Fitzgerald v CBL Insurance Ltd (No 2)
[2015] VSC 176
•1 May 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
S CI 2011 05405
| LAURENCE ANDREW FITZGERALD AND MICHAEL JAMES HUMPHRIS (in their capacity as Trustees for certain former employees of Huon Corporation Pty Ltd (ACN 115 243 206)) | Plaintiffs |
| v | |
| CBL INSURANCE LIMITED (formerly called Contractors Bonding Limited) | Defendant |
---
JUDGE: | SLOSS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 March 2015 |
DATE OF JUDGMENT: | 1 May 2015 |
CASE MAY BE CITED AS: | Fitzgerald & Anor v CBL Insurance Ltd (No. 2) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 176 |
---
COSTS — Consideration of costs ‘thrown away’ by reason of plaintiffs’ change of case — Whether plaintiffs’ conduct exposed defendant to greater than necessary costs burden — Plaintiffs were successful on most but not all pleaded issues — Whether appropriate to depart from the general rule — Supreme Court (General Civil Procedure) Rules 2005 (Vic), rr 13.02, 13.07; Civil Procedure Act 2010 (Vic).
INTEREST — Plaintiffs claimed interest on the judgment sum from the date of issue — Date from which it was unreasonable for insurer to have withheld payment on claim — Application of Insurance Contracts Act 1984 (Cth), s 57; Insurance Contracts Regulations 1985 (Cth), reg 32; Supreme Court Act 1986 (Vic), s 60; Penalty Interest Rates Act 1983 (Vic).
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A J Myers AO QC and Mr N Evans | Piper Alderman |
| For the Defendant | Mr R M Garratt QC and Mr L E Hawas | Rigby Cooke Lawyers |
TABLE OF CONTENTS
Background......................................................................................................................................... 1
The plaintiffs’ claim for interest on the judgment sum from the date of issue...................... 3
CBL’s costs ‘thrown away’ by reason of the plaintiffs’ change of case.................................. 11
The costs of the proceeding............................................................................................................ 13
HER HONOUR:
Background
This proceeding concerns a claim made by the plaintiffs, in their capacity as trustees for certain former employees of Huon Corporation Pty Ltd (‘Huon’), against the defendant, a New Zealand company named CBL Insurance Limited (‘CBL’). The claim is one for indemnity under a ‘Financial Insurance Policy’ issued by CBL in favour of the ‘Transferring Employees’ of three businesses which Huon purchased from Nylex Industrial Products Pty Ltd, known as ‘Empire Rubber’, ‘Mills Elastomers’ and ‘Nylex Frankston’.
On 2 October 2014, I delivered my reasons on the issues raised for determination concerning the construction of the policy, rectification, quantum of the Insured Loss, claim for ‘pre-issue’ interest under s 57 of the Insurance Contracts Act 1984 (Cth), and damages and proof of loss.[1] At the same time, I also published a written version of the ruling which I had delivered orally on 2 October 2013 concerning:
[1]Fitzgerald & Anor v CBL Insurance Ltd [2014] VSC 493 (‘reasons’).
(a) the withdrawal and substitution of the plaintiffs’ August 2012 particulars (concerning the calculation of the deficiency in employee entitlements);
(b) the withdrawal and substitution of the plaintiffs’ August 2013 particulars of paragraph 17A of the further amended statement of claim (concerning interest and the fees and charges the plaintiffs as trustees have incurred or suffered in their personal capacity); and
(c) the plaintiffs’ tender bundle.
In my reasons, I found that the plaintiffs had proven the fact of damage suffered to which the policy responds. I indicated that in the absence of agreement between the parties, the Court would require the assistance of an expert (to be appointed under s 65M of the Civil Procedure Act 2010 (Vic)) to perform the calculation, in accordance with my reasons, of the shortfall or deficiency for each of the Transferring Employees for whom a claim was made. Once identified, the total of the shortfalls or deficiencies would constitute the quantum of the Insured Loss for the purposes of the policy.
After a process of consultation and deliberation, the parties are now agreed that the judgment sum payable by CBL to the plaintiffs is $4,132,232.70. Accordingly there is no need for an expert to be appointed under s 65M to assist the Court. The identity of all relevant Transferring Employees has also been agreed between the parties, rendering any rectification of the policy unnecessary.
Against that background, the plaintiffs now seek the following judgment and orders from the Court:
1. Judgment for the plaintiffs in the amount of $4,132,232.70 together with interest calculated pursuant to s 57 of the Insurance Contracts Act 1984 (Cth) in the amount of $893,666.08 for the period from 11 October 2011 [the date of issue of the proceeding] to the date of this judgment.
2.The plaintiffs pay the defendant's costs thrown away of the plaintiffs' application dated 27 September 2013 to amend the particulars of the claim.
