Taylor (liquidator), in the matter of Heading Contractors Pty Ltd (in liq) v Heading

Counsel for the First and Third Defendants: Mr D Blight QC with Mr S Evans

Solicitor for the First and Third Defendants: Moray & Agnew

Counsel for the Third Defendant: Mr P Leech

Solicitor for the Third Defendant: Cowell Clarke

ORDERS SAD 132 of 2020 IN THE MATTER OF HEADING CONTRACTORS PTY LTD (IN LIQUIDATION) ACN 067 151 688 BETWEEN: AUSTIN ROBERT MEERTEN TAYLOR AS LIQUIDATOR OF HEADING CONTRACTORS PTY LTD (IN LIQUIDATION) ACN 067 151 688 First Plaintiff

HEADING CONTRACTORS PTY LTD (IN LIQUIDATION) Second Plaintiff

AND: PETER JOHN HEADING First Defendant

STEPHEN JAMES DUNCAN, TRUSTEE OF THE PROPERTY OF PETER JOHN HEADING, A BANKRUPT Second Defendant

MARKEL SYNDICATE MANAGEMENT LIMITED Third Defendant

order made by: CHARLESWORTH J DATE OF ORDER: 29 JULY 2021

1. In respect of the separate question proposed pursuant to Order 1 dated 25 February 2021, namely: "In the event that the allegations pleaded at [4] - [10] of the Fourth Amended Statement of Claim (4ASOC) are established, subject to the alternative argument pleaded at [11] of the third defendant's Defence and any affirmative defence which might be raised to liability under s 588M(2) of the Corporations Act 2001 (Cth) (which remain to be determined), having regard to the matters pleaded at: (a) [2.10], [2A], and [11] - [18] of the 4ASOC; (b) [2], [2A], the denial in [11], [12] - [16] and [17A] - [18] of the Defence of the third defendant filed on 25 January 2021; and (c) [1], [2], [3] and [6] of the Reply to the Defence of the third defendant filed on 9 February 2021, will the first or second plaintiff obtain the relief sought under: (d) any or all of [1.1], [1.2], [2] or [3] of the Third Amended Originating Process referred to in order 3 below; and (e) consequently, either or both of [5] and [6] of the Third Amended Originating Process (repeated at [18.3], [18.4] and the prayers for relief at [4A] and [4B] of the 4ASOC)?" the Court answers: "Yes, provided that the defendants are not foreclosed from arguing that the relief sought in [1.1] and [3] of the Third Amended Originating Process ought not to be granted in the exercise of the Court's discretion."
2. The plaintiffs have leave to file and serve a fourth amended originating process so as to delete from paragraph 4 the words following "indemnity under the Policy", such liberty to be exercised on or before 30 July 2021.
3. The third defendant is to pay the plaintiffs' costs of and incidental to the determination of the separate question.
4. The defendants have leave to appeal from the orders in paragraphs 1 and 3.
5. The costs of today be costs in the cause.
6. There be liberty to apply. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

