Cebas Pty Ltd v CGU Insurance Ltd
[2006] WADC 175
•7 NOVEMBER 2006
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: CEBAS PTY LTD -v- CGU INSURANCE LTD [2006] WADC 175
CORAM: SWEENEY DCJ
HEARD: 24 JULY 2006
DELIVERED : 7 NOVEMBER 2006
FILE NO/S: CIV 1279 of 2005
BETWEEN: CEBAS PTY LTD
Plaintiff
AND
CGU INSURANCE LTD
Defendant
Catchwords:
Insurance contract - Indemnity insurance policy - Determination of level of disability - Whether Form 22 proceedings a claim for compensation - Whether costs incurred reasonable - Turn on own facts
Legislation:
Workers' Compensation and Injury Management Act 1981 (WA) s 84Q, s 84X, s 84ZE, s 84ZL, s 84ZQ, s 87, s 93B, s 93C, s 93D, s 93E
Insurance Contracts Act 1984 (Cth) s 54
Interpretation Act 1984(WA) s 5
Result:
Judgment for the plaintiff in the sum of $5,975
Representation:
Counsel:
Plaintiff: Ms R Aria-Retnam
Defendant: Mr T Basile
Solicitors:
Plaintiff: Jarman McKenna
Defendant: Srdarov Richards Burton
Case(s) referred to in judgment(s):
Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652
Cockburn v Edwards (1881) 18 Ch D 449
Johnson v American Home Assurance Company (1998) 152 ALR 162
Manufacturers Mutual Insurance Ltd v Murray River North Pty Ltd & Anor [2004] WASCA 276 (S)
Case(s) also cited:
Fluor Daniel Constructors Pty Ltd v Zurich Australian Insurance Ltd [2002] WASCA 218
SWEENEY DCJ:
The background and issues to be determined
The plaintiff operated the Ikea Furniture Store on Scarborough Beach Road. Ms Dezda Nikolovski suffered a personal injury whilst working as a cleaner at those premises. At the time she was employed by Mango Hill Pty Ltd, but the plaintiff was also deemed to be her employer pursuant to s 175 of the Workers' Compensation and Injury Management Act 1981 ("the Act"). On an unknown date, it would appear in late February 2003, the plaintiff became aware that Ms Nikolovski was pursuing it for compensation or damages. From late February 2003, the legal firm Messrs Clayton Utz ("Clayton Utz") commenced acting on behalf of the plaintiff in that matter.
On 21 March 2003 Ms Nikolovski filed a Form 22 application, by which she sought a determination from the Director of Conciliation and Review that she had suffered permanent disability of not less than 16 per cent to satisfy the requirements of Pt IV Div 2 of the Act. The Regulations to the Act nominate that standard form as the means by which such review proceedings are to be commenced and consequently, in their pleadings and at trial, the parties have referred to the "Form 22 proceeding".
Unless Ms Nikolovski could prove that she had a disability to that extent then, pursuant to s 93C and s 93E(3) of the Act, the District Court was prohibited from awarding her damages in any common law claim for damages. It was necessary therefore that she issue those proceedings if she was to succeed in any claim for damages.
At all material times, the plaintiff was insured by the defendant pursuant to a contract of indemnity insurance ("the contract"). The plaintiff informed the defendant of the claim by Ms Nikolovski and the subsequent Form 22 proceeding in the expectation that the defendant would assume conduct of the matter, but the defendant denied liability under the contract. The plaintiff therefore continued to be represented by Clayton Utz, incurring legal fees totalling $25,000 in respect of the Form 22 proceedings and a further $19,000 in respect of legal advice as to the interpretation of the contract and another insurance policy the plaintiff had entered into with another insurer. It is these legal costs, totalling $44,000 and including $2,000 in disbursements, that the plaintiff now claims from the defendant. Ultimately, the plaintiff did not contest the outcome of the Form 22 proceedings.
Finally, on 9 December 2003, Ms Nikolovski issued proceedings in this Court claiming damages from the plaintiff and her employer (District Court Action 2696 of 2003) for negligence ("the District Court action"). The defendant accepted liability under the contract in respect of the District Court action, indemnified the plaintiff in relation to that action and took over its conduct.
The first issue for me to determine is whether the defendant is obliged by the contract to indemnify the plaintiff against its legal costs incurred in defending the Form 22 proceedings. If it is, the second issue is whether those legal costs recoverable extend to the cost of legal advice on that very issue and the liability of a second insurer pursuant to its contract with the plaintiff. Finally, an issue is raised whether s 87 of the Act applies to impose a scale of costs on any costs recoverable.
The evidence
This trial was largely dealt with on the basis of an agreed statement of facts, which comprised most of the facts set out above. In addition, the plaintiff called Mr Stelios Kyriakakis, store manager and company secretary for the plaintiff. His evidence was uncontested. He said that in April 2002 the plaintiff had contracted with Mango Hill Pty Ltd trading as Arix Cleaners to clean the store. It came to his attention in late February 2003 that one of Arix's employees, Ms Nikolovski, was claiming that she had injured her back. Her solicitors had sent a letter with an accompanying medical report asking the plaintiff to accept that her disability exceeded 16 per cent.
