QBE Insurance (Australia) Limited v Hotchin & Ors

Judgment 1The plaintiff, QBE Insurance (Australia) Limited (QBE), by Amended Notice of Motion seeks orders pursuant to s 98(1)(b) of the Civil Procedure Act 2005 (the Act) that the lawyers who represented the defendants in these proceedings should pay its costs of the proceedings. The respondents against whom the orders are sought are Cleary & Lee Pty Limited, a company operating the legal firm Cleary & Lee in Toowoomba, Queensland (Cleary & Lee), and Floyd A Wisner of Wisner Law Firm (WLF) in Illinois, United States of America. Background 2The defendants against whom similar costs order were sought (but abandoned at the hearing of the Motion) are the administrators of the estates of two pilots who perished, along with 13 passengers, in an accident on 7 May 2005. The late Brett Hotchin (of whose estate Gregory Robert Hotchin is the administrator), as pilot in command, and the late Timothy Ross Langdon Down (of whose estate Denise Joy Kalin and Roger Hugh Langdon Down are the co-administrators), as co-pilot, while flying the commercial aircraft VH-TFU were attempting an instrument landing, when it crashed on a flight from Bamaga, Queensland on approach to the Lockhart River Airport in Queensland. 3At the time of the accident the operator of the aircraft, Lessbrook Pty Limited, trading as TransAir (TransAir), was insured pursuant to a contract of insurance with QBE (the Policy). The Policy extended to indemnify any pilot approved in accordance with the Policy provided that the pilot observed and fulfilled the conditions of the Policy. Both of the deceased pilots were required to be endorsed in order to conduct an approach to the Airport on instruments. The co-pilot was not so endorsed. 4In March 2006 Patrick Thomas Nunan, a partner of Cleary & Lee, with expertise in aviation law, was invited to travel to Bamaga, to speak to the relatives of five of the passengers who perished in the crash. Mr Nunan, accompanied by Mr Wisner, also experienced in aviation law (with whom Mr Nunan had been working in Indonesia on another case involving an air crash) attended Bamaga on 23 and 24 March 2006. Mr Wisner had established WLF in St Charles, Illinois in December 2005. Mr Nunan and Mr Wisner met with the families of the deceased passengers (the Bamaga clients) who "agreed to instruct Mr Wisner to investigate the prospect of a successful claim" in the USA against the manufacturers of the component parts of the aircraft, in particular the Ground Proximity Warning System (GPWS). 5Whilst Mr Nunan and Mr Wisner were in Bamaga they agreed that Cleary & Lee would act in relation to proposed proceedings in the USA on a "no win no fee" basis insofar as Cleary & Lee's professional fees were concerned, but that its disbursements would be paid by WLF. Mr Nunan's understanding of how the fee arrangement would work came from his experience in previous cases in which he had acted for clients of Mr Wisner. He described this arrangement as follows: As with other aircraft accident claims in which I was involved with Mr Wisner, I understood that Cleary & Lee's fees would be paid after a successful outcome was achieved and after all file expenses (if any) were reimbursed. Cleary & Lee's fees would be assessed on its work in progress on the matter that I recorded on an item by item basis at an hourly rate to be agreed plus an uplift that we (myself and Mr Wisner) thought appropriate in the circumstances of the case to reflect the time and effort that I had put into the matter, the difficulty of the case and the awards (made by the Court or agreed to at mediation) to the clients. I was aware that the client agreements entered into between the clients and Mr Wisner were subject to the laws of the State of Illinois and that our agreement was also subject to the laws of that State. 6Mr Nunan's affidavit evidence included the following: 7. I was present when all the Bamaga clients signed a client agreement including a Power of Attorney ("POA") form that Mr Wisner had bought (sic) with him and was given a copy of the POA by Mr Wisner to review. 8. I am informed by Mr Wisner that similar client agreements were signed by the defendants in their capacity as the personal representatives of the estates of the pilots, Mr Hotchin and Mr Down, who died in the Crash. Copies of the agreements signed on behalf of the pilots' estates are attached hereto and marked "PTN 4" and "PTN 5" respectively. Client contracts 7The contracts between WLF and the defendants, signed in February 2007 (by the administrators of the estate of the late Mr Langdon Down) and April 2007 (by the administrator of the estate of the late Mr Hotchin), were in identical terms but for the reference to the personal details of the clients (client contracts). Both of the client contracts recorded that WLF was retained "to prosecute or settle my claim against all parties responsible for the injuries to and death" of the pilots arising from the crash on 7 May 2005. They included the following: In consideration for services rendered by Wisner Law Firm, I agree to pay said attorneys a sum equal to Thirty percent (30%) of the gross amount recovered from the claim by settlement or trial. I agree and understand that the Wisner Law Firm may retain additional counsel to assist it in the prosecution of this claim, but this will be at no additional cost to me. I further agree that the Wisner Law Firm will advance the costs of the litigation, including but not limited to expert fees, investigation fees, court reporter fees, subpoena fees and filing fees. All costs shall be reimbursed by the client upon resolution of the claim. However, in the event that no recovery is made, or my matter is dismissed by consent, I will not be required to reimburse said costs. I hereby grant unto said attorneys full power and authority to do and perform all and every act and thing whatsoever, including signing answers to interrogatories, affidavits, declarations and the like requisite and necessary to be done in prosecution or settlement of this claim as fully to all intents and purposes as I might or could do if personally present, hereby ratifying and confirming all that the said attorneys shall lawfully do or cause to be done by virtue hereof. This contract shall be governed by the laws of the State of Illinois in the United States of America. Proceedings against third parties in USA 8WLF commenced proceedings in Illinois and Missouri, USA. The Illinois proceedings were commenced in the Circuit Court of Cook County on behalf of the estates of 12 of the 13 deceased passengers and the estates of the deceased pilots. Those proceedings were for damages for wrongful death and survival damages against Hamilton Sundstrand Corp (Hamilton); Honeywell International Inc (Honeywell); Matthew Hier; M7 Aerospace LP (M7); and Jeppesen Sanderson Inc (Jeppesen). The Missouri proceedings were commenced in the Circuit Court of Greene County on behalf of the same parties for the same type of damages against Lambert Leasing Inc (Lambert); Partnership 818 (818) and Les Wright. Hamilton and Honeywell were sued on the basis that they were responsible for the GPWS. M7 was sued as the successor to the manufacturer of the aircraft. Jeppesen was sued for allegedly defective navigation charts. Lambert and 818 were sued as the former owner and owner/lessor of the aircraft respectively. 9The defendants in the Illinois proceedings filed a positive defence of contributory negligence and alleged that the deceased pilots' negligence in the operation of the aircraft had caused the accident. There was a consequential claim that the amount of damages to be awarded to the pilots' estates should be reduced. Those defendants also filed Counterclaims alleging that the accident was the result of the pilots' negligence. The Counterclaims sought contribution and indemnity from the pilots' estates for any damages awarded against the defendants in favour of the estates of the deceased passengers. 10In the Missouri proceedings, Lambert joined Jeppesen and sought contribution and indemnity in relation to any award of damages made against Lambert. Lambert also filed an Answer and Counterclaim asserting that any damages awarded against it in relation to the claims brought against it by the pilots' estates should be reduced for contributory negligence. Jeppesen also sought contribution and indemnity from the pilots' estates on the grounds of negligence in relation to any damages awarded against Jeppesen by way of contribution or indemnity in connection with the claims brought against Lambert by the estates of the deceased passengers. 