Motor Accident Commission South Australia v 3M Australia Pty Ltd

[2007] WADC 43

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION:   PERTH

CITATION:   MOTOR ACCIDENT COMMISSION SOUTH AUSTRALIA -v- 3M AUSTRALIA PTY LTD & ANOR [2007] WADC 43

CORAM:   PRINCIPAL REGISTRAR GETHING

HEARD:   5 FEBRUARY 2007

DELIVERED          :   3 APRIL 2007

FILE NO/S:   CIV 260 of 2003

BETWEEN:   MOTOR ACCIDENT COMMISSION SOUTH AUSTRALIA

Plaintiff

AND

3M AUSTRALIA PTY LTD
First Defendant

INSURANCE COMMISSION OF WESTERN AUSTRALIA
Second Defendant

Catchwords:

Leave to discontinue - Costs - Bullock orders sought - Indemnity costs sought - Calderbank letter - Order 24A compromise

Legislation:

Limitation Act 1935 (WA), s 47A
Motor Accident Commission Act 1992 (SA)
Motor Vehicle (Third Party Insurance) Act 1943 (WA), s 19
Motor Vehicle Act (1959) (SA), s 116A
Rules of the Supreme Court (1971) (WA)
Trade Practices Act 1974 (Cth), s 52

Result:

Leave to discontinue granted - costs orders made

Representation:

Counsel:

Plaintiff:     Mr D M Bruns

First Defendant             :     Mr P D Whight

Second Defendant         :     Mr M A McAuliffe

Solicitors:

Plaintiff:     Jarman McKenna

First Defendant             :     Pynt & Partners

Second Defendant         :     McAuliffe Legal

Case(s) referred to in judgment(s):

Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194

Bullock v The London General Omnibus Company & Ors, [1907] 1 KB 264

Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249

Den Hoedt & Anor v Barwick [2006] WASCA 196

Dobb v Hacket (1993) 10 WAR 532

Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602

Fennell v Supervision and Engineering Services Holdings Pty Ltd (1988) 47 SASR 6

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397

Fyna Foods Australia Pty Ltd v Cobannah Holdings Pty Ltd (No 2) [2004] FCA 1212

Garwolin Nominess v Statewide Building Society [1984] VR 469

Gould v Vaggelas (1985) 157 CLR 215

Grainger v Walker, unreported; SCt of WA; Lib No 1288; 5 August 1994

Homestyle Pty Ltd v The Western Australian Builders Labourers, Painters and Plasters Union of Workers & Anors [2002] WASC 57

Kiama Council v Grant [2006] NSWLEC 96

Koh v Tay [1999] WASC 228

London General Omnibus Company & Ors [1907] 1 KB 264

Messiter v Hutchinson (1987) 10 NSWLR 525

Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149

One Tel Limited v Commissioner of Taxation (2001) 101 FCR 548

O'Neill v Mann [2000] FCA 1680

Perre v Apand Pty Ltd (1999) 198 CLR 180

Post v Colbert (1978) 20 SASR 62

Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622

Sanderson v Blyth Theatre Company [1903] 2 KB 533

Shepherd & Anor v Baster [2006] WASC 176

The Motor Accident Commission, South Australia in the capacity as The Nominal Defendant, South Australia v The Insurance Commission of Western Australia [2004] WADC 38

Vasram v AMP Life Ltd [2002] FCA 1286

Way v Swan Television and Radio Broadcasters Limited (1991) 5 WAR 323

1. PRINCIPAL REGISTRAR GETHING:  The plaintiff, the Motor Accident Commission, South Australia, has by application dated 14 December 2006 sought leave to discontinue actions CIV 260 of 2003 and CIV 590 of 2004 (which have been consolidated) as against the first defendant, 3M Australia Pty Ltd.  In affidavit evidence in support of the application, the Court was informed that the proceedings as between the plaintiff and the second defendant, the Insurance Commission of Western Australia, have been settled by the plaintiff accepting a Rules of the Supreme Court 1971 ("RSC") O 24A offer made by the second defendant. Neither defendant opposed leave to discontinue being granted. There was, however, opposition to the costs orders sought by the plaintiff and the first defendant.

2. The plaintiff's primary submission on costs is that there should be no orders as to costs.  Its secondary submission is that, if there is to be a costs order in favour of the first defendant, those costs should be paid by the second defendant.  The first defendant sought its costs on an indemnity basis.  The second defendant opposed any order requiring it to pay costs.

3. As is often the case with an application of this kind, much of submissions focussed on the conduct of the parties in the litigation, so it is necessary to begin with a close consideration the history of the actions.  

Material before the court

1. The history of each action is largely set out in the Court file.  The parties have also each filed an affidavit in support of the application.  The plaintiff relies on the affidavit of Elisa McLennan sworn 14 December 2006.  Ms McLennan is a partner of the firm of solicitors representing the plaintiff.  The first defendant relies on the affidavit of Patrick Whight sworn 25 January 2007.  Mr Whight is a solicitor employed by the first defendant's solicitors.  The second defendant relies on an affidavit of Mark Peters sworn 10 January 2007.  Mr Peters is a claims officer employed by the second defendant.

2. When the application came on for hearing on 5 February 2007, counsel briefed by the first defendant did not attend due to a diary error.  Instead, Mr Whight appeared for the first defendant at the hearing.  So that the first defendant could be satisfied that its position had been put at its strongest, I allowed the first defendant to file written submissions after the hearing, and allowed the other parties to file written submissions in response.

3. From correspondence copied to the Court, it subsequently became apparent that there was a dispute between the plaintiff and the defendants on an aspect of the plaintiff's submissions in response.  The issue is whether there was any factual foundation for the submission by the plaintiff that it was the nominal defendant for South Australia.  Both defendants contended that there was no factual foundation in the materials before the Court for the plaintiff's submission that it had been appointed the nominal defendant as at 4 February 2000, the date on which it paid out the settlement monies the subject of the claim, and that this submission ought to be withdrawn.  In view of the dispute, I convened a directions hearing on 16 March 2007.  After hearing submissions, I allowed the first defendant an opportunity to file an affidavit and submissions on the issue of the standing of the plaintiff to bring the action and allowed the plaintiff an opportunity to file an affidavit and submissions in response.  The first defendant filed a second affidavit from Mr Whight.  The plaintiff filed an affidavit in response sworn by Maree Ferguson, a solicitor employed by the plaintiff's solicitors.  In her affidavit, Ms Ferguson deposes that par 8 of Mr Whight's second affidavit contained material that was part of settlement negotiations and ought not to have been referred to in an affidavit.  I am conscious that I have not heard argument on this issue.  However, I am also reluctant to convene yet another follow up hearing.  In the end, it was not necessary for me to rely on paragraph in question from Mr Whight's second affidavit for me to come to the conclusion I have to come to.  On the other hand the material in the paragraph, had I relied on it, would not have changed my decision.

Factual background

1. The plaintiff is, and was at all material times, the compulsory third party insurer for South Australia pursuant to Motor Vehicle Act 1959 (SA). 

2. On or about 21 December 1997, one Stewart Morgan was injured in a motor vehicle accident in South Australia.  The vehicle in which Mr Morgan was injured was at all material times owned by the first defendant, who was Mr Morgan's employer.  At the time of the accident, the vehicle was being driven by Mr Morgan's wife.

