McManus v Knights Rugby League Pty Ltd

[2020] NSWSC 85

Supreme Court

New South Wales

Medium Neutral Citation:	McManus v Knights Rugby League Pty Ltd [2020] NSWSC 85
Hearing dates:	On the papers
Date of orders:	25 February 2020
Decision date:	25 February 2020
Jurisdiction:	Common Law
Before:	Harrison J
Decision:	(1)   Order that the first defendant’s costs occasioned or thrown away by Mr McManus’ application to amend the statement of claim should be the first defendant’s costs in the proceedings.  (2)   Make no order as to the costs of the third party insurers.
Catchwords:	COSTS – where plaintiff sought leave to amend statement of claim – whether plaintiff liable for costs of first defendant – where plaintiff sought to join insurers allegedly responsible for the acts and omissions of second defendant in liquidation – where application later withdrawn – whether plaintiff liable for costs incurred by insurers attempting in their own interest to foreclose the application and persuade plaintiff that they were not liable and should not be joined – where costs generated by insurers choice rather than the actions of the plaintiff – order reserving costs of insurers not disturbed
Legislation Cited:	Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW)
Cases Cited:	Elphick v Westfield Shopping Centre Management Company Pty Ltd [2011] NSWCA 356 Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 Media Ocean Ltd v Optus Mobile Pty Ltd (No 6) [2009] FCA 1319 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 Servcorp Ltd v Nuclei Ltd [2011] FCA 1229
Category:	Procedural and other rulings
Parties:	James Alan McManus (Plaintiff) Knights Rugby League Pty Ltd (First Defendant) Newcastle Knights Pty Ltd (Second Defendant)
Representation:	Counsel: C T Barry QC and D R Benson (Plaintiff) D Villa SC (First Defendant) T McCulloch (Insurers)   Solicitors: Slater + Gordon Lawyers (Plaintiff) Kemp Strang (First Defendant) Wotton + Kearney (Insurers)
File Number(s):	2016/367956
Publication restriction:	Nil

Judgment

1. HIS HONOUR: On 10 September 2019, I published my reasons for judgment dealing with Mr McManus’ application for leave to amend his statement of claim: see McManus v Knights Rugby League Pty Ltd [2019] NSWSC 1179. I made the following orders at that time:

(1)    Direct the plaintiff to provide answers to the particulars requested in the first defendant’s letter dated 31 August 2019 by no later than 21 days from the date of these reasons for judgment.

(2)    Subject to compliance with order (1), grant leave to the plaintiff to amend the statement of claim in the form of the document annexed to the affidavit of Laura Kate Barnett affirmed on 17 June 2019.

(3)    Direct any party or proposed party wishing to argue for a particular costs order to provide me with written submissions by no later than 2 November 2019.

(4)    Reserve costs.

2. The first defendant now seeks an order that Mr McManus pay its costs of and incidental to both the amendment and the application to do so.

3. Additionally, at an early stage of these proceedings, Mr McManus became aware that the originally named second defendant, Newcastle Knights Pty Ltd, had gone into liquidation. He therefore began to make inquiries about whether or not the company may have been indemnified by a policy of insurance that possibly responded to his claim. Mr McManus was ultimately unsuccessful in demonstrating the existence of such a policy. Before that position was reached, two insurers incurred costs associated with their efforts to satisfy Mr McManus that they were not liable. Although never joined as a party or served with process, the insurers have applied for an order that their costs be paid on an indemnity basis as and from 20 April 2018.

The first defendant’s submissions

4. The first defendant maintained that, although it had been unsuccessful in its opposition to the application, its opposition was not unreasonable. The first defendant argued that because the party successfully seeking leave asks the court for an indulgence to which he or she is not entitled as of right, that party is usually required to pay the costs of the application for leave and the costs thrown away by reason of the amendment: State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146; [1997] HCA 1, Media Ocean Ltd v Optus Mobile Pty Ltd (No 6) [2009] FCA 1319 at [34], Servcorp Ltd v Nuclei Ltd [2011] FCA 1229 at [11].