11In April 2006 Mr Wisner asked Mr Nunan to act as WLF's agent in relation to both the Illinois and Missouri proceedings. This agency relationship was for the purpose of having the clients in Australia complete documentation including the provision of depositions. To facilitate this process Mr Nunan was admitted to practice in Illinois by a process referred to as pro hac vice. Demand on QBE 12By letter dated 31 January 2011 WLF advised QBE (with a copy to Norton White) that Mr Wisner represented the estates of 12 deceased passengers and the estates of the two deceased pilots. He advised QBE of the proceedings in Illinois and Missouri and made a demand on behalf of the estates of the deceased pilots that QBE provide "defense and indemnity to the estates" for the Counterclaims brought against them in both Illinois and Missouri. Mr Wisner also asked for a copy of the Policy. There was no response to this letter for some months. Proceedings Against QBE in Illinois 13On 18 May 2011 WLF commenced proceedings on behalf of the pilots' estates against QBE in Illinois seeking indemnity and defence costs under the Policy. QBE Responds to Demand 14On 17 June 2011 Norton White, as solicitors for QBE, wrote by email to Mr Wisner suggesting that it was possible that he may not have received their letter dated 15 May 2011, a copy of which was enclosed with the email. The enclosed copy letter was in fact dated 20 May 2011 and responded to Mr Wisner's letter to QBE of 31 January 2011. Norton White advised Mr Wisner that his clients were not "at this point" entitled to indemnity. The letter also included reference to the contention that the pilots were not complying with the relevant statutory requirements at the time of the crash. It also included the contention that QBE was unable to make a determination in respect of the pilots' actions prior to the determination of the proceedings in the USA. Reference was made to the provisions of Part IV of the Civil Aviation (Carriers' Liability) Act 1959 (Cth) and its application as part of the law of Queensland pursuant to the Civil Aviation (Carriers' Liability) Act 1964 (Qld). Norton White advised that QBE's liability was limited to $500,000 in respect of each passenger and that if the estates of the deceased pilots were exposed to any greater liability in the proceedings in the USA, it was contended that the administrators of the estates would have failed to exercise due diligence and acted to the detriment and prejudice of the insurer. These proceedings 15On 15 June 2011 QBE commenced these proceedings against the defendants by Summons filed on that day and made returnable on 23 June 2011. The relief claimed in the Summons included declarations that on the true construction of the Policy, the defendants had not become entitled to indemnity under the Policy in respect of the proceedings in Illinios and Missouri or to payment of any legal costs and disbursements incurred by the defendants in connection with those proceedings. QBE also sought an order restraining the defendants from taking any further step in the proceedings against QBE in Illinois. 16On 17 June 2011 Mr Nunan received a telephone call from Mr Wisner who informed him that these proceedings had been commenced against the estates of the deceased pilots. Mr Wisner asked Mr Nunan to arrange to act on behalf of the defendants and to retain counsel in New South Wales to represent the defendants. Mr Nunan's affidavit evidence was as follows: 32. I have been informed by Mr Wisner and believe that he was acting for the Defendants in their capacity as the personal representatives of the pilots' estates to arrange for the defence of the NSW Proceedings. I am further informed by Mr Wisner and believe that he was acting on a pro bono basis. 33. Mr Wisner indicated to me that he thought that the NSW Proceedings would be swiftly resolved as he had been in contact with Norton White, the solicitors for QBE and had made an offer of settlement that he thought would be accepted thus resolving the NSW Proceedings. I also agreed, on behalf of Cleary & Lee, to act without charge in so far as my professional fees were concerned. However, Mr Wisner did inform me that Wisner Law Firm would meet all out of pocket expenses incurred by Cleary & Lee. 17On 23 June 2011 an anti-suit injunction was granted restraining the defendants up to and including 7 October 2011 from taking any further steps in the proceedings that had been commenced in Illinois against QBE: QBE Insurance (Australia) Limited v Hotchin [2011] NSWSC 681. 18On 24 June 2011 orders were made for the finalisation of Points of Claim and Points of Defence and the service of evidence. On that date the matter was listed for hearing for two days commencing on 28 September 2011. Offers of Settlement 19On 5 July 2010 Mr Wisner contacted Mr Mackrell of Norton White and made an offer to settle both these proceedings and the Illinois proceedings against QBE. The basis of the settlement was that: the defendants agreed to discontinue the Illinois proceedings against QBE without prejudice to their rights to bring such proceedings in due course; QBE agreed to discontinue these proceedings on the same basis; and that each party be responsible for their own costs. 20On 22 July 2011 Mr Mackrell wrote to Mr Wisner in the following terms: Thank you for the proposal outlined in the telephone conversation on 5 July 2011. Our client will agree to discontinue the proceedings against your client in the Supreme Court of New South Wales (No 195528 of 2011) on the basis that the parties pay their own costs, if, and only if, the following occurs: 1. that the proceedings by Denise Kalin, Timothy Ross Langdon Down and Robert Hotchin in the Circuit Court of Cook County, Illinois is dismissed. 2. that proceeding No 0831-CV05866 and proceeding No. 0831-CV05931 in the Circuit Court of Greene County, Missouri are dismissed. 3. that the Defendants in the proceeding in the Supreme Court of New South Wales No. 195528 of 2011 forever waive any entitlement to indemnity under the policy of insurance No.02Q010007782 issue by our client to Lessbrook Pty Limited. The proposal outlined above is on the basis that the parties would be responsible for their own costs for the relevant proceeding. Whilst our client is not party to the proceedings in the Circuit Court of Green County, Missouri, it has an interest in the finalisation of those proceedings as two of the parties are additional named insured on the Transair policy of insurance and our client has met, or is in the process of meeting, the claims by the passengers under Australian law. The resolution of the matters on this basis will leave the Plaintiffs at liberty to take such steps as they are advised in relation to the remaining Illinois proceedings. 21On 2 August 2011 Mr Nunan had a telephone conversation with Mr Mackrell of Norton White concerning an offer of settlement on behalf of the defendants and the filing of the defendants' Points of Defence. Mr Nunan gave unchallenged affidavit evidence that he said to Mr Mackrell: We will (a) dismiss the coverage action against QBE in Illinois with prejudice; (b) will agree to a consent judgment in favor of QBE in the action in NSW pursuant to stipulated facts to be agreed; (c) each party will bear its own costs in the Illinois and NSW actions. 22Mr Nunan advised Mr Mackrell that the parties could separately discuss a settlement of all the US claims against QBE's insureds but that this would be a separate matter at a different time. Mr Mackrell said he would obtain instructions and get back to Mr Nunan. 23On 11 August 2011 Mr Nunan wrote to Mr Mackrell asking him whether he had "any instructions concerning the offer I made to settle the matters involving QBE in the NSW and USA claims". On 12 August 2011 Mr Mackrell responded advising that he had "reported the offer" and he was "just waiting on instructions". 24On 19 August 2011 Norton White responded as follows: We are instructed to respond to the proposal communicated by Mr Nunan on 2 August 2011 with the following proposal by our client: 1. The action on behalf of the estates of the deceased pilots in proceeding 2011-L005095 in the Circuit Court of Cook County, Illinois will be dismissed with prejudice. 2. The Defendants in proceeding 2011-195528 in the Supreme Court of New South Wales will consent to orders in terms of paragraphs 3, 4 and 5 of the Amended Summons or, in the case of the declarations in paragraphs 4 and 5, in such terms as the parties may agree provided that the effect of the orders will be to determine conclusively against the Defendants any entitlement to cover under Aircraft Insurance Policy 02Q010007782 in respect of any liability arising from the accident involving Aircraft VH-TFU on 7 May 2005. 3. Proceeding No. 0831-CV05866 and proceeding No. 0831-CV05931 in the Circuit Court of Greene County, Missouri be dismissed or discontinued against Partnership 818. 4. The parties to the proceedings identified herein will be responsible for their own costs incurred in each proceeding and there will be no order for costs against your clients in the proceeding in the New South Wales Supreme Court. Preparation for Final Hearing 25On 15 August 2011 the orders made on 24 June 2011 were vacated and alternative orders were made for the preparation of the matter for hearing. The proceedings were listed for final hearing for two days commencing on 10 November 2011. The injunction that had been granted on 23 June 2011 was extended to 6 December 2011. 26As a consequence of the filing of Points of Claim and the Points of Defence, QBE was required to prove that at the time of the accident the deceased pilots were using the navigation procedure known as a RNAV (GNSS) approach ("the Approach") to the airport. QBE was also required to prove that both deceased pilots were required to hold endorsements to perform the approach and that one of them was not so endorsed. Application for Separate Questions 27On 30 September 2011 the defendants were granted leave to file a Notice of Motion in Court seeking the determination of separate questions. Those separate questions were for the determination of the issues of whether there was a "statutory requirement" (within the meaning of the Policy) for both deceased pilots to be endorsed to perform the Approach and whether they were so endorsed (the separate questions). The Motion was listed for hearing on 18 October 2011. Additional injunctions 28On 28 September 2011 Mr Wisner, on behalf of 13 people who were executors or administrators of the estates of the 12 deceased passengers, filed an application in the Illinois proceedings for those persons to be joined as plaintiffs and for a restraining order against QBE taking further steps in these proceedings. That application was adjourned until 19 October 2011. Notice of the application filed on 28 September 2011 had not been given to QBE. 29On 11 October 2011 QBE commenced separate proceedings (2011/323868 "the Thornton proceeding") in this Court. Gzell J made orders restraining the 13 persons who had sought to intervene in the Illinois proceeding from taking any step or making any application or intervening in those proceedings other than for the purpose of dismissal of their applications. 