Burrows Engineering v Sgic & Anor No. DCCIV-01-1582

[2003] SADC 170

BURROWS ENGINEERING PTY LTD
v
SGIC GENERAL INSURANCE LTD and ASSICURAZION GENERALI SPA
[2003] SADC 170

Judge Lunn
Civil

1. In this action the plaintiff sued the 1^st defendant claiming indemnity under a policy of insurance.  The plaintiff had been sued in another action by Kerry Campbell.  After initially conducting the plaintiff’s defence of that action the 1^st defendant ceased to do so.  Campbell obtained judgment against the plaintiff, but that has been set aside by the Full Court and a retrial is listed for March 2004.  The plaintiff has financed most of its defence of Campbell’s action out of its own pocket.

2. At the time of the events which gave rise to Campbell’s claim the plaintiff was a sub-contractor to Lurgi (Australia) Pty Ltd.  The 2^nd defendant was the insurer of Lurgi.  In this action the plaintiff also claimed indemnity against Lurgi in respect of Campbell’s claim.

3. In the statement of claim the plaintiff sought:

   “1.A declaration that the defendants and each of them are liable to indemnify the plaintiff in respect of Campbell’s claim;

   2.An order that the defendants pay the plaintiff’s costs of defending Campbell’s claim on an indemnity basis;

   3.Interest pursuant to the Insurance Contracts and/or Rules of the Court on any sum or sums payable to the plaintiff.

   4.Costs.”

   The plaintiff did not plead a claim for specific performance of the insurance contracts against either defendant.  The plaintiff pleaded merely that it had incurred legal costs in defending Campbell’s action without particularising the work done or the costs incurred.

4. This action was listed for trial before me on 19 November 2003.  At the outset counsel announced that a settlement had been reached on almost all issues.  Apart from quantifying interest, the only issue outstanding was the amount which the plaintiff was entitled to recover for its legal costs incurred in defending the action of Campbell up until the time of this trial.

5. Neither defendant disputed that generally they were liable to pay the plaintiff the proper amount of these costs.  The dispute centred on the criteria for fixing the amount payable and the procedure by which it was to be accomplished.  I was invited to resolve these issues on the basis of the two contracts of insurance which were tendered by consent, the pleadings contained in the copy documents and the undisputed assertions of counsel from the bar table.

6. In relation to the 1^st defendant the relevant part of the contract of insurance appears on page 16 of its Policy which reads:

   “We will pay to you … all sums for which you become legally liable to pay for compensation … by reason of liability imposed on you by law in respect of

   1.     Personal injury …

   Additional Benefits  Part A:  Public liability.

   1.ADDITIONAL PAYMENTS.  We will pay all reasonable expenses incurred by us and/or by you … in the settlement or defence of any claim for compensation recoverable under this Part A. …”

   The relevant part of the insurance policy issued by the 2^nd defendant appears in Section C which reads:

   “The Insurers hereby agree … that they will:

   (a)Pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages for:

   (1)    bodily injury …

   (b)Defend in the name of and on behalf of the Insured any claim or suit against the Insured to recover damages in respect of and/or arising out of occurrences covered hereby.

   (c)Pay in addition to the ‘Limits of Liability’ expressed in the schedule: …

   (2)    all expenses incurred by or with the permission of the Insurers for investigation, negotiation and defence of all claims and suits; …”

   Both defendants now acknowledge their legal liability to meet Campbell’s claim against the plaintiff, such as it is found to be, under the terms of the respective contracts.  In the case of the 1^st defendant it is on one of the plaintiff’s pleaded causes of action only, although that is apparently of no significance in what I have to decide.  While the effect of both contracts of insurance is to indemnify the plaintiff against its liability to Campbell the term “indemnify” is not expressly used in the relevant provisions of either contract.  Both defendants now consent to the declaration sought in paragraph 1 of the prayer for relief, quoted above, that they are liable to indemnify the plaintiff.

7. At their highest the plaintiff’s submissions were that while it could not recover more than was reasonable for it to have paid its solicitors for their work in defending the Campbell action, it was entitled to recover the amount it had actually paid for such costs without otherwise proving this reasonableness unless the defendants first discharged an evidentiary burden on any ground to challenge their reasonableness.  The plaintiff’s counsel could cite no authority in support of this proposition.  I do not agree.

