Insurance Australia Limited v HIH Casualty & General Insurance Limited (in liq) (No 2)

[2007] VSCA 258

SUPREME COURT OF VICTORIA

COURT OF APPEAL

No 5769 of 2000

INSURANCE AUSTRALIA LIMITED

(ACN 000 016 722)

Appellant

v

HIH CASUALTY & GENERAL INSURANCE LIMITED (IN LIQUIDATION) (ACN 008 482 291)

AND

RONALD STEELE (T/AS DRAGON SCAFFOLDING) (NO 2)

Respondents

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JUDGES:	CHERNOV, ASHLEY and REDLICH JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	10 May 2006 and 11 May 2006
DATE OF JUDGMENT:	19 November 2007
MEDIUM NEUTRAL CITATION:	[2007] VSCA 258

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PRACTICE AND PROCEDURE – Costs – Claims for indemnity and equitable contribution – Quantum not exceeding one-half of jurisdiction of County Court – Whether costs should be awarded on lower scale pursuant to r 63.24(1) Supreme Court (General Civil Procedure) Rules 2005 – Proceeding intertwined with principal proceeding – Calderbank offer – Whether indemnity costs should be awarded.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr P B Murdoch QC	Norris Coates Lawyers
with Mr M W Thompson SC
For the Respondents	Mr J R Dixon	TressCox  Lawyers

CHERNOV JA
ASHLEY JA  
REDLICH JA:

1. On 18 October 2007, we published our reasons for concluding that the appeal brought against the order of Bongiorno J, made on 26 August 2005, should succeed to the extent that paragraphs 2 and 3 of his Honour’s orders be set aside.[1]  We also indicated to the parties our tentative view that, in the circumstances, the second respondent should pay the costs of the appellant of the appeal and below and that the appellant should pay the costs of the first respondent of the appeal and below.  Implicit in that proposal was the provisional conclusion that paragraph 5 of his Honour’s order, that the appellant pay the respondents’ costs of the proceeding, be set aside.  In response to the parties’ request that they have an opportunity to make submissions on the question of costs after they have read our reasons, we reserved the question of costs and gave the parties leave to file written submissions on this matter.  We also informed the parties that, unless we otherwise advised them, we would determine any controversy without calling on them.  In the result, the parties delivered submissions to the Court on 12 and 13 November 2007.  The submissions were comprehensive such as to obviate the need for an oral hearing.  We now state our reasons for the costs orders we propose below. 

   [1]Insurance Australia Ltd v HIH Casualty & General Insurance Ltd (in liq) [2007] VSCA 223.

1. In its submissions, the appellant did not contend that it should not pay the first respondent’s costs. It accepted that it should, but argued that these costs should be limited to the following extent. First, it was said that the first respondent should only recover its costs on the Magistrates’ Court scale or that of the County Court. While the appellant properly accepted that the Court had a general discretion as to costs that was not constrained by r 63.24(1) of the Rules of the Supreme Court, it argued that, having regard to the quantum of the first respondent’s claim, its proceeding should have been brought in, or transferred to, the Magistrates’ Court or, at worst, the County Court. Thus, it was said that at the very least the principle in r 63.24(1) should be applied so as to limit the first respondent’s costs to the County Court scale.

1. It was further said for the appellant that it should be liable to pay only such costs of the first respondent of the proceeding as were incurred by it in relation to its claim against the appellant.  It was pointed out that there was common legal representation for the respondents in the proceeding and that, at the hearing, it was necessary for each to establish facts which were relevant to both claims as well as matters relevant to one or other of their cases.  Thus, the appellant argued, it should only have to bear such costs of the first respondent in the proceeding as related to work that was solely referrable to its claim.  We mention for completeness that it seems to have been accepted by the appellant that the costs incurred by the first respondent in the appeal did not relevantly overlap with those incurred by the second respondent.

1. The first respondent, however, contended that it should have its costs on the Supreme Court scale, both below and on appeal.  In that regard, it submitted that when it commenced the proceeding, on 15 June 2000, it had a reasonable expectation that its claim against the appellant would be well in excess of the monetary jurisdiction of the County Court.  It pointed in particular to paragraph 11 of the Statement of Claim of 15 June 2000 which alleged that Screenco Pty Ltd had claimed an amount of over $1.2 million or, alternatively, damages and costs against Steele in the New South Wales Supreme Court proceeding.  In the circumstances, the first respondent submitted, it was reasonable and appropriate for it to have commenced this proceeding in the Supreme Court.  It was said that it was only after the first respondent was placed into provisional liquidation in March 2001, and later into liquidation, that its claim for equitable contribution against the appellant became fixed in the amount of approximately $40,000 (plus interest). 

1. It was further submitted for the first respondent that the Court had a discretion under r 63.24 to order that costs be awarded on the Supreme Court scale in circumstances where a proceeding had such complexity as justified it being brought in that court, notwithstanding that the amount reserved was below the relevant limit.  In that respect, reference was made to Semco Developments Pty Ltd v Graham,[2] Sherwell v Armour[3] and Lesiak v Foggenberger.[4]  It is convenient to deal now with this submission.  We consider that, otherwise than emphasising the width of the Court’s discretion on this issue, these cases do not assist the first respondent.  In Sherwell, the infant plaintiff who secured an award of damages which was one half of the then County Court jurisdiction failed in the application to have his costs paid on the Supreme Court scale.  Lowe J decided that infancy of the plaintiff did not amount to ‘special circumstances’ such as to order ‘otherwise’ under the corresponding rule.  Semco Developments was concerned with whether the judge’s discretion to allow costs on the higher scale, notwithstanding that the amount of damages awarded was below the relevant amount, miscarried.  The matters considered in that case are not relevant to the present situation although the case highlights the wide discretion vested in the Court on this issue.  And in Lesiak Hedigan J ordered ‘otherwise’ for the purposes of r 63.24(1), essentially because of the reprehensible conduct of the litigation by the defendant.

