Messagemate Australia Pty Ltd v NCI & Ors (No 2) No. Scciv-99-565

MESSAGEMATE v NCI & ORS (No 2)
[2002] SASC 377

WILLIAMS J On 1 October 2002 I delivered reasons for my judgment whereby I allowed the plaintiff’s claim against the insurer FAI and dismissed the claims against the broker NCI and its manager Mr Carlier. I have now heard the parties upon questions which were then reserved namely as to costs and as to the form of order. I have also further considered the question of the date to which interest should run (which was not previously argued). The claim has now been slightly increased to $467,136.59 (the principal debt) to correspond with the amount which I would allow in accordance with par 36 of my earlier reasons. I have required the parties to argue the outstanding questions upon the footing that I will enter as at 1 October 2002 one judgment dealing with all questions (including interest and costs). I have intimated that I will extend the time for appeal to a date expiring 21 days after the date on which I hand down these present reasons.
1 Interest
The matter is complicated by the fact that FAI went into liquidation on 27 August 2001 following provisional liquidation on 15 March 2001. In the ordinary course the plaintiff should be entitled to prove in the liquidation for the principal sum together with interest thereon at 6 1/2 per cent per annum from 1 February 1999 (when the claim ought to have been paid) until the date of liquidation. Thereafter the plaintiff’s claim upon admission by the liquidator will carry interest at the prescribed rate in accordance with s 563B(1) of the Corporations Act 2001; the rate prescribed is 8 per cent per annum (see reg 5.6.70A). However, payment of interest is postponed under s 563B(2) until all other debts and claims in the winding up have been satisfied (but with certain exceptions).
FAI contends that the award of interest in this action to the plaintiff after the date of liquidation of FAI would give the plaintiff an advantage over other creditors. However, the plaintiff contends that it should be entitled to interest in accordance with s 30C of the Supreme Court Act 1935 and that good cause to the contrary has not been shown. The plaintiff contends that s 471B of the Corporations Act 2001 does not govern the underlying indebtedness as between FAI and Messagemate; that legislation is directed to the statutory administration but irrelevant to the amount of Messagemate’s entitlement to interest under the Supreme Court Act.
In my opinion the opposing contentions of the plaintiff and FAI can be accommodated in the order which I will now make. The question will be resolved by reference to the terms which should be imposed by this court upon the plaintiff at the point when the plaintiff seeks to enforce the judgment. In Ogilvie Grant v East (1982-1983) 7 ACLR 669 the Full Queensland Supreme Court reviewed the principles whereby the court controls the conduct of civil litigation so as to ensure that proceedings (if allowed) during the course of an insolvent administration do not undermine the administration. The terms upon which and the circumstances in which leave to proceed with the action is granted cannot be stated exhaustively. However, it can be seen that s 471B of the Corporations Act provides the Court with a mechanism to regulate both (i) the commencement and pursuit of proceedings and (ii) the enforcement process in relation to property of a company; the Court’s power extends to both the case of a winding up by reason of insolvency and also to the case where a provisional liquidator has been appointed. Section 471B reads as follows:
“While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
(a)a proceeding in a court against the company or in relation to property of the company; or
(b)enforcement process in relation to such property;
except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.”
As mentioned in par 12 of my earlier reasons the plaintiff obtained leave to proceed (notwithstanding the provisional administration) on condition that any judgment be stayed until further order. Treating the lodgment of the proof of debt as a step in the “enforcement process” mentioned in s 471B, I now propose to supplement the Master’s order of 14 August 2001 by declaring that no step be taken to enforce the judgment with respect to interest awarded since date of liquidation (whether by way of lodging a proof of debt or otherwise) without the leave of the court; such a declaration will merely restate the effect of s 471B as I read it. No doubt the plaintiff will seek the court’s leave to prove in the liquidation for the principal sum and pre-liquidation interest as set out below. It may be convenient to incorporate that leave in my final order.
Upon the principal debt of $467,136.59 the interest running at 6 ½ per cent per annum in accordance with par 113 of my earlier judgment should be divided into two segments (before and after the date of commencement of winding up as follows:
Segment 1: 1 February 1999 to 27 August 2001          $ 78,155.73
         Segment 2: 28 August 2001 to 1 October 2002           $ 33,226.92
  $111,382.65
Judgment will be entered for:
Principal Sum  $467,136.59
and Interest  $111,382.65
In All  $578,519.24
However, leave to enforce the judgment by proof in the liquidation of FAI will be limited to the principal sum and interest to date of liquidation of FAI namely:
Principal Sum  $467,136.59
         Interest from 1/2/99 to 27 August 2001  $ 78,155.73
  $545,292.32
It would be contrary to the principle of Ogilvie Grant v East (supra) to grant leave to enforce the judgment in respect of that component of interest referred to as segment 2. However, for what it may be worth (if anything) I consider that the full amount of interest should be included in the judgment.