30On 12 October 2011 Mr Wisner filed a petition in the Illinois proceeding on behalf of Shane Urquhart, the father of a deceased passenger, seeking to intervene as a plaintiff in those proceedings. That petition was received by Norton White, at 1.54 am on 13 October 2011, Sydney time. The application was made in the Illinois proceedings shortly after that time and a restraining order was granted to Mr Urquhart. 31On 14 October 2011 Gzell J made an order in the Thornton proceeding joining a number of further parties as the 14th to 56th defendants to the proceeding. Those parties were plaintiffs in proceedings in the USA and included Mr Urquhart. Gzell J made orders restraining all the defendants in those proceedings, other than Mr Urquhart, from taking any step or making any application or intervening in the Illinois proceedings. Gzell J made a separate order restraining Mr Urquhart until further order from taking any action in the Illinois proceeding without the leave of this Court. 32On 21 October 2011 the presiding Judge in the Illinois proceedings against QBE heard further argument in relation to whether that court should restrain QBE from taking any steps to restrain the parties in the proceedings in Illinois. At the commencement of the hearing Mr Wisner advised the Court that he was "appearing individually and as an officer of the court". He said that that he was not "appearing on behalf of any party". Mr Wisner was clearly concerned not to place Mr Urquhart in any possible position of contempt in respect of the order made by Gzell J on 14 October 2011. He made the following submission in the Illinois Court: Now I'm here today in my own right, as a petitioner for me to intervene, your Honor, as a plaintiff in this action. I have an interest in obtaining a defense for the original plaintiffs to the counter-claims, because I'm defending them currently; and either I need to get paid, or they need to hire an attorney to do that for them, number one. THE COURT: You, yourself, filed a petition? MR WISNER: Yes, I got it for your Honour here. I also have a, since I have a contingent fee, I have an interest in this case. As I set out in my other pleadings filed with this Court, what QBE is attempting to do is not just get a coverage determination in this case, they want to get, from the Australia (sic) Court, findings of fact which they can use in the main wrongful death actions, which all of my plaintiffs have an interest, and which I have an interest, to protect my fee and I have a lien in that. 33QBE relies on this passage of transcript in support of its application for an order that Mr Wisner pay its costs of the proceedings. 34The judge hearing the proceedings in the Illinois Court described the various steps that had been taken by the parties as causing a procedural "morass". As it turned out, the parties to the present proceedings embraced the jurisdiction of this Court and final orders were made in November 2011 as referred to below. Separate Questions 35On 18 October 2011 the defendants' Notice of Motion in respect of the separate questions was heard. QBE resisted the application and contended that the whole controversy needed to be resolved as soon as possible because of the numerous "attacks" that had been made on the anti-suit injunction granted on 23 June 2011. During the debate as to whether the answers to the separate questions would be "the end of the controversy", a lacuna was identified in the defendants' proposed questions. There was no question as to whether the Approach was used, albeit that the defendants submitted that the issue was "wrapped up" in the separate questions as posed. The defendants conceded that if there was a requirement for dual endorsement and one of the pilots was not so endorsed, QBE had a "knock out" point. In those circumstances it was indicated to the parties that, having regard to the difficulties of having the main case ready for hearing on 10 November 2011, those hearing dates could be used for the determination of the separate questions. 36The proceedings were stood over to enable the parties to draft and agree upon the final form of the separate questions. The questions for separate determination were subsequently agreed as follows: (a) Were the statutory requirements (within the meaning of B2 of the Policy) applicable to the conduct of the flight by aircraft VH-TFU from Bamaga to Lockhart River on 7 May 2005, (the "incident flight") that a RNAV (GNSS) navigation procedure not be used if one (or more) of the pilots was not endorsed to use such a procedure? (b) was a RNAV (GNSS) approach procedure used in the conduct of the incident flight? (c) was Mr Down endorsed to use a RNAV (GNSS) approach procedure on 7 May 2005? (d) if the answers to questions (a) and (b) are "yes" and the answer to question (c) is "no" did i. Mr Hotchin fail to comply with any statutory requirements in respect of which the answer to question (a) applies? ii. Mr Down fail to comply with any statutory requirements in respect of which the answer to question (a) applies? iii. TransAir fail to comply with any statutory requirements in respect of which the answer to question (a) applies? (e) if the answer to question (d)(i) is "yes" is the Plaintiff entitled to a declaration that the plaintiff is not liable to the first defendant under Aircraft Insurance Policy 020010007782 in respect of any liability arising from the accident involving aircraft VH-TFU on 7 May 2005 because at the time of the accident Mr Hotchin had failed to comply with statutory requirements which affected the operation of the aircraft by conduct of the approach to land at Lockhart River, Queensland by use of a RNAV (GNSS) navigation procedure when one of the pilots was not endorsed to use that procedure; (f) if the answer to question (d)(ii) is "yes" is the Plaintiff entitled to a declaration that the plaintiff is not liable to the second and third defendant under Aircraft Insurance Policy 020010007782 in respect of any liability arising from the accident involving aircraft VH-TFU on 7 May 2005 because at the time of the accident Mr Down had failed to comply with statutory requirements which affected the operation of the aircraft by conduct of the approach to land at Lockhart River, Queensland with use of a RNAV (GNSS) navigation procedure when one of the pilots was not endorsed to use that procedure; (g) if the answer to question (d)(iii) is "yes" is the plaintiff entitled to a declaration that the plaintiff is not liable to the defendants under Aircraft Insurance Policy 020010007782 in respect of any liability arising from the accident involving aircraft VH-TFU on 7 May 2005 because at the time of the accident the Insured had failed to comply with statutory requirements which affected the operation of the aircraft by conduct of the approach to land at Lockhart River, Queensland with use of a RNAV (GNSS) navigation procedure when one of the pilots was not endorsed to use that procedure. Further Settlement Offer 37On 27 October 2011 Cleary & Lee wrote to Norton White on a without prejudice basis, save as to costs. That letter proposed the withdrawal of certain paragraphs of the Points of Defence and the admission of certain facts in QBE's Notice to Admit Facts. The letter also included the following proposals: 3. The defendants consent to the Court answering the proposed questions as follows: (a). yes (b). yes (c). no (d)(i). yes (d)(ii). yes (e). yes (f). yes 4. The Amended Summons is (otherwise) dismissed with no order as to costs. By way of some explanation for this proposal, first, our clients are conscious of a general reluctance of courts to make declarations by consent, but in view of the admissions by our clients previously made, the proposed further admissions foreshadowed above and the withdrawal of that part of our clients' Defence relating to 'dual endorsement' issues, our clients expect that the Court would likely make the declaration indicated above. Our clients are prepared to prepare a schedule of all admitted facts, which will represent an expansion upon the statement of agreed facts sent to you under cover of separate correspondence on 27 October 2011 which will embraces (sic) all of its admissions, past and future. ... Secondly, the proposal would result in your client succeeding in obtaining declaratory relief only upon the 'dual endorsement' issues, but not any or all of the other grounds for denial of indemnity agitated by your client in this proceeding. Thirdly, and following the second point, upon the grant of the declaration, the anti-suit restraint against our clients should be dissolved as it would have served its purpose. Fourthly, on the matter of costs, our clients recognise your client's practical success in obtaining declaratory