   [2][2005] VSCA 268.

   [3][1962] VR 197.

   [4]Unreported, Supreme Court of Victoria, Hedigan J, 4 September 1995.

1. In our view, a proceeding for equitable compensation, which is what the first respondent sought here, is not a proceeding for debt or damages within the meaning of r 63.24(1) and the contrary was not put by the appellant. But it seems that the principle in that rule probably operates in a case such as the present by reason of the operation of r 63.25 which relevantly states: ‘Rule 63.24 shall … apply where the plaintiff obtains by judgment … relief other than for the recovery of a debt or damages …’.

1. It is plain enough that the Court’s discretion on the question of costs under s 24(1) of the Supreme Court Act 1986 and the Rules is relevantly unfettered and, in the end, is to be exercised to achieve justice between the parties in accordance with principles. We doubt that, by itself, the complexity of the proceeding as brought by the first respondent was such as to justify the making of an order that is ‘otherwise’ for the purposes of the rule in question. Nevertheless, given that the case was not without difficulty and, more importantly, that it was so intermingled with that of the second respondent such that it would not have been in the interests of justice for it to have been heard in another jurisdiction separately from that of the second respondent, we consider that it would be appropriate to order that the first respondent be entitled to its costs below and on appeal on the Supreme Court scale. We mention for completeness that, although the respondents incurred costs jointly in relation to some matters in the proceeding, the first respondent would only be entitled to recover such proportion of those costs from the appellant as the Taxing Master would regard appropriate.

1. In relation to the second respondent, it was the appellant’s principal submission that because it made a Calderbank[5] offer to the respondents on 1 March 2005 that was more advantageous to the second respondent than the outcome of the action, its costs should be borne by the second respondent on an indemnity or solicitor/client basis as from that date.  In that communication the appellant relevantly offered to bear its own costs ‘if the action on behalf of both plaintiffs is withdrawn’.  It was said for the appellant that the offer was capable of acceptance by the second respondent and its refusal to do so was unreasonable.

   [5]Calderbank v Calderbank [1976] Fam 93; [1975] All ER 933; [1975] 3 WLR 586.

1. The second respondent submitted that the offer was not capable of being accepted by it alone.  In any event, it was said, it was plainly unattractive to the first respondent and, in the circumstances, its rejection of it was not unreasonable.

1. We consider that the appellant’s submission that it should have its costs on the higher scale should be rejected.  As we have already noted, the Court’s discretion on the question of costs is relevantly unfettered, and in respect of the Calderbank offer it was made plain in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No. 2)[6] that the rejection of such an offer does not fetter the Court’s general discretion in this regard such as to give rise to the presumption that the party rejecting it should pay the offeror’s costs on an indemnity basis if the offeree received a less favourable result.  The correct approach, it was said, was to treat the rejection of the Calderbank offer as a matter to which the Court should have regard when considering whether to order indemnity costs.  In other words, it is only one of the matters to which the Court has regard in considering how to exercise its discretion on the question of costs.  The critical question, it was said, was whether the rejection of the offer was unreasonable in the circumstances, and that would necessarily involve matters on judgment and impression. 

   [6](2005) 13 VR 435.

1. Importantly, in this regard, we think that it is plain enough that, given the terms of the offer, the second respondent alone could not have accepted it such as to bring about a binding contract with the appellant.[7]  In any event, we think that, in the circumstances as we have described them, it was not unreasonable for the second respondent to have rejected the offer. 

   [7]See, for example, Barwon Region Water Authority v Aquatec-Maxon Pty Ltd [2007] VSCA 186 [30] (Warren CJ), [34] (Kaye AJA), [37], [38] (Whelan AJA).

1. In our view, the appellant’s costs below and on appeal should be paid by the second respondent and the contrary was not submitted by it.  Nevertheless, the second respondent contended that it should pay no more than the appellant’s costs below and on appeal insofar as they related to its defence to the second respondent’s claim.  It was said that it should not be required to pay the costs incurred by it that related to common issues raised by the claimants.  The costs order, it was argued, should limit the costs recoverable by the appellant to the additional costs incurred by it by reason of the second respondent’s claim.  As we understand it, it was also asserted that we expressed a tentative view to that effect when we published our reasons in the circumstances previously described.

1. Although of no great moment for present purposes, the second respondent may have misunderstood what we said about the matter when we expressed our provisional views on the costs question.  What we relevantly said was that, tentatively, we thought that the second respondent should pay the appellant’s costs of the appeal and below insofar as they related to its claim against the appellant.  That does not translate, we think, into the position that the second respondent not pay any of the appellant’s costs that related to the common issue between the respondents.  Clearly, the second respondent should not be required to pay the appellant’s costs incurred in relation to the first respondent’s claim.  Thus, where the costs incurred by the appellant were common to the respective claims of the respondents, it will be for the Taxing Master to determine what proportion of them is properly attributable to the appellant’s case against the second respondent.

1. In the circumstances, we propose to order that his Honour’s order below as to costs also be set aside and that, in lieu of it, it be ordered that in respect of the costs below, the appellant pay the first respondent’s costs on the Supreme Court scale and that the second respondent pay the costs of the appellant.  On the appeal, we consider that it would be appropriate to order that the appellant pay the first respondent’s costs on the Supreme Court scale and the second respondent pay those of the appellant. 

1. To avoid possible confusion or misunderstanding, we will re-pronounce the orders already made and pronounce those we now propose to make.  For completeness, we mention that we are of the view that each party should bear its own costs of the written submissions on the issue that we have just determined.