Manufacturers Mutual Insurance Ltd v Murray River North Pty Ltd & Anor
[2004] WASCA 276 (S)
•26/11/2004
MANUFACTURERS MUTUAL INSURANCE LTD -v- MURRAY RIVER NORTH PTY LTD & ANOR [2004] WASCA 276 (S)
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASCA 276 (S) | |
| THE FULL COURT (WA) | 26/11/2004 | ||
| Case No: | FUL:52/2003 | 4 MAY 2004 | |
| Coram: | MALCOLM CJ MURRAY J WHEELER J | 26/11/04 | |
| 20/10/05 | |||
| 11 | Judgment Part: | 1 of 1 | |
| Result: | Indemnity as to costs ordered | ||
| B | |||
| PDF Version |
| Parties: | MANUFACTURERS MUTUAL INSURANCE LTD MURRAY RIVER NORTH PTY LTD GAUCHO PTY LTD |
Catchwords: | Appeal and new trial Practice and procedure Notice of contention raising issues by way of crossappeal Insurance Exclusion clause Extent of indemnity in relation to costs |
Legislation: | Insurance Contracts Act 1984 (Cth), s 54 |
Case References: | Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652 Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332 Fluor Daniel Constructors Pty Ltd v Zurich Australian Insurance Ltd [2002] WASCA 218 Howells & Anor v Murray River North Pty Ltd & Ors [2004] WASCA 276 Tillotson v ANZ Life Assurance Company Ltd, unreported; FCt SCt of WA; Library No 970081; 18 February 1997 Biala Pty Ltd v Mallina Holdings Ltd (1989) 2 WAR 381 Carroll v Azolia Pty Ltd (1998) ANZ ConvR 485 Colgate-Palmolive Co & Anor v Cussons Pty Ltd (1993) 28 IPR 561 Container Handlers Pty Ltd v Insurance Commission of WA (2001) 25 WAR 42 Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Wenpac Pty Ltd v Allied Westralian Finance Ltd (1994) 123 FLR 1 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : MANUFACTURERS MUTUAL INSURANCE LTD -v- MURRAY RIVER NORTH PTY LTD & ANOR [2004] WASCA 276 (S) CORAM : MALCOLM CJ
- MURRAY J
WHEELER J
DECISION : 20 OCTOBER 2005 FILE NO/S : FUL 52 of 2003
- FUL 53 of 2003
FUL 66 of 2003
- Second Appellant (Second Third Party)
AND
MURRAY RIVER NORTH PTY LTD
First Respondent (First Defendant)
GAUCHO PTY LTD
Second Respondent (Second Defendant)
Catchwords:
Appeal and new trial - Practice and procedure - Notice of contention raising issues by way of crossappeal
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Insurance - Exclusion clause - Extent of indemnity in relation to costs
Legislation:
Insurance Contracts Act 1984 (Cth), s 54
Result:
Indemnity as to costs ordered
Category: B
Representation:
Counsel:
Second Appellant (Second Third Party) : Mr J R Criddle
First Respondent (First Defendant) : Mr R J L McCormack
Second Respondent (Second Defendant) : Mr R J L McCormack
Solicitors:
Second Appellant (Second Third Party) : J R Criddle
First Respondent (First Defendant) : Blake Dawson Waldron
Second Respondent (Second Defendant) : Blake Dawson Waldron
Case(s) referred to in judgment(s):
Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652
Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332
Fluor Daniel Constructors Pty Ltd v Zurich Australian Insurance Ltd [2002] WASCA 218
Howells & Anor v Murray River North Pty Ltd & Ors [2004] WASCA 276
Tillotson v ANZ Life Assurance Company Ltd, unreported; FCt SCt of WA; Library No 970081; 18 February 1997
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Case(s) also cited:
Biala Pty Ltd v Mallina Holdings Ltd (1989) 2 WAR 381
Carroll v Azolia Pty Ltd (1998) ANZ ConvR 485
Colgate-Palmolive Co & Anor v Cussons Pty Ltd (1993) 28 IPR 561
Container Handlers Pty Ltd v Insurance Commission of WA (2001) 25 WAR 42
Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
Wenpac Pty Ltd v Allied Westralian Finance Ltd (1994) 123 FLR 1
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1 JUDGMENT OF THE COURT: These were three consolidated appeals. The first was by the plaintiff whose action for damages against the first respondent, Murray River North Pty Ltd (MRN) and Gaucho Pty Ltd (Gaucho) was dismissed by the trial Judge. That appeal succeeded. The final orders have been made, allowing the appeal and setting aside the relevant portion of the orders made by the trial Judge. In lieu thereof, judgment was entered for the plaintiff against MRN and Gaucho for damages in the sum agreed with interest, and those parties were ordered to pay the plaintiff's costs of the appeal and the trial to be taxed. Those final orders having been made, the plaintiff's appeal need not be further mentioned.