relief, but only upon the single ground conceded by our clients. Prima facie, that would entitle your client to its costs in relation to the dual endorsement issues (or, put another way, costs relating to the questions for separate determination) as well as the costs of the interlocutory anti-suit injunction. It would not, however, entitle your clients to recovery of costs incurred in relation to all other issues in the proceeding, which would remain unresolved. Further, our clients would presumptively be entitled to recover its costs of its application for the separate determination procedure, from 26 September 2011 until 21 October 2011 when, only in the end (after receiving indications from the Bench adverse to your client's position) and following its vigorous and protracted opposition, your client eventually accepted the use of such procedure. Taking into account the cumbersome calculations to 'set-off' these respective presumptive cost entitlements, our clients propose that the appropriate order be one that the parties bear their own costs. This proposal is open for acceptance for 2 days from the date of this letter. Please be advised that if it is not accepted, and your client does not achieve any more favourable outcome in this proceeding, our clients propose to rely upon this letter on the question of costs in accordance with Calderbank principles. Pre-Hearing Admissions and Proposed Amendments 38On 4 November 2011 Cleary & Lee advised Norton White that at the hearing on 10 November 2011 they would be seeking leave to amend the Points of Defence. The consequence of the proposed amendments was that QBE was no longer required to prove that the Approach was being used and was no longer required to prove the endorsement issues. However the defendants advised that they would seek leave to amend the Points of Defence to plead waiver, namely, that QBE had always known that the Approach was used and that one pilot was not endorsed, but had proceeded to indemnify TransAir to the extent of the claims against it by family members of the deceased passengers. The plaintiff served written submissions and an affidavit in response to the proposed amendment in relation to waiver. At the hearing on 10 November 2011 the defendants indicated that the proposed waiver defence would not be pressed. Agreement Reached 39On 10 November 2011 the parties reached agreement in respect of the determination of the separate questions and orders were made in respect of those questions. The questions were by consent answered as follows: (a) yes; 1(b) yes; 1(c) no; 1(d)(i) yes; 1(d)(ii) yes; 1(e) yes; 1(f) yes. A declaration was made that QBE was not liable to the defendants in respect of any liability arising from the accident by reason of the fact that one of the deceased pilots was not endorsed to perform the Approach. 40A consent order was made permanently restraining the defendants, their attorneys, solicitors or agents, from taking any further step in the Illinois proceedings against QBE. An order was made permanently restraining the defendants by themselves, their attorneys, solicitors or agents from commencing any proceedings or making any claim in a proceeding in the USA alleging that the defendants or any of them were entitled to be indemnified by the plaintiff or that the plaintiff was liable to any of the defendants in respect of any liability arising from the accident on 7 May 2005. Orders were also made that within 35 days of the date of the order steps would be taken by each of the defendants to have the claims in the Illinois proceedings against QBE dismissed or otherwise appropriately terminated. 41The orders entered on 11 November 2011 included the following: 8. The Court notes that the plaintiff proposes to serve a Notice to Produce documents relating to the financial resources of the defendant estates and arrangements relevant to any funding of or interest in the outcome of the proceedings by Cleary & Lee and/or Floyd A Wisner and directs: a. Any such Notice to Produce is to be served by 14 November 2011 and returnable before the Registrar in the Subpoenas List on 28 November 2011. b. The plaintiff is to file and serve written submissions (and any evidence) on costs by 5 December 2011. c. The defendants are to file and serve written submissions (and any evidence) by 7 December 2011. d. The plaintiff is to file and serve any written submissions in reply by 9 December 2011, and e. If either party requires a hearing on costs that party is to notify the other party and the Associate to Bergin CJ in Equity by 8 December 2011; and in the absence of such notification the Court will proceed to decide the question of costs on the papers. Procedure on Costs Applications 42The plaintiff filed a Notice of Motion on 30 November 2011 returnable before the Registrar in Equity on 7 December 2011. QBE sought an order for substituted service of the Motion on Mr Wisner and also sought orders pursuant to s 98(1)(b) of the Civil Procedure Act 2005 (the Act) that the defendants, Cleary & Lee and Mr Wisner pay QBE's costs of the proceedings (Order 3). QBE also sought a further or alternative order pursuant to s 99(1)(b) of the Act that Mr Nunan pay QBE's costs of the proceedings incurred on and following 2 September 2011 (Order 4). QBE sought a further order that the costs of the proceedings incurred on or after 25 October 2011 "in preparation for the purpose of proving each fact and the authenticity of each document contained in the Notice to Admit Facts and Authenticity of Documents served on 8 October 2011 be assessed on an indemnity basis" (Order 5). QBE filed its submissions on costs on 6 December 2011. 43On the return date for the Motion before the Registrar on 7 December 2011, orders were made adjourning QBE's Motion to a date after 30 January 2012 to be arranged by the parties contacting the Registrar. An order was also made in respect of the defendants' Notice of Motion filed on 23 November 2011 seeking to be excused from compliance with certain paragraphs of a Notice to Produce. Paragraphs 8(c), (d) and (e) of the orders entered on 11 November 2011 (extracted above) were vacated and a new timetable was made for the filing and service of written submissions by 30 January 2012. 44It appears that after the written submissions were completed, the solicitors for the parties agreed in an exchange of correspondence that an "oral hearing" in respect of the costs applications was not required. It is also apparent that this was communicated to the "Registry" by letter dated 7 February 2012. 45However on 29 February 2012 the defendants filed a Notice of Motion seeking leave to have admitted into evidence (apparently on the costs applications) the affidavit of Mr Nunan sworn on 19 January 2012. That Motion was returnable on 6 March 2012. It is unclear what occurred in respect of that Motion. Nothing further happened in the matter for some months. The difficulties with the approach that was adopted included that no order had been obtained for the substituted service of QBE's Motion on Mr Wisner and there had been no determination of the defendants' Notice of Motion in respect of the evidence of Mr Nunan. 46It was not until 9 August 2012 that the plaintiff's solicitors wrote to my Chambers. The matter was then listed on 22 August 2012. QBE moved for an order for substituted service on Mr Wisner. QBE was granted leave to file an Amended Notice of Motion because it had indicated that it no longer pressed for Order 5 that it sought in the Notice of Motion filed on 30 November 2011. That Amended Notice of Motion was filed on 28 August 2012. 47On 30 August 2012 leave was granted to QBE to serve the Amended Notice of Motion on Mr Wisner, together with all other materials to be relied upon in the application for costs, by substituted service on Cleary & Lee and by email to Mr Wisner's email address. Mr Wisner was granted leave to make application to set aside the orders in respect of substituted service. Mr Wisner did not avail himself of that leave. On 27 September 2012 a timetable for the preparation of the competing applications for costs was put in place and the Amended Notice of Motion was listed for hearing on 30 January 2013. Hearing 48The applications for costs were heard on 30 January 2013 when Mr DJ Fagan SC leading Mr TJ Brennan, of counsel, appeared for QBE and Mr AJ Abadee, of counsel, appeared for Mr Nunan and Cleary & Lee (the Respondents). There was no appearance by or for Mr Wisner. Competing Applications 49By Amended Notice of Motion QBE sought an order that the defendants in their capacities as administrators of the estates of the deceased pilots pay QBE's costs of the proceedings. QBE abandoned this application at the hearing on 30 January 2013 because QBE formed the view that it was apparent they did not have any money (tr 13). 50The evidence establishes that there is some real concern as to the financial situation of the estates of the deceased pilots (affidavit of Keira Neilsen affirmed on 5 December 2011). However it was submitted on Cleary & Lee's behalf that the evidence does not reflect the value of the cause of action in the Illinois and Missouri proceedings. It was submitted that the defendants must at the very least be considered to be prospective creditors in that regard. Accordingly it was submitted that it cannot be said with any certainty that the estates are insolvent or that nor do they meet the criteria of "men of straw". It may be reasonable to value the defendants' interest in the litigation in the USA for the purpose of assessing whether they are people "of straw". However there has been no evidence called to assist with that assessment. In the circumstances I am going to assume that QBE would be unable to recover its costs if an order were made against the defendants. There may be circumstances where such a finding is not a pre-requisite to an order under s 98 of the Act. However in this case QBE relies upon the incapacity of the defendants to meet a costs order as a basis for its claim. 