3. As a result of injuries sustained in the accident, Mr Morgan made a claim for damages against the second defendant in its capacity as the compulsory third party insurer for the vehicle.  The second defendant denied liability for the damages sought on the basis that the vehicle was not registered in Western Australia at the time of the accident, and thus not relevantly insured.

4. As a consequence of the second defendant maintaining that the vehicle was not registered in Western Australia, the plaintiff paid out a damages claim to Mr Morgan in its capacity as nominal defendant for accidents occurring in South Australia.  The damages paid out were just under $195,000.

5. By writ filed on 7 February 2003, the plaintiff commenced an action against both defendants (CIV 260 of 2003).  In the statement of claim dated 30 May 2003, the plaintiff pleaded a cause of action in negligence as against the second defendant.  In the alternative, the plaintiff pleaded a cause of action in negligence against the first defendant for failing to effect compulsory third party insurance in respect of the motor vehicle or, alternatively, failing to ensure that the policy remained current and was renewed if necessary.

6. On 1 June 2004 the proceedings in CIV 260 of 2003 as against the second defendant were dismissed on an application for summary judgment.  The basis on which the proceedings were struck out was that the plaintiff had failed to comply with the requirements in Limitation Act 1935 (WA) s 47A. Prior to this occurring, the plaintiff had, in separate proceedings, sought leave to commence proceedings in the same terms as set out in CIV 260 of 2003. Leave was granted: The Motor Accident Commission, South Australia in the capacity as The Nominal Defendant, South Australia v The Insurance Commission of Western Australia[2004] WADC 38.

7. By writ filed on 19 March 2004, the plaintiff commenced a second action against the first and second defendants, CIV 590 of 2004.  In its Further Re‑Amended Statement of Claim dated 31 August 2006, the plaintiff pleads causes of action in negligence and misleading conduct on the part of the second defendant.  The claim as against the first defendant remained the same.

8. The basis of the causes of action against the second defendant are representations alleged to have been made to the first defendant by letter dated 22 January 1998 and to Mr Morgan by letter dated 19 February 1998 that the vehicle was not registered in Western Australia and that any claim would have to be made to the plaintiff.  The pleading goes on to assert that at the time of making the representations, the second defendants knew that they would be passed on the plaintiff, that this in fact occurred, and that, induced by the statements, the plaintiff paid out moneys to Mr Morgan.  In par 13 there is then a plea that the assertions that there was no policy was not true, that the denial of liability was without foundation, and that the plaintiff thereby suffered loss and damage.  Unpacking the double negative, the plaintiff's position appears to be that there was a valid policy in force at the time of the accident.  There is then an alternate plea in broadly similar terms alleging a breach of Trade Practice Act 1974 (Cth) s 52.

9. A central issue that would have been determined had these actions proceeded to trial was whether there was in fact and law a valid policy of insurance in place at the time of the accident. 

Circumstance surrounding the renewal of insurance policy

1. The sequence of events surrounding the renewal, or purported renewal, of the registration and third party insurance policy for the vehicle in question is dealt with in detail in Mr Peters' affidavit and the documents annexed to the affidavit.  The sequence of events which follows is, as I understand it, reasonably common ground.  It is included here as a chronology of what appears to have occurred in order to place the submissions and decision in their full context. 

2. In February 1997 the first defendant purchased the vehicle as part of its fleet program from Melville Motors.  It was initially licensed and registered for a 12 month period expiring on 5 February 1998.  A receipt was issued, bearing the number "EQB 0025" (a copy of what purports to be this document is annexed to Mr Peters' affidavit). 

3. The registration for expiry on 5 February 1998 was done in error.  What was intended was that the vehicle be licensed and registered from its date of purchase in February 1997 to 30 April 1997.  This would bring it into line with the first defendant's common registration and licensing date for all its fleet vehicles.  The Department of Planning and Infrastructure ("DPI"), which administers the licensing regime, has a process which allows owners of multiple vehicles to have a "block" or common registration date.  The administrative convenience of this facility is self‑evident. 

4. When it was discovered that the vehicle was not registered using the common registration date, an employee of the first defendant contacted Melville Motors to request them to rectify the error in registration.

5. A few days later, the vehicle was licensed and registered for a second time, with an expiry date of 30 April 1997.  A fee was paid for this transaction.  A copy of what purports on its face to be this second receipt is also annexed to Mr Peters' affidavit.  The original number plate was reissued to the vehicle.  However, it appears that no new registration sticker was never affixed to the vehicle as at the date of the crash a registration sticker of the same colour as that expiring in February 1998 was still on the windscreen of the car. 

6. There is no evidence in the materials before me that the policy expiring on 30 April 1997 was ever renewed.

7. There is some evidence in a letter from the DPI to the Court dated 13 January 2005 (annexed to Mr Peter's affidavit) that the original record for the vehicle was "purged" and receipt "EQB0025" cancelled.

8. In making these comments, I wish to make it clear that I do not, nor do I need to, make any finding as to whether the registration expiring on 5 February 1998 was in fact cancelled, or if it was, whether as a matter of law this was effective to terminate the insurance policy attached to the registration. 

Plaintiff's submissions

1. The plaintiff's primary submission is that no costs order ought to be made as between the plaintiff and the first defendant.  The argument centred on the proposition that it was the first defendant's poor record keeping that led to the failure to renew the policy expiring on 5 February 1998 and the confusion generally surrounding the facts the subject of Mr Morgan's claim and this action.  The plaintiff goes on to submit that the true position took some time to emerge from the discovery process.  The true position, its says, is that the first defendant's efforts to amend the policy to give it a block date were unsuccessful and that the original policy remained intact through out.

2. The plaintiff's secondary submission is that if the first defendant's costs are to be paid, they should be paid by the second defendant, either directly (in the form of a "Sanderson" order – Sanderson v Blyth Theatre Company [1903] 2 KB 533, at 539, 542-543) or indirectly (in the form of a "Bullock" order – Bullock  v London General Omnibus Company & Ors [1907] 1 KB 264, at 269, 271). Its submission centres on the application of the principles relating to Bullock and Sanderson orders. Specifically, it submitted that:

   (a)it is common ground that the Department of Panning and Infrastructure issued two policies in relation to the vehicle – one expiring 12 February 1998 and one expiring 30 April 1997;

   (b)the position in paragraph (a) took some time to emerge from the discovery process;

   (c)there is no clear evidence that the policy expiring on 12 February 1998 was ever cancelled, including no evidence of a refund having been made for the policy and registration premium;

   (d)the original policy thus remained operative throughout – or at least, the second defendant will not be able to prove that it did not remain operative throughout;

   (e)logically, and understandably, the plaintiff had to join both defendants – if the Court held that the policy was operative, its case would focus on the second defendant – it the Court held that the policy was not operative, then its case would focus on the first defendant;   

   (f)the joinder of both defendants was reasonable and proper to ensure recovery of the relief sought, a factor in favour of making a Bullock order (citing Post v Colbert (1978) 20 SASR 62);

   (g)documentary evidence in the action was patchy, in particular evidenced by a letter to the Court accompanying documents subpoenaed from the DPI dated 13 January 2005 (a copy of which is annexed to Mr Peters' affidavit);

   (h)the resultant confusion meant that the plaintiff had real doubts about which defendant was liable, another factor in favour of the grant of a Bullock order (citing Post v Colbert (supra), at 65-66);

   (i)as a "prudent plaintiff", it had no choice but to join both defendants, again a factor establishing a "proper foundation" for a Bullock order (citing Fennell v Supervision and Engineering Services Holdings Pty Ltd (1988) 47 SASR 6, at 15);

   (j)the claims as against the first defendant and second defendant were interdependent and in a real sense alternative, distinguishing the case from that in Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149, at 163 in which the High Court declined to overturn a decision of the Full Court of the Supreme Court of Western Australia not to make a Bullock order.