On advice from Clayton Utz Mr Kyriakakis contacted the defendant and SGIO Insurance Limited ("SGIO") with which the plaintiff had an employers' indemnity insurance policy. Both the defendant and SGIO denied liability under their respective contracts. SGIO's interpretation of its contract accorded with the legal advice he was given by Clayton Utz. The plaintiff's insurance broker advised him that, as a prudent insured, the plaintiff should get advice from its lawyers and do nothing to jeopardise the outcome of the Form 22 proceedings.
As to that aspect, cl 3 of the contract under the heading "Conditions applicable to all sections of the policy" provides:
"The Insured shall give to the Company notice as soon as possible in writing with full particulars of the happening of any Occurrence which may give rise to a claim under this Policy or of the receipt by the Insured of notice of any claim and the institution of any proceedings against the Insured. The Insured shall not admit liability for or offer or agree to settle any claim without the written consent of the Company which shall be entitled to take over the conduct, in the name of the Insured, of the defence or settlement of any claim … "
Mr Kyriakakis testified that the plaintiff initially defended the Form 22 proceedings but ultimately did not contest the Directorate determining, on 18 November 2003, that Ms Nikolovski's disability exceeded 16 per cent. She then commenced the District Court proceedings and, from that point on, the defendant assumed conduct of the matter. In the meantime however Clayton Utz had regularly sent the plaintiff invoices for legal fees, which the plaintiff paid.
That representation included not only the conduct of the Form 22 proceedings, but advice on the plaintiff's entitlements under its contract with the defendant and the SGIO, given that neither admitted liability and that the defendant did not take the matter over, as expected. Given the potential value of Ms Nikolovski's claim, Mr Kyriakakis considered it necessary the plaintiff be "well represented". The various invoices rendered by Clayton Utz and paid by the plaintiff were tendered.
Mr Kyriakakis accepted that in his view it was "obvious from day one" that the SGIO was not liable under its policy with the plaintiff, but said that it was still necessary that the policy be reviewed by Clayton Utz and their advice sought. He agreed that the plaintiff had not requested any of the bills from Clayton Utz be taxed.
The defendant for its part called a single witness, Mr Peter George Sheavyn, whose evidence was directed to the bills sent by Clayton Utz to the plaintiff. I will detail that evidence later in these reasons.
Construction of cl 2 of the contract of insurance
The plaintiff tendered the contract. I have had regard to the contract in its entirety, but two clauses in particular are of relevance to the claim. Clause 1 headed "Operative Clause" includes the following words:
"… the Insurers named in the Schedule (hereinafter called the 'Company' will indemnify the Insured for all amounts which the Insured shall become legally liable to pay by way of compensation (which includes amounts owing or liability arising out of a claim for recovery or contribution made pursuant to legislation concerning the operation of any statutory compensation scheme) arising out of Personal Injury or Property Damage happening in the Period of Insurance within the Geographical Limits and caused by an Occurrence …"
Clause 2 of the contract under the heading "Additional Payments" includes the following (my emphasis added):
"The Company will also pay:
(a)All charges, imposts, expenses and legal costs incurred or obliged to be paid by the Company or by the Insured with the consent of the Company (whose consent must not be unreasonably withheld) in the investigation, settlement or defence of any claims for compensation (even if such claim is groundless, false or fraudulent) including actual loss of earnings and in relation to any appeal, coroners inquest, royal commission or other enquiry in respect of which the Insured is entitled to indemnity under this Policy."
It is cl 2 upon which the plaintiff's claim in this case is based. It is the plaintiff's case that the fees paid to Clayton Utz were "legal costs incurred … in the investigation, settlement or defence of any claims for compensation" and that, while those costs had not been incurred with the consent of the defendant, its consent had been unreasonably withheld. This obliged the plaintiff to defend the Form 22 proceedings because, pursuant to cl 3 of the contract, under the heading "Conditions applicable to all sections of the policy" quoted above, the plaintiff could not "admit liability for or offer to settle any claim" without the defendant's consent.
The defendant argues that Form 22 proceedings are a mere prerequisite to any claim for compensation, but not a claim for compensation in themselves and therefore the legal fees were not incurred in the investigation, settlement or defence of "any claims for compensation".
It is accepted by the defendant that, should the costs of defending Form 22 proceedings fall within the scope of cl 2 of the contract, then the defendant's consent to incur those costs was unreasonably withheld.
"Form 22 proceedings" were those proceedings contemplated by s 93E(3) and s 93D(10) of the Act. Section 93E of the Act was to be found in Pt IV Div 2 of the Act. Pursuant to s 93C, if that division applied "a court is not to award damages to a person contrary to this Division." Pursuant to s 93B(1):
"(1)This Division applies to the awarding of damages against a worker's employer independently of this Act in respect of a disability suffered by a worker if –
(a)the disability was caused by the negligence or other tort of the worker's employer; and
(b)compensation has been paid or is payable in respect of the disability under this Act, or would have been paid or payable but for section 22."
Section 93E(3) of the Act provided:
"(3)Damages can only be awarded if –
(a)….