FAI submitted that no interest should be awarded after the plaintiff had been allowed a reasonable time to recover the principal sum by recourse to summary proceedings upon a construction summons or other steps to expedite the establishment of liability. I reject this submission; I have dealt with the argument below in the context of the question of costs and adopt those remarks mutatis mutandis to FAI’s interest argument. In view of the fact that FAI has always denied liability I am not prepared to make any allowance for the fact that the plaintiff did not immediately commence proceedings against FAI but chose initially to pursue a claim against NCI and Carlier.
It may be arguable that “good cause” exists in terms of s 30C(1) of the Supreme Court Act simply to limit the award of interest up to the date of liquidation. In another case that may be the appropriate course when there is no prospect that the award of interest for a period subsequent to liquidation can have any practical value. In the present case I have been informed that the plaintiff has hopes that it may have access to a special fund - I know nothing more. Therefore it may become important that the plaintiff obtains in the present judgment everything to which it is formally entitled.
The matter having been fully argued I have dealt with the question of interest comprehensively.
2 Costs
The plaintiff was successful against the defendant FAI but failed against NCI and Carlier. My decision eventually turned upon the interpretation of the policy of trade credit insurance standing alone although I consider that any attempt by the plaintiff to deal with the question of construction summarily or as a preliminary issue was doomed to failure. FAI contends that the costs to be awarded against it should be limited to the costs appropriate to a construction summons. I disagree.
NCI had a longstanding relationship with FAI and it was inevitable that the background matrix of facts would be put forward as a factor which at least potentially affected the construction. FAI was on notice of the existence of the Retention of Title clause. The objective background facts were relevant to the construction (see par 40 of my earlier reasons). I consider that a full hearing on oral evidence was inevitable in this case.
Based on the plaintiff’s terms of trading (see par 20 of earlier reasons) there was little (if any) work for the policy upon FAI’s interpretation. However, FAI at trial sought unsuccessfully to prove that the written terms of trading had been modified (see par 74(ii) of my earlier reasons) so as to allow on-selling of goods before payment and thus create a situation where there was some insured risk That is an example of the reason why the case had to proceed on oral evidence. I am satisfied that this action was properly taken to trial by the plaintiff and as the successful party against FAI should recover its costs. (I have already rejected an argument as abovementioned that the plaintiff’s claim to interest on the principal debt should be cut off at the point where an earlier judgment might reasonably have been obtained. I now also reject the submission from FAI that the plaintiff should be limited to the costs reasonably associated with a construction summons. I note that FAI made no application at or before trial for the construction of the policy of insurance to be determined as a preliminary issue).
The plaintiff points to an offer to consent to judgment filed on 18 January 2002 for $570,000 (plus costs). This amount is considerably greater than the principal debt and interest at the rate which I have allowed calculated to the relevant time. I would not allow the plaintiff’s claim for costs on a solicitor and client basis by reason of the filed offer. In my opinion the plaintiff should have costs against FAI on a party and party basis.
In reality the plaintiff’s filed offer was really nothing more than an offer to accept the whole of its claim for the principal debt together with interest. Supreme Court Rule 41.01 probably contemplates some degree of compromise in a case such as the present.
Insofar as SCR 41.04 may have been applicable (which I do not consider to be the case) I would exercise a discretion against the award of solicitor and client costs. The matter was allowed to be litigated against a company in liquidation apparently to meet the circumstances where there was also a claim against NCI and Carlier; in the special circumstances of this case where the normal procedure upon disallowance of proof of debt was not to be employed it would be inappropriate to allow the plaintiff to obtain some advantage (cf Corporations Act pt 5.6 division 6 as to proof of claims in a winding up).
The more difficult question is the approach which should fairly be taken to the costs of NCI and Carlier (which I do not distinguish for the purposes of this assessment). FAI contends that it should not be responsible for the costs of NCI and Carlier but I reject that submission. NCI and Carlier have been successful and the question arises as to whether the plaintiff should be responsible in the first instance for the brokers’ costs having regard to the fact that recovery from FAI by anyone may not be assured if a Bullock order is made.