2 At first instance, the trial had involved issues in respect of the liability of insurers for the defendants, MRN and Gaucho. The insurers were joined in the litigation by third party proceedings, they having respectively declined to indemnify the defendants. Manufacturers Mutual Insurance Ltd (MMI) was the defendants' employer's liability, workers' compensation and common law, insurer. Zurich Australian Insurance Ltd (Zurich) was the defendants' public liability insurer. Although the issues raised in the third party proceedings did not strictly need to be dealt with by the trial Judge, his Honour held that MRN and Gaucho would have been entitled to be indemnified against the plaintiff's claim by MMI, and the claims of MRN and Gaucho to be indemnified by Zurich were dismissed.
3 MRN and Gaucho appealed against that decision in favour of Zurich. That appeal was dismissed, with costs to be taxed and a certificate for second counsel. Again, those final orders having been made to dispose of that appeal, it need not be further mentioned.
4 Finally, there was an appeal by MMI against the decision that it was bound to indemnify MRN and Gaucho. The issues raised in that appeal need not now be canvassed. It is sufficient to note that the appeal has been ordered to be dismissed. And so MMI remains liable to indemnify MRN and Gaucho, pursuant to the relevant policy of insurance. As Murray J put it, at [115] of his Honour's judgment:
"In the third party proceedings brought against MMI there should be orders that MRN and Gaucho be indemnified against the damages and costs incurred, pursuant to the relevant contract of insurance. The trial judge awarded MRN and Gaucho the costs of those third party proceedings and that order would, of course, remain."
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5 At [45] the other member of the majority in this Court, Malcolm CJ, expressed his agreement with those orders.
6 No orders consequential upon the dismissal of the appeal have been made. The terms of those orders have been the subject of contrary written submissions on behalf of both MMI, on the one hand, and MRN and Gaucho, on the other. For MRN and Gaucho it is submitted that the indemnity to be provided pursuant to the contract of insurance is not only in respect of the substantive liability they bear to the plaintiff, but also under the policy of insurance there is an indemnity as to their liability in costs. This was an issue raised in the appeal by the notice of contention filed by MRN and Gaucho. On the other hand, it is put by MMI that under the terms of the policy, properly construed, the obligation of indemnity does not extend to costs in the circumstances of this case. In any event, it is submitted, if it was asserted that there was error in that regard, at first instance, it was a matter which could only be raised by a substantive cross-appeal and not by a mere notice of contention.
7 As to the procedural question, as has been seen, the trial Judge made the finding that MMI was bound, under the terms of the policy, to indemnify MRN and Gaucho. But his Honour failed to find that there was an entitlement to be indemnified in respect of the costs of defending the plaintiff's action and the third party proceedings. Instead, his Honour awarded costs on a party and party basis in the ordinary way, the defendants having succeeded before him.
8 For MRN and Gaucho, it is put that having the decision of the trial Judge in their favour as to the indemnity liability of MMI, it was not appropriate to appeal other than, as they did unsuccessfully, against the decision dismissing their third party proceedings against Zurich. In those circumstances they argue that it was appropriate to seek the variation of the trial Judge's orders in respect of the liability to indemnify them in respect of their costs incurred below by filing a notice of contention pursuant to the Rules of the Supreme Court 1971 (WA), O 63 r 9 as it applied prior to 1 May 2005.
9 It is sufficient to note the terms of r 9(1) as follows:
"A respondent who, not having appealed from the decision of the Court below, desires to contend on the appeal that the decision of that Court should be varied, either in any event or in the event of the appeal being allowed in whole or in part, must give notice to that effect, specifying particulars of the grounds
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- of his contention and the precise form of the order which he intends to ask the Full Court to make, or to make in that event, as the case may be."
10 That seems to us to precisely describe what MRN and Gaucho sought to do in this case. The notice itself in its preamble was not happily worded, but in its substance what was sought to be achieved by that notice fitted squarely within r 9(1). That rule has long been interpreted as providing a capacity to proceed to raise by a notice of contention what is effectively a conditional cross-appeal: Tillotson v ANZ Life Assurance Company Ltd, unreported; FCt SCt of WA; Library No 970081; 18 February 1997.