(b)the worker has a significant disability and elects, in the prescribed manner, to retain the right to seek damages and the election is registered in accordance with the regulations."
Section 93E(4) of the Act provided:
"(4)For the purposes of subsection 3(b) the worker has a significant disability if it is agreed or determined that the degree of disability is not less than 16% and that agreement or determination is recorded in accordance with the regulations."
Section 93E(1) defined "determined" to mean "determined or decided on a reference under section 93D(10) or (11)".
Section 93D(5) provided:
"(5)If the worker and the employer cannot agree on whether the degree of disability is not less than the relevant level, the worker may … refer the question to the Director".
Section 93D(9) provided:
"(9) The Director is to consider the dispute in consultation with the parties".
Section 93D(10) provided:
"(10) Except in a case to which subsection (11) applies, if the dispute is not resolved by agreement the Director is to refer the question for resolution under the provisions of Part 111A (other than Division 2)".
It was pursuant then to s 93E and s 93D that Ms Nikolovski filed her Form 22 to "refer the question to the Director". Failing agreement between the parties that the degree of her disability was not less than 16 per cent, it was necessary for her to achieve a determination to that effect. In the absence of such agreement or determination, s 93E(3) of the Act would have prevented the court from awarding damages in her District Court action.
There is nothing to prevent a worker from instituting both a claim for damages in this Court and Form 22 proceedings issued out of the Directorate. An agreement or determination by way of Form 22 proceedings is not a prerequisite to a claim for damages at common law. The Court cannot, however, award damages in the absence of agreement or a determination that the worker's disability exceeds 16 per cent.
Prior to the Act being amended on 5 October 1999, it was necessary for a worker to have the leave of the court to commence proceedings, which leave would only be given if he succeeded in proving a prescribed degree of disability or a prescribed amount of his future pecuniary loss. Section 93C of the Act prevented the court from awarding damages to the person contrary to Division 2 of the Act, as it still does. The October 1999 amendments, however, removed the need for the worker to seek the leave of the court prior to instituting proceedings. There is no bar in the legislation to a worker commencing proceedings claiming common law damages prior to a determination being made in Form 22 proceedings.
In this case, Ms Nikolovski issued her Form 22 proceedings first in time and waited until they were resolved to issue her claim for damages in this Court. One can readily understand the factors which would lead to her taking that course of action, but it was not in my view necessary for her to wait until the resolution of the Form 22 proceedings before issuing the writ.
Had she failed in her Form 22 proceedings to establish that she had suffered a disability greater than 16 per cent, the court would have been prohibited from awarding her damages in her District Court action. In defended Form 22 proceedings, it is almost inevitable that issues will be raised of relevance to any common law claim for damages. Defending such proceedings will inevitably entail the consideration of the evidence relied upon by the worker. It may involve seeking further evidence by way of rebuttal, or seeking further opinions to enable the assessment of the worker's evidence. Issues of credibility of the worker, or the worker's witnesses, may be raised. A worker's failure or success in achieving a determination is likely to have substantial impact on any common law claim, either by rendering it pointless, or by identifying for the parties issues to be determined in any claim for damages at common law.
Is a Form 22 proceeding a claim for compensation? The terms "claim", "compensation", and "claim for compensation" are not defined in the contract and both parties accept they should be construed according to their natural and ordinary meaning. The primary duty of the court is to discern from the language, structure and apparent purpose of the document what it means, giving the words used their ordinary operation and because of this, no court is authorised under the guise of construction, to make a new contract for the parties which is at odds with the terms of the contract to which they have agreed: Johnson v American Home Assurance Company (1998) 152 ALR 162 per Kirby J at [19].
There is no reason in my view to limit to the meaning of "compensation" to compensation within the meaning of the Act and nor does the defendant suggest it should be so limited. Clause 1 of the contract refers to "compensation (which includes amounts owing or liability arising out of a claim for recovery or contribution made pursuant to legislation concerning the operation of any statutory compensation scheme)" (my emphasis). The defendant accepted liability to indemnify the plaintiff in respect of the District Court action for damages.
The Shorter Oxford English Dictionary (3rd Edition, Oxford University Press 1978) defines "compensate" as to counterbalance, make up for, make amends for, make equal return to, to recompense or remunerate and defines "compensation" as the action of compensating, or the condition of being compensated, a counterbalance, requital or recompense. The Australian Concise Oxford Dictionary (3rd Edition, Oxford University Press 1999) describes "compensation" as "something, especially money, given as recompense". "Recompense" is further defined as "retribution, satisfaction given for an injury".
Pursuant to s 93E of the Act, a worker who is agreed or determined to have suffered a degree of disability of not less than 16 per cent may then elect to retain the right to seek damages and, should that election be made, compensation under the Act is not payable in relation to the period after the registration of the election, subject to an extension of that time. While the proceedings may, following election, have the effect of ceasing the payment of compensation under the Act, a successful Form 22 proceeding does not result in any further compensation or any payment of compensation at common law. Successful Form 22 proceedings mean that the threshold has been crossed whereby the court can award damages in any claim for common law damages and overcomes the prohibition contained within s 93C of the Act. A worker may achieve a successful agreement or determination in his favour and yet not elect to retain the right to sue for damages.