3. The final factor relied on is that the conduct of the second defendant is such that it is fair to impose liability on the second defendant.  The need for this factor to exist as a precursor to making a Bullock order is seen from the decision of the High Court in Gould v Vaggelas (1985) 157 CLR 215, specifically at 229-230, where Gibbs CJ stated:

   "In my respectful opinion, however, the mere fact that the joinder of two defendants was reasonable does not mean that the unsuccessful defendant should be ordered to pay, directly or indirectly, the costs of the successful defendant. Obviously a judge should make a Bullock order only if he considers it just that the costs of the successful defendant should be borne by the unsuccessful defendant, and, if nothing that the unsuccessful defendant has said or done has led the plaintiff to sue the other defendant, who ultimately was held not to be liable, it is difficult to see any reason why the unsuccessful defendant should be required to pay for the plaintiff's error or overcaution.  The ground on which a Bullock order may be made is, in my opinion, more accurately stated in a passage in Sanderson v. Blyth  Theatre Co [ [1903] 2 KB 533, at 539], which was cited with approval in Bullock v. London General Omnibus Co. [ [1907] 1 KB 264, at 272] and Hong v. A. & R. Brown [ [1948] 1 KB 515, at 522], viz., that the costs which the plaintiff has been ordered to pay to the defendant who succeeded, and which the plaintiff recovers from the defendant who has failed "are ordered to be paid by the unsuccessful defendant, on the ground that ... those costs have been reasonably and properly incurred by the plaintiff as between him and the [unsuccessful] defendant". In Johnsons Tyne Foundry Pty. Ltd. v. Maffra Corporation, Williams J. [(1948) 77 CLR, at 572‑573] stated the principle in a similar way and Starke and Dixon JJ., in giving their reasons for making a Bullock order, both relied on the circumstance that the attitude adopted by the successful defendant had induced the plaintiff to join the other defendant [(1948) 77 CLR, at 559-560, 566].  In my respectful opinion the true position was clearly stated by Blackburn C.J. in Steppke v. National Capital Development Commission [(1978) 21 ACTR 23, at 30‑31)], when he said that "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".

1. Brennan J makes a similar comment at 260.

2. The conduct of the second defendant relied on to assert that it is fair to impose some liability on it for the costs of the first defendant is the fact that, at all times, the second defendant had denied that the first defendant held a valid policy of insurance in relation to the vehicle and has always disputed that there was a valid policy of insurance.  This position was reinforced by the second defendant's conduct in issuing contribution proceedings against the first defendant. 

3. The plaintiff also points to the poor state of the record keeping by the second defendant – or more accurately its agent the DPI – which led to the confusion surrounding the question of which policy was in force at what time.

First defendant's submissions

1. The first defendant's position is that it does not object to the plaintiff being given leave to discontinue provided that it is compensated by an order for costs, which in the circumstances should be an order for payment of indemnity costs. 

2. There are four broad limbs to the first defendant's position.  The first is that costs ought to be determined on the basis that the plaintiff has capitulated.  The usual rule where this occurs is that costs follow the event, citing the decision in Kiama Council v Grant [2006] NSWLEC 96. No reason has been demonstrated for ouster of the general rule. The effect of the discontinuance is that it deprives the first defendant of the opportunity to recover costs in the event of a successful outcome.

3. The second is that, as a matter of fact, there is no evidence that the first defendant was ever aware that the registration expiring 5 February 2007 had been (or had purported to be) cancelled and replaced with a registration expiring 30 April 1997.  It submits that the plaintiff has now conceded that the vehicle was all material times registered.  To my mind, the position is more accurately described as being that the plaintiff asserts that the vehicle was registered at all material times; the question of whether the vehicle was registered is not one that the plaintiff is able to concede.

4. The third is that, as a matter of law, the merits of the action are weak.  The plaintiff, it asserts, has no statutory power under the Motor Accident Commission Act 1992 (SA) to sue on behalf of the nominal defendant for damages at law. It relies on Mr Whight's second affidavit on this point. If the plaintiff does have standing, the second defendant submits that the plaintiff has suffered no loss as the liability of the nominal defendant is met from general revenue. If it has suffered loss, that loss is too remote to give rise to a duty of care in the light of the principles laid down by the High Court in Perre v Apand Pty Ltd (1999) 198 CLR 180.

5. The final limb is that the appropriate costs order is for costs to be ordered to be paid on an indemnity basis.  The first defendant offered the plaintiff the opportunity to discontinue with no order as to costs by a Calderbank letter dated 23 May 2003 (a copy of which is annexed to Mr Whight's affidavit).  In view of the second and third limbs, the plaintiff unreasonably declined the offer.  It further relies on the comments of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397, at 401, that "in circumstances where the applicant, properly advised, should have known that he had no chance of success" it is appropriate to consider awarding indemnity costs.

Second defendant's submissions

1. The second defendant made no submissions on whether a costs order ought to be made in favour of the first defendant.  

2. In relation to the issue of whether it ought to be liable for the costs of the first defendant, the second defendant commenced with an analysis of the plaintiff's knowledge at the time it commenced the first action.  The second defendant referred to a letter from a firm of insurance assessors to the plaintiff dated 14 December 1999 and a letter from the plaintiff's then solicitors to the plaintiff dated 27 January 2006.  The letters are annexed to Mr Peters' affidavit as Annexures "A" and "B".   In these letters the plaintiff was advised that:

   (a)initially the vehicle was registered for 12 months commencing 5 February 1997;

   (b)an error was made with this registration in that is should have been registered using the first defendant's common registration date of 30 April;

   (c)the first defendant requested the dealer, Melville Holden, to correct the error in registration;

   (d)the original registration was cancelled; and

   (e)no new registration was put in place.

3. The point made by the second defendant is that at the time the action was commenced, the plaintiff knew that the vehicle was not registered.  This state of knowledge of the plaintiff then bears on the reasonableness of joining the second defendant in the action.

4. In argument before me, counsel for the second defendant noted that certain documents had been certified apparently on behalf of the DPI on 16 June 2003.  There is no evidence on whose behalf the documents were obtained, so I am unable to infer that the information in the documents was in the knowledge of the plaintiff prior to commencing the first action.

5. Counsel for the second defendant went on to submit that there is no evidence in the affidavit material before the Court that the first defendant ever attempted to re-new the registration that expired on 30 April 1997.  It was further submitted that it is not up to the DPI or the second defendant to chase up the renewal.  Rather, the burden of re-registering a motor vehicle falls on the owner. 

6. The second defendant also challenged the assertion that its record keeping practices, or that of the DPI, contributed to the confusion surrounding the action.  Some 10 years after the events, the bulk of the documents relating to the issue are before the Court.  No document was identified as being missing.  It was conceded that some data had been lost from the DPI's computer system, but that this was due to a change in the computer system, a reasonable occurrence in a 10 year period.  Nothing adverse or unfair can be attributed to the second defendant from the state of its, or the DPI's record keeping.   