3.Subject to paragraph 2 of these orders and to the costs orders made on 20 February 2013, 12 April 2013, 19 April 2013 and 28 August 2013, the defendant pay the plaintiffs' costs of the proceeding, including reserved costs, on a standard basis.
CBL submits that the appropriate form of orders as to costs would be to limit the plaintiffs’ recoverable costs to those costs of and incidental to four sitting days of trial, four days of preparation for trial and four directions hearings, each on a standard basis, with each party bearing its own costs of the pleadings. Further, CBL seeks an order that the plaintiffs otherwise pay CBL’s costs of the proceeding on a standard basis including reserved costs, the costs of and incidental to the plaintiffs’ summons dated 27 September 2013 and the costs thrown away by reason of the amended particulars. In essence, CBL contends that the way in which the plaintiffs conducted the proceeding during its interlocutory stages and at trial has occasioned unnecessary delay and expense. CBL also opposes the plaintiffs’ claim for interest pursuant to s 57 of the Insurance Contracts Act 1984 from the date of issue of the proceeding.
At the hearing held on 26 March 2015 for the making of final orders, both parties indicated that, in the interests of efficient decision-making, they were content for an epitome of reasons to be delivered, setting out the conclusions I have reached and summarising my reasons, rather than providing a detailed articulation of my reasoning process by reference to decided cases. Accordingly, these reasons are somewhat briefer than would otherwise have been the case.
The plaintiffs’ claim for interest on the judgment sum from the date of issue
The manner in which the claim was brought and the change in its formulation from inception through to trial is described at some length in my reasons. For present purposes, it is sufficient to note that the claim the plaintiffs pursued at trial (as set out in the October 2013 particulars) was significantly different to that set out in the statement of claim endorsed on the Writ and also the claim as detailed in their August 2012 particulars which were current when the matter was set down for trial. In my reasons, the position is summarised as follows:
428In my view, the claim that the Trustees pursued at trial bears little resemblance to that notified in either of the first, second or third demands, or even that set out in their pleading and August 2012 particulars. Indeed, Mr Fitzgerald effectively acknowledged during cross-examination that the claim set out in their October 2013 particulars was very different to that made earlier. Given the view I have formed about the proper construction of the policy, the earliest point in time at which any meaningful assessment could have been made by the insurer of its liability under the policy was when the final distributions to be made by the liquidators (including the GEERS advances) were known or ascertainable. That point was reached by 30 September 2010. By then the employees had received the 3rd dividend letters stating that nothing further would be received. The liquidators’ Reports to Creditors were also available to be called for by CBL under cl 9.2 of the policy if they were not already in the possession of CBL. The difficulty with that date being regarded as the earliest point in time for the insurer’s liability to be meaningfully assessed is, however, that the Trustees had not by then identified the 336 (out of 453) Transferring Employees on whose behalf the present claim is made.
During the course of the hearing it became apparent that as early as February or March 2013 the plaintiffs had decided to change their case, both as to the way in which the claim on behalf of the Transferring Employees was formulated and as to those on whose behalf a claim would be pursued. The plaintiffs did not, however, at that time communicate the change in their case to the Court or to CBL in clear terms. Rather, they allowed CBL to proceed to prepare its witness statements in July and August 2013 on the basis of the case that was set out in the August 2012 particulars. Indeed it was not until shortly before the trial was scheduled to begin that CBL became aware that fundamental aspects of the plaintiffs’ case were changing.[2]
[2]Reasons, [435].
On 6 September 2013, before the trial commenced, the plaintiffs served what was said to be an ‘incomplete’ table summarising the claim made on behalf of the Transferring Employees under the policy.[3] When the trial commenced on 23 September 2013, the table was still ‘incomplete’. In opening their case, Senior Counsel for the plaintiffs provided an updated version of the table listing the Transferring Employees on whose behalf the claim was being pursued and giving details of the composition of the claim. During the course of the trial the table went through several further iterations before it was finalised. The final version of that table now forms part of the plaintiffs’ October 2013 particulars.[4]
[3]The table was served on CBL’s solicitors under cover of a letter from the plaintiffs’ solicitors. The table contained a claim for 321 employees and no longer applied credits across the row and down the column. In the covering letter the plaintiffs’ solicitors said ‘[w]e are revisiting all employees' calculations’ and ‘will provide either an amended version of the spreadsheet or supplementary sheets to the Excel spreadsheet.’ See Transcript of Proceedings, 23 September 2014, 47, 77.
[4]Reasons, [177] and [435].
In its final form, the amount of the Insured Loss claimed by the plaintiffs by way of indemnity under the policy was $4,389,789.20, brought on behalf of 336 Transferring Employees selected from the original group of more than 450. This figure of $4,389,789.20, which was the lowest of the amounts successively claimed by the plaintiffs by way of indemnity, was mentioned for the first time during the course of the trial by Mr Fitzgerald when giving evidence in chief.[5]
[5]Reasons, [178].