Though I do not accept the defendant's submission that Form 22 proceedings are a "prerequisite" to a claim for damages at common law, I do find that a Form 22 application pursuant to s 93E of the Act is not in itself a "claim for compensation". That, however, is not the end of the matter.
I do not consider that to be the only pathway by which the plaintiff's argument may succeed. If defending a Form 22 proceeding amounts to "investigating, settling or defending a claim for compensation" then the costs incurred are recoverable under cl 2, even though the Form 22 proceeding does not itself amount to a claim for compensation.
Success in a Form 22 application is essential if the common law claim for damages is to stand any chance of resulting in an award of damages. Division 2, in which s 93E is contained, only applies to the awarding of damages against a worker's employer if the disability was caused by negligence or other tort of that employer and compensation has been paid or is payable under the Act. For Form 22 proceedings to have been contemplated, therefore, the plaintiff, as a "deemed employer" pursuant to s 175 of the Act, was already in the position whereby it had paid or was legally liable to pay compensation under the Act. In considering the meaning of cl 2 as a whole and as part of the overall contract, the plaintiff was already subject to a "claim for compensation" within the meaning of cl 2.
Ms Nikolovski's solicitors had sent a letter with an accompanying medical report to the plaintiff, asking it to agree that her disability exceeded 16 per cent. The only purpose in such a letter was the contemplation of a claim for damages against the plaintiff should Ms Nikolovski so elect pursuant to s93E(3)(b).
Any party liable to be sued at common law for damages obviously has a significant interest in seeing Form 22 proceedings fail to result in an agreement or determination that the party has suffered a significant disability. Failure at that stage renders any common law suit pointless and so successfully defending Form 22 proceedings defeats any common law claim already on foot or, if one has not yet commenced, renders its commencement pointless. Even if the Form 22 proceedings do result in the agreement or determination that the worker seeks, preparing to meet those proceedings would in my view necessarily entail assessing the quality of the evidence put forth on the part of the worker and, should it be thought necessary, testing that evidence. It may afford opportunity to explore the limitations and weaknesses of evidence put forth by the worker, or result in a realisation by the employer or deemed employer that the worker's claim ought to be accepted. Is such a process "investigating, settling or defending a claim for compensation"?
The term "investigation" is not defined in the contract. According to the Shorter Oxford English Dictionary, "investigation" means the action of investigating, search, inquiry, systematic examination, minute and careful research; to investigate, to track, trace out, to search or inquire into, to examine systematically or in detail.
The interpretation of cl 2 of the insurance contract urged by the defendant is to deny liability under the contract unless a Form 22 proceeding is itself a claim for compensation. I do not accept such a narrow interpretation. Firstly, a "claim for compensation" is in my view broader than an "action" for compensation. In my view a claim for compensation is made once the worker puts the employer and deemed employer on notice that a demand for compensation is made, whether by way of the service of a writ of summons or by letter indicating an intention to seek compensation. Ms Nikolovski had a claim for compensation under the Act whether or not she ultimately sought damages at common law. By the letter from her solicitors seeking an agreement from the plaintiff as to her disability exceeding 16 per cent, she put the plaintiff on notice that she was seeking that agreement or determination by which a court would be free to award damages.
Clause 2 of the contract evidences a clear intention on the part of the parties to afford the plaintiff protection against the foreseeable legal ramifications which might arise out of personal injury of a worker. Not only is the plaintiff covered against "charges, imposts, expenses and legal costs incurred or obliged to be paid … in the investigation, settlement or defence of any claims for compensation (even if such claim is groundless, false or fraudulent)" but also "in relation to any appeal, coroner's inquest, royal commission or other enquiry", the latter including proceedings of a type which are not, in themselves, "claims for compensation".
I consider therefore that cl 2 has broader interpretation than that contended for by the defendant. I have reached the view therefore that, while I accept that Form 22 proceedings do not amount to a "claim for compensation" in themselves, the legal costs incurred in preparing to meet those proceedings do amount to legal costs incurred "in the investigation, settlement or defence of any claim for compensation" because the connection between a Form 22 proceeding and a possible common law claim for damages is so close and they are so inextricably bound together that the defence of Form 22 proceedings amounts to the investigation or defence of the common law claim. I have reached that view even though, in this case, the District Court Action had not been commenced until after the resolution of the Form 22 proceedings. The whole purpose of a Form 22 proceeding is to clear the way for the court to award damages. In my view the plaintiff's entitlement pursuant to the contract ought not to be dependent on the decision made by the worker as to whether to get the District Court action underway, or wait until the resolution of the Form 22 proceedings. Where a District Court claim is on foot at the time of the institution of the Form 22 proceedings, defending the Form 22 proceedings would, in real terms, amount to defending the common law claim. The fact that, in this case, the worker held off on instituting proceedings until the resolution of the Form 22 action ought not to result in a different interpretation of cl 2. It was always in contemplation of the parties that Ms Nikolovski was instituting Form 22 proceedings in order to achieve her agreement or determination and that she could then elect to retain her right to file suit. Had she either failed in the Form 22 proceedings – heading off a common law suit – or, having succeeded, had elected not to sue, in my view the result would be the same.
