Rockment Pty Ltd t/a Vanilla Lounge v AAI Limited t/a Vero Insurance

1. The application by the applicant for different costs orders as to the costs of the separate question be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT: 1 Rockment Pty Ltd trading as Vanilla Lounge obtained a policy of insurance from AAI Limited trading as Vero. The policy covered business interruption losses. Rockment sought indemnity under the policy for losses it claims were caused by lockdowns imposed by the State of Victoria in response to the COVID-19 pandemic. Vero denied liability in respect of Rockment's claim. It relied upon an exclusion under the policy for loss consequent upon a human disease specified in a declaration of a human biosecurity emergency under particular Commonwealth legislation applied to defeat the claim by Rockment. 2 In broad terms, Vero's position was that the exclusion applied to events that were a consequence of the 'human disease' the subject of the declaration. Rockment's position was much narrower and was to the effect that the exclusion was confined to events that were a consequence of the operation of the declaration. It maintained that the exclusion did not apply because it was action by the State of Victoria (not any effect of the Commonwealth declaration of a human biosecurity emergency) that had led to the closure of its business. 3 Rockment commenced proceedings against Vero. The Court formulated a separate question intended to resolve the issue as between the parties concerning the proper interpretation of the exclusion in the policy. Initially, both parties acceded to that course and the consideration of the question was referred to a Full Court. However, after the question had been listed for hearing, Rockment raised issues with the separate question. The issues were not formulated with precision. Rockment's position was that there was uncertainty as to whether the question would produce an answer that was of real assistance in the conduct of the proceedings. It also claimed that resolution of the question was fact dependent, at least to a degree. 4 Vero proposed a new formulation for the question. In the result, after hearing from the parties, the Court reformulated the question in terms that were intended to take account of the concerns raised by the parties. An affirmative answer to the question as reformulated would have led to the consequence that Rockment's claim would be dismissed on the basis that the exclusion applied to defeat the claim. A negative answer would mean there remained issues to adjudicate. 5 We heard the separate question and concluded that the reformulated question should be answered in the negative: Rockment Pty Ltd t/a Vanilla Lounge v AAI Limited t/a Vero Insurance [2020] FCAFC 228. We ordered that the costs of and incidental to determination of the separate question should be costs in the cause. Rockment now applies for different orders concerning the costs of the separate question. The proposed orders would provide for the costs up until the reformulation of the question to be Rockment's costs in the cause and thereafter for Vero to pay Rockment's costs of the separate question. 6 For the following reasons, we remain of the view that the appropriate order is that the costs of the separate question should be costs in the cause. Therefore, it is not necessary to consider Vero's submissions to the effect that the Court cannot and should not revisit the costs order in the circumstances that have unfolded. 7 The award of costs is discretionary: s 43 of the Federal Court of Australia Act 1976 (Cth). The discretion is unconfined, but must be exercised judicially, that is according to relevant considerations and taking account of the contextual features and facts of the litigation: Kazar (Liquidator) v Kargarian; In the matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136; (2011) 197 FCR 113 at [4]. Settled principle guides the exercise of the discretion: Oshlack v Richmond River Council (1998) 193 CLR 72 at [65] (McHugh J, Brennan CJ agreeing) and [134] (Kirby J). Generally, the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25]; and Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53 at [6]. Rockment seeks to invoke this principle. 8 The thrust of the submission for Rockment is that (a) Vero was unsuccessful in getting what it wanted from the separate question; and (b) Rockment had identified problems with the separate question and that the reformulated question proceeded over its opposition. 9 As to the first submission, even though the question was answered in the negative, both parties were unsuccessful in persuading the Court that the construction for which they contended was correct. As we stated at [70] in our reasons on the separate question: It should be emphasised that the negative answer to the question is in direct response to the question posed and the circumstances in which the Court is asked to answer it. Whilst it is the answer for which Rockment contended, the Court has not accepted its construction. Conversely, whilst Vero contended that the question be answered 'yes', the construction accepted by the Court is closer to its alternative construction than any proffered by Rockment. 10 We concluded that it was the causal consequences of the emergency the subject of a declaration that were excluded and we observed that the required connection can be somewhat remote: at [67]-[68]. We also observed that it was neither possible nor desirable to speculate how rare an occasion may be where the exclusion did not apply: at [67]. Nevertheless, it was apparent that, measured by reference to the competing positions of the parties, the conclusion reached as to the meaning of the clause was substantially more favourable to Vero than to Rockment. This was because the connection that would cause the exception to apply could be somewhat remote. 11 Therefore, it is not possible to maintain that Rockment was successful (or that Vero was unsuccessful) on the separate question just because the question was answered in the negative. Both parties failed. Further, the conclusion as to the meaning of the exclusion was more favourable to Vero than to Rockment. In those circumstances, there was no basis for Rockment to claim that it should be treated as the successful party for the purposes of the exercise of the costs discretion. 12 As to the second submission, Vero was not responsible for the formulation of the question. It was the Court that maintained the utility of the separate question. For a time that course was supported by both parties. Late in the day, Rockment expressed rather vague concerns as to why the question may produce an answer that lacked utility. Despite those concerns, the Court decided to state the separate question. Therefore, the fact that the separate question was stated for determination as part of the management by the Court of the conduct of the case is not a matter that should be attributed to Vero. 13 In any event, Rockment's concerns were misplaced. The separate question has had considerable utility. It has resolved the issue of the meaning of the exclusion. It has determined that Rockment's claim concerning the meaning of the exclusion was not correct. It has also determined that Vero's position that the exclusion clause was a complete legal answer to the claim was not correct. It has substantially confined the scope of any further inquiry as to causation. It has provided the parties with an authoritative basis upon which they may consider settlement. 14 In summation, both parties were unsuccessful. Given the competing contentions as to the separate question, if anything, Vero enjoyed more success than Rockment. Therefore, the costs orders should not be disturbed. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Besanko, Derrington and Colvin.