5. The first defendant maintained that its opposition to the application could not be regarded as unreasonable, in particular having regard to my remarks at [4] and [6] of my reasons for judgment on 10 September 2019.

The insurers’ submissions

6. The insurers rely upon four pieces of correspondence between the solicitors for the insurers and for Mr McManus, respectively.

7. The first is a letter dated 3 April 2018 from Wotton + Kearney to Slater & Gordon. The second is a letter from Wotton + Kearney to Slater & Gordon dated 6 June 2018. The third is a letter from Slater & Gordon to Wotton + Kearney dated 25 October 2018. The fourth is a letter from Wotton + Kearney to Slater & Gordon dated 20 March 2019.

8. Mr McManus’ amended notice of motion filed on 24 May 2018 sought orders under s 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017. The insurers maintained that the proceedings were not properly maintainable and that the application to join them was doomed to fail: the proceedings ought never to have been commenced and the motion amounted to an abuse of process.

9. The insurers relied upon the following facts. On 20 February 2017, SLE Worldwide Australia Pty Ltd, as agent of the insurers, declined indemnity under the SLE NRL Policy. The proposed proceedings, as originally formulated, were defective and thus misconceived because the wrong parties were nominated as the proposed defendant insurers. So much was made plain to Mr McManus’ solicitors in the 3 April 2018 letter. As the letter explained, the Court would have been required to dismiss the motion because the insurers were entitled to disclaim. The injuries pleaded by Mr McManus occurred in 2012, 2013 and 2014, and the insurers’ period risk expired on 31 December 2013.

10. More fundamentally, exclusion 2(a) of the policy excluded "liability for personal injury to any employees of the insured arising directly or indirectly of or in the course of their employment in the insured's business". Mr McManus alleged, as was the fact, that he was an employee of Newcastle Knights Pty Ltd. No clearer application of exclusion 2(a) could be imagined.

11. The insurers therefore offered to compromise by bearing their own costs. This offer was not accepted. It was wholly unreasonable to do so. The insurers’ position was strong and the offer was an appropriate and relevant compromise: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [17].

12. In Miwa Pty Ltd, Basten JA, citing the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298, held at [12] that, in determining whether the rejection of the offer was unreasonable, the Court is to have regard to the following factors:

“(a) the stage of the proceeding at which the offer was received;

(b)    the time allowed to the offeree to consider the offer;

(c)    the extent of the compromise offered;

…

(e)    the clarity with which the terms of the offer were expressed;

(f)    whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.”

13. Mr McManus’ proposal to join the insurers was said to be “utterly hopeless”. His solicitors were given a timely, fair and accurate warning both of the hopelessness of his position and of the insurers’ desire to compromise in order to save costs. The insurers submitted that Mr McManus’ conduct in continuing was clearly unreasonable.

Mr McManus’ submissions

14. On 6 September 2019, Mr McManus moved the Court for orders in accordance with his notice of motion filed on 17 June 2019. The orders I made on 10 September 2019 are reproduced at [1] above.

15. Particulars were provided in accordance with Order 1 and on 2 October 2019, Mr McManus filed an amended statement of claim in accordance with Order 2. On 4 November 2019, submissions were filed by non-parties to the substantive proceedings for an order for costs and on 1 November 2019, the first defendant filed a submission seeking a variation of the order that costs be reserved.

16. Mr McManus now contends that the order reserving costs should stand. His submissions are as follows.

17. The first defendant unsuccessfully opposed the grant of leave to amend. The consequence of that unsuccessful opposition would ordinarily have been that it would pay the costs of the motion. However, the principal grounds for its opposition to the granting of leave to amend were that the amendment should have been made earlier and that "neither the proposed pleading, nor the expert evidence served to date, articulates in any meaningful way critical aspects of the plaintiff's (claim) that it will be necessary for the first defendant to understand before it is able to consider its position in respect of the proposed pleading".

