Rickard v Bonacci

Supreme Court of NSW|2000-12-06|Before: Rolfe J, Mr J, Heerey J

Introduction 1 By a Summons issued on 5 September 2000, which was subsequently amended by an Amended Summons filed on 23 October 2000, the plaintiff, for which Mr J.P. Doyle, Solicitor, appeared, has sued a number of defendants for the second of which Mr M. Dempsey of Counsel appeared. As against the second defendant the plaintiff claims damages for negligence and, in the alternative, pursuant to the provisions of the Trade Practices Act 1974, and ancillary relief. 2 The claim against the second defendant is based upon an alleged failure by it to provide services for quality control and assurance and testing services with due care and diligence. 3 By a Notice of Motion filed on 7 November 2000, the second defendant made an application for security for costs in the sum of $25,000 and sought various other relief, on the basis that the plaintiff is insolvent and will be unable to meet any order for costs, which may be made against it. So much was not in issue, at least in so far as matters presently stand. 4 On 23 November 2000, the plaintiff, in aid of its defence to this application, issued a Notice to Produce to the second defendant requiring the production of:- "1. The current professional indemnity policy taken out by the second defendant. 2. Any professional indemnity policy under which any notification of a claim or circumstances likely to give rise to a claim has been given to the insurer. 3. Any documents, records of or correspondence relating to indemnity or liability under that policy. 4. Any correspondence between the insurer and insured or their agents in relation to the insurance. 5. Any document, record of or correspondence in relation to any advice or representation, including any plan, test result or work methodology sent or given by the second defendant to the plaintiff."