8. It is unclear from the pleadings, and the authorities, what is the precise legal nature of the plaintiff’s entitlement to payment by the defendants of its costs of the Campbell action.  There may be some slight difference on issues of remoteness of damage as to whether recovery is by an indemnity, strictly so called, or whether it is by damages for breach of contract.  On what has been put to me, there is no difference in whether it is approached by way of indemnity or breach of contract.

9. Even a claim for indemnity is not a liquidated claim: Forney v Dominion Insurance Co Ltd [1969] 3 All ER 831 at 836-7; Alexander v Ajax Insurance Co Ltd [1956] VLR 436. Thus whether the claim is for indemnity or damages it requires an assessment by the Court which places an evidentiary onus on the plaintiff to satisfy the Court on the balance of probabilities of the reasonableness of the amount claimed. While there is an evidentiary onus on defendants on any issues of mitigation of damage that does not displace the general onus on the plaintiff to prove the reasonableness of its claim. In any event the paucity of the plaintiff’s pleading on this issue has relieved the defendants of what would have been their obligation under Rule 46A.05(2) to have pleaded any grounds of the failure to mitigate damage.

10. In respect of the 1^st defendant’s policy the contractual liability is limited to payment of reasonable expenses.  A similar qualification is also to be implied into the policy of the 2^nd defendant.  There seems to be no basis for suggesting that the amount payable to the plaintiff under either policy in respect of the costs of the Campbell action would be different.  If the defendants’ liability is a true indemnity a limitation of reasonableness would be implied.  (Authorities implying reasonableness in the analogous situation of indemnification of debt are set out in O’Donovan and Phillips “The Modern Contract of Guarantee”, 3^rd edition 604.)  Insofar as it is an entitlement to unliquidated damages there is a similar restriction at law to reasonable costs: “McGregor on Damages”, 16^th edition, paras 790 et seq.  I do not intend to pursue what might be entailed by limitations of reasonableness in the context of this matter.  They are questions which can be argued, if need be, before the Master in the context of more detailed factual assertions than are before me.  However, I do not consider that any direction that the costs should be solicitor and own client costs should be made.  The rule in Re Blyth (1882) 10 QBD 207 probably meant that the plaintiff’s solicitors should have warned it about any liability for costs which might not have been recoverable in this action because they were unreasonably incurred: see also Re Skinner and Smith Bill of Costs (No 2) [1990] 1 Qd R 180.

11. Although the authorities cited in McGregor (above) are to the effect that it is sufficient to make an order for a solicitor and client taxation of the costs in question, I consider the preferable course is to order an inquiry by a Master under Rule 85.02.  The parties did not oppose this course.  Such an inquiry will be analogous to a taxation of costs, but will reflect that what is payable by the defendants is by way of indemnity or damages.

12. Subject to hearing counsel on the precise wording I propose to make an order along the following lines:

    1.By consent a declaration that the defendants and each of them are liable to indemnify the plaintiff in respect of Campbell’s claim.

    2.By consent the defendants are to pay to the plaintiff interest pursuant to the Insurance Contracts Act on the sums paid by the plaintiff and if such sum cannot be agreed its determination to be referred to a Master for an inquiry.

    3.Subject to any special order about the matters dealt with in this judgment the defendants are to pay to the plaintiff its costs, as taxed or agreed, as between solicitor and client of this action to date.

    4.Within 14 days the plaintiff is to deliver to the defendants a short form bill under Rule 101A.02 for the costs claimed by it in relation to the Campbell action.

    5.If there is no agreement about such costs within 28 days of delivery of the short form bill, the plaintiff is at liberty thereafter to deliver a bill in taxable form for such costs.

    6.If requested to do so within 14 days of delivery of the bill in taxable form, the plaintiff is within a further 14 days to make discovery and give inspection of all of its relevant documents.

    7.Within 28 days of delivery of the bill in taxable form the defendants are to file written objections to any disputed items in the bill giving reasonable particularity of the bases of objection.

    8.If no agreement is reach within 14 days of the lodging of any notices of objection, the issue of the amount payable by the defendants to the plaintiff for the costs of the Campbell action as claimed in its bill is referred to a Master for an inquiry under Rule 85.02.

    9.Liberty to apply.

    10.The contribution issues in this action are referred to the trial Judge in Action 735 of 1997 and are to be brought on for hearing before that Judge at the conclusion of the retrial with such directions to then be given as are appropriate for resolving the contribution issues.

13. I will hear the parties on the precise form of the Order and the costs of it.