18. The first defendant sought further and better particulars of the pleading that had been proposed and I took the view that leave should be granted if those particulars were provided. The request for particulars could have been made at any time including after the amended statement of claim was filed by consent. Accordingly, the second ground of objection to the amendment was without substance.

19. Mr McManus contended that it was because I had been critical of the form of the amended pleading that I made the direction for the provision of particulars. In those circumstances the presumption in favour of an order for costs against a party unsuccessfully opposing an application was, in Mr McManus’ submission, cancelled out by the view I took that the pleading was deficient and needed to be cured by particulars. The order reserving costs was made in those circumstances.

20. In response to the insurers’ submissions, Mr McManus noted that the proceedings were commenced by statement of claim filed on 8 December 2016 against the present defendant and Newcastle Knights Pty Ltd. In the events that occurred, Newcastle Knights Pty Ltd was in liquidation and, given its financial position, the liquidator was unwilling to assist the plaintiff in the identification of any insurer that may have stood behind it. Mr McManus was then required to go to considerable lengths in order to determine, if possible, whether Newcastle Knights Pty Ltd was insured and by whom.

21. A number of possible insurers were identified and subpoenas were issued to capture the relevant insurance policies in support of an application under s 5 of the Civil Liability (Third Party Claims Against Insurers) Act. Lloyd’s of London and Chubb Insurance Co of Australia Ltd were identified as insurers who may have had an obligation to indemnify the company.

22. Mr McManus therefore maintained that there was no need for either of those insurers to play any role in the proceedings. Parties do not get a choice as to whether or not they are made defendants in an action. It was at all times a matter for Mr McManus to establish, if he could, whether the insurers were amenable to being joined to the proceedings by the operation of the Act. To the extent that those insurers incurred legal costs, that was a matter arising from a decision made by them. If the insurers had instead chosen to do nothing, and Mr McManus had been unable to demonstrate that their policies responded to his claim, they would have incurred no costs for which Mr McManus could ever have been liable. The insurers’ decision to incur costs was voluntary.

23. Further, in response to the insurers’ argument that they wrote a letter asserting that their policies of insurance did not respond, Mr McManus’ legal advisers were not required to accept that assertion without first seeing the policies concerned. It would in fact have been improper for them to do so. Once the policies were sighted, the application to join the insurers was abandoned.

24. Having issued subpoenas for the production of the policies, the plaintiff's legal advisers were then in a position to advise the plaintiff that the notice of motion to join the insurers as parties was one that should be abandoned.

25. In these circumstances, Mr McManus maintained that my order reserving the costs was correct and should stand.

Consideration

26. The letter dated 25 October 2018 sent by Mr McManus’ solicitors to the insurers’ solicitors was in these relevant terms:

“We refer to earlier correspondence in relation to the notice of motion under the Civil Liability (Third Party Claims Against Insurers) Act to join your insured client in these proceedings.

The continued preparation for this case against the first defendant has satisfied the writer that the plaintiff has a strong enough case against the first defendant that it is no longer essential in the proper conduct of his case for the notice of motion to proceed.

In those circumstances, if your client was prepared to agree to the notice of motion to join your client being dismissed with no order as to costs it is proposed that such orders be sought together with an order amending the pleadings so as to remove the second defendant as a defendant from the action.

Your early advice in relation to this is requested.”

27. I am unaware whether there was any relevant intervening correspondence but the insurers’ letter dated 20 March 2019 in reply contained the following:

“1.   We refer to your letter dated 25 October 2018 from Mr Ashley Davis of your office, essentially proposing for your client’s amended notice of motion filed …on 24 May 2018…to be dismissed with no orders as to costs.

2.    Our clients [sic] position remains the same. We are instructed to reject your client’s proposal and press for costs of the and [sic] incidental to the motion.

3.    However, as a compromise, our client has instructed us that it is willing to resolve the motion on the basis that the costs are payable on a party/party basis (as opposed to our costs being paid on an indemnity basis).