I do not accept that cl 2 ought to be read in such a way, or that the parties intended, that the plaintiff is covered against compensation it must pay under the Act, an award of damages against it at common law, all expenses and legal costs in relation to investigating, settling or defending any claim under the Act or claim for damages and all expenses and legal costs in respect of involvement in any appeal, coroner's inquest, royal commission or enquiry, but not be covered in respect of Form 22 proceedings, which are an essential step in any action for damages and ought sensibly to be carefully considered by the plaintiff and, if appropriate, defended. Nor, given the ability of the defendant to assume conduct of all such proceedings, do I consider that the liability of the defendant was dependent on whether Ms Nikolovski did ultimately decide to file suit. Her "claim for compensation" was alive well before that decision was called for.
Consequently, I find that the costs incurred in considering the merits of a worker's Form 22 application and, if appropriate, contesting that application, do fall within the ambit of cl 2 of the contract. It follows that the plaintiff is entitled to be paid its legal costs incurred in considering, investigating, initially defending and ultimately deciding not to contest the Form 22 proceedings. I will add that it might well be argued that a Form 22 proceeding is an "enquiry" within the meaning of cl 2, though it is not necessary in my view to do so.
In the circumstances, it also follows that the defendant, in denying liability under the contract of insurance, unreasonably withheld its consent to the plaintiff to incur those legal costs.
That, however, does not resolve the matter as, in that event, the defendant argues that it is not liable to pay all of the legal costs incurred.
Legal fees for providing advice on the interpretation of insurance policies
Both the defendant and the SGIO having denied liability under their respective contracts with the plaintiff, the plaintiff sought advice from Clayton Utz as to whether they were entitled to do so. Clayton Utz charged $15,000 for the advice in respect of the contract with the defendant and a further $4,000 for advice on whether SGIO was liable under its contract.
It is not claimed that the advice sought as to the interpretation of the contracts falls within cl 2 of the insurance contract and do I consider it could be said that the legal fees arose out of the "investigation, settlement or defence of any claims for compensation". Advice on who is liable to pay for those investigations does not equate to the investigations themselves.
The plaintiff's argument is that, in denying liability pursuant to cl 2 and refusing to indemnify the plaintiff in respect of the Form 22 proceedings, the defendant has acted in breach of contract and is therefore liable to pay damages occasioned by that breach, those damages being the cost of legal advice as to as to whether the defendant and a third party had acted in breach of contract.
The plaintiff has referred in its list of authorities to the decision of the Full Court in Manufacturers Mutual Insurance Ltd v Murray River North Pty Ltd & Anor [2004] WASCA 276 (S), in which an insured failed to obtain the written consent of its insurer to incur legal costs in defending proceedings issued against it by a plaintiff. The insured had joined the insurer and a second insurer as third parties to those legal proceedings and the insurer, but not the second insurer, was ordered to indemnify the insured against the damages awarded against it to the plaintiff. The insurer appealed. In that appeal, the insured sought an order extending the order for indemnity to include the costs incurred in defending the proceedings against the plaintiff pursuant to the contract of insurance.
The insurer sought to rely upon s 54(1) of the Insurance Contracts Act1984 (Cth), but the Court held that the insurer had suffered no prejudice by the failure of the insured to seek its consent to incur the costs, as the costs would reasonably have been incurred in any event in defending the proceedings against the plaintiff and in determining whether the second insurer was liable.
The insured had already been awarded costs in the third party proceedings against the insurer in the proceedings at first instance and consequently nothing new in that respect was being sought. Those costs already ordered were simply ordered to be consolidated into an order that the insurer pay the insured's costs, encompassing the costs of the plaintiff ordered to be paid by the insured and the costs already awarded against the insurer. The decision therefore does not stand for the proposition that costs of enforcing a contract are damages not liable to the rules of court as to costs. The court concluded the judgment by stating "The process of taxation of those costs and expenses will establish the extent to which they were reasonably incurred and are reasonable in amount".
I reject the plaintiff's submission in this regard. A successful party in an action will, in the normal course of events, be awarded costs on a party and party basis to be taxed. Those costs will include the initial instructions. The consideration of the contract, whether by Clayton Utz or subsequent legal representatives, was the first stage in the preparation of this action. What is here claimed as a head of damages for breach of contract is more properly categorised as part of the costs of this action against the defendant. Were it otherwise, a successful plaintiff could be twice granted costs by this court, firstly as an award of damages arising out of a breach of contract, the damages being the need, it is said, to seek advice as to whether there has been that breach of contract and then by way of an order for costs for an action claiming breach of contract.
At [739] the author of McGregor on Damages (16th Edition, Sweet & Maxwell Limited, London, 1997) states: "Clearly it would make nonsense of the rules of the court as to the award of damages and the taxation of costs if the successful party could recover as damages either the costs withheld by the court or any further costs he has incurred to his solicitor beyond the taxed costs, whether in the same action or in a further action brought solely for this purpose. This has naturally never been allowed, and it is hardly surprising that there are practically no authorities on the point: Cockburn v Edwards (1881) 18 Ch D 449 C.A. is probably the only case in which such a claim appears". The author then quoted from the judgment of Cotton LJ at [463]:
"The difference between solicitor and client costs and party and party costs in an action cannot be given by way of damages in the same action, the latter being all that the plaintiff is entitled to".
