Technology Swiss Pty Ltd v AAI Limited trading as Vero Insurance

1. In the circumstances that have occurred, the funds held by the applicant's agent, Litton Legal, on behalf of the applicant being the proceeds of the recovery action against Famous Pacific Shipping (Vic) Pty Ltd were and are subject to an equitable lien by way of charge in favour of the respondent for the sum of $316,770.06 to secure the respondent's rights of recoupment and subrogation in respect of moneys paid by it to the applicant by way of indemnity under the policy of marine insurance entered into on 29 April 2014. THE COURT ORDERS THAT:
2. Within 14 days the applicant pay to the respondent the sum of $316,770.06 in satisfaction of the rights of recoupment and subrogation of the respondent and in discharge of the said lien.
3. The respondent pay the applicant's costs of the proceedings on a party/party basis up to and including 7 August 2020 and on an indemnity basis thereafter, other than the costs of argument as to these rulings which are to be paid on a party/party basis. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ALLSOP CJ: 1 On 12 February 2021 I delivered judgment in this matter and made the following order: Within 14 days the parties file a joint draft minute of order, or in default of agreement competing draft minutes of order, giving effect to a division of the proceeds of recovery and any accruing interest thereon on the basis that the respondent is entitled to recoupment from such funds in the sum of $316,770.06 as representing payments under the policy for the purposes of the doctrines of subrogation and recoupment of Euro 127,500 (agreed to be $200,000) and $116,770.06, and to provide for costs of the proceeding. See Technology Swiss Pty Ltd v AAI Limited trading as Vero Insurance [2021] FCA 95. These reasons assume a familiarity with the earlier reasons. 2 The parties have not been able to agree upon a form of order to reflect my reasons. 3 The current position is that the solicitors for the applicant (Litton Legal) presently hold the sum of $863,758.70, being the proceeds of the recovery proceedings against the contractual carrier. The solicitors' trust account is not interest bearing. Correspondence took place in November 2019 about moving the funds into an interest bearing controlled money account. Agreement could not be reached about that. Therefore, there is no interest on that account to divide by the orders of the Court. 4 Litton Legal acts for the applicant (TS). It does not hold the funds on trust for the respondent (Vero) or as stakeholder. Vero, however, has an in personam claim against TS for its proper recoupment sum secured at least by an equitable lien: Napier and Ettrick v Hunter [1993] AC 713 at 738D-G, 744H-745A, 745F-G, 752D-G and 753D-E; and Insurance Commission of Western Australia v Kightly [2005] WASCA 154; 30 WAR 380 at 394 [50]. 5 The debate that has occurred as to whether the insurer's interest was by way of trust or charge by way of lien need not be finally determined in these proceedings. Vero is content with a declaration as to the existence of a lien over the fund to secure its proper share. 6 Since delivering judgment and since the receipt of submissions dealing with the form of orders, Vero has filed a notice of appeal and TS has filed a notice of cross-appeal. Thus, it might be preferable for the orders to accommodate the possible variation of my orders, should I be found to be wrong. However, the better course, in my view, is to make the orders that I think are appropriate on the basis of my earlier reasons for judgment. If the parties think that some further order should be made changing the position or holding the position pending an outcome of the appeal and cross-appeal, they can make such an application. 7 The draft orders proposed by TS as to substantive relief were that TS should cause Litton Legal to pay to Vero the sum of $316,770.06. TS opposed the making of a declaration as to a trust or any other declaration on the basis that it would lack utility. TS also sought an order for indemnity costs from January, April or July 2020 based on the making of Calderbank offers in January, April and July 2020 of $330,000 (in the first two offers) and $340,000 (in the third offer) to be paid from the settlement sum held by Litton Legal. The first two offers were open for 14 days and the third had no such temporal limitation. 8 The draft orders proposed by Vero were as follows: 1. A declaration that the Respondent has an equitable lien over the whole of the fund comprising the proceeds of the judgment in the County Court of Victoria proceedings No. CI-18-0264 held by the applicant's solicitors (Fund) until such a time as all amounts to which the Respondent is entitled are paid to it. 2. A declaration that the Respondent is entitled to $316,770.06 to paid from the Fund, being the sum which represents the Respondent's right of subrogation. 3. That on the latter of: a. the payment of all amounts that the Respondent is entitled to from the Fund; or b. the expiration of any period within which the parties are entitled to appeal this judgment; the Respondent's equitable lien over the Fund is discharged. 4. The parties are to bare [sic] their own costs. 