Maclaw No 651 Pty Ltd v CGU Insurance Ltd & Anor

[2005] HCATrans 976

[2005] HCATrans 976

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M90 of 2005

B e t w e e n -

MACLAW NO 651 PTY LTD

Applicant

and

CGU INSURANCE LIMITED (FORMERLY PACIFIC INDEMNITY UNDERWRITING AGENCY PTY LTD)

First Respondent

GORDIAN RUN OFF LIMITED (FORMERLY KNOWN AS GIO INSURANCE LIMITED)

Second Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 18 NOVEMBER 2005, AT 2.52 PM

Copyright in the High Court of Australia

MR G.H. GARDE, QC:   If the Court pleases, I appear with my learned friend, MR M.T. SETTLE, for the applicant.  (instructed by MacPherson & Kelley)

MR D.F.R. BEACH, SC:   If the Court pleases, I appear with my learned friend, MS B. LIM, for the first respondent.  (instructed by Deacons)

MR A.T. SCHLICHT:   If the Court pleases, I appear for the second respondent.  (instructed by Minter Ellison)

GUMMOW J:   Yes.  Mr Garde, you are going to divert us with costs?

HAYNE J:   Not only costs but scales of costs, Mr Garde.

MR GARDE:   Your Honour, the matter concerns the construction of domestic building contract insurance policies in Victoria.  It is more than matters of costs and scales of costs, if I can respectfully say so.  The cap on domestic building contract insurance policies in Victoria over the period from 1996 to 2002 was in the sum of $100,000 and, in addition, reasonable legal costs and expenses associated with the successful enforcement of the claim.

Since 2002 the position has been that the cap, that is the maximum that an insured can recover, is in the sum of $200,000, including reasonable legal costs and expenses of the claim.  So that whilst it is a matter that concerns costs, as your Honours have pointed out, it is more fundamentally a matter which concerns the cap on compulsory insurance policies of that type in Victoria and the construction of that expression is applicable to all domestic building insurance, all domestic building contract insurance policies over a very considerable time period which relate to a very considerable volume of domestic building work.

HAYNE J:   Can I just understand what has happened procedurally.  There was a settlement agreed, the settlement agreed that orders should be made by consent by the Tribunal, is that right?

MR GARDE:   Yes.

HAYNE J:   And an order that was made by consent was that – that included the expression “reasonable legal costs and expenses”, is that right?

MR GARDE:   Yes, that is correct.

HAYNE J:   And the fight is about what that means?

MR GARDE:   Yes.

HAYNE J:   And the fight is whether that is confined or means party/party costs?

MR GARDE:   Yes, it is.  So the fight is about what is the meaning of that expression.  What the parties did in settling the respective proceedings was to agree on the amount in relation to the fault of the builder and the consequential impact on the applicant and then the parties, in essence, adopted the words of the ministerial order which describes the cap and said that will be determined by agreement or in default of agreement by VCAT.

The parties, by doing that, in essence picked up the second limb of the claim.  One claim, of course, was for the quantum of the amount, the other was for reasonable legal costs and expenses, and dealt with it in that way in the settlement.  Of course, at the time they settled they did not know what the particular costs might happen to be.  That was the approach they took and so although it is, pursuant to the terms of settlement or an offer of compromise, nonetheless, the fundamental issue remains, what does the ministerial order permit and the policy permit in terms of the scope of legal costs and expenses capable of being recovered.

In addition to the ministerial order and interacting with it are the powers of VCAT under section 109(2) of the VCAT Act which gives VCAT a discretion as to costs and section 59A of the Domestic Building Contracts Act 1985 which also confers an extensive jurisdiction on VCAT to make orders it considers fair in resolution of disputes of this type.

The effect of the Court of Appeal decision which overruled the decision of Justice Smith below on this point is in substance that the claimants in this situation are confined to party/party costs and the effect of that in the consumer area is of course to reduce the amount that can be recovered in practical terms in claims of this nature.  We would suggest that the reasons for decision of the trial judge, which are found in the application book at page 37 and in paragraph 38, are correct enough to be preferred and the Court will have observed that in paragraphs 38 and 39 the particular matters that were persuasive in the opinion of the trial judge were that:

·    the policies are provided pursuant to consumer protection legislation;

·    the approach taken to providing consumer protection is to use insurance;

·    the policies . . . indemnity insurance . . . policies;

The consequence of the interpretation urged on behalf of the insurers would inevitably be in matters of this type that a significant proportion of the costs and expenses of pursuing a claim would come out of the $100,000 and that there was a significant difference in the respective financial strengths of the claimants and the insurers with the consequence that if the insurer’s interpretation were adopted claimants would be at a serious disadvantage in terms of the prosecution of claims of this sort.

We would submit that the approach which his Honour below took which followed the approach taken in the Tribunal is correct.  In terms of the reasons for decision of the Court of Appeal they are somewhat different in each case.  We would start by calling the Court’s attention to page 96 in the reasons of the decision of Justice Ormiston.  His Honour accepted that it was the intention of the parties that the insured builders should obtain a full indemnity in the sense conventionally understood in the law of insurance:

for any costs it has paid or become obliged to pay by reason of a claim made by the building owner . . . Those costs must be “reasonable”, but not in the sense that they are to be taxed upon a “reasonable” basis pursuant to ordinary concepts known or derived from the law relating to taxation of costs.  The relevant sum, as a whole, in each case must be seen to be reasonable –

Then his Honour went on at page 99 of the application book, lines 22 through to 31 that:

The terms referred not merely to the “reasonable legal costs and expenses” but also required that they should be “assessed by the Tribunal in default of agreement” between the parties and paid accordingly by the insurer, in the one case, and that they should be “determined” by VCAT in default of agreement in the other.  So the parties were looking, appropriately in my opinion if it be relevant, to what might be fairly ordered by the Tribunal.

