Miles v Zurich Australia Insurance Limited (No 2); Ace-Semi Trailer Sales Pty Ltd v Zurich Australia Insurance Limited (No 2)

[2009] NSWSC 55

CITATION:	Miles v Zurich Australia Insurance Limited (No 2); Ace-Semi Trailer Sales Pty Ltd v Zurich Australia Insurance Limited (No 2) [2009] NSWSC 55
HEARING DATE(S):	19/12/2008
JUDGMENT DATE :	20 February 2009
JUDGMENT OF:	Hoeben J
DECISION:	See para [37]
CATCHWORDS:	COSTS - indemnity action under s 151Z Workers Compensation Act - whether Offer of Compromise effective - cross-claim - whether cross-defendant should contribute to plaintiff's costs.
LEGISLATION CITED:	Civil Liability Act 2002 Law Reform (Miscellaneous Provisions) Act 1946 Workers Compensation Act 1987
CATEGORY:	Consequential orders
CASES CITED:	Howard Rotavator Pty Limited v Wilson (1987) 8 NSWLR 498 Kwanchi Pty Limited v Kocsis (1996) 40 NSWLR 270 Norris v Blake (by his tutor Porter) (No 2) (1997) 41 NSWLR 49
PARTIES:	Jason Stuart Miles - Plaintiff Zurich Australia Insurance Limited - Defendant Zurich Australia Insurance Limited - Cross Claimant Ace-Semi Trailer Sales Pty Ltd - Cross-Defendant Ace-Semi Trailer Sales Pty Ltd - Plaintiff Zurich Australia Insurance Ltd - Defendant
FILE NUMBER(S):	SC 20282/2006; 20214/2007
COUNSEL:	Mr D Hooke - Plaintiff Mr R Cavanagh - Zurich Australia Insurance Mr P Neil SC - Ace-Semi Trailer Sales Pty Ltd
SOLICITORS:	Beilby Poulden Costello - Plaintiff Wotton & Kearney - Zurich Australia Insurance Edwards Michael Lawyers - Ace-Semi Trailer Sales Pty Ltd

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

HOEBEN J

Friday 20 February 2009

20282/2006 - Jason Stuart MILES v ZURICH AUSTRALIA INSURANCE LIMITED (No 2)
20214/2007 - ACE-SEMI TRAILER SALES PTY LTD v ZURICH AUSTRALIA INSURANCE LTD (No 2)

JUDGMENT - Costs

1 HIS HONOUR:

Nature of proceedings
The above matters were heard by the Court over seven days between 24 November and 3 December 2008. I handed down Reasons for Judgment on 11 December 2008. In those Reasons I found that the plaintiff’s injuries had been caused by negligence on the part of PJS Fabrications Pty Limited (whose public liability insurer was Zurich Australia Insurance Limited) (Zurich) and Ace-Semi Trailer Sales Pty Ltd (Ace) which was his employer. I apportioned liability as to 65% against Zurich and 35% against Ace.

2 At the commencement of the hearing the Court was advised that the only issue to be decided was the liability question. If that were decided, the parties would agree on consequential orders and the amounts for which judgment should be entered. It was anticipated that the parties would agree on Short Minutes of Order which would be handed up in Court on 19 December 2008.

3 Regrettably that expectation has not been met. The parties were able to agree on various monetary amounts but only partial agreement was reached on the orders to be made. There was no agreement between Zurich and Ace on the orders to be made in respect of the issues between them and on the costs consequences of such orders. This judgment is directed to those issues, i.e. the orders to be made in respect of Zurich and Ace and the costs consequences of those orders. This judgment should be read with the liability judgment [2008] NSWSC 1311.

Agreed facts

4 The parties were able to agree on the following facts. The plaintiff was injured on 10 July 2002. He was paid workers compensation by Ace and those payments continued up to 19 December 2008. By that date approximately $761,296 had been paid to and on behalf of the plaintiff.

5 On 15 December 2005 Ace commenced proceedings against Zurich in the District Court, pursuant to s 151Z(1)(d) of the Workers Compensation Act 1987 (the Act). Those proceedings sought indemnity from Zurich in respect of the compensation which Ace had paid. Ace had originally brought recovery proceedings against PJS in August 2005 but those proceedings did not continue when it was learned that PJS had been deregistered.

