Montclare v Metlife Insurance Ltd (No 2)
[2015] VSC 574
•16 October 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2005 10156
| JOHN MONTCLARE | Plaintiff |
| v | |
| METLIFE INSURANCE LIMITED (ACN 004 274 882) and RIVKIN DIRECT INSURANCE AGENCIES PTY LIMITED (ACN 073 632 292) | Defendants |
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JUDGE: | GINNANE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 4 August 2015 (Written submissions 14 & 21 August 2015) |
DATE OF JUDGMENT: | 16 October 2015 |
CASE MAY BE CITED AS: | Montclare v Metlife Insurance Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 574 |
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COSTS – Plaintiff’s unsuccessful life insurance claim – Plaintiff successful on some issues – First defendant’s offer of compromise – Offers treated as Calderbank offers – Whether indemnity costs should be ordered – Whether costs orders should be made in respect of issues – Role of second defendant – Whether necessary for second defendant to take part in proceeding – Undertaking by second defendant – Open offer by second defendant – Costs of second defendant – Supreme Court (General Civil Procedure) Rules 2005 r26.02
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Bingham | Maurice Blackburn |
For the First Defendant | Mr J J Gleeson QC and Mr B Jellis | Norton Rose Fulbright |
| For the Second Defendant | Mr A Cox | Pointon Partners |
HIS HONOUR:
On 25 June 2015, I delivered judgment finding that the first defendant, (Metlife), had established that it was entitled to avoid the contracts of insurance that Citicorp Life entered into with Mr Montclare. I stated that the proceeding was dismissed.[1]
[1]Montclare v Metlife Insurance Ltd [2015] VSC 306.
On 4 August 2015, I heard argument about costs and subsequently received written submissions, the last of which was dated 21 August 2015.
Metlife’s submissions
Metlife sought a special costs order against Mr Montclare because he did not accept its offer of compromise dated 22 February 2011 by which it and the second defendant, (Rivkin), jointly offered to compromise the proceeding by payment of $560,000.00 to him. The offer was signed by the solicitors for both defendants. The offer was open for acceptance by Mr Montclare for 14 days after service. It was expressed to be served in accordance with Rule 26.02 of the Supreme Court (General Civil Procedure) Rules 2005.
Metlife sought an order that Mr Montclare pay its costs on a party-party basis until the date that offer of compromise was served and, thereafter, on an indemnity costs basis.
Metlife conceded that r 26(11)(2) in its form prior to amendment in 2013 applied to the offer of compromise. But that rule did not say what the cost consequences were if a plaintiff did not accept the offer and was then wholly unsuccessful in the proceeding. Those are the present circumstances.
Metlife submitted that in those circumstances, the offer should be treated as a Calderbank offer. Authority of this Court[2] supports that approach and I will apply it.
[2]The plaintiff relied on Foster v Galea (No 2) [2008] VSC 331 [6]-[8].
The Calderbank principles were discussed in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No2)[3] in which the Victorian Court of Appeal stated:
In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances.[4]
[3](2005) 13 VR 438.
[4]Ibid 441 [23].
The Court then listed six matters to consider:
(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;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed;
(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.[5]
[5]Ibid 442 [25].
Metlife submitted that it was unreasonable for Mr Montclare not to have accepted the offer of compromise because it was a ‘handsome offer’ of the full amount of the amount insured under the first policy of insurance plus interest. The offer gave adequate time for acceptance and it was made at an advanced stage of the proceedings, when the core of the case on which Metlife ultimately succeeded was known.
Metlife’s position on Mr Montclare’s claim was clear as early as Metlife’s letter of avoidance of 6 December 2001 which stated:
Had Mr Shilton correctly disclosed a medical history which included episodes of depression and mood swings, and the previous suicide attempt, we would not have accepted, on any terms, his applications for Term Insurance.
Citicorp Life Insurance is of the view Mr Shilton failed in his duty of disclosure. Accordingly the Term Life Insurance is hereby avoided and cancelled from inception in accordance with our rights under Section 29 (3) of the Insurance Contracts Act.
A refund of premiums paid in respect of this cover will be forwarded under separate cover.
As a result of this decision, this claim is denied and no benefits are payable.