NCI and Carlier put up a spirited defence to the claim and advanced a substantial case against FAI on the third party claim. NCI called evidence as to the history of its relationship with FAI in terms of nine separate claims (see par 65 of my earlier judgment). The analysis of those claims (by various of NCI’s clients) occupied a substantial part of the hearing time but at the end of the day was largely inconclusive. In accordance with the principles identified by Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 16 NCI ought to be entitled to explore its claim against FAI fully without being dissuaded by the risk of costs from canvassing doubtful material which might have had some relevance to the decision. However, this is not the ordinary case and I am inclined to look at this matter in a special and different light as mentioned below.
In Marsh v Ruggerio (1999) 72 SASR 551 I reviewed the operation of orders in Bullock and Sanderson forms respectively. I noted the treatment of this topic in Gould v Vaggelas (1985) 157 CLR 215 and the commentary of Von Doussa J in Fennell v S & E Services Holdings Pty Ltd & Santos (1988) 47 SASR 6. I need not repeat my earlier remarks and the application of Supreme Court Act s 40 and SCR 101.01(1).
In Rudow v Great Britain Mutual Life Assurance Society (1881) 17 Ch D 600 at 607-608 Jessel MR in the Court of Appeal said:
“I think it right to state, for I have the concurrence of the Lords Justices, that under the Judicature Acts it is no longer necessary or proper to order a plaintiff to pay the costs of a defendant and have them over against another defendant, so that, if the second defendant is insolvent the plaintiff loses them. The proper form of order now is to order the defendant who is liable to them as between himself and his co-defendant to pay them to the co-defendant.”
That statement no longer states the position accurately but it is a convenient starting point despite its undue extremity.
In Bankamerica Finance Ltd v Nock and Anor [1988] 1 All ER 81 the plaintiff (the hirer) purchased a car under a hire purchase agreement made between the hirer and the defendant finance company. The vehicle had been stolen and the hirer purported to terminate the agreement claiming that the finance company lacked a title; the defendant joined the car dealer as a defendant but the dealer became insolvent during the hearing of the action. The plaintiff succeeded and a counterclaim by the finance company was dismissed. The House of Lords examined the discretion of a trial judge to make a Sanderson order in lieu of a Bullock order in circumstances where the unsuccessful defendant is insolvent. Lord Brandon at 86 recited a number of principles identified by Buckley LJ in Scherer v Counting Instruments Ltd [1986] 2 All ER 529 at 536:
“(1) The normal rule is that costs follow the event. That party who turns out to have unjustifiably either brought another party before the court or given another party cause to have recourse to the court to obtain his rights is required to recompense that other party in costs. But, (2) the judge has under s 50 of the 1925 Act [the Supreme Court of Judicature (Consolidation) Act 1925] an unlimited discretion to make what order as to costs he considers that the justice of the case requires. (3) Consequently, a successful party has a reasonable expectation of obtaining an order for his costs to be paid by the opposing party but has no right to such an order, for it depends on the exercise of the court’s discretion. (4) This discretion is not one to be exercised arbitrarily: it must be exercised judicially, that is to say in accordance with established principles and in relation to the facts of the case. (5) The discretion cannot be well exercised unless there are relevant grounds for its exercise, for its exercise without grounds cannot be a proper exercise of the judge’s function. (6) The grounds must be connected with the case. This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further. (7) If no such ground exists for departing from the normal rule, or if, although such grounds exist, the judge is known to have acted not on any such ground but on some extraneous ground, there has effectively been no exercise of the discretion….(9) If a judge, having relevant grounds on which to do so, has on those grounds, or some of them, made an order as to costs in the exercise of his discretion, his decision is final unless he gives leave to a dissatisfied party to appeal. (10) If, however, he has made his order having no relevant grounds available or having in fact acted on extraneous grounds, this court can entertain an appeal without leave and can make what order it thinks fit.”
(Note: Principle No 8 contains a long statement and was omitted as irrelevant by Lord Brandon).
Lord Brandon then added:
“Subject to two modifications, I consider that these principles stated by Buckley LJ in Scherer’s case correctly represents the relevant law today. The first modification is the substitution in principle (2) of s 51 of the 1981 Act for s 50 of the Supreme Court of Judicature (Consolidation) Act 1925. The second modification is the substitution for the phrase ‘in accordance with established principles’ in principle (4), the more complete phrase ‘in accordance with the provisions of Pt II or RSC Ord 62 and any other established principles.’”