6 On 11 April 2006 the plaintiff commenced proceedings in the Supreme Court against Zurich claiming common law damages in respect of his injuries. Zurich raised a limitation defence. On 30 March 2007 the plaintiff was successful in obtaining an extension of the limitation period thereby allowing him to continue with those proceedings. On 29 May 2007 the indemnity action by Ace was transferred to the Supreme Court to be heard with the plaintiff’s action.

7 On 1 February 2008 both matters were set down for hearing on 2 June 2008. On the application of Zurich, that hearing date was vacated. Various orders for the further conduct of the matter were made, including costs orders relating to the vacation of the hearing date.

8 On 19 May 2008 Ace served on Zurich an Offer of Compromise in the indemnity action offering to settle that action for $575,000 plus costs. Zurich did not accept the Offer of Compromise.

9 On 5 June 2008 Zurich filed an Amended Defence and raised for the first time an entitlement pursuant to s 151Z(2) of the Act for the reduction of the plaintiff’s damages by the amount of contribution which Zurich would have been entitled to recover from Ace. On 5 June 2008 Zurich also filed a cross-claim seeking contribution from Ace as a joint tortfeasor pursuant to s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946. In its defence to that cross-claim, Ace pleaded the payments made by it to and on behalf of the plaintiff under the Act.

10 In the liability proceedings it was agreed between the parties that the plaintiff’s entitlement to damages against Zurich under the Civil Liability Act 2002 was $3,400,000 and that his entitlement to damages against Ace under the Compensation Act was $677,393. On 11 December 2008 the judgment on liability was handed down apportioning responsibility for the plaintiff’s injuries at 35% against Ace and 65% against Zurich.

11 On 19 December 2008 by consent the following orders were made:

(1) Judgment was entered for the plaintiff against Zurich in the sum of $2,447,088.

(2) Zurich was ordered to pay the plaintiff’s costs, including any reserved costs as agreed or assessed.

(3) Pursuant to s 151Z(1)(b) of the Act the plaintiff undertook to repay $722,326.70, together with any amounts paid after 24 November 2008 to Ace out of the damages recovered from Zurich.

12 No objection was made by Zurich or Ace to those orders being made at that time. Zurich and Ace agreed that in the indemnity action, the amount of interest to which Ace was entitled was $235,177 and that Ace was entitled to a further $38,598 from Zurich in addition to the amount which the plaintiff had undertaken to repay out of the damages recovered from Zurich.

13 Zurich and Ace agreed that in respect of the cross-claim by Zurich in the plaintiff’s action, if Zurich were entitled to judgment against Ace, the amount would be $237,088. This was a consequence of the apportionment in the liability judgment.

Submissions

14 In relation to its indemnity action, Ace submitted that it was entitled to a judgment for $273,755 (being interest of $235,177 plus the differential of $38,598). This was clear from Howard Rotavator Pty Limited v Wilson (1987) 8 NSWLR 498 and Kwanchi Pty Limited v Kocsis (1996) 40 NSWLR 270. Ace submitted that because it had been successful in its recovery action against Zurich, it was entitled to its costs of that action.

15 Ace submitted that not only was it entitled to its costs of that action, but that those costs should be assessed on a solicitor/client basis. It relied upon its unanswered Offer of Compromise of 19 May 2008 where it offered to settle the action for $575,000 plus costs. Ace submitted that this was a more favourable result than that ultimately achieved by Zurich. It submitted that the effect of the liability proceedings was that on the indemnity action Zurich had to pay $759,014 to Ace (i.e. the amount which the plaintiff undertook to pay from his judgment, plus $38,598 plus $235,177 less the amount recoverable on the cross action of $237,088).

16 Ace submitted that judgment should not be entered in favour of Zurich on its cross-claim because the cross-claim was unnecessary. The argument proceeded as follows. The cross-claim could not and has not led to Zurich improving its position. In the plaintiff’s action Zurich’s interests with respect to Ace were adequately protected by raising the defence under s 151Z(2) of the Act. In the indemnity action Zurich’s interests were adequately protected by the fact that Ace would only be entitled to a partial indemnity if it were found to have some responsibility for the accident. Ace submitted that it was entitled to its costs of the cross-claim, or at the very least, should not be required to pay any costs associated with it.

17 Zurich submitted that in the plaintiff’s action there should be judgment in its favour on the cross-claim against Ace for the sum of $237,087.55. In the indemnity action it accepted that there should be judgment for Ace in the sum of $273,775, i.e. the total of the interest and the additional amount to be paid to Ace over and above the refund of compensation by the plaintiff.