In those circumstances, in the context of dealing with the plaintiffs’ claim for ‘pre-issue’ interest under s 57 of the Insurance Contracts Act 1984, I found that it was not unreasonable for CBL not to have paid out any of the claims made by the plaintiffs before the October 2013 particulars were filed.[6] In essence, I found that the first time the plaintiffs put forward a claim that relevantly engaged with the policy and identified the Transferring Employees on whose behalf the claim was being pursued was when the amended particulars were filed with the Court on 4 October 2013.[7] Accordingly, I dismissed the plaintiffs’ claim for pre-issue interest.[8]
[6]Reasons, [436].
[7]Reasons, [433].
[8]Reasons, [436].
The plaintiffs also made a separate claim for interest from the date of issue of proceedings on any sum found by the Court to be due and owing under the policy.[9] In the prayer for relief as set out in the Further Amended Statement of Claim dated 31 May 2013, the plaintiffs claimed both ‘E. Interest on the claim pursuant to s 57 of the Insurance Contracts Act 1984 (Cth) from 27 September 2006 or such other date from which, in the opinion of the Court, it was unreasonable for the defendant to have withheld indemnity’ and ‘F. Interest on damages pursuant to the Supreme Court Act 1986 (Vic)’ (amendments underlined). In their October 2013 amended further and better particulars of loss and damage under paragraph 17A, however, the plaintiffs described their claim for interest on the amount due under the policy from the date of issue of the proceedings as arising under s 60 of the Supreme Court Act 1986 (Vic) and the Penalty Interest Rates Act 1983 (Vic).
[9]In the prayer for relief set out in the Statement of Claim dated 11 October 2011 served with the Writ, the plaintiffs claimed both ‘E. Interest on the claim pursuant to s 57 of the ICA’ and ‘F. Interest pursuant to the Supreme Court Act 1986.’ The same position applied under the Amended Statement of Claim dated 14 February 2013.
The submissions made on behalf of the plaintiffs at the hearing for the making of final orders clarified that the claim for interest on the judgment sum from the date of issue is pursued only under s 57, and not under s 60.[10] The plaintiffs contend that they are entitled ‘as of right’ to interest on the judgment sum, that ‘entitlement’ being provided for in s 57, which is said to govern exclusively ‘the provision of interest payable to a person who has been kept out of insurance moneys to which they are entitled.’[11] Further, they submit the Court’s findings concerning their claim for pre-issue interest do not preclude the payment of interest on the judgment sum from the commencement of the proceeding.
[10]I note that the rate of interest prescribed or worked out under the Insurance Contracts Regulations 1985 will differ from (and will generally be less than) that prescribed under the Penalty Interest Rates Act 1983. In this case, the rate that would be worked out under the regulations is in the order of 6.5% whereas that which would apply under the Penalty Interest Rates Act 1983 is in the order of 10%–11.5% depending on the relevant dates.
[11]NRMA Insurance Ltd v Tatt (1989) 94 FLR 339, 355-356 (McHugh JA, Hope JA and Samuels JA agreeing) (‘Tatt’).
CBL opposes the award of interest on the judgment sum and contends that the Court should refuse the plaintiffs’ claim as now made under s 57. CBL contends that this is the first time the plaintiffs have made a claim for interest from the date of the issue of the proceeding under s 57.
Section 57 of the Insurance Contracts Act 1984 provides for the payment of interest by an insurer. The right to claim interest does not depend on the initiation of proceedings but rather on there being circumstances where it was ‘unreasonable’ for the insurer to have withheld payment under a policy, as follows:
Interest on claims
(1)Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section.
(2)The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days:
(a)the day on which the payment is made;
(b)the day on which the payment is sent by post to the person to whom it is payable.
(3)The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations.
(4)This section applies to the exclusion of any other law that would otherwise apply.
(5)In subsection (4):
law means:
(a)a statutory law of the Commonwealth, a State or a Territory; or
(b)a rule of common law or equity.