9 Vero can be seen to be entitled to a declaration that the funds held by Litton Legal are subject to an equitable lien by way of charge to secure Vero's rights to recoupment and subrogation. Vero is also entitled to an order that TS pay to Vero the sum of $316,770.06 by way of satisfaction of Vero's rights of recoupment and subrogation and in discharge of the said lien. Such funds should be paid within 14 days. 10 The declaration of right flows naturally from a conclusion that some recoupment is required. The declaration is not without utility. It protects Vero. 11 If the parties wish to hold the position or vary the position pending the outcome of the appeal and cross-appeal (bearing in mind that neither side achieved its optimal position) an application for a stay or variation or other order can be made within the 14 days within which the payment should be made. 12 The question of costs is not straightforward. The Calderbank offers were reasonable and made giving adequate time (especially the third) to consider them. The reasons of the Court did not reflect the arguments propounded by the applicant, but to a degree reflected the essential theme of them. The basis for Vero to have confidence that it could beat the offers could only have been derived from a clear view as to the correctness of its argument about cl 3 of the settlement deed. (See [77]-[82] of my earlier reasons.) 13 Before coming to the effect of the Calderbank offers, it is necessary to deal with the argument of Vero that the parties should bear their own costs. I would reject that argument. It is correct that neither side's arguments were accepted in full. But the denial of the respondent's primary position based on Ms Kong's evidence, based as it was on cl 3 of the settlement deed, made some form of success of TS inevitable. In my view, TS is entitled to its costs. However, the question is whether those costs should be on an indemnity basis and from what date that should be the case. The offers were not made under the Federal Court Rules 2011 (Cth), but outside the Rules. I favour the view that the cost consequences rest entirely on discretion and are not presumptive: Dal Pont, Law of Costs (4th ed, LexisNexis, 2018) p 427 [13.72] and [13.73]. 14 The real question in the circumstances before me is whether Vero can persuade me that it was not unreasonable to reject the offers. In the circumstances present here, the relevant factors appear to be: the argument as to the meaning of cl 3 was objectively open; on that foundation there was a genuine view held by Ms Kong that the whole of the $425,000 payment was made by way of indemnity; the proper analysis of the resolution of the problem, assuming cl 3 did not mean what Vero contended, was not put by TS; the lack of clear guidance in the authorities for resolution of the matter on the same hypothesis as to cl 3; the weight to be given to the public policy of encouraging settlement; and the arguments being propounded by the parties. Central to the exercise of the discretion is the assessment of the arguability of the meaning of cl 3 of the settlement deed. In my view, although Vero's point was arguable, and although Ms Kong's views were genuinely held, it should have been apparent to Vero that the argument had its vulnerability. It would have been unreasonable to think that Vero could not lose that construction point. 15 The discretion is to be exercised in the context of the complex (to a degree over-complex) arguments of the parties which I sought to set out in my earlier reasons. It seems to me that once the position was taken by Vero, as it reasonably could have been taken, that it was entitled to receive at least $200,000, the real question is whether it was unreasonable for Vero to consider that it would get more than $130,000 or $140,000 in addition by reference to the $425,000 it paid to settle the proceedings. 16 Whilst it was not unreasonable, indeed it was reasonable, for Vero to run the cl 3 point, it would have been unreasonable, and was unreasonable, to think that the point could not be lost. On that hypothesis, was it unreasonable to reject an offer effectively of $200,000 plus 30% or 33% of the $425,000 (30% for $130,000; 33% for $140,000)? In my view, it was commercially unreasonable, at least by July 2020 and the case was close to fully prepared. If the cl 3 argument is lost, it is quite opaque as to what the $425,000 was for. Significant legal costs had been expended in the proceedings by TS in sums known to Vero (at least $270,000), and the unpaid storage costs claim was substantial. There was a significant, or at least very real, risk that by some legal analysis Vero might not get more than $130,000 or $140,000 of the $425,000 attributable to the indemnity. 17 The offers were made in January, April and July 2020. The parties' submissions were not complete until just before the trial. I consider the question of unreasonableness based on the proper appreciation of all the arguments should be assessed in this case in July 2020 when preparation and contemplation of the arguments must have been advanced. By 17 July 2020 (the day of the delivery of the third offer), Vero can be taken to have been sufficiently prepared as to be in a position to assess promptly the offer and the above risks, having filed its defence in June 2020. In these circumstances, I would order indemnity costs after 21 days after 17 July 2020. 18 Thus, the orders of the Court will be as follows: (1) In the circumstances that have occurred, the Court declares that the funds held by the applicant's agent, Litton Legal, on behalf of the applicant being the proceeds of the recovery action against Famous Pacific Shipping (Vic) Pty Ltd were and are subject to an equitable lien by way of charge in favour of the respondent for the sum of $316,770.06 to secure the respondent's rights of recoupment and subrogation in respect of moneys paid by it to the applicant by way of indemnity under the policy of marine insurance entered into on 29 April 2014. (2) The Court orders that within 14 days the applicant pay to the respondent the sum of $316,770.06 in satisfaction of the rights of recoupment and subrogation of the respondent and in discharge of the said lien. (3) The respondent pay the applicant's costs of the proceedings on a party/party basis up to and including 7 August 2020 and on an indemnity basis thereafter, other than the costs of argument as to these rulings which are to be paid on a party/party basis. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop.