Pilmer v HIH Casualty & General Insurance Limited (No 3) - [2005] SASC 302

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
PILMER & ORS v HIH CASUALTY & GENERAL INSURANCE LIMITED & ORS (No 3)
Judgment of The Honourable Justice Mullighan
8 August 2005
PROCEDURE - COSTS - RECOVERY OF COSTS
The plaintiffs sought an order for legal costs, owed to them by the first defendant, to be paid out of the balance of funds held in Court - discussion and exercise of the Court's discretion under Supreme Court Act 1935 s 40(1) and Supreme Court Rules 1987 R101.01 - consideration of competing interests.
Corporations Act 2001 (Cth) s 468; Supreme Court Act 1935 s 40(1); Supreme Court Rules 1987 R101.01; Insurance Contracts Act 1984 (Cth) s 13, s 57, referred to.
Hixon v Hixon & All Fire Risks Insurance Company Ltd [1988] 2 Qd R 553, distinguished.
Stabiland Ltd v Stephens & Carter Ltd [1999] 1 WLR 1201; Barr-Simon v Attorney-General (Cth) & Anor (2003) 133 FLR 230, considered.

PILMER & ORS v HIH CASUALTY & GENERAL INSURANCE LIMITED & ORS (No 3)
[2005] SASC 302
Civil

Mullighan J: The factual basis for the resolution of the issues raised on this application are set out in my reasons for decision on 26 November 2004 in this action: (2004) 90 SASR 465. In those reasons I referred to the plaintiffs as “NWP”, the first defendant as “HIH” and the second and third defendants jointly as “Willis Corroon” and I shall continue to do so in these reasons.
I decided that upon HIH paying into Court the sum of $7.2m pursuant to the order made on 12 December 2000, HIH did not retain any legal or equitable interest in that money which was vested in the Registrar of this Court and was to be disbursed in accordance with the decision of this Court. I refer to those moneys and interest accrued since the payment in as “the Funds in Court”. I also decided that payment out to NWP of any of the money in Court would not be a disposition of the property of HIH for the purposes of s 468(1) and (4) of the Corporations Act 2001 (Cth).
These decisions are not challenged.
On that day I made the following order:
1.    On or before 19 December 2000 the First Defendant HIH Casualty & General Insurance Limited (ACN008482291) do pay into Court the sum of $7.2 million being the amount referred to in paragraph 1 of the declaratory judgment of the Honourable Justice Mullighan dated 16 October 2000 (‘the sum’).
2.    The sum be paid into Court to the credit of this action to be held in an account entitled ‘No. 25 of 2000 Pilmer and Others v HIH Casualty and General Insurance Limited and Others’.
3.    The Registrar is hereby directed to invest the sum in a common fund pursuant to Rule 109.06(b) and to keep the sum and all interest earned thereon invested in a common fund until further order.
4.    No part of the sum and interest earned thereon may be paid out of Court to any person or party until further order of the Court.
On 29 November 2004 I ordered that the Registrar pay to the solicitors for NWP or at their discretion the amount of $5,762,810.77 out of the Funds in Court to provide indemnity to them under the second excess layer of insurance. The balance of the Funds in Court at the present time is about $2.9m.
NWP seeks an order that legal costs due to them by HIH pursuant to various orders made in this action be paid to them out of the balance of the Funds in Court. The amount of these costs is in the course of being quantified.
I mention that the order for payment into Court made on 12 December 2000 was that HIH pay into Court the sum of $7.2 million by Order. That order was made following a trial and findings made by me resulting in a declaratory judgment which was made on 16 October 2000 in terms as follows:
The plaintiffs are entitled to be indemnified by the first defendant pursuant to a policy of excess insurance concluded between the plaintiffs and the first defendant for the claims period 1 September 1991 to 30 June 1992 to the extent of 24% of $30 million excess of $20 million and otherwise in accordance with the terms of the primary policy of insurance issued by the first defendant for the period ending 30 June 1992.
Further consideration of other issues in the action and the various claims for costs was adjourned to a date to be fixed.
On 28 October 2004 it was ordered that HIH pay NWP’s solicitor and own client costs of the action to be taxed.
By application dated 7 November 2001 NWP sought an order that the solicitor and own client costs due pursuant to the Order for Indemnity Costs, be paid from the Funds in Court.
HIH opposes the application. Willis Corroon makes a similar application as to its costs which HIH has been ordered to pay. Those costs have not been quantified. However, Willis Corroon seeks an order that if there is an insufficient balance of the Funds in Court to meet the costs of the NWP and Willis Corroon, there should be proportionate payments to them.