Subsections (4) and (5) were inserted in 1998. Prior to their introduction, in Tatt,[12] the Court of Appeal of the Supreme Court of New South Wales had occasion to consider whether s 57 of the Insurance Contracts Act 1984 operates so as to deprive the court of the discretion to award interest ordinarily conferred by s 94 of the Supreme Court Act 1970 (NSW). Section 94(2)(b) relevantly provided that s 94 does not ‘apply in relation to any debt upon which interest is payable as of right whether by virtue of an agreement or otherwise’. The trial judge held that s 57 was not inconsistent with, and did not prevent him awarding a much higher rate of interest under, s 94. On appeal, McHugh JA (with whom Hope JA and Samuels JA agreed on this point) held that ‘[s]ince interest is payable under the Insurance Contracts Act as of right, s 94 does not apply in this case. No question of inconsistency between the two statutes arises.’[13] Nevertheless, his Honour added that he was unable to agree with the trial judge’s conclusion on inconsistency and he then proceeded to explain the reasons why s 57, upon its proper construction, is to be regarded as an exhaustive statement of the circumstances in which interest is payable on insurance moneys withheld. His Honour said:
The evident purpose of s 57 is to lay down a code for the payment of interest on insurance claims. The section fixes the rate of interest payable and specifies the period for which interest is payable by reference to specific criteria. It is hardly conceivable that the federal Parliament intended that insurers could be made liable by State legislation to pay interest on a claim in respect of a period other than that which results from the application of the criteria specified in s 57(2). It is equally inconceivable that federal Parliament intended that State legislation could fix a different rate of interest from that prescribed under s 57(3) for a period calculated in accordance with s 57(2). I think that s 57 states completely, exhaustively and conclusively the law on the subject of interest payable for periods during which a person has been kept out of insurance moneys to which he is entitled. If it does, then a State law purporting to authorise the fixing of a different rate of interest is invalid: Ex parte McLean (1930) 43 CLR 472 at 483.[14]
[12]Ibid, 355-356.
[13]Ibid, 355.
[14](1989) 94 FLR 339, 355.
In the later case of Frehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd,[15] Giles J held that where judgment is entered in the Supreme Court of New South Wales against an insurer in an insurance claim, the accrual of interest from the date of judgment is governed by s 57 of the Insurance Contracts Act 1984 and not by s 95 of the Supreme Court Act 1970 (NSW).[16] Similarly, in VL Credits Pty Ltd v Switzerland General Insurance Co Ltd (No 2) Ormiston J referred to the decision of the Court of Appeal in Tatt and held that the plaintiff’s entitlement to interest fell to be determined under s 57.[17]
[15](1993) 32 NSWLR 735 (‘Frehauf’).
[16]Ibid, 739.
[17][1991] 2 VR 311, 319-320 (‘VL Credits’).
With the introduction of sub ss (4) and (5), it is now clear that any entitlement the plaintiffs may have to interest on the insurance moneys withheld is governed by s 57.
In my reasons, in dealing with the plaintiffs’ claim for pre-issue interest, I summarised the principles relevant to an award of interest under s 57.[18] Relevantly, the Court has a discretion to award interest and that discretion falls to be exercised by reference to the particular circumstances of the case, and in particular by having regard to ‘what the court finds is a reasonable time for completion of the insurer’s investigation of the claim.’[19] The question of when it became ‘unreasonable for the insurer to have withheld payment’ under the policy is to be determined by reference to the true position as found by the court. That is, once the court has rejected the insurer’s defence to the claim, what the insurer did internally by way of investigating the claim, and what views it held bona fide or otherwise as to the merits of the claim, are not relevant to the court’s enquiry under s 57.[20]
[18]Reasons, [415]-[421].
[19]Diosdado Sayseng v Kellogg Superannuation Pty Ltd (2007) 213 FLR 174, 176-177, [7] (Nicholas J).
[20]Reasons, [415].
In Bankstown Football Club Ltd v CIC Insurance Ltd[21] Cole J summarised the operation of s 57 as follows:
In my view, section 57 is directed to a determination of the point of time at which empirically, it can be stated that it was unreasonable to decline to make payment. That decision is not to be determined simply by a determination of whether or not there was a bona fide dispute regarding the entitlement to payment. It is rather to be determined by a finding as to whether or not there was liability.
If there was liability found and the insurer to pay, then the presumption must be that the insurer would be deemed to know of that obligation as ultimately determined, even though it may bona fide have held a different view at all times prior to determination, at least at the first instance level, in relation to the question of liability.
A reasonable period is to be given to the insurer to investigate and determine its position but if it adopts an incorrect position in relation to its obligation to pay under the policy, that, in my view, does not mean that simply because that incorrect position is adopted on a bona fide basis, it becomes reasonable for the insurer to decline to pay the sums otherwise due. That seems to me to be the correct interpretation of section 57(2), particularly in circumstances of section 57(1) of the Act, where an insurer is liable to pay to a person an amount under a contract of insurance.[22]
[21]Unreported, Supreme Court of New South Wales, Cole J, 17 December 1993 (‘Bankstown Football Club’).