18 On the question of costs, Zurich submitted that it should have its costs of the cross-claim in the plaintiff’s action. Because it was entitled to judgment on the cross-claim, costs should follow the event. Zurich further submitted that since Ace had played an active part in the liability hearing, had allied itself with the plaintiff against Zurich and had ultimately been held to be responsible for part of the plaintiff’s injuries, it should also make a contribution to the plaintiff’s costs. Zurich suggested the extent of that contribution would be the same as its assessment of liability, i.e. 35%.

19 Zurich accepted that in Ace’s indemnity action it should pay Ace’s costs up to 5 June 2008 being the date when Ace was joined as a cross-defendant in the plaintiff’s action. Thereafter, Zurich submitted, Ace should not be entitled to any further costs.

20 The basis for this submission by Zurich was that once it had filed its cross-claim against Ace and raised the s 151Z(2) defence, it was no longer necessary for Ace to proceed with its indemnity action. All that Ace needed to do was to seek an undertaking from Zurich to pay interest in accordance with the result of the cross-claim. This was because the result of the cross-claim would determine the extent of the indemnity which Ace would obtain and therefore the amount of interest to which it was entitled. Continuing with the s 151Z(1)(d) was unnecessary from 5 June 2008 onwards.

21 In relation to the Offer of Compromise in the indemnity proceedings, Zurich submitted that this did not assist Ace because the judgment did not exceed the Offer of Compromise. Additionally, Zurich submitted, it was not reasonable for it to have accepted the Offer of Compromise at that time because Ace had not served any evidence on interest and because acceptance of the Offer of Compromise would not have brought the proceedings to an end. The plaintiff would not have been bound by any apportionment of liability agreed between Ace and Zurich and the liability issue would have been fully argued in any event. In those circumstances it would still have been necessary for Zurich to pursue its cross-claim against Ace.

Consideration

22 Both Ace and Zurich submitted that one of the ways in which I could approach this matter was to make a general order apportioning costs between them, based essentially upon the merits of their respective positions. They of course differed significantly on that merits question. While I undoubtedly have the power to make such an order, I do not consider that it is appropriate in the circumstances of this case. The better approach is to have regard to the specific causes of action and how they were argued before me.

Section 151Z(1)(d) indemnity action by Ace

23 I am of the opinion that Ace should have its costs of the indemnity action. This is conceded by Zurich up to 5 June 2008. I do not see why Ace’s position should be any different following that date. I do not see why the onus was on Ace to seek an undertaking from Zurich that Zurich pay interest on the indemnity action as a condition of the indemnity action being discontinued. This was the sort of offer which should have come from Zurich. It did not and Ace was entitled to continue with the indemnity action.

24 The next question is whether Ace is entitled to have those costs assessed on a solicitor/client or indemnity basis because Zurich failed to accept the April 2008 Offer of Compromise.

25 Both parties agreed that in the light of the orders made by consent on 19 December 2008 there should be judgment in favour of Ace in the indemnity action for $273,775. That means that the amount recovered by Ace in its indemnity action did not exceed the amount in the Offer of Compromise. That is the outcome whether the Offer of Compromise is treated as an Offer of Compromise per se or if it is treated as a Calderbank offer.

26 Had Ace insisted on judgment being given on its indemnity action before judgment was entered in favour of the plaintiff, the amount recovered in its indemnity action would have exceeded the Offer of Compromise. This it did not do. Consequently, s 151Z(1)(b) was engaged. Once that occurred, judgment in the indemnity action could not exceed the Offer of Compromise.

27 In this area of the law, where the application of the various sections of s 151Z(1) is concerned, the timing of the various steps referred to, is important. Quite different results can arise where a damages claim is brought before compensation is paid or where a third party tortfeasor such as Zurich has made payment under an indemnity action before the plaintiff has obtained judgment against that third party tortfeasor. Norris v Blake (by his tutor Porter) (No 2) (1997) 41 NSWLR 49 at [82B] – [84E] provides a striking example of how important the timing of the entry of judgment can be.

28 In relation to the other matters raised by Zurich in opposition to it paying costs on an indemnity or solicitor/client basis, there is some force in the submission that acceptance by it of the Offer of Compromise would have done little, if anything, to reduce the length of the hearing. The plaintiff would have almost certainly run his action with a view to obtaining a judgment from the Court which significantly limited, if not entirely eliminated, any liability on the part of Ace. The other argument by Zurich that Ace had not at that time served any evidence on interest is without substance. It would have been clear to Zurich at that time that interest at the Supreme Court rate was payable and it could have easily worked out the approximate amount for itself.

