard on 1 February 2024. On 9 February 2024, I delivered my ruling refusing Fairbank's application and dismissing the summons.[1] I directed that, unless Berkley filed submissions seeking its costs other than on a standard basis, I would order that Fairbank pay Berkley's costs of the summons on a standard basis.

3 On 15 February 2024, Berkley filed submissions in which it accepts the appropriate costs order is that Fairbank pay its costs on a the standard basis. Berkley also seeks an order that its costs be made taxable forthwith in default of agreement.

4 On 23 February 2024, Fairbank filed submissions in response. It accepts it should be the subject of an adverse costs order taxed on a standard basis in default of agreement. Fairbank opposes an order that such costs be payable forthwith.

5 Rule 63.20.1 of the Rules provides that costs of an interlocutory application are not taxable until the completion of the proceeding, unless otherwise ordered:

If an order for costs is made on an interlocutory application or hearing, the party in whose favour the order is made shall not tax those costs until the proceeding in which the order is made is completed, unless the Court orders that the costs may be taxed immediately.

6 The parties referred to earlier authorities on the question of whether a non-party is subject to r 63.20.1.

7 In Charan v Nationwide News Pty Ltd (Ruling No 6) ('Charan'),[2] J Forrest J followed the earlier decision of Derham AsJ in De Simone v Legal Services Board ('De Simone')[3] and held that r 63.20.1 does not apply to a non-party.[4] In Charan, J Forrest J determined it would serve no useful purpose for a party with no further interest in the litigation to be shut out of its costs and be required to await the final determination.[5]

8 In the later decision of Stuart v Mordialloc Sporting Club Inc,[6] Randall AsJ referred to the definition of 'party' in s 3(1) of the Supreme Court Act 1986 (Vic) (the 'Act'). The definition includes 'every person served with notice of or attending any proceeding, whether named on the record or not'. His Honour observed:[7]

In De Simone, Derham AsJ held that r 63.20.1 does not apply to a non-party. This was followed by J Forrest J in Charan. In Charan, a non-party includes a subpoenaed person. In Charan, J Forrest J did not refer to the definition of 'party' in s 3(1) of the Supreme Court Act even though subpoenaed parties have notice of the proceeding or have attended upon the proceeding for objections to the subpoenas. Therefore, according to the rules of precedent, I am bound by the decision of J Forrest J in Charan because an appeal from my decision would be heard by a single judge pursuant to s 17(3) of the Supreme Court Act.

9 Neither De Simone nor Charan referred to the definition of 'party' in the Act or in the Rules. When regard is had to the definitions, I must respectfully disagree with the views expressed in De Simone and followed in Charan.

10 Rule 63.01 provides that, for the purposes of Order 63 - Costs, 'party' includes:

(a) a person not a party to a proceeding by or to whom costs in respect of the proceeding are payable by or under any Act or these Rules or any order of the Court;

(b) in the case of a proceeding in another court or before a tribunal or an arbitration, a person whether or not a party to that proceeding or arbitration by or to whom costs in respect of the proceeding or arbitration are payable where by or under any Act or these Rules or any order of the Court the costs are to be taxed in the Court or the Costs Court;

11 The definitions of 'party' in s 3(1) of the Act and in r 63.01 of the Rules both include a person such as Berkley who, in the language of s 3(1) 'attended' the proceeding although not a party to the proceeding, and, in the language of r 63.01, is a person to whom costs in respect of the proceeding are payable. Berkley's costs are payable by Fairbank. I am satisfied that r 63.20.1 of the Rules applies to Berkley.

12 That being the case, the default position is that Berkley's costs shall not be taxed until the proceeding is completed, unless I order that the costs may be taxed immediately.