[22]Ibid, 3-4. The approach taken by Cole J in Bankstown Football Club was approved by a majority of the High Court (CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384) and followed by Einstein J in Hams v CGU Insurance Ltd (2002) 12 ANZ Insurance Cases 61-542, Bongiorno J in HIH Casualty & General Insurance Australia Ltd v Insurance Australia Ltd (No 2) (2006) 14 ANZ Insurance Cases 61-685 and by Hansen J in McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance Plc (No 2) (2009) 15 ANZ Insurance Cases 61-794; [2009] VSC 49. In Mutual Community General Insurance Pty Ltd v Khatchmanian [2013] VSCA 144, the Court of Appeal referred with approval to the approach taken by Bongiorno J in the HIH Casualty case.
The question of when it becomes ‘unreasonable’ for an insurer to withhold payment will vary from case to case. What is reasonable should be determined objectively, and being a question of fact, will depend on the circumstances of each case.[23] For example, in VL Credits, where there was a fire and a (reasonably held) suspicion of arson, Ormiston J held it was reasonable to allow an insurer a period of three months in which to conclude its examination of the issues relating to the arson and to the amount which it should pay on the policy. Accordingly, the plaintiff was entitled to interest, pursuant to s 57, from a date three months from the fire.
[23]Settlement Wine Co Pty Ltd v National & General Insurance Co Ltd (1994) 62 SASR 40; 8 ANZ Insurance Cases 61-209.
In my reasons, in dismissing the plaintiffs’ claim for pre-issue interest under s 57, I found that 4 October 2013 was the earliest point at which CBL could reasonably have been expected to respond to the claim. By then, CBL was aware of the change in the plaintiffs’ case and knew both the identity of all of the Transferring Employees on whose behalf the claim was being pursued and the construction of the policy for which the plaintiffs contended, including their reliance on s 558 of the Corporations Act. Furthermore, by then the liquidators’ Reports to Creditors had been provided, details of the payments made under GEERS and by the liquidators were known, and the corporate payroll, leave entitlement and other relevant records for monthly and weekly employees had been produced or made available.
Following the grant of leave to withdraw and substitute the particulars, a supplementary witness statement was prepared by Mr Robert Oxley (an employee solicitor with the firm acting for CBL) and served on 11 October 2013, responding in detail to the plaintiffs’ reformulated particulars of claim. In my view, by 11 October 2013 the point had been reached whereby CBL as insurer had been afforded a reasonable period to investigate and determine its position and been given sufficient information which would have allowed it to form a view to pay under the policy had it accepted its liability to do so. I would infer that had there been a proper admission of liability at that point, the quantum should have been capable of being ascertained or readily resolved between the parties.[24] Accordingly, I find that on and from 11 October 2013 it was ‘unreasonable’ (within the meaning of s 57(2)) for CBL to have withheld payment of the amount of $4,132,232.70 being the sum agreed to be due and payable under the policy.
[24]The overarching obligations (under the Civil Procedure Act 2010) to which each party was bound to give effect would have assisted in this regard.
Under s 57(2), the interest payable on that sum is to be calculated in the manner prescribed by the regulations[25] for the period ending on whichever is the earlier of the following days:
[25]Regulation 32 of the Insurance Contracts Regulations 1985 prescribes the rate of interest payable by an insurer on withheld payments under s 57(3). In Dumitrov v S C Johnson & Son Superannuation Pty Ltd (No 2) (2007) 14 ANZ Insurance Cases 61-722, Gzell J endorsed the defendant insurer’s approach to the calculation of interest, of taking the 10-year Treasury Bond yield at the end of each half-financial year in the period, obtaining the arithmetical mean of the rates at the end of each half-financial year, rounding it down to the nearest lower quarter of 1%, adding the 3% margin and applying the resultant rate to the number of days in the period.
(a)the day on which the payment is made;
(b)the day on which the payment is sent by post to the person to whom it is payable.
It is clear that interest continues to accrue under s 57 until payment, meaning money or moneys worth going to the insured, and not just entry of judgment. In Freuhauf,[26] Giles J observed that any entitlement a plaintiff may have to interest after judgment ‘is ordinarily regulated by … s 57, and is no part of the judgments.’[27] His Honour said:
Judgments should be given for the money sums to which the plaintiff was entitled as at the date as of which they take effect, including s 57 interest accrued to that date – the plaintiff was entitled to that interest and its entitlement should be recognised by judgment.[28]
[26](1993) 32 NSWLR 735.
[27]Ibid, 743.
[28]Ibid. See also McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance Plc (No 2) (2009) 15 ANZ Insurance Cases 61-794 (Hansen J).
Accordingly, I will direct the parties to consult and re-calculate the interest component applicable to the judgment sum due under the policy by using 11 October 2013 as the start date.
CBL’s costs ‘thrown away’ by reason of the plaintiffs’ change of case
The plaintiffs accept that a consequence of the Court’s ruling to permit the withdrawal and substitution of their particulars of claim is that they must pay CBL’s costs (if any) thrown away by reason of the amendment.[29]
[29]See plaintiffs’ submissions on judgment and orders dated 24 March 2015, [14].
