Zircon Australia Pty Ltd v BCC Trade Credit Pty Ltd trading as Bond and Credit Co

Introduction 4 This proceeding concerns a claim by insureds for indemnity pursuant to a trade credit insurance policy. The statement of claim alleges the following. The first applicant (Zircon) and second applicant (Three Alps) are wholly owned subsidiaries of the third applicant (Apies Ventures) and together were joint insureds under the relevant insurance policy. The first respondent (BCC) is an arranger of insurance as an authorised representative of the second respondent (Tokio Marine), an underwriter of insurance. The third respondent (Marsh Singapore) is a trade credit insurance advisory and brokerage firm and was engaged as Three Alps' and Apies Ventures' insurance broker agent and adviser. The relevant insurance policy pursuant to which the applicants were joint insureds was entered into by the applicants, BCC and Tokio Marine in August 2019. 5 The applicants make claims against BCC and Tokio Marine for failure to indemnify them for losses sustained in connection with commodity trades said to be covered by the relevant policy. The applicants also advance alternative claims against Marsh Singapore on the basis that it knew or ought to have known that, in the circumstances, the relevant policy was substantially or entirely worthless insurance. 6 For present purposes, it is not necessary to set out in any greater detail the factual background to the claim, or the claims made. The immediate question before me is whether orders should be made that Zircon pay BCC's and Tokio Marine's costs thrown away by reason of amendments made to Zircon's originating application. What is relevant to that inquiry is the procedural history of the proceeding, to which I now turn.

Procedural history 7 On 30 December 2021, Zircon filed an originating application in this Court naming BCC and Tokio Marine as first and second respondents, respectively. In the originating application, Zircon sought declarations that by failing to accept indemnity under the policy, BCC and Tokio Marine had breached their duties of utmost good faith and fair dealing and duties to act reasonably; that upon the proper construction of the policy BCC and Tokio Marine are obliged to indemnify Zircon; and an order that they pay Zircon USD$7,343,346.64 plus interest and costs. 8 Pursuant to orders by consent made by Allsop CJ on 3 February 2022, Zircon filed a concise statement on 16 March 2022. Also pursuant to orders by consent made by Jagot J on 24 March 2022, Zircon filed an amended originating application on 25 March 2022. The amended originating application, referring to the concise statement, sought substantially the same relief as the originating application save that the amount claimed was reduced to USD$7.2 million. 9 It appears that Zircon, BCC and Tokio Marine were engaged in discussions throughout 2022 concerning the necessity for, and form of, a proposed statement of claim and the filing by Zircon of a further amended originating application, including seeking leave to join Three Alps, Apies Ventures and Marsh Singapore to the proceeding. This culminated in Zircon filing an interlocutory application for leave to file a further amended originating application and a statement of claim, as well as for orders that Marsh Singapore, Three Alps and Apies Ventures be joined. 10 On 16 December 2022, Allsop CJ granted leave to Zircon to file an amended interlocutory application and to serve that application on Marsh Singapore, which service was effected on 19 January 2023. 11 At a case management hearing before me on 27 April 2023, representatives of Zircon, BCC, Tokio Marine and Marsh Singapore indicated to me that discussions were ongoing regarding amendments to Zircon's pleadings and that a consent position was likely to be reached with respect to that issue and the joinder of additional parties. 12 On 4 May 2023, my Chambers was informed that those parties had reached an agreement on the immediate further conduct of the proceeding in all respects save as to costs. I made orders by consent on 4 May to the effect that: (1) Three Alps and Apies Ventures be joined as second and third applicant, respectively. (2) Marsh Singapore be joined to the proceeding as the third respondent. (3) The applicants have leave to file and serve a statement of claim and a further amended originating application in the form proposed. (4) The several respondents file and serve defences by different dates in June and July, and the applicants file and serve any replies by 4 August. (5) Costs be reserved in respect of any costs thrown away by reason of the amendments to the originating application. (6) The parties file submissions on the question of costs thrown away, with the issue of reserved costs to be determined on the papers. 13 The further amended originating application, with reference to the concise statement and statement of claim, claims five forms of relief against BCC and Tokio Marine on the part of the applicants. The first is a declaration concerning the proper construction of the relevant policy, the second is a declaration that BCC and Tokio Marine are estopped from relying on a particular interpretation of the relevant policy; the third is a declaration that the policy be rectified in certain specified respects; the fourth is a declaration that BCC and Tokio Marine are obliged to indemnify the applicants and pay the amount of USD$7.2 million plus interest; and the fifth is declarations that BCC and Tokio Marine engaged in misleading or unconscionable conduct contrary to statute or contrary to their duties of utmost good faith. 14 The position of BCC and Tokio Marine is that Zircon ought to pay their costs thrown away by reason of the further amendments to the originating application. Zircon's position is that there should be no order as to costs. The third respondent who was joined by my orders of 4 May does not have an interest in this question. The new applicants who were joined are in the same position as the original applicant as their joinder includes the amendments in respect of which the costs issue arises.

