ACN 068691092 Pty Ltd v Plan 4 Insurance Services Pty Ltd (No 2) - [2009] SADC 139

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
ACN 068691092 PTY LTD & ANOR v PLAN 4 INSURANCE SERVICES PTY LTD & ORS (No 2)
[2009] SADC 139
Reasons for Decision of His Honour Judge Burley
11 December 2009
PROCEDURE - COSTS
Claim under policy of insurance - cross-claims between defendants - plaintiffs claims dismissed - defendants request orders that plaintiffs pay costs of cross-claims between defendants - no determination of cross-claims on the merits - whether reasonable for defendants respectively to cross-claim and defend cross-claim - whether Bullock or Sanderson order.
Lombard Insurance Co (Australia) Ltd v Pastro (1994) 175 LSJS 448; C F Walker & Anor v Corporation of the City of Adelaide & Ors (No 2) [2004] 139 at 46, applied.

ACN 068691092 PTY LTD & ANOR v PLAN 4 INSURANCE SERVICES PTY LTD & ORS (No 2)
[2009] SADC 139

These reasons relate to cost orders sought by the defendants following the dismissal of the plaintiffs claims against the defendants on 8 May 2009 (see Judgement No [2009] SADC 53). Orders have been sought in respect of:
(1) the various cross-claims between the defendants and
(2) a previous costs order made by a Master whereby costs were reserved to the trial judge.
The cross-claims
The plaintiffs joined four defendants. About these I said in my judgement of 8 May 2009 (at [2]):
“….The 1^st defendant was the agent of the insurer and the 2^nd defendant was a director of the 1^st defendant. The insurance on the premises was arranged by them. It is not entirely clear what role the 3^rd defendant played in effecting and maintaining the relevant insurance. The 4^th defendant is the insurer.”
As I understand it, the third defendant was joined because it was the principal of the 1^st and 2^nd defendants.
The cross-claims, which were in the nature of claims for indemnity or contribution, were as follows:
Plaintiff by cross-claim:  Defendant by cross-claim:
1^st & 2^nd defendants  3^rd defendant
1^st & 2^nd defendants  4^th defendant
3^rd defendant  1^st & 2^nd defendants
Because the plaintiffs’ various claims were dismissed, it was not necessary to proceed with the cross-claims and so they were, in turn, dismissed without any determination by the court of their merits.
The respective parties to the cross-claims seek Sanderson orders which, if made, would require the plaintiffs to pay to the defendants their respective costs of the various cross-claims, whether as plaintiff by cross-claim or as defendant by cross-claim. The orders sought by the defendants have been variously stated by counsel in their written and oral submissions. Their combined effect is that they respectively seek orders that the plaintiffs pay:
(1)    the 1^st and 2^nd defendants’ costs of the cross-claims respectively brought by and against them.
(2)    the 3^rd defendant’s costs of the cross-claims respectively by and against it.
(3)    the 4^th defendant’s costs of the cross-claim brought by the 1^st and 2^nd defendant against it.
The plaintiffs concede that the 1^st and 2^nd defendants should have the costs of the cross-claim brought by the 1^st and 2^nd defendants against the 3^rd defendant, but otherwise oppose the applications.
Mr Trim, QC, counsel for the 1^st and 2^nd defendants, delivered the main argument which was adopted and added to by Mr B Roberts for the 3^rd defendant and Mr S Doyle for the 4^th defendant.
Reference was made to the decision of King CJ in Lombard Insurance Co (Australia) Ltd v Pastro (1994) 175 LSJS 448 where his Honour said, in relation to third party proceedings whereby contribution or indemnity was sought:
I think that a guiding principle for the exercise of the discretion in such cases may be formulated as follows. Where the nature of the plaintiffs claim, or allegations in support thereof, render it reasonable, having regard to the purposes of third party procedure, to bring in the third party, and the third party claim is unsuccessful solely by reason of the failure of the plaintiff to sustain its claim or the relevant allegations, the defendant should ordinarily recover from the plaintiff the costs of the third party claim including those which the defendant is ordered to pay to the third party. The emphasis is on the word “ordinarily”. The discretion is unfettered and a variety of factors may properly enter into the exercise of it.
In my opinion, that statement of principle applies with equal force to the cross-claims respectively maintained and defended by the various defendants in these proceedings. In addition, in the passage cited, reference is made to costs incurred by the defendant in respect of the third party. This raises the question of whether or not a Bullock order Sanderson order ought to be made. As I understand it, the more modern approach is to make a Sanderson order which imposes a direct liability on the party ordered to pay the costs in respect of all costs incurred by the party whose costs are to be paid: Cf Walker & Anor v Corporation of the City of Adelaide and Others (No. 2) [2004] SASC 139 at [46] per Perry J.
The defendants submitted that the plaintiffs joined all four defendants in full knowledge of the relationship between those defendants. Reference was made to paragraphs 2 (a) and (b) of the statement of claim which are as follows:
(a) The defendant Plan 4 Insurance Services Pty Ltd at all relevant times has conducted a business as an insurance agent representing the defendant AMP GI Distribution Pty Ltd which distributes insurance produced on behalf of the defendant GIO General Limited as insurer under the brand name “AMP”; and
(b) The defendant Jeffrey Dixon is and at all material times was a director of Plan 4 Insurances Pty Ltd and the plaintiffs for the purposes of insuring their property were the clients of Dixon and Plan 4 Insurance Services Pty Ltd.
These allegations were admitted by the defendants. It was submitted that in those circumstances it was reasonable for the 1^st and 2^nd defendants and the 3^rd defendant to bring the cross-claims referred to earlier in these reasons and it was reasonable to defend the cross-claims respectively brought against them. That reasonableness was based on the existence of the apparent right to claim contribution or indemnity in the manner pleaded in the various cross-claims and the apparent ability of the defendant by cross-claim to defend the claim.
In opposition to that position, counsel for the plaintiffs, submitted that the cross-claims, other than the cross-claim brought by the 1^st and 2^nd defendants against the 3^rd defendant, were flawed and in any event there was no reason why they should have been brought because it was “clear from the evidence that Dixon and Plan 4 were the material instigators and causers (sic) of the misleading conduct” (para 2 of the plaintiff’s written submission).