At 87-88 Lord Brandon said:
“With regard to the third question, if the dealers had not been insolvent, it would, as I pointed out earlier, have made no difference in the end which of the two forms of order was made. The real question is therefore whether, having regard to the fact that the dealers were insolvent, the judge could not, if he exercised his discretion judicially, have made a Sanderson order, but was bound to make a Bullock order. As to this it is true that, if a Sanderson order was made, the hirer would probably have to bear his own costs. He would, however, recover the sum of £8,343.83 awarded to him against the finance company, whereas the finance company would probably be unable to recover from the dealers either the sum of £22,996.34 awarded to it or its own costs. There would then be hardship to both parties, but more to the finance company than to the hirer. By contrast, if a Bullock order was made, the hirer would recover from the finance company both the sum of £8,343.83 awarded to him and his costs. The finance company on the other hand would probably recover nothing: neither the sum of £22,996.34 awarded to it, nor its own costs, nor the hirer’s costs which it would have to have paid. All the hardship would then be to the finance company and none at all to the hirer.
The judge must have been aware of these matters. Having regard to them it seems to me impossible to say that the judge could not, in the judicial exercise of his discretion, have made a Sanderson order but was bound to make a Bullock order. On the contrary, the balance of hardship seems to me, not to require the judge to make a Sanderson order rather than a Bullock order, but at least to provide a legitimate ground for him, in the judicial exercise of his discretion, to do so.
In this connection it is pertinent to observe that in Rudow v Great Britain Mutual Life Assurance Society (1881) 17 ChD 600 at 607-608 Jessel MR expressed the view that, in a case of the present kind, the established practice was always to make a Sanderson order rather than a Bullock order. I recognise at once that this extreme approach must be regarded today as going too far. But the fact that it was adopted formerly is a strong indication that, while a Sanderson order cannot be mandatory, a Bullock order cannot be mandatory either.”
In my opinion despite the success of NCI and Mr Carlier there are good reasons for making a Sanderson order upon the facts of the present case having regard to the uncertainties which surround the financial position of FAI and the extent of the case presented by NCI against FAI. NCI had an existing relationship with FAI at the time when it accepted the plaintiff’s instructions in 1998. That relationship was extensively tested in the third party proceedings as a result of the allegations particularised in par 12 of the third party statement of claim. It was certainly necessary for NCI to meet the plaintiff’s allegation of misleading conduct; NCI did this by proving the satisfactory history of its dealings with FAI (see par 99 of my earlier reasons). However, NCI went much further than this in mounting its defence and third party claim. It sought to analyse a number of individual claims by its various clients against FAI in order to establish a convention based on a course of dealing. However each of these claims turned on its own particular facts. Counsel for FAI was able to emphasise the differences between Messagemate’s situation and those with which NCI was seeking to make a comparison; on the other hand counsel for NCI emphasised the similarities and discounted the differences. Counsel for the plaintiff “sat on the sidelines” whilst this aspect of the case was developed. I keep in mind the remarks of Jacobs J in Cretazzo v Lombardi at this point. Some of the evidence adduced by NCI was certainly necessary to its defence and counsel is not to be criticised for the thorough and effective way in which he pursued NCI’s case. However, with the benefit of hindsight it can be seen that some of the detailed evidence adduced in NCI’s case could have been omitted without disadvantage.

In Lackersteen v Jones & Ors (No 2) (1988) 93 FLR 442 Asche CJ said at 449:
“…the following principles seem to be established before a judge can make a “Bullock” or “Sanderson” order.
1.It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant.
2.The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other.
3.While it is essential to find that the plaintiff has acted reasonably and properly that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion.
4.Finally, in considering whether to make such an order, the court should, in the exercise of its discretion balance overall two considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; secondly, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful.”
In my opinion the plaintiff’s causes of action against NCI and Carlier on the one hand and FAI on the other hand were sufficiently related (“substantially connected”) in order to justify the joinder of both NCI and FAI - particularly in the light of the matters disclosed in NCI’s third party notice consequential upon the claim as originally brought against it. I have assessed the reasonableness (or otherwise) of the plaintiff’s conduct of the action at the various stages of the litigation. In my opinion the plaintiff’s actions were in every way and at every stage reasonable. At this stage and in view of FAI’s attitude I do not consider it to be relevant that the plaintiff chose at first only to sue NCI and Carlier. I look at the situation after the various amendments to the proceedings and joinder of parties had been completed.