13 The Court's discretion under r 63.20.1 to order that costs be taxed immediately is not circumscribed in any way by the rule itself, although the discretion must be exercised judicially.[8]

14 In Dale v Clayton Utz (No 3) ('Dale v Clayton Utz'),[9] Hollingworth J summarised the reasons behind the introduction of rules similar to r 63.20.1 in other jurisdictions, including:[10]

(a) Avoiding multiple taxations, and the attendant costs;

(b) Avoiding interlocutory applications being used as a means to exhaust the funds of an opposing party; and

(c) Avoiding unfairness in a case where, for example, a party who is ultimately successful is unable to set off their judgment against an earlier liability to pay costs.

15 In the same decision, her Honour identified the following broad reasons which may require a departure from the ordinarily rule:[11]

(a) Because of the conduct of the unsuccessful party;

(b) Because of the likely delay before the final completion of the proceeding; and

(c) Because the interlocutory application involves a separate or discrete issue.

16 In Setka v Honourable Tony Abbott MP ('Setka'),[12] the Court of Appeal, citing Dale v Clayton Utz, identified the following factors which potentially warrant a departure from the default position in r 63.20.1 of the Rules:[13]

The discretion to order that the default position not apply is confined only by the principle that the discretion must be exercised judicially. But it has been held, depending upon the circumstances of the particular matter, that the default position may be upset where - (1) there is prospect of considerable delay in completion of the proceeding; (2) the issue the subject of the interlocutory order was discrete from what will finally require determinations; (3) the party against whom the substantive order was made was guilty of unsatisfactory conduct - described variously as "unreasonable" or "reprehensible", or as involving a want of "competence and diligence".

17 For the reasons set out below, it is appropriate to order that Berkley's costs be taxed immediately in default of agreement.

18 First, there is a prospect of considerable delay in completion of the proceeding. I accept Fairbank's submission that it has already spent many years in VCAT and exchanged several experts reports. I accept that the serious impact of the defects raised in the proceeding on Fairbank's ability to use the project for its intended purposes mean that Fairbank is motivated to progress the proceeding with expediency. Nevertheless, the proceeding is at a very early stage. Amended pleadings are still being filed. Lay evidence is due in June 2024. Fairbank's expert evidence is due in July 2024. There are not yet timetabling orders in place for the defendants' expert evidence. A mediation is scheduled to take place by 23 August 2024, and the proceeding is listed for further directions on 13 September 2024. Assuming adherence to that timetable, and assuming the mediation is unsuccessful, further orders will need to be made for the defendants' expert evidence, for joint expert reports, as well as pre-trial orders. Any trial is unlikely to commence prior to early to mid-2025. A decision after trial is likely to follow later in 2025. In circumstances where Berkley is not a party to the proceeding, a delay until mid to late 2025 in the taxation of its costs is a considerable delay.

19 Second, the issue the subject of the costs order was discrete from what will require final determination.

20 Fairbank submits that, although Berkley will no longer have involvement in the proceeding, and the application was discrete, it is not entirely correct that the subject matter does not relate to the subject matter of the proceeding. Fairbank submits that the subject matter of the application was related to the underlying claims against Peter Sgourakis Architect Pty Ltd (the 'Architect'), and the circumstances in which it was brought mean that there is likely significant overlap between the taxation of Berkley's costs and any later costs Fairbank (or alternatively the Fifth Defendant, Amanda Jane Sgourakis (as Executor and Trustee of the Will and Estate of Peter Sgourakis, Deceased) (the 'Estate')) would seek to have taxed if successful in the main proceeding. Fairbank submits that the interests of efficient use of Court resources favours avoiding such overlap.