11 We turn then to the substantive issue: whether the MMI policy, properly construed, requires the insurer to indemnify MRN and Gaucho against its liability to make payments of costs and expenses as the employer of the plaintiff. The relevant operative clause in the policy is set out in the judgment of Murray J in the principal reasons given herein with which these reasons should be read: Howells & Anor v Murray River North Pty Ltd & Ors [2004] WASCA 276 at [96].
12 The question for present purposes is whether, MMI having declined liability under the policy on the ground that the plaintiff was not employed by MRN and Gaucho, and MMI having been held, both at first instance and on appeal, to have wrongly declined liability, it is now liable to indemnify MRN and Gaucho, not only in respect of their liability as the employer to pay damages to the plaintiff, but also the reasonable costs and expenses incurred by MRN and Gaucho in defending the plaintiff's claim at common law and in the third party proceedings.
13 The argument for MMI is simple. It says that while MMI were necessarily informed of the progress and ambit of the litigation, there is no evidence that its written consent to incur any costs and expenses was requested or provided. It argues that the only case relied upon by MRN and Gaucho, the unreported decision in Fluor Daniel Constructors Pty Ltd v Zurich Australian Insurance Ltd [2002] WASCA 218 is of no assistance because there it seems the operative clause was expressed in different terms and, so far as the costs of compromising the plaintiff's claim were concerned, that step was taken with the consent of Zurich: see the judgment of Fitzgerald AJ at [21] and [22]. The decision in that case simply turned on the terms of the policy. We agree that the Fluor Daniel decision is of no assistance in this case.
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14 As we understand the submissions for MRN and Gaucho, they are to the effect simply that, properly construed according to the ordinary and natural meaning of the words used in the clause, the obligation under the policy to indemnify the employer, in this case MRN and Gaucho jointly, in respect of "all reasonable costs and expenses incurred" is not subject to the condition precedent of the provision of the written consent of MMI. It was urged upon us that to hold otherwise would effectively enable MMI, by the simple expedient of declining liability under the policy to avoid its liability by not giving its written consent. In this case it did that on the basis that Zurich was liable under the public liability policy because the plaintiff, when injured, was not employed by MRN and Gaucho, but was an independent contractor. That having occurred, it is submitted that there was then no reasonable opportunity to obtain the consent of MMI before necessarily incurring costs and expenses in defending the plaintiff's action and in the third party proceedings directed to establishing which insurer was at risk.
15 It is clear from the evidence put before us that MMI chose to rely upon its argument that Zurich was the insurer at risk, an argument found to be without merit both at first instance and on appeal. As a consequence, MMI appears to have taken no part in the proceedings, even failing to respond by its solicitors to a request by the solicitors for MRN and Gaucho to be advised of their attitude to a Calderbank offer to compromise the action made by the plaintiff's solicitors.
16 On the other hand, for MMI reliance is placed upon the simple proposition that the clause of the policy cited above must mean what it says and that the submissions for MRN and Gaucho would give to the words, "incurred with the written consent of the Insurer", no meaning. In any event, it is said, rightly, that there is no evidence before the Court that the written consent of MMI had been sought and so this is not a case which requires an interpretation of the clause in circumstances where written consent was sought, but withheld. In our view, those submissions are right. The plain limitation upon the obligation of MMI to pay all reasonable costs and expenses incurred, is that those costs and expenses must have been incurred with the written consent of MMI. That is clear from the operative clause of the policy and from Condition 3 which is in the following terms:
"3. Litigation, Settlement or Admission of Liability
The Employer shall not, without the written authority of the Insurer, incur any expenses of litigation or make any
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- payment, settlement or admission of liability in respect of any disability to or claim made by any worker."
17 It is necessary, we think, that in relation to their application for indemnity costs, MRN and Gaucho rely on the terms of the insurance policy. Although it is submitted that the conduct of MMI in declining liability under the policy forced MRN and Gaucho to incur the costs of litigation to defend themselves against the plaintiff's claim and to initiate third party proceedings against both MMI and Zurich for the purpose of establishing which insurer was at risk, we do not think that upon that ground it can be said that there is reason to make a special order as to costs in the exercise of our discretion in that regard. We think that MMI has done nothing more than test the validity of arguable views as to whether it was liable in terms of its policy of insurance. It did not, we think, behave unreasonably in doing so, although it did not ultimately succeed.
18 Finally, in support of their costs application, MRN and Gaucho rely upon s 54(1) of the Insurance Contracts Act 1984 (Cth). The provision is relied upon in the notice of contention in respect of particular substantive issues, but in the circumstances of their decision the majority was not required to address those arguments: see Murray J at [110]. Nonetheless, reliance is placed upon the provision in support of the application for costs.