At the hearing on final orders I indicated that my preliminary view was that the trial was conducted efficiently by both parties and that were it not for the plaintiffs’ change of case, the trial would likely have occupied four days with opening addresses and examination, cross-examination and re-examination of witnesses, and a further two days for closing submissions. As it was, with the disruption to the proceeding caused by the change of case, the matter spread over 11 days, although several of those additional appearances occupied hours rather than full days of Court time.[30]
[30]In summary, on 23 September 2013 (opening submissions were made by each party and evidence was given by Mr Chetcuti for the plaintiffs), on 23 September 2013 (evidence was given by Mr Humphris, Ms Mortlock, Mr Oliver, Mr Lheude and Mr Fitzgerald for the plaintiffs), on 25 September 2013 (evidence was given by Mr Harris and Mr Oxley for the defendants), on 26 September 2013 (evidence was given by Mr Casey for the plaintiffs and before closing their case the plaintiffs sought to tender a bundle of documents as business records), on 30 September 2013 (hearing of the plaintiffs’ summons seeking to withdraw and substitute the particulars), on 2 October 2013 (delivery of Court’s ruling re particulars), on 3 October 2013 (hearing of submissions about the appropriate form of orders to be made following the Court’s ruling), on 11 October 2013 (brief mention to reschedule timetable for further hearing), on 18 October 2013 (Mr Humphris and Mr Fitzgerald were re-called in relation to their claim for fees and expenses incurred by them as trustees in their personal capacity and Mr Oxley was re-called to give evidence on behalf of CBL in relation to the amended particulars) and closing submissions were heard on 23 and 24 October 2013.
The expression ‘costs thrown away’ is generally used to refer to the costs of a proceeding that are reasonably incurred and relate to work done which has been wasted in the circumstances.[31] In the context of this case, a portion of the work undertaken by Mr Oxley in preparing both his initial witness statement and his statement in reply, each of which was filed before the trial commenced in September 2013, may well have been wasted. At least some of the work initially undertaken by him, however, would likely have been required to be undertaken to meet the plaintiffs’ case as amended. In the absence of agreement between the parties, the identification and quantum of any costs thrown away will fall to be assessed by the Costs Court.
[31]Fashion Warehouse Pty Ltd v Pola [1984] 1 Qd R 251.
In the circumstances, I would order that the plaintiffs pay CBL’s costs of and occasioned by their application made by summons dated 27 September 2013, to be assessed by the Costs Court (on a party and party basis until 1 April 2013 and thereafter on a standard basis) in default of agreement, which costs shall include the following:
(a) CBL’s reasonable costs of preparing for and appearing to oppose the plaintiffs’ application including the costs of preparing affidavits in response and an outline of submissions handed up to the Court at the hearing on 30 September 2013;[32]
[32]In their summons, the plaintiffs also sought to amend paragraph 17A of the further and better particulars of claim, dealing with their claim for the fees and charges incurred by them as trustees in their personal capacity up to the point of issue of proceedings on 11 October 2011.
(b) CBL’s reasonable costs of preparing for and appearing on 2 October 2013 to hear the Court’s ruling;
(c) CBL’s reasonable costs of preparing for and appearing on 3 October 2013 to make submissions about the appropriate form of orders, including as to CBL’s ability to rely upon aspects of the calculations recorded in the plaintiffs’ August 2012 particulars and the further calculations to be performed by Mr Oxley; and
(d) any reasonable costs of CBL thrown away by reason of the withdrawal and substitution of the plaintiffs’ particulars of claim.
The costs of the proceeding
This proceeding has occupied a considerable amount of time in a judge managed list in the Commercial Court. In addition to a case management conference, there have been at least ten directions hearings requiring the attendance of parties at court and a further interlocutory hearing concerning a claim for privilege. Specific orders for costs were made by the Court in respect of applications heard or directions hearings held on 20 February 2013, 12 April 2013, 19 April 2013 and 28 August 2013. The plaintiffs do not seek to disturb those orders.
The plaintiffs contend that the usual rule is that costs follow the event and, as the successful party, they are entitled to be indemnified for their professional fees necessarily and reasonably incurred in connection with the litigation.[33] They say they were put to proof on all issues[34] and have been successful in large part because the Court upheld the construction of the policy for which they contended.
[33]Ritter v Godfrey [1920] 2 KB 47; Latoudis v Casey (1990) 170 CLR 534, 566-567 (McHugh J).
[34]Reasons, [12].
The plaintiffs did not succeed, however, on either their claim for pre-issue interest or their claim to recover the fees and charges incurred by them as trustees in their personal capacity. In addition, there were a number of other claims pleaded, for example alleging misleading, deceptive or unconscionable conduct on the part of CBL as insurer; an estoppel (or waiver) against CBL to preclude it from relying on its construction of the word ‘owed’ under the policy; a breach of the insurer’s duty of utmost good faith and a claim for interest as damages on a Hungerfords v Walker[35] basis, that were not persisted with at trial and were treated as having been abandoned.[36]
[35](1989) 171 CLR 125.