The Submissions 6 In Irwin Alsop Services Pty Limited v Mercantile Mutual Co Limited [1986] VR 61, Ormiston J held that it is not ordinarily appropriate to grant security for costs in favour of an insurer defendant, at least not where the existence of the relevant policy is not in dispute. His Honour was of the view that while the expense of litigation is usually a burden of an exceptional kind for a defendant, that could not be said of an insurer. He considered the expense of litigation was an ordinary cost of an insurer's business. 7 In Prime Forme Cutting Pty Limited v Baltica General Insurance Co (1989) 8 ACLC 29, Brooking J declined to follow that decision, holding that an order for security for costs is designed to protect defendants sued by insolvent companies against the risk that an order for costs in their favour will be fruitless. He considered that being defendant in litigation on a regular basis, which was the experience of a number of entities including insurers, had not previously been a ground for denying an insurer the protection of security for costs and should not now be recognised as such. However, I do not think it is doubted that the fact that the defendant is an insurer resisting a claim under a contract of insurance, into which it entered voluntarily with the party from whom security is sought, is a matter which may, in the circumstances of a particular case, be relevant to the exercise of the wide discretion of the Court to determine whether or not to make an order for security. 8 These cases were ones in which the defendant was an insurer. 9 The question then arose whether the fact, if it be the fact in the present case, that the defendant is insured against the liability sought to be enforced in the proceedings, and, therefore, able to "absorb" the costs, raises a different consideration, on the basis that the existence of insurance cover would be relevant to whether, if the defendant was unable to recover its costs from the plaintiff, it would have to bear them itself. Presumably, this means bear the costs directly, because if the policy covered costs there would, no doubt, be a reflection of that in the premium paid. This was the question the Full Court of the Supreme Court of South Australia considered in Remm. 10 It is necessary to consider the facts in some detail. The plaintiff brought proceedings against all defendants arising out of the construction by it, as head contractor, of a major building in Adelaide. It was common ground that the plaintiff was impecunious and a "nominal defendant", i.e., a plaintiff suing for the benefit of other interests such as a creditor or creditors. The fifth, sixth and seventh defendants applied for security for costs and two interim orders for $250,000 and $400,000 were made and met. On 18 September 1991, the Master made a further order for security in the sum of $1,350,000. 11 The plaintiff did not comply with that order, but appealed against it. The appeal was heard by Mullighan J, who dismissed it and, thereupon, the plaintiff sought leave to appeal to the Full Court against his Honour's decision. The Court heard not only the application for leave, but also the merits of the appeal on the application for leave. 12 At p.185 King CJ, with whom Bollen and Prior JJ agreed, referred to an argument by Senior Counsel for the plaintiff that both the Master and the Judge had erred:- ".. in not requiring the defendants to produce more information as to their relevant insurance cover. It was conceded by the fifth, sixth and seventh defendants that they each had the benefit of a policy of insurance indemnifying them against claims and costs. The policy was produced. It was contended for the plaintiff that they ought to have gone further and disclosed whether the insurer had admitted liability and taken over the conduct of the proceedings." 13 His Honour then said that it was accepted that on an application for security for costs the party seeking such an order was required to provide the Court with all information in its possession relevant to the question whether security should be ordered and the amount thereof, and:- "It by no means follows, however, that the application of the principle necessarily leads to the result contended for. The extent of the cover provided by the policy was a matter of debate. There was a good deal of uncertainty as to the reach of the plaintiff's allegations in the action and the likely legal basis of any judgment which might be obtained. Whether the defendants will be indemnified against any judgment might well remain uncertain until the legal basis of any such judgment is known. Whether in those circumstances the defendants should have been required to disclose the matters contended for by the plaintiff or any other information was a matter for the learned Master. Neither he nor the learned Judge considered it to be necessary in the circumstances. No error of principle is involved." 14 In this portion of his reasons, the Chief Justice was dealing with a submission that the Master and the Judge should have required further information, there being no issue about production of the policy. His Honour disposed of that submission on the basis that no error of principle was involved in their refusal to require such production. 15 The next submission for the plaintiff was that both the Master and the Judge erred in their understanding of the bearing of insurance cover upon the decision, both having treated the possible existence of such cover as a factor bearing upon the exercise of discretion. The submission was that there was an error in principle:- ".. and that the true principle is that it is not ordinarily appropriate to order security for costs where the defendant is indemnified under a policy of insurance." 16 Reliance for that proposition was placed upon the decision in Irwin Alsop, and the contrary view of Brooking J in Prime Forme was noted. It was also observed that Beach J in Frankston Ambassador Pty Limited v Cigna Insurance Australia Limited (1991) 9 ACLC 790, acknowledged that the fact that a defendant is an insurer may be a matter to be taken into consideration when determining whether to make the order sought, but did not lead to the conclusion that the fact that the defendant is an insurer was sufficient to bar it from obtaining an order for security for costs in an appropriate case. 17 At p.186, his Honour said, in relation to the position between insured and insurer:- "Whatever special considerations may affect such an action, I can see no reason to treat an action against a defendant who is insured against liability differently from one in which the defendant has no such insurance".

This statement is, in my opinion, directly contrary to that for which Mr Doyle contended.

King J continued:- "In weighing the factors affecting the provision of security for costs, the ability of the defendant to absorb the costs, if he is unable to recover them from the plaintiff, is a relevant consideration. Any insurance cover would be relevant in assessing that factor. That, to my mind, is the only relevance which the existence of insurance cover can have, whether such insurance has been taken out of the defendants' own volition or, as contended here, in compliance with a term of the contract with the plaintiff."