In my opinion the thrust of those submissions, both written and oral, is to suggest that the relevant cross-claims either on their face did not disclose a legitimate cause of action between the defendants or, by reference to the evidence taken during the course of the trial, that those claims would not have been successful. As such, subject to the plaintiffs’ concession, the costs of prosecuting and defending the cross-claims were a matter solely for the parties to the cross-claims.
In my opinion the question of whether or not the defendants were reasonable in bringing and defending such claims is determined by reference to the pleadings on the cross-claim. This must necessarily be so in cases where there has been no determination by the court as to the merits of the cross-claim. If the pleadings on the cross-claim demonstrate an arguable right respectively to claim contribution or indemnity or to defend the claim, the court then proceeds to examine the question whether or not it was reasonable to bring or defend such a claim. It follows that if, on its face, the pleadings do not give rise to an arguable “cause of action” or defence, the plaintiff should not have to pay the relevant costs; nor should the plaintiff pay those costs if the pleading of an otherwise legitimate third party claim was unreasonable.
In my opinion, the various cross-claims and defences thereto advanced by the defendants have been adequately pleaded. Despite Mr Scragg’s submissions to the contrary, I do not think that it was unreasonable for them to have pursued such claims and defences. For the above reasons I propose to make orders as set out at the commencement of these reasons. The defendants should also have the costs of this application for costs.
The cost reserved by the Master
The trial of this matter was heard in April 2009. Shortly prior to the trial, the 1^st and 2^nd defendants applied for leave to file a rejoinder to raise a number of issues which had not, until then, formed part of the 1^st and 2^nd defendants defence. The application was heard by a Master who took the view that the additional matters should be included in the defence. He refused the application for leave to file a rejoinder but permitted a further amended defence to be filed. He ordered that the costs of the issues concerning the reply and the rejoinder, the second amended defence and the third further amended defence and set-off be reserved to the trial judge. Such reservation of costs are often made where one judge dealing with an interlocutory matter considers that the trial judge will be in a better position to determine what cost orders ought to be made in relation to the application. The reservation of costs assumes that the trial judge will determine the merits of the matters which were raised by amendment. In this matter there has been no such determination because the applications by the defendants for a dismissal of the proceedings on the basis that there was no case to answer were successful.
The question of the costs reserved by the Master was first raised in the plaintiffs’ Reply to the defendants’ written submissions on costs (FDN 88) which was forwarded to the court on 4 August 2009. Some submissions were taken on that subject at the hearing before me on 5 August 2009 but submissions on all matters could not be completed on that day and so a further date was set for the continuation of argument. That further date was 7 September 2009.
With the benefit of hindsight, when the Master’s reservation of cost was first raised before me, it would have been appropriate for me to refer the matter back to the Master on the basis that the proceedings had been determined without reference to the issues raised by way of further amendment to the defence.
Lengthy submissions were put by the parties as to what orders for costs ought to be made by me in relation to their application to file a rejoinder and the subsequent filing and service of amended pleadings. Having considered those submissions, I have formed the view that the Master is better placed to determine what cost orders should be made as reserved by him by reference to the state of affairs that existed at the time he heard the application for leave to file a rejoinder.
Mr Trim has sought to raise matters subsequent to that hearing which he said had a bearing upon whether or not a costs order should be made. In particular he submitted that it was apparent from the evidence given by Mr Scragg at trial that he was aware of the lack of sufficient insurance cover well before the fire which destroyed the relevant premises took place. This aspect of the matter was the subject of the defendants’ respective applications for dismissal of the proceedings on the basis that there was no case to answer. In light of that knowledge, Mr Trim submitted, the plaintiffs, through the agency of Mr Scragg, nevertheless brought and maintained these proceedings when he should have known that the proceedings were doomed to failure.
Given that the plaintiffs sought the costs of the application for leave to file a rejoinder and the costs of the subsequent amendments to the defence, such a contention could be legitimately put in opposition to the plaintiffs’ application for an order for costs in their favour. However, the 1^st and 2^nd defendants contend that the proper order should be “costs in the cause” which, in turn, would give the costs of that application and the subsequent amendments to the 1^st and 2^nd defendants. It is that aspect of the decision called for that I consider that the Master is in a better position to make a decision because he heard the application. I have not determined the additional points raised in the amended defence and I have not dealt with or determined the application for leave to file a rejoinder. It seems to me that the question of whether the plaintiffs should have the costs of the application or whether the 1^st and 2^nd defendants should have the costs in the manner contended for by Mr Trim, should be determined by reference to what was put to the Master on that application, rather than the occurrence of subsequent events because those subsequent events did not relate to the merits of the additional matters sought to be raised on the application for permission to file a rejoinder. In those circumstances I intend to remit the question of costs reserved to me to the Master for his determination.
I intend to make no order as to costs in relation to the hearing of the “costs reserved” application because that aspect of the matter should have been remitted to the Master at the outset.