…

5.    Given the history of the matter, the facts outlined in various correspondence in relation to the merits of your claim against our client, the lack of any submissions addressing our client’s policies and the need to brief senior counsel to prepare submissions, our clients consider that it be entitled to costs arising from the motion and your client’s desire to now dismiss it.

6.    In the circumstances, we intend to press for the motion to be dismissed with our costs payable to our client. By way of compromise, our client agrees to accept an order that costs be on a party/party basis.”

28. Two aspects arising from these letters deserve comment. First, Mr McManus’ solicitors appeared originally to accept that the insurers were at least entitled to ask for their costs in the circumstances. Their current approach, suggesting that the insurers incurred the costs by prematurely and unnecessarily seeking to oppose the notice of motion even before they had been joined to the proceedings, would appear only to have emerged in the context of the current dispute.

29. Secondly, the insurers have for long been prepared to accept costs on the ordinary basis notwithstanding the apparent strength of their claim for indemnity costs as asserted in earlier correspondence and their submissions already quoted.

30. Clearly neither Mr McManus nor the insurers remain bound by the attitude or understanding revealed in these letters. As presently advised, Mr McManus would presumably prefer to have told the insurers that they will enter the fray of argumentative correspondence at their own risk as to costs: they were not then a party joined to this litigation and they are still not. By the same token, it seems reasonably apparent both that Mr McManus was content to engage with them in the hope of clarifying the issue of whether or not the then second defendant was likely to be underwritten by a policy of insurance and that his enthusiasm for that prospect overtook his ability clearly to appreciate the force of their articulated position.

31. However, when the insurers were telling Mr McManus that he had no claim against them, and why that was so, they were not then in any position to require or to insist that their involvement or their cooperation might render Mr McManus liable for the expenses they incurred in so doing. As hopeless as Mr McManus’ prospects might have been against the insurers, he did not take steps irrevocably to require them to commit to such a course of conduct. The insurers’ justified indignation at the suggestion that they could be made responsible for the liabilities of the second defendant was only matched by their frail but ill-founded insistence that Mr McManus should have to pay for their lawyers.

32. The insurers’ position in the present litigation was at all times subject to the application of the Act. Mr McManus needed leave to proceed. In the events that occurred, leave was not pressed and was never granted. The insurers convinced Mr McManus that they were right. Mr McManus never became liable for their costs. My order reserving the costs was predicated upon the prospect that the insurers could establish a principled reason why that position might not be correct. The insurers have clearly not engaged with the notion that in the particular circumstances of this case they never became entitled to claim costs as a non-party. The present is not the same as or even similar to situations such as where, for example, an insurer seeks to be separately represented from the insured: Elphick v Westfield Shopping Centre Management Company Pty Ltd [2011] NSWCA 356 at [5]–[11]. Even if, as the insurers insist, the proceedings by motion seeking to join them were not maintainable and the application to do so was without merit, their position was completely protected by simply doing nothing. To the extent that the insurers became involved in trying to establish that they were not liable to be joined, such as corresponding with Mr McManus’ solicitors, their involvement was driven by understandable self-interest but not by the compulsion of legal process.

33. So far as concerns the first defendant’s claim for the costs of Mr McManus’ application to amend his statement of claim, I disagree that the approach I took effectively neutralised the first defendant’s entitlement to costs. My decision to require Mr McManus to provide particulars was born of a desire to deal with the issues in a just, quick and cheap way. In the events that occurred, that approach appears to have succeeded. However, the costs incurred by the first defendant were not unreasonably incurred and the first defendant is entitled to some protection concerning them.

Conclusion

34. With respect to the first defendant’s costs, I consider that they should be the first defendant’s costs in the proceedings. With respect to the insurers’ costs, I am of the view that they are not entitled to any order for costs at all. Accordingly my orders are as follows:

1. Order that the first defendant’s costs occasioned or thrown away by Mr McManus’ application to amend the statement of claim should be the first defendant’s costs in the proceedings.

2. Make no order as to the costs of the third party insurers.

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