CHARLESWORTH J 1 On 8 July 2021 I delivered reasons for judgment following the trial of a separate question in these proceedings: Taylor (liquidator), in the matter of Heading Contractors Pty Ltd (in liq) v Heading [2021] FCA 770 (Reasons). In determining the separate question I upheld most of the arguments advanced by the plaintiffs and rejected most of the arguments advanced by the third defendant. The parties were invited to prepare minutes of order consequent upon the publication of the Reasons. 2 On 29 July 2021 I made an order to the effect the answer to the separate question was "yes". With the consent of the plaintiffs, the third defendant was granted leave to appeal from that order. 3 The plaintiffs moved the Court for an order that the third defendant pay the plaintiffs' costs of and incidental to the trial of the separate question. It was expedient to pronounce an order and give oral reasons on that application on 29 July 2021 so that the appeal in respect of which leave had been granted could encompass the question of whether any order for costs relating to the separate question should be set aside. I made an order that the third defendant pay the plaintiffs' costs of and incidental to the trial of the separate question, such costs not to include the costs of the hearing of 29 July 2021. Before delivering oral reasons for making that order it was explained to the parties that the oral reasons may be neither erudite nor complete. The parties were informed that written reasons on the question of costs would be published, and that they may contain substantive revisions that elaborated upon the oral reasons but were not otherwise inconsistent with them. I now provide written reasons for the costs order. 4 This is a proceeding in relation to a provable debt in the bankruptcy of the second defendant, Mr Heading. 5 The separate question concerned the construction of an insurance contract identifying Mr Heading as an insured. The question concerned the liability of the third defendant (Insurer) to indemnify the bankrupt estate in respect of the financial relief sought on the plaintiffs' claims relating to the provable debt. The plaintiffs argued two alternate bases upon which the third defendant's obligation was said to arise. One of those bases (founded on what was described as Insuring Clause 1(a) was rejected: Reasons (at [58]). The other (founded on what was described as Extension 2(g) was upheld: Reasons (at [79] - [85]). As a consequence, the separate question was answered affirmatively, that is, in favour of the plaintiffs: Reasons (at [91]). 6 The parties jointly asked for an order that there be a separate trial of the issue, and the issue was articulated in terms agreed by them. The parties (correctly) identified that resolution of the separate question in the third defendant's favour would wholly resolve the proceedings against the third defendant. The agreed position was that resolution of the question in the plaintiffs' favour would leave a number of issues to be tried, including the application of a defence under the Insurance Contracts Act 1984 (Cth), founded on an alleged non-disclosure by Mr Heading as the insured (the non-disclosure defence). 7 The plaintiffs seek their costs on the basis that costs should follow the event on the trial of the separate question. The defendants submit that the question of costs should be reserved for determination at the conclusion of the trial of the remaining issues, and should otherwise follow the event of that trial. 8 The order given on the determination of the separate question was interlocutory in nature. Rule 40.04 of the Federal Court Rules 2011 (Cth) provides: 40.04 Costs on interlocutory application or hearing If no order for costs is made on an interlocutory application or hearing, the costs of the application or hearing: (a) if an order is made in favour of any party―follow the event; or (b) if no order is made in favour of any party―are taken to be costs in the cause of the successful party to the proceeding. 9 The parties are in dispute as whether the "event" referred to in r 40.04(a) is the order made on an interlocutory application (as submitted by the plaintiffs) or the order made in the final disposition in the proceedings (as submitted by the third defendant). I have some doubt as to whether the order made in resolution of the separate question was made on an "interlocutory application" for the purpose of the rule. However, I do not consider it necessary to resolve that issue. The Court should either make the order for costs sought by the plaintiffs (in which case the rule will have no application by virtue of its opening words) or defer the question of costs for consideration following the conclusion of the trial of the remaining issues, at which time the relevant "event" can be debated. 10 Whatever be the meaning of r 40.04, the usual position is that costs follow the event: Oshlack v Richmond River Council (1998) 193 CLR 72, McHugh J (at [67]). That course is routinely adopted on applications for interlocutory relief. 11 The power to award costs under s 43 of the Federal Court Act 1976 (Cth) is nonetheless discretionary. The discretion is to be exercised judicially. Whilst there are well-established principles guiding the exercise of the discretion, there are not fixed rules. 