51QBE also sought an order against Mr Nunan under s 99(1)(b) of the Act that QBE's costs of the proceedings incurred on and following 25 October 2011 be paid by Mr Nunan personally. An order can be made pursuant to s 99 of the Act that a solicitor pay to the client the whole or any part of the costs that a client is ordered to pay a successful party, whether or not the client has paid those costs. Presumably that is what QBE intended in its application under s 99(1)(b) of the Act. In any event QBE abandoned this application at the hearing of the matter on 30 January 2013. 52The orders which QBE seeks are: 1. Pursuant to s 98(1)(b) of the Civil Procedure Act 2005 the Plaintiff's costs of the proceedings are to be paid by Cleary & Lee Pty Ltd ABN 46 692 018 553 and Mr Floyd A Wisner of Wisner Law Firm, 934S Fourth Street, St Charles, Illinois 60174 United States of America. 2. The plaintiff's costs of its Notice of Motion are to be paid by Cleary & Lee Pty Ltd and Mr Wisner. 3. Subject to order 4 the costs referred to in order 1 and incurred on or after 25 October 2011 are to be assessed on an indemnity basis. 4. The costs referred to in order 1 are not to include any costs incurred after 18 October 2011 that were not incurred in respect of the determination of the separate question that occurred on 10 November 2011 or in respect of the Defendant's foreshadowed application to amend their Defence on 4 November 2011. 53Cleary & Lee made application for the following orders: 1. The plaintiff's Amended Notice of Motion (filed 28 August 2012), insofar as it contains applications for orders against Patrick Nunan and/or Cleary & Lee Pty Ltd, be dismissed and the plaintiff is to pay the costs of and occasioned by those non-parties in their defence of those applications. 2. Further and/or alternatively the plaintiff is not entitled to receive its costs of the proceedings from: i. 3 August 2011; or ii. 28 October 2011. 3. Further and/or alternatively, the plaintiff is not entitled to its costs and/or occasioned by the defendants' notice of motion dated 26 September 2011. Applicable principles 54In exercising its discretion the Court has "full power to determine by whom, to whom and to what extent costs are to be paid": s 98(1)(b) of the Act. The expression "full power" is often found in constitutional settings with reference to Parliament's capacity to make laws for the good governance of society: Bank of New South Wales v Commonwealth ("Bank Nationalisation Case") (1948) 76 CLR 1 at 202; Australian Communist Party v Commonwealth ("Communist Party Case") (1951) 83 CLR 1. The use of this expression in the context of s 98 of the Act is to be understood as providing the Court with power (unconstrained except to the extent that it must be exercised judicially and in accordance with the relevant legal principles: Oasis Hotel Ltd v Zurich Insurance Company (1981) 28 BCLR 230 at 237 per Lambert JA) to make a costs order that it regards as just in all the circumstances of the case. 55The exercise of the power to make a costs order against a third party is reserved for "exceptional cases": FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA per Basten JA at [214], with whom Beazley JA and Giles JA agreed; followed in May v Christodoulou [2011] NSWCA 75; (2011) 80 NSWLR 462 at 478 [93]. It is a power that should be used "sparingly": Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 179 ALR 406 at 413 [34] per Callinan J. The expression "exceptional" in this context means "no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit at their own expense": Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39; [2004] 1 WLR 2807 at 2815 [25]. 56Section 98 is the statutory recognition of the "long asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where the person is the effective litigant standing behind an actual party" thus making the person the "real litigant" or the "real parties" rather than the "nominal party" liable for costs: Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 188 per Mason CJ and Deane J and at 202 per Dawson J. A general category of cases in which costs may be awarded against a non-party has been identified to include a receiver of a company, an insolvent person or a "man of straw", a person who has played an active role in the litigation and a person who has an "interest in the subject of the litigation": Knight v FP Special Assets Ltd at 192-193 per Mason CJ and Deane J. 57In FPM Constructions v Council of the City of Blue Mountains Basten JA, (drawing heavily on what Mason CJ and Deane J said in Knight v FP Special Assets Ltd at 192-193) said at [210]: What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria: (a) the unsuccessful party to the proceedings was the moving party and not the defendant; (b) the source of funds for the litigation was the non-party or its principal; (c) the conduct of the litigation was unreasonable or improper; (d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and (e) the unsuccessful party was insolvent or could otherwise be described as a person of straw. 58These criteria are not closed or exhaustive: and it is not necessary for each criterion to be present before a costs order may be made under s 98 of the Act: Gore v Justice Corporation Pty Ltd [2002] FCAFC 83; (2002) 119 FCR 429 at 437 [23] and 451-452 [62]. It will depend upon the particular circumstances of the case as to whether such an order is justified. 59In the present case a distinction should be drawn between orders under s 99 of the Act against lawyers for the payment of costs and orders under s 98 of the Act against third parties, including lawyers, for the payment of costs. Orders against lawyers under s 99 of the Act protect clients against the liability to pay costs that have been incurred as a result of the lawyer's serious neglect, incompetence or misconduct. It also protects clients against the liability to pay costs that have been incurred improperly, or without reasonable cause, in circumstances for which the lawyer is responsible. It should be recognised that s 98 of the Act is not a vehicle of convenience for pursuing lawyers who act for unsuccessful parties in litigation who are unable to pay the costs orders made against them. It is necessary in reviewing the conduct of the lawyer, the subject of an application under s 98 of the Act, to have regard to the abovementioned criteria in deciding whether there is a proper foundation and justification for making such an order. Preliminary Issue 60QBE emphasised that there is no document in evidence that records or communicates the authority of Cleary & Lee or Mr Nunan to defend these proceedings or that records any agreement between any defendant and Cleary & Lee concerning fees, disbursements or costs in either these proceedings or in the Illinois proceedings brought against QBE. 61Rule 2.2 of the Legal Profession (Solicitors) Rule 2007 (Qld) provides that a client's instructions should be confirmed in writing to the client unless valid reasons exist for this not to occur. Mr Nunan explained that he did not confirm his instructions in writing because: (1) there was a need to retain counsel urgently for these proceedings; (2) he had dealt with Mr Wisner and WLF over an eight-year period and understood his instructions; and (3) he had been involved in the litigation in Illinois and Missouri since 2007. Mr Nunan also gave evidence that there was an obvious connection between the Illinois and Missouri proceedings on the one hand and the Illinois proceedings against QBE and the present proceedings on the other hand. 62QBE submitted that Appearances were entered in these proceedings on the instructions of Mr Wisner and not of any defendant directly to Mr Nunan. It was submitted that the question of whether Mr Nunan was authorised to enter those appearances and defend the proceedings turns on whether Mr Wisner was authorised to cause them to be entered. 63On 23 June 2011 leave was granted to file in Court Appearances for each of the defendants. Mr Nunan signed those Appearances and each stated that the relevant defendant "submits to the making of all orders sought, and the giving or entry of judgment, save as to costs". Notwithstanding the wording or the Appearances, the defendants defended the proceedings in the manner described above. 