7. Counsel for the second defendant also looked at the merits of the claim as between the plaintiff and the second defendant.  Reference was made to Motor Vehicle (Third Party Insurance) Act 1943 (WA) s 19 which prohibits the second defendant from terminating a policy of insurance except by its expiry by effluxion of time, except in cases where the motor vehicle is no longer required to be insured under the Act. The question of law that arises in this case is whether s 19 operates such that even when the licence (and policy) issued for the 12 months expiring 5 February 1998 was cancelled so that a block licence could be issued, the policy of insurance nonetheless remained in force for the full 12 month period.

8. Counsel went on to note that even if this question was answered against the second defendant, the plaintiff would still have to establish negligence or misleading conduct to be successful.  This is reason why second defendant opposed an application by the plaintiff in January 2006 to have the issue of whether there was a valid registration (and thus insurance policy) determined as a preliminary issue.  It followed that no adverse comment could be made about the second defendant's conduct in opposing this application.

9. The second defendant in its submissions was critical of the affidavit sworn in support of the application by Ms McLennan.  In particular, it was asserted that paragraph 14 was misleading.  In par 14, Ms McLennan deposed:

   "However, discovery failed to disclose any support for the second defendant's proposition in paragraph 3 of the defence that the original policy was amended or reissued."

10. It was pointed out that the registration document for the policy expiring on 5 February 1997 with a notation which appears to be the word "cancel" on it and the registration document for the policy expiring on 30 April 1997 were both discovered.  There is also the letter to the Court form the Legal Officer for the DPI dated 13 January 2005 accompanying the subpoenaed documents produced.  This sets out a sequence of events which makes it clear that there was at least some attempts to cancel and reissue the policy.

11. The second defendant was also critical of the plaintiff's conduct in claiming privilege over the letters at Annexures "A" and "B" of Mr Peter's affidavit, which I have referred to earlier.  The second defendant challenged the claim of privilege and in July 2006 obtained an order that the plaintiff give discovery in accordance with the Rules of Court within 21 days.  Subsequently, the plaintiff waived the claim of privilege.  Counsel for the second defendant's submission was to the effect that it was improper for the plaintiff to have claimed privilege in the first place.

12. The position of the second defendant can be summarised as being that, given:

    (a)the knowledge of the plaintiff prior to commencing the action that the vehicle was not registered;

    (b)the fact that nothing adverse or unfair can be attributed to the second defendant from the state of its, and the DPI's, record keeping;

    (c)the genuine legal issue between the parties on the merits of the claim; and

    (d)the fact that if there is any "unfair" conduct by a party in the litigation, it is by the plaintiff in misleading the Court in an affidavit and improperly claiming privilege,

    there can be no basis for a finding that it would be either just or fair for the second defendant to pay the first defendant's costs.

Is the first defendant entitled to its costs?

1. It is convenient to first consider whether the first defendant is entitled to its costs of the discontinuance.  Only if it is so entitled will a second question arise, namely who should pay those costs.

2. These questions fall to be determined in the context of RSC O 23 r 2(3), which is in the following terms:

   "(3) Save as in this Rule otherwise provided, it shall not be competent for the plaintiff to withdraw the record or discontinue the action without leave of the Court, but the Court may before, or at, or after the hearing or trial, upon such terms as to costs, and as to any other action, and otherwise, as may be just, order the action to be discontinued, or any part of the alleged cause of complaint to be struck out."

3. At the outset, I am satisfied that leave to discontinue ought to be given.  In the words of Finn J in O'Neill v Mann[2000] FCA 1680, (29 November 2000), at [16], which I will refer to in more detail below, it "is in my view clear that it is in the interests both of the parties and of the justice system itself that this protracted litigation be terminated and that [the plaintiff] be given leave to discontinue it". The key issue for determination is what terms as to costs, if any, would be just to impose as a condition for the grant of leave to discontinue.

4. The principles regarding costs orders following on from an application for leave to discontinue were considered by McHugh J (sitting alone) in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622 where His Honour commented in the following terms (at 624-625, omitting footnotes):

   "In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

   In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action… .

   Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried… .

   If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases."

5. McHugh J ordered that there be no order as to the costs of a discontinued application for judicial review.  The applicant (Ms Qin) commenced review proceedings in the High Court following the refusal of the Minister to grant her a protection visa.  Before the application was heard, the Minister granted a protection visa.  The applicant had not been advised that the Minister was considering a review of the initial decision.  McHugh J viewed the case as falling within the class of cases in the last paragraph quoted above.

6. The principles on which leave to discontinue proceedings ought to be given were considered by Finn J in O'Neill v Mann (supra).  In that case, the plaintiff in a defamation action sought leave to discontinue the proceedings.  The plaintiff conceded that he should pay the defendant's costs thrown away by reason of the discontinuance.  At an earlier stage in the proceedings, the plaintiff had secured a costs order against the defendant arising out of the trial of a preliminary issue and an appeal from the first instance decision.  The plaintiff's concession that he should pay the defendant's costs was without prejudice to his entitlement to enforce the earlier costs order.  Finn J granted leave to discontinue on condition that the plaintiff undertake not to enforce the costs order in his favour, but made no order as to the costs thrown away by reason of the discontinuance.

7. In looking at the question the principles which the Court should apply, Finn J commented (O'Neil v Mann (supra), at [13]):

   "It properly can be said that there is an "underlying policy" in the Rules that the discontinuing party should be liable for the other party's costs unless the court orders otherwise: Grundy v Lewis (Cooper J, 28 May 1998, unreported). But so various can be the reasons for, and circumstances of, discontinuance that that policy cannot safely be said to have hardened into a "usual rule" where leave is granted such as exists where there has been a determination of a claim on its merits: as to the latter see Re Wilcox; Ex Parte Venture Industries Pty Ltd (1996) 141 ALR 727. The conduct of the parties in the matter and the reasons for the discontinuance can bear heavily on the exercise of the discretion as to costs."

8. His Honour referred to the last paragraph quoted above from the judgement of McHugh J in Qin (supra), and then continued (at [13]):

   "In applying this approach it is not the function of a court to make a prediction as to the outcome of a hypothetical case. And so in Mineralogy Pty Ltd v National Native Title Tribunal [Full Court of the Federal Court, 23 December 1998, unreported] … no order as to costs was made where an appeal was discontinued in consequence of an amendment to the Native Title Act 1993 (Cth) that arguably altered the effect on the discontinuing appellant of the judgment appealed against: see also Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194. By way of contrast, where the discontinuance can be said to be an acknowledgment by an applicant of likely defeat or where no objective circumstance provides reason for the discontinuance, a costs order in favour of the other party will ordinarily be made."

9. In Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194, Hill J provided the following summary of the authorities:

   "(1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order… .

   (2)It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial… This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.

   (3)In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them… .

   (4)In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation… .

   (5)Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted… . "

10. There is a line of authorities which draw a distinction between cases in which one party to the litigation effectively surrenders to the other, and cases in which there is something which occurs the render it futile to continue with the litigation, such that it cannot be said that one party has won.  Thus in One Tel Limited v Commissioner of Taxation (2001) 101 FCR 548, Burchett J stated (at 553):

    "In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs."