19 Section 54(1) provides:
"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 that occurred 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."
20 The leading case on the provision probably remains Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332, where, at 342, it was pointed out that the prejudice to which s 54(1) refers is not to be found in the liability imposed on the insurer by s 54(1) itself, but, "will consist in the existence of a liability which, in whole or in
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- part, would not have been borne by the insurer if the act had not been done or the omission had not been made … ."
21 In Moltoni Corporation Pty Ltd v QBE Insurance Ltd (2001) 205 CLR 149, the High Court added:
"Thus, although relevant prejudice may be found to consist in the existence of a liability which would not have been borne if there had not been the relevant act or omission, the quantification of the amount representing the extent of the insured's prejudice as a result of the act requires the identification of what are the financial consequences that, in fact, have been, or will be, caused by that act or omission."
22 In that case, as in this, where the insurer would not have gone off risk, the High Court held that, "The relevant prejudice suffered is to be measured by reference to what would have happened (as distinct from what could or might have happened) if the act or omission had not occurred."
23 A similar approach was taken by the High Court in the earlier case of Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652, a case which concerned a qualification upon the liability of the insurer of the same type as in this case, albeit in a much more elaborate form. Condition 1 of the policy provided that the insurer would not be liable to indemnify the insured for a claim for legal expenses incurred in the defence of proceedings unless the insured obtained the specific consent of the insurer, which the insurer was only obliged to give if the insured had reasonable grounds for defending the proceeding. In addition, there were quite elaborate provisions concerned with the resolution of a difference between the insurer and the insured as to whether consent should be given. However, in that case, although there was debate between insurer and insured as to the incurring of legal expenses, in fact that was not resolved before the proceedings were settled and so, in truth, the insured did not obtain the insurer's consent in accordance with Condition 1. The position is not dissimilar to that applying in this case.
24 The High Court held, firstly, that the effect of the provisions of the policy was to permit the insurer to refuse the claim to pay the legal expenses, and that is the conclusion to which we have come in this case. The High Court held that the omission to obtain consent was an omission to which s 54(1) applied, recognising that the section was a remedial provision and thus susceptible to a generous interpretation. As to the
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- question of prejudice arising under s 54(1), the High Court held that the measure of the prejudice would depend on the question whether there were reasonable grounds to defend the claim.
25 We are also of the view that s 54(1) is available to MRN and Gaucho in respect of its claim to be indemnified in respect of "all reasonable costs and expenses incurred", bearing in mind that by s 54(6)(a) an "act" within the meaning of the section includes an "omission". We have held that upon the proper interpretation of the policy, MMI may refuse to pay that part of the claim which relates to the reasonable costs and expenses incurred by the insured on the ground of the insured's omission to obtain the written consent of the insurer before incurring the costs and expenses. We take the view, as the High Court did in Antico, that it could not be suggested that s 54(2) and (4) could have application. That is, the case would not fall outside s 54(1) because the failure to obtain written consent could reasonably be regarded as being capable of causing or contributing to the loss in respect of which the insurance cover was provided.
26 The question then in respect of the application of s 54(1) is whether there must be a reduction in the claim for MMI to pay the reasonable costs and expenses incurred, "by the amount that fairly represents the extent to which the insurer's interests were prejudiced" as a result of the omission to obtain written consent. In Antico, at 675, the question was said to be, "whether the amount of costs incurred would have been less had the [insured] complied with Condition 1 and the other relevant provisions of the policy."
27 In this case there is no evidence that that would have been so. There is no suggestion that the consent could have been properly withheld in relation to any costs and expenses incurred by MRN and Gaucho in defending the plaintiff's action or in the pursuit of the third party proceedings, as to which, of course, MRN and Gaucho have their costs at first instance. There was no suggestion that the principal action would not be defended and it was always necessary to establish which, if either insurer, was liable under its policy. No relevant prejudice is asserted or established by MMI. It relies solely on the failure to obtain written consent.
28 In the final analysis then, to the order already made dismissing MMI's appeal there should be added an order that MMI pay the costs of MRN and Gaucho of the consolidated appeal to be taxed as one bill. In addition, there should be an order that MMI, pursuant to Policy No WWH0022809, indemnify MRN and Gaucho against the
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- damages and costs which they have been ordered to pay other parties in respect of the trial and the consolidated appeal. The process of taxation of those costs and expenses will establish the extent to which they were reasonably incurred and are reasonable in amount.
0
14
1