64QBE also submitted that there is no document that constitutes or records any authority given to Mr Wisner or WLF by any defendant to demand indemnity from QBE or to commence the proceedings against QBE in Illinois or to enter an Appearance in or defend these proceedings. Nor, it was submitted, is there any document in evidence that records any agreement between any defendant and Mr Wisner or WLF concerning fees, disbursements or costs in either these proceedings or the Illinois proceedings against QBE. QBE submitted that the Client Agreements to which reference is made above in which each of the defendants instructed WLF to "prosecute or settle" the clam against all parties "responsible for the injuries to and death of" the deceased pilots does not authorise Mr Wisner to act in these proceedings. This submission was made in support of the proposition that where a solicitor is found not to have been validly retained, an order may be made against a solicitor to pay the costs of the opposing party: Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421 at 430D-E. 65The defendants in the present proceedings were at all relevant times represented by Mr Abadee, of counsel, instructed by Cleary & Lee. Objection was not taken to either Mr Abadee's retainer nor to that of Cleary & Lee. Mr Abadee submitted that QBE's submissions fail to distinguish between the position of Mr Wisner and WLF and the position of Cleary & Lee and Mr Nunan. It is true that Mr Nunan and Cleary & Lee were acting as agent for Mr Wisner, as principal lawyer for the defendants. It is not appropriate at the end of proceedings when there has been no challenge to the retainer of any lawyer appearing in the matter, and representing by their appearance to be instructed to appear, to make a submission simply on the basis of absence of documentary material that the lawyers had no authority to act in these proceedings. 66The client contracts between the defendants and WLF for the prosecution and settlement of the claims do not make express reference to bringing proceedings for indemnity in respect of the prosecution and/or settlement of those claims. However when a lawyer is authorised to prosecute a claim on behalf of a client and the client has access to (or claims to have access to) an indemnity under a policy of insurance for costs and/or damages in respect of the prosecution of that claim (including defending any cross-claim) it is appropriate to conclude that those instructions may reasonably extend to the solicitor seeking that indemnity. 67I am not satisfied that QBE's submissions on this preliminary issue have force. The Moving Party 68QBE attempted to characterise the defendants as the moving parties in this litigation. It was submitted that because Mr Wisner made a claim for indemnity on QBE in January 2011 and commenced proceedings in May 2011 against QBE in Illinois without further notice, QBE was forced to commence these proceedings to seek declaratory relief that it was not liable to indemnify the estates of the deceased pilots. 69There was no explanation for the delay between January 2011 and late May 2011 in responding to Mr Wisner's "demand". Mr Wisner's letter described the proceedings in Illinois and Missouri and sought QBE's "prompt response". Clearly by 20 May 2011 QBE had given consideration to the claims made on behalf of the deceased pilots and decided that at that point they were not entitled to indemnity. QBE was certainly on notice in January 2011 that Cross Claims had been filed in the proceedings in the USA and that the defendants would be seeking indemnity and coverage for defence costs in those proceedings. 70The respondents submitted that it is not correct to say that the defendants were in substance the moving parties in relation to these proceedings because they instituted the Illinois proceedings against QBE. These proceedings were independent proceedings brought in this jurisdiction to restrain the administrators of the pilots' estates from continuing to prosecute the Illinois proceedings against QBE. The defendants had no desire to be involved in proceedings in New South Wales. It was submitted that it was QBE which sought, for its own reasons, to have a broad range of issues, which were ultimately not pivotal to the real issues in dispute, ventilated in this jurisdiction. It was the defendants' desire for those issues to be dealt with in the USA. 71The moving party for the declaratory relief in these proceedings is in reality QBE. True it is that it was a defendant in the proceedings in Illinois in which the defendants sought indemnity. However I am satisfied that the moving party in these proceedings is QBE. Funding 72The evidence establishes that neither Cleary & Lee nor Mr Wisner charged fees for acting in this litigation. QBE submitted that this approach was equivalent to those individuals "funding the litigation" by reason of the fact that they are providing legal services which would otherwise call for remuneration. 73The reason that "funding" is of relevance in a consideration of whether a costs order against a third party should be made is because the unsuccessful party (being insolvent and/or unable to pay costs) would not otherwise have been able to proceed to the unsuccessful result in the litigation without such assistance. Thus the successful party is entitled to ask the Court to take this factor into account in deciding whether to award costs against the party who enabled the unsuccessful party to take part in the litigation. 74A matter of relevance in considering the funding criterion is whether any application for security for costs has been made during the course of the litigation. Those particular cases usually involve corporate parties rather than individuals. However there are some cases in which orders for security for costs are made against individuals. The capacity to seek security for costs prior to the conclusion of the proceedings also puts an indigent party on notice in respect of an adverse costs outcome. In some cases where a party is an insolvent corporation or a corporation that satisfies the threshold test for a security for costs order, an individual director and/or shareholder or third party may provide undertakings to the Court to be responsible for any adverse costs orders against the corporation. These processes protect parties from exposure to the prospect of large losses or, worse still, their own insolvency by reason of the inability of the unsuccessful party to pay their costs if ordered to do so. 75There is a difference between a party to litigation obtaining a loan or funding from a financial institution, for instance a bank with provision of security, to pay its legal bills and a party entering into a litigation funding agreement with a litigation funder. In the former the party remains liable to repay the financial institution for the funding irrespective of the outcome of litigation. In the latter the arrangements will very much depend upon the litigation funding agreement, however it appears that in the main the party will not be required to repay the litigation funder if the litigation is unsuccessful. In this example, the bank is a "pure funder" with no personal interest in the litigation, which would not stand to benefit from it or control its course: Hamilton v Al Fayed (No 2) [2002] EWCA Civ 665; [2003] QB 1175 at 1194 [40] per Simon Brown LJ. The person or entity in the business of litigation funding is in a different position. It has a personal interest in the outcome of the litigation and stands to benefit from it. It may also seek to influence the course or conduct of the litigation. 76There are then the categories of cases in which lawyers enter into arrangements with their clients on a "no win, no fee" basis, with only disbursements being paid, or who agree to act for their clients on a "pro bono" basis. In the former the lawyer is only paid fees if there is a "win". In the latter the lawyer forgoes fees irrespective of the outcome of the litigation. In each instance the party is only able to proceed with the unsuccessful litigation by reason of the lawyer's agreement to defer the payment of the fee until the win or to forgo the entitlement to be paid fees. If QBE's contentions are correct then these lawyers are funding the litigation. 77It might be said that public policy dictates that the circumstances in which lawyers agree to forgo or conditionally defer the charging of fees should not be considered as "funding" in this context because it would reduce access to the courts. This would be so because lawyers would not only be providing legal services without remuneration but would also be exposed to the liability for the costs of litigation, notwithstanding that their professional conduct in pursuing the litigation on behalf of their client was impeccable. The consequence would be that lawyers who were otherwise willing to provide services would be most reticent and probably unwilling to offer services on these bases. The litigation funder is operating a commercial enterprise, taking a risk on the litigation for profit. Some likeness might be drawn between the litigation funder and the lawyer on a "no win no fee" retainer. However that analogy has not been found to be "particularly helpful": Hamilton v Al Fayed (No 2) at 1204 [80] per Hale LJ. 78The litigation funder does not owe a duty to the Court other than through the duty that is owed by the client under s 56 of the Act. In contrast, the lawyer has a special place in the administration of justice, owing a paramount duty to the Court not to commence or maintain proceedings that are hopeless. Such lawyers are not "funding" the litigation. They are foregoing a fee or deferring the payment of a fee on the condition of a successful outcome in the litigation. 79I am not satisfied that Mr Nunan, Cleary & Lee, Mr Wisner or WLF funded this litigation. Interest in the Litigation 80QBE submitted that Cleary & Lee and Mr Wisner had a financial interest in the outcome of this litigation. The contracts referred to earlier provide that WLF is entitled to "thirty percent (30%) of the gross amount recovered from the claim by settlement or trial" plus recovery of disbursements in the prosecution or settlement of the claims "against all parties responsible" for the pilots' deaths. QBE submitted that the reference to "gross amount recovered" is to be understood as the amount to be received by each of the defendants before reduction for expenses. The demand on QBE for indemnity, the subject of these proceedings, affected the capacity of the defendants, and thus their lawyers, to obtain an award. 