21 I do not accept Fairbank's submission that the application required consideration of the underlying claims against the Architect. The application concerned Berkley's liability under a policy of insurance issued by Berkley to the Architect between 2011 and 2019. Relevantly, whether, by reason of an email dated 7 June 2019, Fairbank made a 'Claim' against or gave 'notice of any Claim' to the Architect, or whether the email nevertheless constituted notice of facts that may give rise to a Claim which the Architect was at liberty to notify Berkley of. The application did not require consideration of the Architect's liability which is said to arise by reason of breaches by the Architect of duties owed under the 'Architectural Contract'. No part of Fairbank's pleaded claim against the Architect requires consideration of the email dated 7 June 2019. The question of the Architect's liability is a different question to Fairbank's ability to recover an amount for loss and damage from Berkley. I am not satisfied that the application brought by the summons was anything other than discrete. In light of my ruling dismissing Fairbank's application to substitute Berkley as a party to the proceeding, Berkley's liability to indemnify under the policy of insurance is not an issue in the proceeding.

22 I see no reason why there would be any, let alone a significant, overlap between the taxation of Berkley's costs and any later costs Fairbank (or alternatively the Estate) would seek to have taxed if successful in the main proceeding.

23 Third, in addition to satisfying both the first and the second factors identified by the Court of Appeal in Setka, the fact that Berkley is not a party to the proceeding is a further factor which justifies departure from the usual position. Berkley should not be required to be kept apprised of the progress of the proceeding in order to know if and when the proceeding has concluded in order to pursue its costs. I agree with the observation of J Forrest J in Charan that it would serve no useful purpose for a party with no further interest in the litigation to be shut out of its costs and be required to await the final determination.

24 The three reasons discussed support departure from the usual position under r 63.20.1. The policy reasons identified by Hollingworth J in Dale v Clayton Utz do not require any different result. That is so for three reasons.

25 First, although there may be another taxation of costs if there is ultimately a costs award at the end of a trial, there will not be multiple taxations in respect of the same costs. Berkley's costs of the summons are discrete. They will not fall to be determined in any taxation of the parties' costs at the conclusion of the proceeding. Taxation now will not increase the overall costs of the taxation of costs in the proceeding.

26 Second, there is no risk of Berkley using interlocutory applications as a means to exhaust the funds of an opposing party. Berkley is not a party to the proceeding. Further, the summons giving rise to the costs order was issued by Fairbank, not by Berkley. In those circumstances, there is no deterrent effect served by holding Berkley out of its costs immediately.

27 Third, the default position is not needed to avoid the unfairness that would arise in a case where, for example, a party who is ultimately successful is unable to set off their judgment against an earlier liability to pay costs. As the application to substitute Berkley as a party was refused, Berkley is to have no further involvement in the proceeding. Because Berkley is not to have any further involvement in the proceeding, there will not be any costs orders in favour of Fairbank against Berkley. No issue of set off arises. There is no unfairness of the sort described by Hollingworth J in Dale v Clayton Utz.

28 For the reasons set out above, I will order that Fairbank pay Berkley's costs of the summons on a standard basis, to be taxed immediately in default of agreement.

AMANDA JANE SGOURAKIS (AS EXECUTOR AND TRUSTEE OF THE WILL AND ESTATE OF PETER SGOURAKIS, DECEASED)

AAI LIMITED (TRADING AS VERO INSURANCE) (IN SUBSTITUTION FOR THE THIRD DEFENDANT) (ACN 005 297 807)

XL INSURANCE COMPANY SE (TRADING AS AXA INSURANCE) (IN SUBSTITUTION FOR THE SECOND DEFENDANT) (ABN 36 083 570 441)

[1] Fairbank Haven Pty Ltd v Merkon Constructions Pty Ltd [2024] VSC 32.

[2] [2017] VSC 331.

[3] [2015] VSC 286.

[4] De Simone v Legal Services Board [2015] VSC 286, [31]; Charan v Nationwide News Pty Ltd (Ruling No 6) [2017] VSC 331, [31].

[5] Charan v Nationwide News Pty Ltd (Ruling No 6) [2017] VSC 331, [32].

[6] [2021] VSC 244.

[8] Dale v Clayton Utz (No 3) [2013] VSC 593, [60].

[9] [2013] VSC 593.

[12] [2013] VSCA 376.