12 As has been mentioned, argument on the separate question identified two legal routes by which the plaintiffs asserted the insurance policy responded to their claims. I have determined one of those two alternative routes to be available. To an extent, the plaintiffs have not been wholly successful in relation to the separate question in that there was, from the outset, some reliance on the primary insurance clause. Their arguments in that respect were not accepted. Nonetheless, I do not consider the arguments founded on the first of the alternate routes to have been productive of a great deal of legal argument at the hearing of the separate question. In its written submissions the third defendant (correctly) recognised that the plaintiffs reliance on the primary insurance clause as a separate and direct basis for indemnity appeared to have been abandoned, or at least was not pressed in any significant way. I do not consider there to be any utility in apportioning costs by reference to that issue, particularly because it was necessary to construe Insuring Clause 1(a) in order to determine how Extension 2(g) applied on the agreed facts of the case in any event. The relevant event on the separate question is that the plaintiffs have obtained the affirmative answer they sought, and the third defendant has not obtained the negative answer it contended for. 13 I accept that the order made in determining the separate question is interlocutory, in the sense that it does not finally resolve the issues between the parties to the proceedings, which involve persons other than the plaintiffs and the third defendant. However, the separate issue turned on the construction of the clauses of the insurance policy which the third defendant asserted did not respond to the plaintiffs' claims at all. Whilst all of the parties identified the utility in having the point of construction tried as a separate issue (and before all others), it was the position taken by the third defendant that created the circumstance in which it was expedient for consideration to be given to a separate trial. The expediency arose because if the policy did not apply (as the third defendant contended), it would be impossible for the plaintiffs to secure the monetary relief sough on their claims, limited as they are to the amount payable under the policy. 14 I place considerable weight on the circumstance that the non-disclosure defence is yet to be tried and determined. It may yet be determined in the third defendant's favour and so result in the ultimate dismissal of the plaintiffs' claims. 15 The question is a temporal one, itself turning upon discretionary considerations. The Court can make an award of costs now, having regard to the parties success or failure on the separate question or, in its discretion, it may defer the question of costs to be resolved at the end of the trial of the remaining issues, having regard to the ultimate outcome. 16 If the Court were to defer the question for consideration to the end of the proceedings, that would not mean that the costs of determining the construction question would or should not be given separate consideration as a discrete issue. At the end of the day, the Court may have regard to the extent to which parties have been successful (or unsuccessful as the case may be) on the various issues raised on the pleadings. In significant part, this proceeding is a proceeding founded in contract in the sense that plaintiffs have no entitlement to monetary remedies unless the third defendant is shown to have an indemnity obligation under the policy. The issues argued in relation to the construction questions are particularly discrete, turning as they did on the clauses considered in light of Mr Heading's discharge from bankruptcy and the operation of s 153 of the Bankruptcy Act 1966 (Cth). The costs attributable to the issue are readily identifiable. In my view, delay in determining the question would not ultimately make a significant difference in the ultimate outcome of the cost liabilities as between the plaintiffs and the third defendant. 17 I consider it appropriate to determine the question now, as is ordinarily the case following the determination of a significant contested interlocutory application, so that the parties may have an awareness of their accumulating costs liabilities in the proceedings. That, of itself, is a sufficient reason to proceed to determine the question of costs now. 18 In the course of argument I have been taken to a series of authorities: Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 325; Austcorp Project No 20 Pty Ltd v LM Investment Management Ltd, in the matter of Bellpac Pty Ltd (receivers and managers appointed) (in liq) (No 2) [2014] FCA 44; Kaboko Mining Limited v Van Heerden (No 3) [2018] FCA 2055; A, DC v Prince Alfred College Inc (No 2) [2016] SASCFC 27; Sandini Pty Ltd v Commissioner of Taxation (No 2) [2017] FCA 905; Diakou Nominees P/L (ACN 007 890 673) v Gouger Street P/L (ACN 156 309 116) & Anor (No 2) [2017] SASC 115; Aussie Airlines Pty Ltd v Australian Airlines Ltd [1997] FCA 502; Mastec Australia Pty Ltd v Trident Plastics (SA) Pty Ltd (No 3) [2018] FCA 99; Clifton v Kerry J Investment Pty Ltd (No 2) (2020) 277 FCR 382. The outcomes in those cases turn on their particular facts and circumstances and do not give rise to any fixed rule. The authorities demonstrate that a range of outcomes might be available in any particular case, and that it is not at all unusual to award costs by reference to the parties success or failure in respect of significant discrete issues: Sandini; Prince Alfred College Inc, Kourakis CJ, Gray and Peek JJ (at [5] - [13]). I am satisfied that is the appropriate course to take on the present application. Accordingly, I will make the order sought by the plaintiffs. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Charlesworth.