[36]Reasons, [11].
CBL acknowledges that the plaintiffs have enjoyed a significant measure of success on their claim but it submits that the plaintiffs have conducted the proceeding in a way that has exposed CBL to a much greater costs burden than was necessary. By way of example, CBL points to the plaintiffs’ insistence that it give discovery of all of the documents in its Investigation File which were said to be relevant to the pleaded allegation that CBL had breached its duty to act in good faith. The plaintiffs also subpoenaed extensive documents from CBL’s former legal counsel, Mr Tony Thomas, who was no longer working with CBL. CBL incurred costs in defending its right to claim legal professional privilege over its documents and the subpoenaed documents. CBL says it was ultimately successful in that claim, having been ordered to produce only three of the 153 documents sought.[37] Furthermore, it says, the plaintiffs did not pursue the breach of good faith allegation at trial and did not use any of the documents on the Investigation File or those obtained on subpoena, with the result that the costs that CBL incurred on discovering the file and reviewing the documents produced on subpoena were wasted.
[37]At the time when the application was determined, the Court made an order requiring the plaintiffs to pay 90 per cent of CBL’s costs of the application.
CBL also points to the plaintiffs’ patent disinclination to co-operate with it with a view to compiling a common table setting out relevant information for each employee (extracted from relevant employment records such as the Micropay records) that would allow the claim to be calculated, and highlight agreed areas of difference on methodology that the Court would need to resolve. Instead, the plaintiffs served notices to admit on CBL asking it to admit the employment details of more than 300 Transferring Employees, and prepared (common form) witness statements for each of them containing information that ought to have been uncontroversial. In this regard, I note that the use of notices to admit facts was a course that the Judge conducting the case management conference raised for consideration as one possibly commending itself to this case.[38] In those circumstances, the approach taken by the plaintiffs is more readily understandable.
[38]Transcript of Proceedings, 2 February 2012, 8-9.
CBL says this lack of co-operation resulted in the parties embarking on divergent tabulations of employee data and arriving at different calculations of the alleged Deficiency in Employee Entitlements. In essence, CBL says that the plaintiffs failed to use reasonable endeavours to resolve the issues in dispute or at least to work with it to narrow the scope of the issues in dispute in breach of s 23 of the Civil Procedure Act 2010 and failed to conduct the proceeding in an efficient, just, timely and cost-effective manner in breach of ss 7, 24 and 25 of that Act.
CBL also points to the plaintiffs’ failure to plead, or otherwise put CBL on notice, that they would be relying on s 558 of the Corporations Act in reply to CBL’s construction point as constituting what McHugh J referred to in Oshlack v Richmond River Council[39] as ‘disentitling conduct’ that would justify the Court departing from the usual rule as to costs. The ‘disentitling conduct’ that McHugh J referred to in Oshlack has been found to include circumstances where:
(a) the successful party has placed on the unsuccessful party an unnecessary litigation burden or an unjustified costs burden: Keddie v Foxall;[40] and
(b) where the successful party has delayed in raising a decisive point until the last minute and the unsuccessful party might have won, or could reasonably expected to have won, but for the late point being raised: see generally Harrington v Greenwood Grove Estate Pty Ltd (No. 2)[41] per Slattery J and Capolingua v Phylum Pty Ltd[42] per Ipp J.
[39](1998) 193 CLR 72, 96-98, [65]-[70] (‘Oshlack’).
[40][1955] VR 320, 323-324.
[41][2011] NSWSC 1598, [15].
[42](1991) 5 WAR 137, 140-141.
It is the case that the plaintiffs did not expressly refer to s 558 in their pleading. The construction argument they advanced and largely succeeded upon at trial was not articulated until their outline of opening submissions was filed shortly before the trial commenced. That was against a background where CBL had raised the issue of the proper construction of the term ‘Deficiency in Employee Entitlements’ in its defence, contending that the Deficiency in Employee Entitlements alleged by the Plaintiffs in their August 2012 particulars were not ‘owed’ within the meaning of the policy. Ordinarily, one would expect that the plaintiffs’ reliance upon the alleged effect of the deeming provision in s 558 would have been mentioned in their reply lest it take the other side by surprise.[43] Nevertheless, in circumstances where the policy was directed to providing an indemnity in respect of insured loss arising ‘as a result of Huon Corporation becoming Insolvent’ within the Period of Insurance, it was clear that the provisions of the Corporations Act were centrally relevant to the proper construction of the indemnity. The policy expressly referred to Part 5.8A of the Corporations Act, which dealt with ‘Employee Entitlements’. Several of the defined terms also referred, somewhat erroneously, to ‘Part 5.6A of the Corporations Act’, which does not exist.[44] In any event, s 558, which is located in Part 5.6 and dealt with debts due to employees, was plainly relevant to the question of proper construction.