I was taken in detail to the way in which Metlife’s defence developed as it was amended over its eight versions. The defence standing at the time of the offer of compromise was the Further Amended Defence dated 2 October 2009. That defence contained allegations that, at the time of completing the first and second life insurance applications, Mr Montclare knew that Mr Shilton had suffered from mental or nervous disorder or breakdown in that he had suffered from dysthymia for a number of years, that Mr Shilton had attempted suicide in 1989 and that from approximately 1989 until his death in 2001, Mr Shilton frequently stated to friends that he proposed to commit suicide. The defence alleged that Metlife would not have been prepared to enter into the contracts of insurance if it had known of these matters.
In addition, Metlife alleged that, at the time of completing the second application, Mr Montclare and Mr Shilton knew that an application for life, trauma or disability insurance on Mr Shilton’s life had been declined by NRMA Life Ltd. The defence also relied on representations about the purpose of the life cover that was sought.
These misrepresentations and non-disclosures pleaded were alleged to be fraudulent.
In the alternative to a special costs order, Metlife applied for its costs:
(a) on a party-party basis up to and including 31 March 2013; and
(b) on a standard basis from 1 April 2013.
Metlife submitted that the four days of the trial before Beach J in May and June 2011 should abide the event and that it should receive them, because it succeeded in the proceeding. Evidence called in those four days was not wasted and was treated as evidence when the trial recommenced in 2014. The first trial was adjourned on the application of Mr Montclare and over the objection of Metlife because Mr Montclare wanted to consider obtaining expert evidence responding to underwriting manuals discovered by Metlife. In the event, Mr Montclare did not lead any expert evidence and the underwriting manuals proved to be of little relevance. The delay in the recommencement of the trial was caused by Mr Montclare, who applied to have the next available date, 11 November 2013, vacated.
Mr Montclare’s costs submissions against Metlife
Mr Montclare sought his costs from Metlife up to 30 June 2011 and thereafter submitted that the costs he would otherwise have to pay to Metlife should be ‘offset’ by 50 per cent.
The costs of the proceedings up to 30 June 2011 were rendered worthless because Metlife’s defence as finally tried, was only stated definitively by about 30 June 2011. Only in May 2011 did Metlife provide him with Dr Kahans’ documents.
Metlife succeeded at trial on three issues. The first was the group policy/individual policy issue. The second was that Mr Shilton knew that he had depression and that Mr Montclare was bound by Mr Shilton’s knowledge and his misrepresentations. The third was that Metlife would not have entered into the same policy, if it had known of Mr Shilton’s medical history. The evidence crucial to establishing the second and third issues was not known to Mr Montclare when Metlife’s offer of compromise was made.
When the offer of compromise was made, Metlife had given no discovery of underwriting material, although Mr Montclare had pressed for its production. Mr Montclare was entitled to assume that there was no medical or underwriting evidence supporting Metlife’s case.
The defence was amended and extracts of underwriting manuals were provided on 27 May 2011. They were formally discovered in an Affidavit of Documents sworn on 1 June 2011. No explanation was given as to why they had not been produced at an earlier time.
Metlife’s eighth version of its defence, filed on 12 August 2011, pleaded forgery allegations and misrepresentations and non-disclosures about who had signed the insurance applications and the April and May letters. Mr Shilton’s condition was described as dysthymia, alternatively depression. Particulars were given for the first time of Dr Kahans’ evidence. Particulars of the friends’ evidence about Mr Shilton’s statements were provided.
Mr Montclare submitted that, until the delivery of the eighth defence, Metlife had not stated a defence on which it could succeed.
Mr Montclare also submitted that Metlife relied on many issues on which it lost. These included the failure to disclose, or the misrepresentation about, the NRMA Life Ltd refusal of life insurance, the purpose of cover letter, the allegations against Mr Montclare of fraudulent misrepresentation and non-disclosure, and the claims that he and Mr Shilton had made negligent statements and had engaged in misleading or deceptive conduct in contravention of the Australian Securities and Investment Commission Act 2001 (Cth) and the Fair Trading Act 1985 (Vic).
The allegations against Mr Montclare that he had forged Mr Shilton’s signatures, necessitated lengthy expert handwriting evidence, but failed because authorisation was proved. It was always clear that Mr Shilton had authorised steps taken to obtain life insurance. Metlife’s defences were based on provisions of the Insurance Contracts Act 1984 (Cth) and it did not establish the statutory requirements of those defences.
Metlife’s Reply
Counsel for Metlife submitted that offers of compromise have to be assessed with imperfect knowledge of how issues may arise and evidence be given in the case and often have to be considered before discovery was provided. The essence of Metlife’s defence was stated in the letter of avoidance and in its defences delivered before the offer of compromise was made.