11. His Honour had referred to the cautionary note of McHugh J in Qin (supra) that, in a case which terminates before there has been a hearing, the Court should not resolve the issue of costs by engaging in something in the nature of a hypothetical trial.  However, in the overall factual context of the case before his Honour, Burchett J was able to identify a "clear winner". 

12. The distinction referred to by Burchett J was also accepted in Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249, at 252-253 and Kiama, at [55]-[80].

13. In some of the decided cases there was an interlocutory decision which enabled the court to find that the plaintiff was sufficiently successful in the action that it ought to be granted its costs upon discontinuance.  For example, in Homestyle Pty Ltd v The Western Australian Builders Labourers, Painters and Plasters Union of Workers & Anors [2002] WASC 57, the plaintiff had obtained an interim then an interlocutory injunction preventing the defendant and its agents from unlawfully entering a certain building site. Master Bredmeyer considered that this constituted a "forensic win" for the plaintiff (at [7]). The learned Master commented that later on the plaintiff completed the building and quit the site, and was therefore no longer in need of the injunction. The defendant was ordered to pay the plaintiff the costs of the action (with some exceptions that are not relevant for present purposes). The decision in Garwolin Nominess v Statewide Building Society [1984] VR 469 is another example. In that case, Kaye J stated (at 472).

    "There are sound reasons for giving one party his costs of the action on granting leave to discontinue. A plaintiff may seek leave to discontinue for any one of a number of reasons. He may do so because he recognises the validity of a defence pleaded by the defendant, such as the statute of limitations. In that event he may not wish to continue what is obviously an action which cannot succeed. In such circumstances he may seek leave to discontinue and he may be granted leave on terms of payment of the defendant's costs of the action. It would seem that that might be the only appropriate order to do justice between the parties, because the defendant has in effect succeeded in defeating the plaintiff's claim.

    Other circumstances in which a plaintiff might seek to discontinue might be after the close of pleadings in an action for possession the defendant has surrendered possession of the subject premises. In that event the plaintiff would have achieved what he set out to obtain by the issue of proceedings. It would be quite unjust and unfair if the plaintiff were denied his costs incurred in achieving relief he sought by the commencement of his action. Furthermore, it would be quite unnecessary to force him to continue on to trial for the purposes of obtaining orders for possession and for costs. The procedure for obtaining leave to discontinue enables a party to bring to an end his litigation when the relief sought has been obtained."

1. The decision in Grainger v Walker (unreported; SCt of WA; Lib No 1288; 5 August 1994) Master Bredmeyer is a good example of how the conduct of the parties is taken into account in determining the costs orders flowing from an application for leave to discontinue.  The plaintiff sought to contest his father's will, among other things, on the basis that his father had remarried some three weeks prior to his death, and that this automatically revoked the will which had been made prior to the marriage and not in contemplation of it.  The plaintiff commenced two actions, one to set aside the grant of probate and the other under the Inheritance Act.  The learned Master made the following costs orders:

   (a)In the action to set aside probate, no orders were made as to the costs of the action as between the plaintiff and the executors of the will.  The action against the executors had "an excellent chance of success" (at 6).  It was discontinued because the result was obtained in another way, namely the administrative revocation of the grant of probate following the Probate Registrar having been advised that the deceased had remarried after executing the will.  The executors were found to be "largely to blame for the unnecessary expense that [was] incurred" (at 6).  They also swore a joint affidavit in support of the application for probate in which they stated that the deceased was married at the date of execution of the will and did not marry after the time of the execution of the will.  The Learned Master found that this statement was false, but declined to find that it was deliberately so (at 6-7).

   (b)The third defendant, the widow who was the sole beneficiary under the will, was awarded the costs of the action.  The writ alleged fraud against her, but the statement of claim did not, in the view of the Learned Master, plead any arguable cause of action against her.  In the words of the Learned Master, "she did nothing wrong" (at 7‑8).

   (c)In relation to the Inheritance Act application against the executors and the widow, the Learned Master made no orders as to costs, commenting as follows (at 9):

   "Often when a plaintiff discontinues, it is because his case is hopeless and is doomed to failure and he recognises that.  In this case, the plaintiff has discontinued because he has achieved somewhat similar relief in that he now will share in the estate on intestacy.  I consider that the first, second and third defendants have acted properly and appropriately in this matter, but I consider that the orders sought are just and appropriate.  I will order that there be no order as to the costs of the action or of the application."

2. This review of the authorities highlights a number of factors which are relevant to the determination of the appropriate costs order. 

3. The first is the reason for the discontinuance to the extent that this can be discerned from the objective circumstances.  Ms McLennan deposes that "[a]s a result of [the plaintiff] having accepted the second defendant's offer of compromise, the plaintiff wishes to discontinue the proceeding against the first defendant" (par 17).  The acceptance of the O 24A offer did not determine the action as between the plaintiff and the first defendant.  The amount of damages payable under this settlement is $25,000.  The amount of damages claimed is just under $195,000, together with interest.  The plaintiff could have continued its action against the first defendant to recover the balance.  It cannot be said that the further prosecution of the action became futile as a result of the settlement between the plaintiff and the second defendant.  Neither can it be said that the plaintiff achieved what it set out to obtain by the issue of the proceedings; it only recovered a small fraction of the damages sought.  Nor can it be said that the plaintiff had anything resembling a "forensic win" as against the first defendant at an earlier stage in the proceeding.  I can find no objective circumstance that provides a reason for the discontinuance.  Rather, the case is more appropriately characterised as being one in which the plaintiff has "effectively surrendered".

4. The second factor is an examination of the merits of the claim made by the plaintiff as against the first defendant.  This is closely aligned to the third factor, namely whether the parties acted reasonably in commencing and defending the action.  In considering these factors, it is not the function of the Court to make a prediction as to the outcome of a hypothetical case. 

5. The first defendant challenges the plaintiff's claim on the basis that it lacks standing to bring the action.  The plaintiff purports to bring the action as the nominal defendant pursuant to Motor Vehicle Act 1959 (SA) s 116A ("SA Act"). The first defendant points out that the only statutory power to sue given to the nominal defendant is that given in SA Act s 116(7b).  In Mr Whight's second affidavit, he deposes that he has made due search, and can find no instrument in sought Australian Government Gazette appointing the plaintiff as the nominal defendant as at 4 February 2000, the date on which the plaintiff paid out monies to Mr Morgan.  However, as Muller DCJ pointed out in his earlier decision in this matter (reported at The Motor Accident Commission, South Australia in the capacity as The Nominal Defendant, South Australia v The Insurance Commission of Western Australia(supra) [38]), by s 15 of the SA Act, the Commission has, subject to the any limitations conferred on it by or under the SA Act, all the powers of a natural person.  This may well include the power to bring an action of the type contemplated.  His Honour declined to make a specific finding on this issue, but did hold that it is arguable that the plaintiff had the capacity to bring the proceedings (The Motor Accident Commission, South Australia in the capacity as The Nominal Defendant, South Australia v The Insurance Commission of Western Australia(supra), at [20]‑[21]). 

6. As to the merits of the claim itself, there would have been two key issues to be determined had the action proceeded to trial, namely:

   (a)as a matter of fact, did the DPI purport to cancel the registration expiring on 5 February 1998;

   (b)if the answer to the question in paragraph (a) is yes, then, as a matter of law, was the action taken sufficient to terminate the insurance policy attaching to the registration such that there was no valid policy in operation at the time of the accident.