[43]Rule 13.02 of the Supreme Court (General Civil Procedure) Rules 2005 provides that where any claim, defence or answer of a party relies on any Act, that party shall identify the specific provision relied upon. Further, r 13.07 provides that a party in any pleading subsequent to a statement of claim shall plead specifically any fact or matter which the party alleges makes any claim or defence of the opposite party unsustainable, or where if not pleaded specifically, might take the opposite party by surprise.
[44]At the trial, the parties confirmed that I was to proceed on the basis that the reference to ‘Part 5.6A’ is intended to be a reference to Division 1A of Part 5.6, which deals with ‘When winding up is taken to begin’.
CBL submits that if the plaintiffs had pleaded their reliance on s 558, it would have performed its initial calculations (as contained in the first Oxley witness statement) by contemplating the effect of s 558. Until that point, however, it says it had a reasonable expectation of succeeding on the construction point that it had raised. Minds might differ on the assessment of prospects, particularly where the matter turns on a question of proper construction. With the benefit of hindsight, it is difficult to see how a proper construction of the indemnity could have been arrived at without some consideration of the role of the deeming provision in s 558. Having said that, however, it is clear that if the plaintiffs’ reply had pleaded the effect of s 558 contended for, CBL would have been on notice of its relevance.
In my view, this pleading issue is one to be weighed in the balance in determining whether the Court should depart from the usual rule as to costs.
CBL submits that this litigation is not easily susceptible to an issue by issue analysis on costs similar to the one that Middleton J followed in BHP Billiton Iron Ore Pty Ltd v National Competition Council (No. 2)[45] but lends itself more easily to examining the extent to which the plaintiffs’ conduct of the proceeding has increased the costs incurred. Further, CBL submits that where a party succeeds on some issues and not others, it is appropriate for the Court to award that it recover only a proportion of its costs, rather than the full amount.[46]
[45][2007] FCA 557, [27].
[46]Spotless Group Ltd v Premier Building & Consulting Pty Ltd (rec appt) [2008] VSCA 115, [15]. See also Investec Bank (Australia) Limited v Glodale Pty Ltd [2009] VSCA 113.
In the present case, the disruption that would otherwise have been caused by the plaintiffs’ change of case was minimised by halting the proceeding, requiring the application for leave to be made forthwith, determining it and then allowing CBL a short time frame in which to adapt its evidence to accommodate the change in position. As I have noted earlier, were it not for that series of events, the trial would likely have occupied a total of six days. While the length of the trial overall was prolonged by reason of the late change of case, once leave was given to amend the particulars, the parties appeared to co-operate and conduct themselves in a manner directed to enabling the trial to resume at the earliest opportunity.
With the benefit of hindsight, it is clear that both parties could have conducted this litigation in a more efficient way. If, at an earlier point in the process, the plaintiffs had put forward their claim with proper particulars and identifying the Transferring Employees on whose behalf the claim was made, and had articulated the construction of the policy for which they contended, then it is likely that some of the interlocutory steps or directions hearings could have been avoided and CBL would have been in a better position to assess its prospects of success in advance of the trial commencing. Similarly, there were aspects of CBL’s arguments about the construction of the relevant awards and certified agreements that really only became clear for the first time during the trial – for example, whether the certified agreements incorporated the ordinary meaning or notion of ‘redundancy’, and as to the meaning of the concept of ‘restructure’ for the purposes of the awards and certified agreements.
Aside from the costs order (discussed above) that is to apply to the plaintiffs’ application for leave to change their case, and without disturbing any of the interlocutory orders for costs that have been made already, my view is that in the special circumstances of this case it is not appropriate to apply the general rule. Rather, in order to do justice between the parties, there should be some reduction in the amount of costs that the plaintiffs as successful litigants are entitled to recover from CBL. My assessment is that CBL should be required to pay seventy per centum (70%) of the plaintiffs’ costs of the proceeding, including reserved costs, to be assessed by the Costs Court on a party and party basis until 1 April 2013 and thereafter on a standard basis, in default of agreement. That outcome reflects my assessment of the competing conduct of the parties in the conduct of the litigation overall, the plaintiffs’ success on the ultimate issues of construction and quantum, the comparative success of CBL on the subsidiary issues[47] and the plaintiffs’ abandonment during the trial of several of their other claims.
[47]Namely, the pre-issue interest point and on the plaintiffs’ claim for the fees and charges incurred by them as trustees in their personal capacity.
I will direct the parties to consult and bring in orders giving effect to these reasons.
9
9
0