While, but for the defendant's denial of liability, the plaintiff would not have incurred those legal fees, the same can be said of all legal costs incurred by party who succeeds in establishing a breach of contract. The contract contains no clause by which the defendant agrees to indemnify the plaintiff against legal advice as to the meaning of the contract itself. Again, and hardly surprisingly, the contract contains no clause whereby the defendant agrees to indemnify the plaintiff against legal costs incurred in seeking advice as to the interpretation of a contract between the plaintiff and any other party. It is not necessary for me to make comment upon the reasonableness of the $5,000 charged by Clayton Utz to advise the plaintiff that the SGIO contract was not applicable. In my view those costs were neither claimable under the contract of insurance and nor are they claimable as costs in this action.
As to the advice in relation to the interpretation of the contract between the plaintiff and the defendant, however, while that advice was provided by Clayton Utz some three years ago and prior to the commencement of this action, it was in my view part of the costs of this action in assessing the merits of the claim and is to be claimed as costs rather than damages for breach of contract. In the circumstances, I make no finding as to the reasonableness or otherwise of the fees charged.
It follows that I do not allow that part of the plaintiff's claim against the defendant in this action.
Legal costs incurred in relation to the Form 22 proceedings
The plaintiff claims $25,000, being legal fees it paid to Clayton Utz in respect of the Form 22 proceedings, which figure includes the sum of $2,000 for disbursements. The defendant does not contest the $2,000 disbursements, but argues that s 87 of the Act applies and governs the costs allowable between the plaintiff and Clayton Utz. Section 87 of the Act provided:
"(1)This section applies to an action for damages independently of this Act if Division 2 applies to the awarding of damages in the action (whether or not an award of damages is affected).
(2)An agreement is not to be made for a legal practitioner to receive, for appearing for or acting on behalf of a person -
(a)in an action to which this section applies; or
(b)…
any greater reward than is provided for by a determination in force under Section 58W of the Legal Practitioner's Act 1893.
(3)An agreement is void ¾
(a)if it is made contrary to this section; or
(b)if it would have been contrary to this section if it had been made after the commencement of section 4 of the Workers' Compensation and Rehabilitation Amendment Act 1993".
Section 87 only applies if the "Form 22 proceeding" was "an action for damages independently of this Act if Division 2 applies to the awarding of damages in the action". I have already found that the Form 22 proceedings are not in themselves a claim for compensation. Nor are they an action for damages independently of the Act. The only possible outcomes of such proceedings are failure of the worker to establish a disability to the requisite extent, in which case the court in a common law action for damages cannot award damages or, if the worker is successful, an agreement or determination that the disability suffered is a serious one. That opens the door to the court awarding damages in the event of an action for damages at common law. It is not an entitlement to damages. It removes the prohibition on the court awarding damages. The worker may or may not commence an action for damages. Should such an action be commenced, s 87 would apply.
Form 22 proceedings are therefore not "an action for damages independently of this Act" and the prohibition contained within s 87 on agreements made by legal practitioners has no application to this case.
Very limited evidence was put before me in relation to the Form 22 proceeding itself. The evidence is that it was defended but ultimately uncontested. By operation of s 93D(9) and (10) of the Act, the proceeding must have initially been brought before the Director and, failing agreement between the parties, referred for resolution under Part 111A. Part 111A provides for dispute resolution, whether by way of conciliation, appearance before a review officer or appearance before a compensation Magistrate's Court. The parties to a conciliation or appearance before a review officer are not automatically entitled to legal representation (see ss 84Q and 84ZE).
While the parties have not informed me as to the progress of the dispute, every method of dispute resolution contained with Part 111A attracts a provision as to costs, which has the same effect as s 87. These sections are s 84X, s 84ZL and s 84ZQ. They are not identical in terms because each refers to the type of dispute resolution at hand, but each provides that:
"An agreement is not to be made for a legal practitioner … to receive, for appearing for or acting on behalf of a person in proceedings … any greater reward than is provided for … by a determination in force under s 58W of the Legal Practitioner's Act 1893".
Further, each such section further provides that "An agreement made contrary to this section is void". Pursuant to s 5 of the Interpretation Act 1984, a "person" includes a company and so these costs provisions were as applicable to the plaintiff as they were to the worker.
Therefore, while the defendant has nominated the wrong section of the Act in support of its argument, I accept the submission that, in Form 22 proceedings, the plaintiff was not obliged, under any costs agreement, to pay Clayton Utz more than was provided for under the determination in force under the Legal Practitioner's Act 1893 at the time the work was carried out. Such determinations are referred to as "costs scales". During his evidence, Mr Kyriakakis accepted that the plaintiff had not asked for any of the invoices rendered by Clayton Utz to be "taxed", that is to say reviewed by a taxing officer in accordance with the current scale. The invoices, which were Exhibit B, all informed the plaintiff:
"Within 30 days of receiving an itemised account, you may require me by notice in writing to submit the account to the taxing officer of the Supreme Court of Western Australia for review of the amount of costs charged to you, the subject of this account."