   Then, as regards the first defendant, there are the issues of:

   (c)whether the plaintiff has suffered loss; and

   (d)if so, did it do so in circumstances in which there was a breach of a duty of care in the light of the principles laid down by the High Court in Perre v Apand Pty Ltd (1999) 198 CLR 180.

7. To determine any of these legal issues, including the issue of standing, would be to try a hypothetical action between the parties, which it would be inappropriate for me to do.  However, in view of the issues raised, I can, and do, find that the first defendant acted reasonably in defending the action.

8. As to the conduct of the plaintiff, the first defendant in essence asserts that the plaintiff did not act reasonably in instituting and continuing with the proceedings, in particular, subsequent to a Calderbank letter in May 2003 inviting the plaintiff to discontinue the action with no orders as to costs.  It submits that the plaintiff, properly advised, should have known that the action had little chance of success.  However, to place any subjective rating on either party's prospects of success would take me into the realm of trying a hypothetical action.  For present purposes, I have taken the view that the plaintiff acted reasonably in instituting the proceedings.

9. The effect of the Calderbank letter is a factor in considering whether the plaintiff acted reasonably in continuing with the proceedings.  The Calderbank letter was, as was its intent, relied on to support the first defendant's position as to costs.  It was sent by the first defendant's solicitors to the plaintiff's solicitors on or about 23 May 2003.  The offer was for the plaintiff to withdraw the current action and not recommence, in which case the first defendant would bear its own costs. 

10. The law relating to Calderbank offers was recently stated by Buss JA (with whom Wheeler and Pullin JJA agreed) in Den Hoedt & Anor v Barwick [2006] WASCA 196, at [112]-[113] in the following terms:

    "[112]In Messiter v Hutchinson (1987) 10 NSWLR 525, Rogers J held that a letter of offer, in which a party has offered as much as or more than that to which the opposing party ultimately establishes an entitlement at trial, may be taken into account by the Court in determining the exercise of its discretion as to costs, notwithstanding that the party making the offer had failed to make the offer in accordance with formal procedures contained in the Rules of Court for the making of offers of compromise.  His Honour said, at 528:

    'The public policy on which the judgments in Cutts rest argues against a hard and fast exclusion of the availability of this method for disposition of disputes by compromise.  The purpose of a Calderbank letter is, after all, essentially the promotion of settlement of disputes.  Although, historically, the Calderbank letter evolved in circumstances where the procedure of payment in, for one reason or another, was unavailable, there is to my mind no reason in principle why it must necessarily and invariably be so restricted. The discouragement to practitioners to the use of the Calderbank letter in instances where the procedure of payment in is available is that the consequences of payment in, prescribed by the rules will not automatically be available.  As Ormrod LJ pointed out in McDonnell v McDonnell [1977] 1 WLR 34 at 38; [1977] 1 All ER 766 at 770:'

    "... It would be wrong, in my judgment, to equate an offer of compromise in proceedings such as these precisely to a payment into court. I see no advantage in the court surrendering its discretion in these matters as it has to all intents and purposes done where a payment into court has been made.  A Calderbank offer should influence but not govern the exercise of discretion." 

    In my view, at least as a matter of principle, a Calderbank letter should be permitted to be taken into account by the Court in determining whether a special order displacing that which generally obtains of costs following the event should be made."

    Those observations were referred to with approval in Dobb v Hacket (1993) 10 WAR 532 at 539 - 540.'

    [113]In my opinion, the appellants' offer was a matter to be taken into account in any exercise by the learned Judge of her general discretionary power to award costs."

11. The position as regards Calderbank letters is put in the following terms in Seaman, Civil Procedure in Western Australia (par 24A.10.2):

    "It should not be assumed that the mere writing of a Calderbank letter by a plaintiff making an offer to the defendant which is not less favourable than the judgment recovered generates the same presumptive entitlement to an order for indemnity costs.  The circumstances would have to take the case out of the ordinary or usual category:  MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 240; 140 ALR 707 at 711."

12. This passage was relied on by Scott J in Koh v Tay [1999] WASC 228 at [8] and Templeman J in Shepherd & Anor v Baster [2006] WASC 176, at [33]. In the latter case, Templemen J went on to say [at 35]:

    "Ultimately, in my view, the question is whether a defendant to whom a Calderbank offer has been made, thereafter acts unreasonably in the proceedings:  NMFM Property Pty Ltd v Citibank Ltd (No 11) (2001) 109 FCR 77 at 98."

13. In Fyna Foods Australia Pty Ltd vhttp:// - disp0#disp0 Cobannah Holdings Pty Ltd (No 2) [2004] FCA 1212 (16 September 2004), Kenny J doubted that an offer that the applicant withdraw its application for interlocutory injunctive relief and each party to bear their own costs amounted to a genuine offer of compromise. Kenny J referred to the decision of Stone J in Vasram v AMP Life Ltd[2002] FCA 1286. In that case, Her Honour held that where a respondent invited an applicant to discontinue upon the basis that the respondent waived its entitlement to costs, there was no Calderbank offer.  Specifically, Stone J commented [12]:

    "The offer made here was merely an invitation to the applicant to discontinue with no costs order being made. It was not an attempt to resolve the matter by way of compromise. An offer similar to that made by the respondent was discussed by Hill J in Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2)[2002] FCA 192. In that case the applicant had not accepted an offer that the proceedings be dismissed with no order as to costs. Hill J noted, at [59]‑[60], that:

    'the weight of authority is against an offer of the kind here made ... being regarded as a Calderbank offer.

    In Calderbank itself ... the offer to settle divorce proceedings was one whereby the wife in divorce proceedings offered to transfer a house to the husband. It was an offer of a real compromise for a consideration of real value. By contrast the offer here made was to terminate the litigation with no cost orders being made.' "

14. Kenny J in Fyna (supra) also endorsed the following comments from Golberg J in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [15], [16]‑[17]:

    "[T]here is no rigid demarcation between the circumstances in which the usual order as to party and party costs is made and the circumstances in which it is appropriate to award indemnity costs…

    It does not automatically follow that the making of an offer of compromise or settlement, whether by way of a Calderbank letter of offer or otherwise, and its non-acceptance followed by a result less favourable to the offeree than that contained in the offer, will lead to an order for the payment of costs on an indemnity basis.

    ...

    Thus, whenever a Calderbank offer is made, and is enlivened by a result more favourable to the offeror and less favourable to the offeree, it is necessary to look at all the surrounding circumstances and not simply the fact that an offer was made and rejected and the offeree has achieved a less favourable result than the offer. It is necessary to look at the genuineness of the offer, whether it was realistic, the point of time at which it was made and that whether, in all the circumstances, it was such a reasonable offer as required the offeree to give careful consideration to it. If, in all the circumstances, it was unreasonable for the offeree to reject the offer and not accept it then there are strong grounds for the Court ordering indemnity costs on the basis that the offeror has made a fair and reasonable attempt to resolve the proceeding and has given the offeree the opportunity at a relevant point of time in the proceeding to consider the reasonableness of the offer. The Full Court (Neaves, Ryan and Lee JJ) underscored this approach in Donnelly v Edelsten (1994) 121 ALR 333 where it said at 345:

    'The foundation for the order is the need for the costs order to do equity where a party who has succeeded in the proceeding has made a reasonable attempt to terminate the proceeding by an offer of compromise shown to have been a fair offer in all the circumstances and to have provided appropriate opportunity for the offeree to consider and deal with the offer.' "

15. I do not consider that the Calderbank letter in this case was a genuine offer to compromise.  It was more in the nature of an attempt to persuade the plaintiff to give up.  The plaintiff is not seeking an outcome – discontinuance – that is less favourable than the offer; it is seeking the same outcome as the offer (leaving aside the issue of costs). 