Mr Montclare should have disclosed NRMA’s refusal of insurance and the fact that he had signed Mr Shilton’s signature on each of the six relevant occasions, even if all the elements of the defences available under the Insurance Contracts Act could not be established. Mr Montclare had given false evidence that Mr Shilton had signed some of the documents.
Conclusion
I accept Mr Montclare’s submission that much of the case on which Metlife succeeded was not pleaded at the time the offer of compromise was made.
I take into account that Metlife’s offer was substantial, was a genuine compromise, made in clear terms and allowed adequate time for consideration. It was made five and a half years after the proceeding was commenced.
However, I consider that the evidence provided by Dr Kahans’ notes of his many consultations with Mr Shilton was of particular importance to the outcome of the case. In addition Metlife had provided no details or documents concerning underwriting evidence that might have supported its case as at 22 February 2011.
I consider that Metlife has not established that it was unreasonable for Mr Montclare not to accept the offer of compromise. The offer was a joint offer and no separate reason was advanced as to how it could have been accepted as a separate offer by Rivkin.
I therefore consider that it is not appropriate to make a special costs order as a result of the offer of compromise of 22 February 2011 in favour of either defendant.
The usual order would then be that Mr Montclare pay Metlife’s costs on a party-party basis and then, from 1 April 2013, on a standard basis.
However, I take into account that Mr Montclare succeeded in defeating a number of issues in the defence including the serious plea of forgery, the allegations concerning the April and May letters, and those concerning Mr Montclare’s knowledge of Mr Shilton’s medical history. I consider that the Court should make a costs order between Mr Montclare and Metlife that reflects, to some degree, the success of the parties on particular issues. It is impossible to calculate the appropriate division of costs with arithmetical precision.
This approach was discussed in Chen v Chan,[6] in which the Victorian Court of Appeal stated that the rules as to costs permitted the Court sufficient flexibility to do substantial justice between the parties. Where there is a multiplicity of issues and mixed success, the court can take a pragmatic approach in framing the order for costs, taking into consideration the success of the parties on an issues basis. The Court stated that:
Where a Court determines to make an order apportioning costs, then it does so primarily as ‘a matter of impression and evaluation’, rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied in the ambit of the submissions made, as well as any other relevant matter.
[6][2009] VSCA 233 [10].
It is not possible to calculate with precision the time that particular issues took to litigate and determine.
However, subject to my conclusions about the adjournment of 6 June 2011, in my opinion, adopting a broad and pragmatic approach to assessment of the success of the parties, it is appropriate to order that Mr Montclare pay 70 per cent of Metlife’s costs on a party-party basis until 31 March 2013 and, from 1 April 2013, on a standard basis.
The adjournment of 6 June 2011
Mr Montclare sought an order for the costs of the four hearing days of the trial in May and June 2011, which he contended were wholly wasted. Dr Kahans, who gave evidence on 30 May 2011 had to be recalled to give further evidence in 2014. Mr Montclare, in essence, had to prepare for two different trials – one in 2011 and the other in 2014.
The outline of evidence of Dr Kahans was filed on the second day of the trial in May 2011. Beach J gave leave for that to occur and said that it would ‘undoubtedly come at a cost, irrespective of the outcome of this case. I do not propose to deal with cost issues at this stage, other than to say that it is likely that different costs orders will be made.’[7]
[7]Transcript of Proceedings, Montclare v Metlife Insurance Ltd (Supreme Court of Victoria, S CI 2005 10156, Ginnane J, 12 May 2014) 71.
On 6 June 2011, Beach J adjourned the case out of the list stating:
It is sufficient to say that given the history of this matter, not limited to what occurred last week but given the history in relation to the amendment of pleadings that have been undertaken by the first defendant, the late service of an order 44 statement in respect of Dr Kahans and the now late discovery of this material, I am no longer persuaded that it is in the interests of justice that this trial proceed in the expedited way that I had hoped and foreshadowed last week. [8]
[8]Transcript of Proceedings, Montclare v Metlife Insurance Ltd (Supreme Court of Victoria, S CI 2005 10156, Ginnane J, 13 May 2014) 140.
Conclusion
I do not accept that all of the costs incurred by Mr Montclare prior to the adjournment of 6 June 2011 were wasted. In all likelihood, there would have been many steps associated with the preparation of Mr Montclare’s case that were carried out before that day.