Then his Honour went on to say at page 101 in the top seven lines referring to the Domestic Building Contracts Act and then said but:

no such order should be assumed to have been open in the present case.

That is a solicitor/client basis.  So, his Honour said:

In other words, one ought here to assume only that the Tribunal, in effect by agreement, would exercise its discretion to award costs but would award them on a party/party basis.

We would respectfully submit that there is no basis for any such assumption and that if the word “reasonable” is given the meaning that it has been given in a number of decided cases, including Fleming’s Case in New South Wales and in the context of mortgages, it should be interpreted to mean reasonable having regard to prevailing market rates and not construed so as to be confined to party/party costs.

One wonders what the position of the typical claimant would be in matters of this sort in circumstances where costs were expended, for example, in getting expert assistance but without any application being made to the Tribunal.  In those circumstances there would appear on the construction given by the Court of Appeal to be no prospect of any recovery whatever.

We say that his Honour’s assumption had no basis, particularly having regard to the findings by the Tribunal as to the conduct of the insurers.  They are fully set out on page 12 of the application book and if the Court has had the opportunity to read page 12 it is quite apparent that in the course of the application the insurers behaved in a most inappropriate way before the Tribunal.  The Tribunal found, for example, that they deliberately did not turn up to directions hearings, did not comply with directions, required enforcement orders and did not do what they were meant to do until there was the possible pain of dismissal and finally that they brought forward no proposals for settlement despite the fact that the matter was an assessment.

So they were the sorts of circumstances which the Tribunal had held had transpired in this case and the effect of his Honour’s assumption on page 101 was in essence to deprive the applicant of any opportunity of submitting that it should receive a higher level of costs either on the return of this matter to the Tribunal on the assumption that the Tribunal had misdirected itself as to a matter of law, if that be the court’s view, or, alternatively, to argue that it was within the normal scope of the concept of “reasonable” that…..costs should have been awarded than those which the Court of Appeal ultimately held were appropriate.

His Honour Justice of Appeal Nettle held at page 105 that in his Honour’s opinion:

the costs should ordinarily be assessed on a party/party basis . . . 

Of course there may be occasions when it is appropriate to award costs in favour of a successful claimant in Domestic Building List proceedings on an indemnity basis.  But those occasions will be exceptional and, broadly speaking, circumscribed by the same criteria as govern the award of indemnity costs pursuant to . . .the Supreme Court (General Civil Procedure) Rules 1996. It is not suggested that the circumstances of this case satisfy those criteria.

We, for our part are at a loss to understand the basis for his Honour’s observation, having already previously made application to the Tribunal for indemnity costs, not only on the basis of the ministerial order, but also on the basis of the discretion of the Tribunal as found in statute.  Justice Hansen held at page 115 of the application book, lines 24 through to 30 that:

Regarding the matter for myself, the phrase “reasonable legal costs and expenses” refers to costs on a party/party basis.  If anything, the introduction of the word “reasonable” reinforces this understanding of the phrase, rather than indicating some greater right to costs.

So the point that is sought to be brought before the Court is to submit that the construction ultimately placed by the Court of Appeal on the ministerial order not only confines applicants under consumer insurance of this type to the level of party/party costs, but it also effectively deprives the Tribunal of its discretion as to costs, a discretion which might extend to indemnity costs or, indeed, any other form of costs should it be so motivated in the exercise of its jurisdiction.  So those are the matters, if your Honours please, which it is desired to raise in terms of an appeal to this Court. 

In our bundle of authorities we have referred the Court to a number of authorities including Fleming’s Case, a decision in New South Wales where Chief Justice Gleeson referred in the context of that case to the primary factor affecting reasonableness is the market for legal services.  That is found at page 6 of New South Wales Crime Commission v Fleming, a case that dealt with the particular context of the provision of legal aid for accused persons in New South Wales.

We have also drawn attention to Gomba’s Case, a decision of the Court of Appeal dealing with a mortgagee’s entitlement to costs under a mortgage where, once again, reimbursement for all costs reasonably and properly incurred is acknowledged by the law.  Another decision which we have relied on, Ministry of Works v Cromwell, a New Zealand case in a land compensation context where, once again, a high level of costs were allowed.

The Court of Appeal of Victoria has in the case of HIA v Davy (2003) 7 VR 512, found at tab 1 of our bundle, held in the clearest terms that the domestic building contract insurance system is a system of consumer insurance with the purpose of supporting owners who suffer the catastrophe of the insolvency of a builder during the course of construction.

If the Court pleases, those are the matters which we draw to the attention of the Court.

GUMMOW J:   Thank you.  We do not need to call on you, Mr Beach and Mr Schlicht.

There are insufficient prospects on an appeal to this Court of an outcome differing from that of the Victorian Court of Appeal to warrant a grant of special leave to appeal to this Court.

Accordingly, special leave to appeal is refused with costs.

AT 3.10 PM THE MATTER WAS CONCLUDED