16. In addition, I am not persuaded that the plaintiff acted unreasonably in continuing with the proceedings subsequent to receipt of the Calderbank letter in May 2003.  In particular, given the difficulties in piecing together the documentary records in this case, it was reasonable for the plaintiff to have progressed with the litigation at least until this point.  I note that in October 2005, at the request of the second defendant, an early return subpoena was issued to the DPI, the response to which include a detailed letter of explanation to the Court as to the documentary records of the DPI in this case.   

17. However, the context in the present case is not costs following a trial; it is costs on an application for leave to discontinuance.  The policy behind Calderbank offers – encouraging parties to accept reasonable offers to settle – would seem to be undermined if the plaintiff could discontinue with no orders as to costs some time after having been given the opportunity to do so in a Calderbank letter.  The plaintiff's refusal to accept the Calderbank offer is a factor suggesting that it the plaintiff should pay the first defendant's costs.  I will return to the question of whether, if costs are awarded, they should be indemnity costs shortly. 

18. The fourth factor is the conduct more generally of the plaintiff and the first defendant concerning the litigation and underlying dispute.  The plaintiff submits that the situation which led to this action was initiated by confusion within the first defendant as to its own procedures.  Although not submitted in these precise terms, the argument would appear to be it was the first defendant who initiated the re-registration of the vehicle, and who ought to have ensured that the registration expiring on 30 April 1997 was renewed.  The first defendant submitted that there was no evidence that the first defendant had knowledge of the change in registration.  Whilst technically correct, there is hearsay information that its employee initiated the change in registration date in the letter from the plaintiff's insurance assessors to the plaintiff, reporting on conversations with employees of the first defendant (this letter is annexed to Mr Peters' affidavit).  No doubt this hearsay information would have been converted to evidence had a trial occurred.  But that is the real point here.  No trial has occurred.  The question of whether there was a deficiency in the first defendant's record keeping is inexorably linked to the determination of the key factual issue identified above. 

19. More importantly, there is no allegation by the plaintiff that the first defendant's record keeping or procedures were improper, for example, that it deliberatively destroyed relevant documents.  I find that there is nothing in the conduct of the first defendant that would weigh against it being awarded its costs.

20. This action is not one falling within the last paragraph quoted from the judgment of McHugh in Qin (supra):it cannot be said that as between the plaintiff and the first defendant the action settled, nor that its future prosecution became futile given the amount of damages that the plaintiff could still have recovered from the first defendant.  The reasons why the plaintiff has sought leave to discontinue are not able to be discerned from the objective circumstances.  Rather, the plaintiff appears to have surrendered.  There are no facts suggesting that the first defendant acted in such a manner that an injustice would result if it was awarded its costs.  Moreover, the plaintiff declined an opportunity to discontinue with no orders as to costs over two and a half years ago.  The only appropriate order is that the first defendant receive its costs.

21. The question then becomes whether those cost should be indemnity costs.  There are four factors which I have discussed above which point the conclusion that the first defendant should not be awarded indemnity costs:

    (a)The first defendant has no automatic entitlement to indemnity costs.  It is a matter of discretion.

    (b)In the context of an application for leave to discontinue, it is not appropriate for me to ascribe any subjective rating to the plaintiff's prospects of success.  Accordingly I cannot make a finding that this is a case in which the plaintiff, properly advised, should have known that it had no chance of success.  It may well have been open for a trial Judge to have come to this conclusion following a determination on the merits, but that has not and will not now occur.

    (c)If the first defendant was of the view that the claim had no or little prospect of success as the plaintiff did not have standing, it was open to the first defendant to apply for summary judgment on that ground.  Indeed, the first defendant threatened to apply for summary judgment in the Calderbank letter of 23 May 2003.  No such application was made.  The reason why no such application was made is not apparent in the materials before me.  Had the application been made in 2003 and been successful, axiomatically the first defendant would not have incurred the costs it has incurred subsequently.  It thus seems unfair to the plaintiff to order it to pay indemnity costs after the receipt of the Calderbank letter when it was in the power of the first defendant to seek to bring costs to an end by a summary judgment application it chose not to make.  Had an early summary judgment application been unsuccessful, then the first defendant would be in the same position it was today, though without the ability to argue that the plaintiff's claim had no prospect of success, a foundation of its argument for indemnity costs.

    (d)The offer was not a genuine offer to compromise, rather an invitation to discontinue.  The public policy considerations behind Calderbank offers are sufficiently served by award to the first defendant of its party/ party costs.

    (d)Given the difficulties with the documentary record in this case, I am not persuaded that the plaintiff acted unreasonably in continuing with the proceedings subsequent to receipt of the Calderbank letter in May 2003.

1. The remaining question is whether the plaintiff or the second defendant should pay the first defendant's costs.

Who should pay the first defendant's costs

1. A preliminary issue arises as to whether the Court has the jurisdiction to make an order to the effect that the second defendant pay the first defendant's costs.  The accepted offer as between the second defendant and the plaintiff includes the term that "[t]he Second Defendant do pay the Plaintiff's costs to be taxed up to the date of this Offer".  The nature of an inquiry as to whether a Bullock order should be made is an inquiry whether the costs incurred by a plaintiff in litigating against one defendant were reasonably and properly incurred by the plaintiff as between the plaintiff and another defendant:  Bullock v The London General Omnibus Company & Ors, [1907] 1 KB 264, at 269, 271; Gould (supra), at 229-230 (quoted above).  In this case, the plaintiff, in effect, asserts that its costs (which the Second Defendant has agreed to pay) are include the costs which it has reasonably and properly incurred in litigating against the first defendant. 

2. Where there has been an accepted offer pursuant to O 24A, the Court retains jurisdiction in relation to orders affecting costs.  In Way v Swan Television and Radio Broadcasters Limited(1991) 5 WAR 323, at 324-324, Anderson J stated:

   "Whilst the parties may strike a bargain in respect to the compromise of the action itself, I do not think that the matter of costs recoverable by the offeree in the event of acceptance of the offer are part of that bargain and therefore I do not think that the idea that there is an implied term in regard to costs is right.  In the procedures laid down in O 24A whereby an action can be brought to an end by an offer of compromise, the intention seems to be that the compromise will always be on the basis that the offeree will always also be entitled to such costs as may be properly recoverable on taxation.  The offer and acceptance cannot contain a bargain as to costs expressly or by implication.

   I therefore accept the submission of counsel for the plaintiff that this must leave room for judicial intervention in the matter of costs.  In the course of the progress of an action towards trial there may have been interlocutory applications in which costs were reserved or left over for consideration by the trial judge.  Some adjudication would be required in regard to them, after compromise.  The action may have been one in which in order to tax costs, indeed in order to draw up the bill of costs, the court will have to adjudicate an appropriate value of the subject matter.  They are just two examples which suggest to my mind that the acceptance of an offer to compromise does not extinguish the court's jurisdiction to make appropriate orders in respect to costs."  