18 That passage seems to me, with respect, to be at odds with the one immediately preceding it and, in any event, the difficulty, in my respectful opinion, with it is that it focuses upon the defendant's ability "to absorb the costs". That is the first proposition stated. The second is that any insurance, which may impact upon that situation, is a relevant consideration. 19 The first proposition, however, is cast in a way which seems to me to indicate that a wealthy defendant, irrespective of whether it has insurance, which can "absorb the costs", is to have that taken into account, albeit only as one factor, in determining whether an order for security should be made. As a general proposition, I do not consider, with respect, that this can be correct. Prima facie, an insolvent plaintiff is not permitted to pursue litigation against a defendant without providing security, because the impecunious plaintiff is not entitled to chance its arm in litigation in circumstances where, if it is unsuccessful, it cannot meet the successful party's costs. This principle does not depend upon the financial resources of the defendant, whether provided by it or through insurance arrangements it has made, unless, perhaps, the defendant's conduct relevant to the litigation, has led to this position. The general principle depends upon the unacceptability of a party suing another party and forcing it to defend itself in circumstances where, if that defence is successful, the defendant will not be able to recover costs. If this be accepted as correct, then it seems to me that the existence of insurance, of itself, has no part to play in a determination of an application for security for costs. 20 The matter can also be tested by considering whether a defendant, which is not insured, is in a stronger position in bringing an application for security, than one that is. I am unaware of any authority which suggests this is so, and principle would not require that that be the position. 21 In Brookfield & Anor v Davey Products Pty Limited & Ors (Federal Court of Australia - 7 April 1994 - Heerey J - unreported), his Honour was considering an application for security for costs and, after dealing with a number of reasonably well known submissions on an application of this type, he continued, paragraph 17:- "There were some other matters which I do not regard as relevant. It was said on behalf of the company that the respondents were or might be protected to some extent by insurance. With respect to what was said in Remm , I do not regard that as a relevant factor, and I do not take that into account in support of the company's case." 22 In Jeffcott Holdings Limited (In Liquidation) v Paior & Anor (1994) 14 ACSR 239, Burley J in the Supreme Court of South Australia noted the submission by the plaintiff that the second defendant carried insurance which would, at least in part, indemnify it in relation to the costs of the action. He agreed that was a factor to be taken into account conformably with Remm, by which he was obviously bound. 23 The matter was considered at length by Hayne J in Quichorn Pty Limited (trading as Heidelberg Hotel) v Broad & Anor (Supreme Court of Victoria - 24 January 1994 - unreported). His Honour dealt, firstly, with cases where an insurer was the defendant and, at p.48, said:- "I consider the better view to be that the fact that an applicant for security is an insurer and that it is resisting a claim by a party on a contract into which it voluntarily entered are matters that may be taken into account in the exercise of the discretion whether to order security, but that there is no general predisposition against the granting of security to insurers. The question will always be one for the exercise of an unfettered discretion … There is, in my view, no general principle of the kind which the plaintiff's submission suggests might apply to defendant insurers who seek security for costs. Rather, in each case, the position of the applicant must be considered having regard to all of the circumstances that affect an application in those proceedings without any predisposition one way or the other in favour or against the granting of security." 24 At pp.49-51 his Honour continued:- "What then of the other matters mentioned by the plaintiff? It submitted that the second defendant had not disclosed whether it was able to absorb costs that it might have to bear having regard to the benefit of any insurance that it may have. I do not consider that it is right to say that there has been some relevant failure on the part of the second defendant to disclose whether it is able to absorb costs having regard to any insurance it may have. The plaintiff sought to have me require the second defendant disclose whether or not it was insured. I declined to require the second defendant to do so. In my view, it was not appropriate to make such a requirement of the second defendant. It is for the party seeking security to make out its case, it is for the plaintiff then to set about challenging that case as made. Even if I were to accept that there is, or at least may be, some such insurance cover of the kind that the plaintiff was enquiring about, numerous other questions would then arise e.g. about the extent of that cover, both as to amount and to the basis on which that cover would extend. I do not accept that the Full Court in South Australia in Remm .. laid down some general principle that the existence of insurance cover is always relevant. In that case, there was a contractual stipulation that the party seeking security should have insurance against the risk which had come to pass. The Court held that it had not been shown that the Master or the Judge on appeal had acted on an incorrect principle in taking into account the ability of the defendant to absorb the costs which otherwise would fall upon it. But that, in my view, falls far short of saying, as the plaintiff's submission would have it, that it is necessary for the defendant not only to disclose the nature or extent of any insurance cover but also that if the defendant has insurance, no security should go because it has looked after its own interests in that regard. … But where, as here, the plaintiff seeks to hold the second defendant responsible for what it alleges was professional negligence, the bare fact that the second defendant may have chosen - for the present purposes, I am prepared to assume has chosen - to look after its own interests in that regard by way of insurance, is, in my view, no answer to whether security for costs should go." 25 In reply, Mr Doyle submitted that it had not been submitted that the documents sought in the Notice to Produce were irrelevant, and that the principle in Remm is that all relevant documents should be made available.