But, I do consider that Metlife should pay Mr Montclare the costs thrown away as a result of the adjournment on 6 June 2011. That adjournment appears to have been substantially caused by the late service of Dr Kahans’ outline of evidence and notes and the underwriting material. That late service was the responsibility of Metlife.
Rivkin Direct Insurance Agencies’ costs claim against Mr Montclare
Rivkin sought orders that Mr Montclare pay its costs, including reserved costs, on a party-party basis up to the second business day from service of the open offer, being 1 May 2006, and on an indemnity basis thereafter.
Alternatively, reliance was placed on the joint offer of compromise of 22 February 2011 made by Metlife and Rivkin, which I have mentioned above. That offer was a joint offer and I have already stated why Metlife has not proved that it was unreasonable for Mr Montclare not to accept it.
Finally, Rivkin submitted that if its first two costs options were not accepted, then Mr Montclare should pay its costs on a party-party basis up to 1 April 2013 and on a standard basis thereafter.
None of the matters that might result in a ‘carve out’ out of costs awarded to Metlife against Mr Montclare affected Rivkin.
Mr Montclare’s pleading against Rivkin stated that it carried on business as an insurance intermediary and was formerly named ‘Rivkin Croll Smith Insurance Agencies Ltd’. Paragraph 14 of Mr Montclare’s statement of claim pleaded:
The Second Defendant is joined as a party to this proceeding solely in order to bind it to the outcome of this proceeding and no relief is sought against it other than an order for the payment to the Plaintiff of sums received by the Second Defendant from the First Defendant in respect of the Plaintiff under the master policy, alternatively the alternative master policy.
Rivkin’s defence pleaded that at all material times it carried on business as an agent of Metlife under the name of Rivkin Croll Smith Insurance Agencies Pty Ltd for the period from 15 April 1996 to 20 November 1997 and under its current name from 20 November 1997. It also pleaded that it did not admit paragraph 14 and said “further that such paragraph is liable to be struck out as vague and embarrassing.”
Metlife’s defences admitted that it entered into contracts of insurance with Mr Montclare on the life of Mr Shilton.
Mr Montclare’s solicitors wrote to Rivkin on 12 April 2006 stating that:
[W]e refer to our recent discussions about the status of this proceeding as against the second defendant. To reiterate the plaintiff’s position, he is not prepared to discontinue his case against the second defendant on the basis only that the second defendant promises to forward any death benefit received by it from the first defendant to the plaintiff at the conclusion of this proceeding (in the event the plaintiff is successful). The only circumstance in which the plaintiff will release the second defendant from this proceeding is if the first defendant undertakes in writing not to take any point with the second defendant’s absence, and to pay the amount of the claim direct to the plaintiff(in the event the plaintiff is successful). In that event we will agree to discontinue the proceeding against your client with each party bearing their own costs. We have written to the solicitors for the first defendant requesting that they reconsider their position with [respect] to such an undertaking and will advise of the outcome once it is known.
On, 27 April 2006 Rivkin served an open offer on Mr Montclare in the following terms:
1.Our client shall undertake to the Plaintiff and to the Court that it will pay to the Plaintiff, within seven days of receipt, any amount received by it from the First Defendant in payment of the claim under the insurance policy which is the subject of this proceeding.
2. Upon such undertaking the Plaintiff shall file a Notice of Discontinuance in relation to our client.
3. Our client shall release the Plaintiff from any costs liability otherwise arising under the Rules by reason of the filing of the Notice of Discontinuance.
The offer was expressed to remain open for 14 days, and if not accepted, to be produced to the Court in relation to Rivkin’s continued involvement in the proceeding and in support of an application for an order that Mr Montclare pay Rivkin’s costs on an indemnity basis. Mr Montclare did not accept the offer.
Rivkin’s open offer is to be considered in accordance with the Calderbank principles and the consideration of the discretion as to costs contained in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[9]
[9](2005) 13 VR 435.
On 26 July 2006, Rivkin gave an undertaking to Master Kings ‘to pay to the Plaintiff within 7 days of receipt any sums received by the Second Defendant from the First Defendant in respect of the Plaintiff under the insurance policy which is the subject of this proceeding’. Master Kings ordered that:
Upon giving the undertaking the Second Defendant be excused from further attendance at directions hearings and mediation, subject to any notice from the Court or a party requiring such attendance.
On the first day of the trial in May 2011, Mr Cox, the solicitor for Rivkin, appeared.