While the defendant is liable to indemnify the plaintiff against its legal costs in defending the Form 22 proceeding, the defendant argues that it is only liable to pay the reasonable costs. Clause 2 of the contract obliged the defendant to pay all legal costs incurred or obliged to be paid by the plaintiff with the consent of the defendant, whose consent must not be unreasonably withheld. I have ruled that the defendant did unreasonably withhold its consent to the plaintiff to incur the costs, in that the defendant denied all liability for any costs, neither giving consent nor assuming conduct of the matter itself. But the defendant cannot be expected to consent to unreasonable costs. To the extent to which the costs incurred were unreasonable, the defendant's consent was not unreasonably withheld. Given the specific provisions of the Act referred to above, prohibiting agreements as to costs above the scale, the plaintiff could have required the invoices to be taxed and was not obliged to pay more than the taxed figure. It may not be unreasonable in a commercial sense for a company such as the plaintiff to pay the legal fees rendered without submitting them to taxation, but the defendant should not suffer as a result. The legal fees over and above the scale having been incurred without the defendant's consent, its consent not having been unreasonably withheld as to that portion of the costs, the defendant is entitled to refuse to indemnify the plaintiff against that portion of the costs. That flows from cl 2 of the contract.
The defendant has referred me to s 54 of the Insurance Contracts Act 1954, the interpretation of which was considered by the High Court in Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652. Section 54 provides:
"(1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act.
(2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.
(3)...
(4)Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act.
(5)…
(6)A reference in this section to an act includes a reference to –
(a) an omission; …"
The plaintiff did not obtain the defendant's consent to incur the legal costs in defending the Form 22 proceedings. That was because the consent was unreasonably withheld, but not in relation to these costs incurred over and above the scale in accordance with a costs agreement which was, by operation of the Act, void. The incurring of these costs, without the defendant's consent, was an act which contributed to the loss suffered by the plaintiff and, to that extent (and to that extent only) the defendant may refuse to pay the claim.
The defendant called Mr Peter George Sheavyn, a costs consultant, who provided me with two Workers' Compensation Costs Scales, both made by the Legal Costs Committee under s 58ZA of the Legal Practitioners Act 1893, which were applicable at the time that Clayton Utz represented the plaintiff. Mr Sheavyn's evidence was relied upon as expert evidence and the plaintiff had agreed that he was qualified to give expert evidence in the field of taxation of costs. In cross-examination, however, there did seem to be some issue taken with his expertise, in that he was asked numerous questions tending to show that he was not an expert in the defence of Form 22 proceedings and meetings with clients. It was clear from his answers that he has had meaningful involvement over the years in defending Form 22 proceedings during his career. He has acted for a defendant in numerous such review proceedings but accepted that, not being a legal practitioner, he did not have overall control of the file. He was involved in all aspects of the preparation, including proofing witness and advising on quantum of damages, however, he accepted that the solicitor may have conducted the initial meeting with the client and may have had further meetings to which Mr Sheavyn was not necessarily privy.
This rather missed the essential point of his evidence. Mr Sheavyn is not a qualified legal practitioner. He commenced appearing in taxations of costs in 1958 in London, appearing before the taxing masters of the High Court. In 1962 he commenced an association with a costs draftsman in London, assisting him in the drawing of bills of costs and attending with him on taxations of costs in all jurisdictions, including the Court of Appeal and the House of Lords. He arrived in this country in 1973. He has been in the employ of Messrs Talbot Olivier since 1982 working in the field of costs and personal injury matters and has regularly appeared in the Supreme Court in taxations. He has lectured at the annual costs school and given presentations in costs to the Insurance Commission of Western Australia. Since retiring in December 2005, he has been a consultant in this field.
Over the course of the last seven years, Mr Sheavyn estimated he has attended on as many as 400 taxations. His attendance specifically in relation to Form 22 taxations of costs was more limited because, as he explained, these matters are only taxed when the client requests the bill to be taxed. This follows from s 84ZL of the Act which provides that each party to review proceedings bears his own costs unless the review officer orders otherwise. He estimated he had attended on about 15 such taxations in the last six years. Mr Sheavyn's relevant expertise is in the taxation of costs, rather than the defence of Form 22 proceedings, but he has in addition practical experience of such matters. I accept his expertise in his field and found him to be confident in his opinion and knowledgeable in his area. The cross-examination did not cause me to doubt his evidence.
Mr Sheavyn examined the file of Clayton Utz, applying predominantly the Review Proceedings Costs Scale 2003 ("the 2003 scale"), which came into force on 1 March 2003. The invoices which were tendered before me and which form the basis of the plaintiff's claim commence on 26 March 2003. It was not suggested that this was not the applicable scale and, given that Mr Sheavyn had access to the file and could therefore determine the nature of the work and the proceedings, I accept his evidence that this scale applied. The 2003 scale fixed hourly rates for a practitioner admitted more than five years at $250, a junior practitioner at $175 and a clerk or paralegal (supervised by a solicitor) at $75.