Conclusions 26 In my respectful opinion, the fact that the applicant is able to absorb a costs' order, either from its own funds or from the proceeds of an insurance policy, does not preclude its recovering an order for security in appropriate circumstances. The provisions for granting security for costs look to the protection of defendants, whether solvent or insolvent, against insolvent plaintiffs so that, to use the words of Heerey J in Brookfield, the insolvent plaintiff is precluded from "getting the benefit of a proceeding should it succeed, but is protected from the risk of an order for costs should it fail". His Honour referred to this as an "obviously unjust situation". 27 I do not see that these principles are any different when applied to a wealthy or an impecunious defendant. The whole focus of an application for security for costs commences with the proposition that the plaintiff is unlikely to be able to meet an order for costs. Thereafter, the Court is given a very wide or unfettered discretion to consider whether, in all the circumstances of the case, it will order security. However, one of those circumstances is not, as a general rule, the capacity of the defendant to absorb the costs by reason of its own financial position or of its being insured in relation to them. It would be, in my opinion, surprising if this was a relevant factor for the reasons I have sought to explain. The general rule has not been shown to be inapplicable in this case. 28 As with Hayne and Heerey JJ, I consider that the existence of a professional indemnity policy, whether at present or in the past and on the facts of the present case, is totally irrelevant to the application and, accordingly, I would set aside paragraphs 1 and 2 of the Notice to Produce. 29 Essentially for the same reasons I do not consider that the documents sought in paragraphs 3 and 4 are relevant and, in any event, there may be some degree of privilege attaching to these documents. I hasten to add that no such submission was made.

A Procedural Matter 30 Frequently, where an application is made to set aside a Notice to Produce, the documents are produced to the Court and the ruling is then made. In the present case the parties, apparently, agreed that it was not necessary to produce the documents unless the Court was of the view that they were the proper subject of production.

Orders 31 I make an order in terms of paragraph 2 of the second defendant's Notice of Motion filed on 24 November 2000 and I order the plaintiff to pay the second defendant's costs of the Notice of Motion. _____________

Last Modified: 12/07/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : Rickard v Bonacci [2000] NSWSC 1124 CURRENT JURISDICTION: Equity Division Construction List FILE NUMBER(S) : SC 55027/00 HEARING DATE(S) : 01/12/00 JUDGMENT DATE : 6 December 2000

COUNSEL : Mr J.P. Doyle (Solicitor) - Plaintiff Mr M. Dempsey - Second Defendant SOLICITORS : Doyles Construction Lawyers - Plaintiff Colin Biggers & Paisley - Second Defendant CATCHWORDS : Security for costs - Held that in the circumstances the plaintiff/respondent to an application for security for costs is not entitled to production of the professional indemnity policy of the applicant. LEGISLATION CITED : Trade Practices Act 1974 Remm Construction (SA) Pty Limited v Allco Newsteel Pty Limited & Ors (1992) 57 SASR 180 not followed Irwin Alsop Services Pty Limited v Mercantile Mutual Co Limited [1986] VR 61 Prime Forme Cutting Pty Limited v Baltica General Insurance Co (1989) 8 ACLC 29 CASES CITED : Frankston Ambassador Pty Limited v Cigna Insurance Australia Limited (1991) 9 ACLC 790 Brookfield & Anor v Davey Products Pty Limited & Ors (Federal Court of Australia - 7 April 1994 - Heerey J - unreported) Jeffcott Holdings Limited (In Liquidation) v Paior & Anor (1994) 14 ACSR 239 Quichorn Pty Limited (trading as Heidelberg Hotel) v Broad & Anor (Supreme Court of Victoria - 24 January 1994 - unreported) DECISION : The Notice to Produce be set aside.

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