Beach J stated that, based on Metlife’s pleadings, he was ‘not sure at all why [the solicitor for Rivkin] should be troubled by being here.’ His Honour stated:
It seems Mr Peters’ clients [Metlife] admits the existence of two insurance policies and the real issue is fraudulent non-disclosure or material non-disclosure. If you win, that is if the plaintiff wins, eventually there would be orders requiring Mr Peter’s clients to pay money to your client. Mr Cox and his client can sail off into the sunset never to be seen again.[10]
[10]Transcript of Proceedings, Montclare v Metlife Insurance Ltd (Supreme Court of Victoria, S CI 2005 10156, Beach J, 23 May 2011) 8.
Mr Cox stated that he wished to hear Mr Ridgeway’s evidence and after that he would seek to be excused for the remainder of the trial until the time for costs submissions. His Honour did not oppose that course.
When the hearing recommenced in May 2014, no point was taken about the absence of Rivkin Direct Management Pty Ltd, which had been deregistered.
Rivkin’s costs submissions
Rivkin submitted that Mr Montclare had not pleaded a cause of action against it, but had refused to discontinue against it despite its open offer. It contended that, because it was a party, it was required to give discovery of relevant documents and, accordingly, had to make substantial searches of its archives. It made an affidavit of documents, sworn 27 July 2006, and produced documents for inspection. It could have provided those documents by the issue of a subpoena. Mr Ridgeway, who was the director of Rivkin, gave evidence as part of Mr Montclare’s case on subpoena.
Mr Montclare’s costs submissions in response to Rivkin
Mr Montclare submitted that, from February 2002, Rivkin Direct Insurance Agencies Pty Ltd acted, and was treated for all purposes, as the new trustee and the new policy owner. Rivkin was unclear or careless about the different Rivkin entities and the roles that they played in the issuing of insurance policies.
Given Mr Montclare’s pleading in paragraph 14 of the statement of claim that no relief was sought against Rivkin other than an order for the payment to him of sums received by Rivkin from Metlife in respect of Mr Montclare under the master policy, Rivkin did not need to enter a defence or take any part in the proceeding. Its involvement through its solicitor was unexplained. It should bear its own costs.
Mr Montclare submitted that the owner of the policy ie Rivkin, was a necessary party to the proceeding, since the insurer had a right to insist upon the joinder of the policy owner in order to obtain a complete release.
Rivkin’s reply
Rivkin submitted in reply that as it was joined as a party, there was no reason to depart from the usual rule that costs follow the event. Mr Montclare required it to give discovery, so it could not be contended that all the costs that it incurred were unnecessary.
Rivkin submitted that in view of Metlife’s admission in its defence of a direct insurance policy issued by it to Mr Montclare, Metlife could not have resisted an order that it pay Mr Montclare’s claim if he succeeded. If it sought to do so because Rivkin had ceased to be a party after Mr Montclare discontinued his claim against it, Mr Montclare could have applied to re-join Rivkin as a party.
Rivkin substantially reduced its involvement in the proceeding by volunteering the undertaking to the Court. If it was awarded costs then, on taxation, Mr Montclare would have the right to object to particular items claimed.
Conclusion –Rivkin’s costs claim against Mr Montclare
I am not persuaded that it was unreasonable for Mr Montclare not to accept Rivkin’s open offer of April 2006. The identification of the contract of insurance and the identification of the parties to the contract were matters of some complexity and remained so throughout the trial in 2014. The matter was not helped by Rivkin’s lack of precision in identifying the company or companies that were involved in relevant transactions. As at April 2006, it was unclear whether Rivkin would need to be a party and what legal role it had played in the issuing of the policies. The open offer preceded the undertaking that Rivkin gave in May 2006.
However, Mr Montclare did join Rivkin as a party and obtain discovery from it. He obtained no relief against it. He must pay Rivkin’s costs on a party-party basis of and incidental to the proceeding and after 1 April 2013 on a standard basis.
Stay of orders for costs
Mr Montclare sought a stay of the orders for costs because of their possible irreversible effects on him, including possible bankruptcy, if they are enforced and he later succeeds on appeal.[11]
[11]St Kilda Arts and Events Company Pty Ltd v Apes With Wings Pty Ltd [2015] VSCA 199.
I was informed that an application for leave to appeal against the judgment of 25 June 2015 has been filed.
No affidavit material in support of the stay application, or seeking to establish circumstances justifying the granting of a stay was filed. I consider that in those circumstances an, application for a stay of the orders pending the determination of any appeal should be made to the Court of Appeal.
I will, however, grant a stay of the costs orders of 28 days.
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