81The defendants do not dispute that Mr Wisner will be remunerated in relation to the Illinois and Missouri proceedings if they are successful through a conditional arrangement under which he will be entitled to a percentage of the gross amount recovered on behalf of the estates of those who perished in the accident. However it was submitted that QBE seeks to conflate such an interest with a similar interest in the outcome of both these proceedings and the Illinois proceedings against QBE. 82QBE submitted that if Mr Wisner had succeeded in defending the present proceedings, the pilots' estates would have been indemnified and the defendants would have then stood to receive on their claims in Missouri and Illinois an amount increased by the value of the indemnity for which QBE would thereby have been liable. 83QBE submitted that the commercial basis for Mr Nunan to act in the proceedings in Missouri and Illinois was as described by him in his affidavit (extracted earlier). First he was to record the time spent on the matter. Secondly there was to be determined at a future date, by agreement with Mr Wisner, the hourly rate to be applied to that time. Thirdly the matters to be taken into account in determining the hourly rate were the time and effort invested by Mr Nunan, the difficulty of the case and the awards to the clients (made by the court or agreed to at mediation). QBE submitted that it follows that the quantum of fees to which Mr Nunan will become entitled depends upon the quantum of awards recovered by the clients in the Missouri and Illinois proceedings. It was submitted that Mr Nunan's remuneration also stood to increase if the amount recovered from the claims in the Missouri and Illinois proceedings were increased by reason of the QBE indemnity being available. 84QBE relied upon a series of entries on Cleary & Lee's webpage and in various newspaper articles. Emphasis was placed upon the statement that Mr Nunan (and Mr Wisner) were acting on a contingency basis and that neither would be paid unless damages and compensation payments were awarded by the US courts or a settlement was agreed through mediation. QBE also relied upon entries on WLF's website which includes the following: What fees and costs will I owe? The written attorney-client contract between Wisner Law Firm and you will clearly set forth the attorneys' fees you will owe. Wisner Law Firm charges a contingency fee which means that you will pay Wisner Law Firm the stated percentage of the gross amount we recover for you by way of a settlement or trial. The percentage is dependent upon such factors as the difficulty of the case and estimated time to obtain a recovery. You will owe a fee only if we succeed in obtaining a recovery for you (and this is always our expectation). You do not owe any fee if we do not recover any amount for you. There also will be costs which will be incurred in the course of the case for such matters as experts, travel, court filing fees, court reporters and depositions. Wisner Law Firm will advance these costs on your behalf and you will reimburse the firm for such costs at the close of the case. These costs generally do not exceed 5% of the amount recovered. Generally, U.S. law does not allow the winning party to recover its attorneys' fees from the losing party. Therefore, in the unlikely event we are unsuccessful in your case, you will not be responsible for the defendant's attorneys' fees. 85QBE submitted that the inference that is open and should be drawn is that Messrs Wisner and Nunan, through the mechanism of the contract between them, have agreed to share the contingency fee to be obtained by WLF. A matter militating against such an inference is that Mr Nunan is prohibited from charging a contingency fee calculated by reference to the amount of any award or settlement of the client's claim: s 325 of the Legal Profession Act 2007 (Qld) (see also s 325 of the Legal Profession Act 2004). 86When lawyers' livelihoods or incomes are bound up with or dependent upon the client's success in litigation, for instance in a "no win, no fee" retainer, there is the prospect that the lawyer's capacity to give objective advice may be compromised: Spence v Gerard Malouf & Partners Pty Ltd [2010] NSWSC 764 at [110]. The existence of that prospect is because the lawyer is only able to receive fees if there is a "win" as defined in the retainer. However there is a difference between being interested to receive fees on the basis of a particular event (a win) and having a financial interest in the litigation. I am of the view that a lawyer who is to receive a percentage of the award of damages has a financial interest in the litigation. A lawyer who is only able to charge a fee for legal services if there is a "win" has an interest in the outcome of the litigation as opposed to a financial interest in the litigation. 87In any event neither Mr Nunan/Cleary & Lee nor Mr Wisner charged fees for their services in this litigation. It is true that if the defendants had been successful in this litigation and QBE were required to indemnify the pilots estates in the USA litigation it may have assisted Mr Wisner's prospect of receiving a larger amount in his 30% share of the gross award or settlement. Mr Wisner's statement to the trial judge in the Illinois proceedings against QBE (see [32] above) that he had "an interest" to make the application reflects that position. Notwithstanding that Mr Wisner did not charge fees in this litigation I am of the view that he had an "interest" in the litigation that should be taken into account in deciding whether the order as sought should be made. I am not satisfied that this was so in the case of Cleary & Lee. There may have been a prospect that Mr Wisner might have been more generous in reaching agreement with Mr Nunan in relation to Cleary & Lee's costs had the indemnity from QBE been available in the USA litigation, but on the evidence I am not satisfied that it is appropriate to characterise Cleary & Lee as having a financial interest in these proceedings. The real litigant 88QBE referred to a communication from Mr Nunan apparently sent to Mr Wisner with a copy to counsel for the defendants. It was in the following terms: Floyd/Alistair, FYI. I'm in Brisbane about to go into Court at 12noon. Floyd any advance on what we can or cannot admit in the Notice to Admit facts. I should be able to send a letter to Norton White during the lunch break or after court. Pat. 89QBE submitted that this communication is only consistent with an arrangement described on Mr Wisner's website, that is, that Mr Wisner personally controlled the conduct of this litigation. It was submitted that there was apparently no consideration of the Notice to Admit Facts by the Australian lawyers or by the defendants. Rather, it was submitted that what was to be admitted was to be determined by Mr Wisner. 90I do not accept that this is a reasonable characterisation of the relationship. Mr Nunan gave evidence that he agreed to act as Mr Wisner's agent in Australia. It is not unreasonable therefore that the agent should consult with Mr Wisner who acted for the defendants in the USA proceedings. The defendants directly instructed Mr Wisner and it is appropriate that he was consulted in relation to the Notice to Admit Facts. In any event the terms of the communication do not exclude both counsel and Mr Nunan having input into the process. 91It was submitted on Cleary & Lee's behalf that the concerns expressed in the authorities in relation to circumstances in which a "man of straw" is chosen to conduct proceedings rather than a person with a real interest in the proceedings is not a relevant criterion in this case. It was submitted that it is clear from the evidence that the defendants retain a real and dominant interest in defending these proceedings whatever the interest of the lawyers might be. It was also submitted that it is not the case that the defendants are simply being used as a vehicle through which the proceedings may be defended in the interest of others and neither Mr Wisner nor Cleary & Lee can be described as the real parties to the proceedings. I agree. Conduct of the Litigation Unreasonable 92QBE submitted that there was never any evidentiary material available to the defendants to provide a basis to put in issue the contention that the Approach was being used at the time of the accident; that it was necessary for both pilots to be endorsed to perform the Approach; and that one of the pilots was not so endorsed. It was submitted that there was ample material available to the defendants and their legal advisers demonstrating the factual accuracy of QBE's case on each of those matters. 93The Australian Transport Safety Bureau (the Bureau) had conducted an extensive investigation into and had reported upon the accident. There was also material from the Coronial Inquest. Cleary & Lee acted as solicitors for the relatives who were present at that Inquest. The Bureau's report was central to the Coronial Inquest. It was submitted that it followed inexorably from the materials available to the defendants and their legal advisers at the Inquest that the use of the Approach required both pilots to hold endorsements, the absence of which would be in breach of statutory requirements within the meaning of the Policy. 