29 It follows that I reject the submission by Ace that it is entitled to its costs of the indemnity action on a solicitor/client or indemnity basis. I do so because the judgment which it obtained in that action was significantly less than the Offer of Compromise. I am also of the opinion that Zurich was entitled to reject it because its acceptance would not have significantly, if at all, shortened the hearing of the plaintiff’s case.

30 There should be judgment entered in favour of Ace against Zurich on the indemnity action for $273,775 and Zurich should be ordered to pay Ace’s costs of that action.

Plaintiff’s action and cross-claim

31 I have already made orders in favour of the plaintiff in his action against Zurich. What remains outstanding is whether Ace should make any contribution to the plaintiff’s costs in that action and what orders, including costs, should be made in respect of Zurich’s cross-claim against Ace.

32 Zurich should have a judgment on its cross-claim against Ace for $237,087.55. It was entitled as a matter of law to bring such a cross-claim. In addition there were good forensic reasons why it should do so. Had it not done so, there would have been no occasion for Ace to be represented in the plaintiff’s claim. Its joinder by Zurich required Ace to make a difficult decision as to the extent to which it proposed to go into evidence. In the circumstances Zurich did not act unreasonably in pursuing a cross-claim against Ace. Since the cross-claim was successful Zurich should have its costs.

33 The most contentious issue is the extent to which (if at all) Ace should contribute to the costs which Zurich has to pay the plaintiff in his action.

34 I have concluded that Ace should pay some of the plaintiff’s costs of his action. Ace was an active participant in that contest. It did not restrict itself to defending the cross-claim but positively advocated and supported the position of the plaintiff, particularly the plaintiff’s submission that there should be no liability found against Ace. In the circumstances of this case, that was a somewhat extreme position which was optimistically put forward on behalf of the plaintiff. That issue was lost decisively by Ace and the plaintiff.

35 In assessing the extent of the contribution to be made by Ace, it is also necessary for me to have regard to the way in which the matter proceeded. Although the plaintiff’s proceedings were commenced against Zurich in April 2006, it was not until 5 June 2008 that the true issues were identified and appropriate pleadings filed by Zurich, i.e. the raising of s 151Z(2) defence and the issuing of the cross-claim against Ace. The whole matter may well have proceeded rather differently, or have even been resolved, had those issues been identified at an earlier point in time particularly before significant costs were lost by the vacation of the hearing date of 2 June 2008.

36 Taking those matters into account, together with how the matter was conducted at trial, it seems to me that an appropriate contribution to the plaintiff’s costs by Ace should be 25%.

Orders

37 For completeness, I set out below the orders which I made on 19 December 2008. Those orders, of course, took effect from that date not the date of this judgment. For the avoidance of doubt, I wish to make clear that these orders are in addition to the orders which I previously made in relation to the vacation of the hearing date and are not meant to replace them.

20282/2006 - Jason Stuart MILES v ZURICH AUSTRALIA INSURANCE LIMITED

1. Judgment is entered in favour of the plaintiff against the defendant (Zurich) in the sum of $2,447,088.

2. The defendant (Zurich) is to pay the plaintiff’s costs including any reserved costs as agreed or assessed.

3. Pursuant to s 151Z(1)(b) of the Workers Compensation Act 1987 the plaintiff undertakes to repay to the cross-defendant (Ace) $722,326.70 together with any compensation paid after 24 November 2008, out of the damages recovered from the defendant (Zurich).

4. The cross-defendant (Ace) is to indemnify the defendant (Zurich) in respect of 25% of the plaintiff’s costs.

5. Judgment is entered in favour of the cross-claimant (Zurich) against the cross-defendant (Ace) in the amount of $237,087.55.

6. The cross-defendant (Ace) is to pay the cross-claimant’s (Zurich) costs of the cross-claim.

20214/2007 - ACE-SEMI TRAILER SALES PTY LTD v ZURICH AUSTRALIA INSURANCE LTD

1. Judgment is entered in favour of the plaintiff (Ace) against the defendant (Zurich) in the sum of $273,775.

2. The defendant (Zurich) is to pay the plaintiff’s (Ace) costs of the proceedings.

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