Mr Sheavyn gave evidence that most of the work on the matter was performed by an articled clerk, supervised by a senior practitioner. His evidence was that the 2003 scale sets a maximum of $750 in respect of the preliminary hearing of the review, which includes preparation, a maximum of $3,000 for preparation for the review hearing itself, which includes preparing for the review hearing, getting up the case for the hearing and all other aspects not otherwise specified associated with that hearing, including taking statements from witnesses and witness proofing. Mr Sheavyn also allowed for an item of attendance at the hearing itself by a junior practitioner at the hourly rate of $175 per hour. Although the evidence before me establishes that ultimately the matter proceeded uncontested, Mr Sheavyn's perusal of the file indicated to him that a junior practitioner did attend at the hearing and he has allowed an hour for that attendance.
Item 6 of the 2003 scale allows for any other time necessarily spent not included in any other item on the scale and Mr Sheavyn's perusal of the file indicated additional necessary work by way of advising the plaintiff and also communicating with the defendant and he has allowed $1,500 under this item, representing 10 hours work by a clerk at $75 per hour and three hours work by a senior practitioner at $250 per hour. He gave evidence however, that there did not appear to be substantial work over and above the getting up of the case.
These items detailed above result in a total of $3,975 being the likely sum which, in Mr Sheavyn's opinion, would be allowed on any taxation of the invoices rendered for the defence of the Form 22 proceedings. To this must be added the $2,000 disbursements, which the defendant does not dispute. That results in a total figure then of $5,975 which, if I accept Mr Sheavyn's opinion, was likely to be payable by the plaintiff to Clayton Utz following taxation of the invoices rendered.
In cross-examination, Mr Sheavyn accepted that there is a discretion in the taxing officer to allow additional costs in a complex matter. Counsel for the plaintiff suggested to him that this was such a matter, however Mr Sheavyn disagreed. He said that his perusal of the file indicated to him that the medical evidence was never seriously in issue, but rather that liability was in issue and the file also indicated that the plaintiff had conducted various investigations of its own at the request of Clayton Utz. Mr Sheavyn said this matter didn't have complexities above the norm, such as complex psychiatric issues or disputed medical evidence.
Counsel for the plaintiff argued that I could draw inferences from the invoices themselves that the matter was complex. In the absence of any evidence from a solicitor from Clayton Utz I am unable to draw such an inference from the invoices. Nor can I gain anything from the total of the fees themselves. My perusal of the invoices leads me to conclude that a great deal of time was spent in considering the defendant's liability under the contract and the potential liability of the SGIO and consequent meetings and negotiations. But there is nothing in the invoices which enables me to be persuaded of the complexity of the Form 22 proceedings.
In relation to the file generally and in particular in relation to the correspondence passing between Clayton Utz and the plaintiff and the defendant essence, Mr Sheavyn expressed the view that a considerable and excessive amount of time was spent by a junior practitioner drafting letters and reports, due no doubt to her inexperience in the field. A senior practitioner then spent time checking all of that work. That is borne out by my examination of the invoices themselves.
That is of course the natural way of things in a legal practice and junior practitioners must be allowed the time to deliver competent and thorough advice and must be supervised. Counsel for the plaintiff urged upon me the view that this represents substantial costs savings for the client and that I can infer this from the invoices. I accept that there is efficiency in having a junior practitioner with a lower hourly rate conduct research, but there is also obvious inefficiency in a junior practitioner spending time discovering information already known to the senior practitioner. That time is essential to the development of the junior practitioner and pays dividends for the firm in the long run, but I am not persuaded that the client necessarily gains a cost benefit and, in the absence of any evidence from Clayton Utz or a competing opinion from another expert witness, I do accept Mr Sheavyn's observations in this regard.
Overall I found Mr Sheavyn to be a persuasive and knowledgeable witness. There is no evidence before me which contradicts his opinion and I accept his opinion that a total figure of $5,975 was likely to be payable by the plaintiff to Clayton Utz following taxation of the invoices rendered.
Mr Sheavyn also considered the time spent on the issue of advising the plaintiff of the interpretation of the contract and the further insurance policy held with SGIO. This work he accepted was not subject to a scale, but would be charged according to a costs agreement between solicitor and client. His task therefore was assessing what a taxing officer would likely allow should the plaintiff have requested a taxing of the bills rendered. He arrived at a likely figure of around $14,250. For the reasons stated above, I do not consider the plaintiff is entitled to be indemnified for this advice and so I have not detailed Mr Sheavyn's evidence.
Conclusion
I find that the costs incurred by the plaintiff in the defence of the Form 22 proceedings do fall within cl 2 of the contract and are recoverable, but only insofar as they are reasonable costs. The reasonable costs are those represented by the figure which, on the balance of probabilities, the plaintiff would have been obliged to pay Clayton Utz following a taxation of the invoices rendered, that figure being $5,975. I find that the costs of advice as to the liability of the defendant and SGIO pursuant to the insurance contracts do not fall within cl 2. Accordingly, I find for the plaintiff and order the defendant to pay to the plaintiff the sum of $5,975. I will hear parties as to costs.
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