The parties' submissions 15 Zircon submits that there should be no order as to costs because its application to amend its originating application and serve a statement of claim was resolved by consent, without a determination on the merits: Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin [1997] HCA 6; 186 CLR 622 at 624-625. Further, Zircon submits that the amendments were made in the interests of practicality to address "minor criticisms" raised by BCC (noting that it was BCC's suggestion that the matter proceed by way of a statement of claim) and to avoid costs that might have been incurred had the un-amended application proceeded to final hearing. No part of the originating application was abandoned; rather, additional relief was included in the form proposed in a draft statement of claim that was first served on 1 August 2022 and filed with the Court on 5 October 2022. Zircon accordingly submits that "there cannot be any costs 'thrown away' by the amendment to the Originating Application." 16 BCC and Tokio Marine submit that it is the orthodox course that an amending party pay the other parties' costs thrown away by reason of the amendments: Australian Securities and Investments Commission, in the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd (No 2) [2017] FCA 385 at [6]. Further, notwithstanding that the amendment was resolved by consent, it is appropriate that BCC's and Tokio Marine's costs be paid because the amendments were spurred in large part by those parties putting Zircon on notice that there were deficiencies in Zircon's pleaded case and, in those circumstances, Zircon's agreement to an amendment constitutes a "capitulation" to BCC's and Tokio Marine's position. Those respondents submit that Lai Quin does not assist the applicants as that case concerned a context in which there had not been a trial on the merits of the substantive claim, and so did not involve an interlocutory application to amend a pleading. Finally, BCC and Tokio Marine submit that the Court should exercise its discretion to order that Zircon pay their costs thrown away because Zircon's conduct in providing multiple versions of its proposed amended pleading and failure to engage in a timely manner with BCC's and Tokio Marine's criticisms resulted in repeated delay. 17 In reply, Zircon submits that any delay (which is denied) is irrelevant and that the only question before the Court is the relatively confined issue of costs thrown away by reason of amendments to the originating application (and not the statement of claim), being the only filed pleading to have been amended. In any event, Zircon characterises amendments made to the proposed statement of claim between August 2022 and May 2023 as "minor".

Disposition 18 The Court enjoys a broad discretion with respect to costs pursuant to s 43(2) of the Federal Court of Australia Act 1976 (Cth). The Court's discretion has been described as "unconfined" and "unfettered", save that it must be exercised judicially: Kazar (Liquidator) v Kargarian; In the Matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136; 197 FCR 113 at [4]-[6] (Greenwood and Rares JJ). 19 The authorities establish that it is "usual" to make orders that an applicant pay costs thrown away by reason of amendments to pleadings: Whitebox at [6] (Gleeson J), Richmond v Ora Gold Ltd [2020] FCA 70 at [15] (Colvin J). In Richmond, Colvin J explained the rationale behind that usual position as follows (at [15]-[16]): Orders of that kind ensure fairness by protecting all parties to litigation from the burdens of having to incur additional costs unnecessarily and act as a discipline to all parties to properly and carefully consider pleadings when they are prepared. Recognition of the fact that an order for the costs occasioned by the amendment is made to overcome the injustice to the amending party's opponent is to be found in the reasoning of Gummow, Hayne, Crennan, Kiefel and Bell JJ in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 at [98]-[99]. Indeed, it is common for a concession to be made that there should be an order for costs thrown away as a condition of an order granting leave to amend: see, for example, Gloucester Shire Council v Fitch Ratings, Inc (No 2) [2017] FCA 248 at [242]; Fewin Pty Ltd v Prentice [2018] FCA 852 at [45] and Rush v Nationwide News Pty Ltd (No 6) [2018] FCA 1851 at [118]. As to the recognition that an order for costs thrown away may not be made where the other party has acted unreasonably: see Media Ocean Ltd v Optus Mobile Pty Ltd (No 6) [2009] FCA 1319 at [34]-[35]. The relevant principles were summarised in Stanley v Layne Christensen Company [2006] WASCA 56 at [51]-[52] by Wheeler JA. Having referred to an argument to the effect that the general rule is that where a party is seeking the indulgence of the Court to amend its pleading, that party will be required to pay the costs of the application, her Honour then said: The general rule is, and should remain, that where a party is seeking the indulgence of the Court, that party will be required to pay the costs of the application, including costs thrown away, and will not normally receive the costs of the application. However, it is also a normal rule that the Court will have regard to the extent to which it might be said that costs were unnecessarily incurred by a party, and will have regard to the reasonableness of the party's conduct in determining how costs should be awarded. In particular, where a contested application, even for an indulgence, is unnecessary because a party acting reasonably would have consented to appropriate orders, the party who has caused the costs to be unnecessarily incurred will not obtain its costs of such a proceeding merely because the application is for some indulgence. 20 There is insufficient reason to depart from the ordinary course in this case. The fact that BCC and Tokio Marine consented to the amendments following engagement with Zircon was reasonable and sensible, avoiding putting the parties and the Court to the cost of the hearing of a pleadings dispute. The arguments raised by Zircon to the effect that there were no substantial differences between the various iterations of its pleading and that in large part the changes made were cumulative may be accurate and may have the consequence that the costs thrown away will amount to very little (regarding the quantification of costs thrown away see TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] FCA 955). However, those submissions do not grapple directly with principled reasons why costs thrown away should not be ordered where pleadings have been amended. 21 It therefore seems to me appropriate to order that the applicants pay BCC's and Tokio Marine's costs thrown away by reason of the amendments to the originating application in an amount as agreed or taxed. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.