94QBE submitted that there was no proper basis upon which the defendants should have put QBE to proof on these matters. 95When QBE served its Notice to Admit Facts on 8 October 2011 it referred to the following matters: In these circumstances, it is inconceivable the Defendants are unable to plead to the Points of Claim in a forthright and informed manner which will limit the issues in dispute in this proceeding. ... In these circumstances, your client has a duty to not dispute a matter dealt with in this Notice unless there is a genuine factual dispute about it; and you have a duty pursuant to section 56(4) of the Civil Procedure Act 2005 not to cause your clients to serve a Notice disputing any of these facts or documents unless there be a real factual dispute with respect to such a fact or document. We draw your attention to Uniform Civil Procedure Rule 42.8 which imposes cost consequences for your clients should they dispute facts or documents which are subsequently proved or admitted. You will also be aware that, in the circumstances, by reason of section 56(5) of the Civil Procedure Act 2005, your serving any notice of such a dispute may have cost consequences. 96This oblique reference to cost consequences and s 56(5) of the Act is relied upon to submit that Mr Nunan/Cleary & Lee were "placed squarely on notice of the risk of an application" against them to pay the costs of this litigation. 97It is important to note that the so called "notice" given to Mr Nunan was limited to a cost consequence of his serving any notice disputing facts on behalf of his clients. There was no notice given to Mr Nunan or Cleary & Lee at any stage that QBE would be seeking an order under s 98 (or indeed s 99) of the Act for an order that they pay the costs of the whole proceedings. 98In any event on 24 October 2011 Mr Nunan served a Notice in which it was disputed that the Approach was used and that one of the pilots was not appropriately endorsed. However, as has been indicated above, Cleary & Lee advised Norton White on 4 November 2011 that these matters were no longer in issue. 99QBE also submitted that the foreshadowing of a proposed amendment to the Defence to plead waiver was wholly without a factual foundation. The proposed amendment required QBE to prepare to meet that case because the defendants advised that they would seek leave at the hearing to amend the Defence. QBE submitted that the case propounded in the proposed waiver defence was "hopeless". Once the submissions of QBE were served on the defendants' legal representatives in respect of the proposed waiver defence it was abandoned. QBE submitted that there never existed a factual basis for the waiver defence and that it should never have been put to the expense of having to prove the issues on the separate questions in respect of whether the Approach was used and the dual endorsements issue or the proposed waiver defence. 100It was submitted that the relevant history in relation to the conduct of the present proceedings could not support a contention that the defendants or Cleary & Lee behaved unreasonably. Indeed it was submitted that very significant efforts were made by the defendants to narrow the issues that the Court was required to determine for the just, quick and cheap resolution of the real issues in dispute. It was submitted that in contrast QBE was doggedly determined to canvas a large range of issues that the defendants maintained were unnecessary for determination. It was also submitted that QBE's preparation in relation to the broader range of issues was undertaken at a time when the defendants' application for the separate determination of the endorsement issues was under active consideration. It was submitted that in those circumstances QBE was on notice that if the defendant's application for the determination of separate questions succeeded the case would be determined on a far narrower basis. 101I am satisfied that the defendants' application for separate questions was a most reasonable approach to adopt in the circumstances. The concession that QBE had a "knock out" point assisted in the determination of that application. QBE's resistance to the application was not unreasonable in circumstances where there were a number of separate applications in the USA in respect of the anti-suit injunctions. However it has not been demonstrated in these proceedings that Mr Wisner's conduct in the two USA proceedings was anything other than consistent with the rules of those jurisdictions. In any event, even if QBE had agreed with the defendants to formulate a set of questions for separate determination, it would have been necessary to present them to the Court for its approval. 102It should be remembered that the litigation was concluded within approximately four months of its commencement. This would not have been possible without some compromises by each of the parties. The defendants compromised by accepting there was the "knock out" point and proposing the separate questions. They ultimately conceded that the answers to the separate questions should be given in QBE's favour. I am not satisfied that the defendants should have done so at an earlier time without the benefit of the process through which they went. It was necessary for them to understand the ramifications of the concessions and the ultimate agreement in respect of the answers to the separate questions. There was no hearing on the merits and the parties settled their differences by asking the Court to make consent orders. 103I am not satisfied that either party behaved unreasonably in the conduct of this litigation. Offers of Compromise 104It was submitted on Cleary & Lee's behalf, that notwithstanding that consent orders were made in QBE's favour, QBE should not have its costs, because it unreasonably rejected the offer of compromise made on 2 August 2011. QBE submitted that the offer made on 2 August 2011 was not an offer that lent itself to acceptance because stipulated facts had to be agreed before final orders could be agreed. The offer was made prior to the formulation of any separate questions and in circumstances where both sides to this litigation had their focus on the litigation in the USA. That much is clear from Norton White's response of 19 August 2011 in which it proposed the settlement of the proceedings in the USA. 105I agree with QBE's submissions in respect of the nature of the offer that was made on 2 August 2011. I am not satisfied that QBE's rejection of that offer was unreasonable in the circumstances. 106The offer made to QBE in Cleary & Lee's letter of 27 October 2011 proposed the answers to the questions that were in fact ultimately given. That letter suggested the preparation of a schedule for "admitted facts". It was this process that seems to me to have prevented the parties from reaching a settlement of their differences prior to the hearing on 10 November 2011. It was not unreasonable for QBE to reject the proposal as propounded in Cleary & Lee's letter of 27 October 2011. Conclusion 107This case does not qualify as an exceptional one in which orders should be made against a non-party to the litigation. Notwithstanding Mr Wisner's contingency fee arrangements in the USA proceedings and the interest in this litigation, I am not satisfied that there is anything in his conduct or that of Mr Nunan or Cleary & Lee that would justify such an order. 108QBE's application for indemnity costs incurred on or after 25 October 2011 is also rejected. This case was not argued on its merits and I am satisfied that it was appropriate for the defendants to give consideration to all avenues available to them in seeking to pursue the indemnity under the Policy. The amendment that was proposed to include a waiver defence was ultimately one on which the defendants capitulated. On that basis QBE's costs in having to file an affidavit and make submissions were ultimately wasted. However those costs should be balanced against the costs to which the defendants were put in having to argue for the separate questions. Notwithstanding that a lacuna in the questions was identified, costs could have been saved if the parties had been in agreement and all that was needed was the Court's imprimatur. 109QBE has been unsuccessful in obtaining a costs order against Mr Wisner and Mr Nunan/Cleary & Lee. QBE abandoned its claim for a costs order against the defendants personally and also abandoned its claim for a costs order against Mr Nunan pursuant to s 99 of the Act. 110On the other hand I have found that QBE's rejection of the offers made by the defendants was not unreasonable. 111QBE claims it is entitled to an order that the defendants (that is the estates of the deceased pilots) pay its costs of the proceedings notwithstanding that the proceedings were settled. In Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin (1997) 186 CLR 622 McHugh J said at 625: If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to costs of the proceedings. 112I am satisfied that all parties acted reasonably in the conduct of this litigation and that the appropriate order is that there be no order as to costs other than those in respect of the particular aspects of the applications for costs orders under s 98 of the Act. 113In the circumstances I am satisfied that the appropriate orders are as follows:

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (3 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (15)

Cited By (9)