It was necessary firstly to determine what the policy of insurance meant (in light of all the evidence) and to determine whether FAI was liable to indemnify. That decision (however it may have been expressed) was then a springboard for further claims; the case against NCI was one of negligence; even if indemnity was required by the policy there still remained the question as to whether NCI should have recognised and advised the plaintiff as its client upon the pitfalls of a poorly drafted policy. The question as to what the policy meant and what arguably it might mean were closely allied questions as were the various points arising under the Trade Practices Act 1974. The connection between the cases against NCI (and Carlier) and FAI is substantial. Upon the facts of this case a Bullock order or a Sanderson order would be appropriate in the exercise of my discretion.
In my opinion each of the four conditions mentioned by Asche CJ has been satisfied in the present case to justify a Bullock or Sanderson order.
I note the different ways in which the various members of the High Court in Gould v Vaggelas (1984) 157 CLR 215 expressed a test requisite to the making of a Bullock order.
Gibbs CJ said at 230:
“there is a condition for the making of a “Bullock” order, in addition to the question whether the suing of the successful defendant was reasonable, namely that the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on it for the costs of the successful defendant.”
Brennan J said at 260:
“A judicial discretion can be exercised to make a Bullock order against an unsuccessful defendant in an action brought against two or more defendants for substantially the same damages only if the conduct of the unsuccessful defendant in relation to the plaintiffs’ claim against him showed that the joinder of the successful defendant was reasonable and proper to ensure recovery of the damages sought….”
Wilson J (with Murphy J agreeing) said that the test was whether the costs in question had been reasonably and properly incurred by the plaintiff.
In my view, however the test be expressed, the plaintiff has satisfied it.
FAI asserted a construction of the policy and sought to distinguish it from the policies of its competitors in a way which would have led to a conclusion that the brokers were negligent. FAI placed NCI in an intolerable position. Although NCI pursued some issues further than I consider to have been profitable, that is a conclusion which I have reached with the benefit of hindsight.
The manner in which FAI at trial sought to portray the operation in practice of its standard policy was in my judgment lacking merit and it is not surprising that NCI felt constrained to open up the history of its relationship with FAI as it did. Mr Zambetti’s “warning” to Mr Crozier on 6 January 1999 (see pars 72 and 73 of my earlier judgment) sowed the seeds whereby in a review of the conduct of the unsuccessful defendant (FAI) I consider it is just to exercise my discretion and to make the costs as set out below.
If it were not for the doubtful financial position of FAI I would have made a Bullock order. Having regard to (1) the hardship to the plaintiff and (2) the extended case taken to trial upon the third party notice I have decided to exercise my discretion in favour of a Sanderson order and thus spread the hardship occasioned by FAI’s financial situation.
The formal orders will be as follows:
1The court declares that the 3^rd defendant FAI General Insurance Company Ltd (in liquidation) is liable pursuant to the terms of the policy of trade credit insurance no 5041578540 dated 3 December 1998 between it and Messagemate Australia Pty Ltd to indemnify the said Messagemate Australia Pty Ltd in respect of the insolvency of APT Logicom Pty Ltd (in liquidation).
2That pursuant to the abovementioned declaration (but subject to par 8 hereof) the plaintiff recover from the 3^rd defendant the sum of $467,136.59 together with the sum of $111,382.65 in lieu of interest to 1 October 2002 (which amount includes the sum of $78,155.73 calculated to 27 August 2001 and the sum of $33,226.92 thereafter to the date of judgment).
3That the plaintiff’s claim against the first and second defendants stand dismissed.
4That the first and second defendants’ contribution claim against the third defendant stand dismissed.
5That the 3^rd defendant do pay the party and party costs of the plaintiff and of the 1^st and 2^nd defendants to be taxed.
6That this order be entered (nunc pro tunc) as at 1October 2002.
7That the time within which any party may institute an appeal against this judgment be extended to 6 December 2002.
8That the 1^st and 2^nd defendants be at liberty to appeal to the Full Court against the order for costs contained in par 5 hereof upon the footing that a Bullock order has been refused upon the application of the 1^st and 2^nd defendants.
9That the plaintiff be at liberty in accordance with s 471B of the Corporations Act to lodge a proof of debt in the liquidation of FAI General Insurance Co Ltd (in liquidation) limited to the abovementioned sum of $467,136.59 together with an amount in lieu of interest to 27 August 2001 namely $78,155.73 - in all $545,292.32 but that otherwise the plaintiff not be at liberty without the further leave of the court to take any enforcement process in relation to the balance of the judgment sum and in particular in respect of the abovementioned amount of $33,226.92 ordered in lieu of interest from 28 August 2001 to 1 October 2002.
Liberty to apply.

[2002] SASC 377

15 November 2002