In Way, Anderson J made a special costs order pursuant to O 66 r 16.  His Honour's comments make it clear that an order of this kind is but one of the costs orders that may be made.  A Bullock order or a Sanderson order is within the same category of "judicial intervention in the matter of costs". 

1. In addition, order 24A r 3(9) provides that:

   "(9) Where an offer is accepted under this Rule, any party to the compromise may apply to the Court for such judgment or order as he may be entitled to and on the hearing of the application the Court shall give such judgment or make such order as it thinks fit."

2. In effect, the plaintiff has requested the Court to make orders pursuant to O 24A r 3(9) in relation to the costs as between the plaintiff and the second defendant in the context of the accepted offer.  The Court has the power to make the orders sought. 

3. Counsel for the second defendant made a submission to the effect that the Court should not even embark on any inquiry as to whether the costs reasonably and properly incurred by the plaintiff included the costs of litigating against the first defendant.  To do so, it is said, would introduce unnecessary uncertainly into the O 24A process, which in turn would decrease its utility, which would lead to less settlements, clogged court lists and be generally undesirable in the public interest. 

4. Order 24A rule 10(1) provides that upon acceptance of an offer to compromise, the plaintiff may, unless the Court otherwise orders, tax his costs.  Rule 10(2) provides that a notice of offer that contains a term that purports to negative or limit the operation of r 10(1) is of no effect for any purpose under O 24A.  This means that it would not have been open for second defendant to have specified in its costs order in the O 24A offer that the costs offered did not include the costs of plaintiff in litigating against the first defendant.  Anderson J's comments in Way(supra) above are to the same effect.  The fact that a defendant cannot obtain certainty on costs in the context of a claim against multiple defendants may limit the utility of O 24A in the context of claims against multiple defendants.  However, the limitation is inherent in the rules.  The mere fact that the plaintiff has brought this application will bring the limitation to the attention of practitioners, and may affect the future utility of O 24A.  However, the existence of the limitation is not a reason for the Court to decline to determine the application which it otherwise has the jurisdiction to entertain.

5. The plaintiff has placed some emphasis on the principles relating to the grant of Bullock and Sanderson orders.  To my mind, these principles do not have a direct application in the present case.  The merits of the claims as between the plaintiff and the second defendant (and indeed the plaintiff and the first defendant) have not been determined.  All that has occurred is that the plaintiff and the second defendant have agreed to compromise their respective claims. 

6. The policy underlying O 24A is set out in Seaman, Civil Procedure in Western Australia in the following terms (par 24A.0.1):

   "The policy of this Order, in the interests of good judicial administration, is to encourage a party to whom a fair and reasonable offer of compromise has been made to accept the offer and bring the proceedings to an end, so freeing the court from the time and resources taken by proceedings which are prolonged unnecessarily… Among the objects of the Order are the encouragement of the saving of public and private costs and the avoidance of the inherent risks and delays of litigation by promoting early and realistic offers of compromise…"

7. It would be contrary to the policy underlying O 24A for the Court in the context of the present application to treat the party making the offer to have been unsuccessful or the party accepting the offer as being successful. 

8. The principles dealt with the cases dealing with grant of Bullock and Sanderson orders do, however, have some utility in identifying the factors which ought to be considered in identifying what costs were reasonably and properly incurred by the plaintiff.

9. From the passage quoted above from the decision in Gould (supra), at 229‑230, it is clear that the mere fact that the plaintiff joined the first defendant is not sufficient for the Court to order that the second defendant pay its costs, even if joinder of both parties was reasonable.  What is required is that the conduct of the second defendant must have been such as to make it fair and just to impose some liability on it for the costs of the other defendant.  However, in the present context, the question of fairness is to be determined having regard to the fact that the second defendant cannot be characterised as an unsuccessful defendant.    

10. As I have noted above, the plaintiff relies on two main areas of conduct of the part of the second defendant.  The first is that of the second defendant continuing to deny that the first defendant held a valid policy of insurance.  This question is at the heart of the merits of the claims as between the parties.  It has not been determined.  The second defendant was entitled to assert that no valid policy of insurance was held.  If it was unsuccessful at trial, then, in the usual course, costs would have followed this event.  I find that there is nothing unfair, or even unreasonable, in the conduct of the second defendant in continuing to deny the validity of the claim.

11. The second main area of conduct was the poor state of record keeping by the second defendant or more particularly its agent the DPI.  Counsel for the second defendant conceded that the DPI should be regarded as its agent for present purposes.  I note that the extent of the agency seems to be more conceptual that practical as the second defendant had to obtain orders for an early return subpoena in order to get documents from the DPI.  It is reasonably common for parties to litigation involving events several years earlier to have difficulties in providing discovery.   At its strongest, all that the plaintiff asserts is that there are some gaps in the documentary record and that it took some time for all the documents that were provided to emerge.  There is no assertion (nor could there be on the evidence before me) of any untoward or improper conduct of the second defendant or DPI relating to the documents in question.  In this regard, I find, that nothing adverse nor unfair can be attributed to the second defendant from the state of its, or the DPI's records.

12. Counsel for the second defendant submitted that if there was any unfair conduct by a party to the litigation, it was by the plaintiff in misleading the Court in Ms McLennan's affidavit and in improperly claiming privilege.  As to the former, I share some of the second defendant's concerns.  At best par 14 of Ms McLennan's affidavit was unhelpful, at worst it was misleading.  However, unlike the situation that arose in Grainger (supra), discussed above, the affidavit did not play any role in decisions made to commence the litigation, nor in the subsequent conduct of the litigation (aside from requiring clarification in a responsive affidavit and oral submissions).  As regards the claim for privilege, the Court has a process for resolving contested claims for privilege, the process was used and a result obtained. 

13. There is another factor which adds weight to the argument that the plaintiff should pay the first defendant's costs.  This is that the plaintiff had the opportunity to discontinue the proceedings as against the first defendant with no orders as to costs in response to the first defendant's May 2003 Calderbank letter.  It chose not to do so, a fact which I have given weight to in finding that the first defendant ought to receive its costs.  It is also a factor suggesting that the plaintiff ought to pay those costs.  It is difficult to see how it could be fair or just for the second defendant to pay the first defendant's costs on discontinuance when the plaintiff had the opportunity to discontinue with no orders as to costs, and chose not to do so.   

14. The most appropriate characterisation of the conduct of the plaintiff and the second defendant is that they both acted reasonably in commencing and defending the proceedings, and probably also in settling it.  I am not persuaded that the conduct of the second defendants has in any way been such that would make it fair or just to impose some liability on it for the cost of the first defendant. 

Conclusion

1. The appropriate order in this case is to grant the plaintiff leave to discontinue the proceedings as against the first defendant, on terms that plaintiff pay the first defendants costs of the action (or more specifically, both actions now consolidated) to be taxed.  It is open to the plaintiff to decide that this term is not acceptable, and not press the application.  Consequently, I will hear counsel as to the form of the orders to be made.  I will also hear counsel on the question of the costs of the application for leave to discontinue, and also whether any orders are required to clarify the position as between the plaintiff and the second defendant as regards costs.   There may well also be residual issues to be resolved concerning the notices of contribution the defendants have served on each other.