S 40(1) of the Supreme Court Act 1935 provides:
Subject to the express provisions of this Act, and to the rules of court, and to the express provisions of any other Act whenever passed, the costs of and incidental to all proceedings in the court, including the administration of estates and trusts, shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and to what extent such costs are to be paid.
R 101.01(1) of the Supreme Court Rules 1987 provides:
101.01(1) Notwithstanding the following provisions of this Rule and of the provisions of Rule 101A.01 the costs of any party, the amount thereof, the person by whom, or the fund or estate, or portion of an estate, out of which they are to be paid are in the discretion of the Court … .
It may be seen that an order for payment out of moneys held in Court standing to the credit of an action involves the exercise of a discretion. Rule 101.01(3) specifies the matters which may be taken into account in the exercise of this discretion. It provides:
101.01(3)     The Court in exercising its discretion as to costs may take into account (inter alia) any:
(a)     payment into Court;
(b)     offer to consent to judgment, including a notice under Rule 41;
(c)     offer of contribution.
Rule 101.01(4) provides:
The Court may in any proceeding exercise its powers and discretions as to costs at any stage of the proceeding and after the conclusion of the proceeding.
Whilst it must be acknowledged that payment into Court in this sub-rule embraces the circumstance when a party pays money into Court prior to judgment in satisfaction of a cause of action, R 39, I do not think that is the only circumstance relevant to the exercise of the discretion. It is true that Rule 101.01(3)(b) and (c) refer to pre-trial procedures to satisfy a claim but there is no reason conclude that they assist in the interpretation of sub-rule (3)(a) by requiring a narrow interpretation. There are reasons for payment of money into Court other than in satisfaction or part satisfaction of a cause of action or a particular claim with a cause. Security for costs is one example. Any payment into Court is relevant to the exercise of the discretion including a payment in pursuant to an order of the Court which is in the nature of security in favour of a party.
In exercising the discretion all relevant matters must be considered, although the weight of each of them may vary. In my reasons for decision on 26 November 2004, I set out the matters which should be considered in the exercise of a discretion under s 468(1) of the Corporations Act if I was wrong in my conclusion that s 468 did not apply. I set out those matters at p588. They apply with equal force in the exercise of the discretion to order payment out of any part of the balance of the Funds in Court to NWP. I need not now repeat them. They constitute a strong case for the exercise of the discretion in favour of NWP. In the circumstances not to exercise the discretion in that way would result in unfairness to NWP.
In addition I have had regard to my conclusion that with respect to the Funds in Court NWP is in the position of a secured creditor.
There is no sensible reason to order payment out to NWP of the Funds in Court the balance of the money required to provide indemnity under the second excess layer of insurance, as has occurred, but deny to NWP payment of costs which they incurred in establishing the existence of that insurance cover which was wrongly denied by HIH.
Also, I refer to s 13 of the Insurance Contracts Act 1984 (Cth) which provides:
The duty of the utmost good faith
A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith.
The obligation of HIH to NWP arose under a contract of insurance. The utmost good faith obligation of HIH to NWP is a matter relevant to the exercise of the discretion.
In my reasons for decision delivered on 26 November 2004, I said that at all relevant times NWP and Willis Corroon acted in good faith and that HIH wrongly denied the existence of its participation in the second excess layer. That denial was made falsely with the consequence that HIH did not act in good faith and was in breach of s 13.
These additional matters contribute to the conclusion that the discretion should be exercised in favour of NWP.
HIH acknowledges that I have a discretion which may be exercised in favour of NWP to order payment of costs out of the Funds in Court but it should not be so exercised.
The first submission is that the discretion is limited in that it must be exercised consistently with the purpose for which the Funds in Court were ordered to be paid into Court. It is contended that the purpose of payment in was to give NWP security confined to indemnity under the second excess layer. The purpose of the payment in was not to provide for payment of the costs of NWP or Willis Corroon.
HIH seeks to draw support for this contention from the Hixon v Hixon & Fire & All Risks Insurance Company Ltd [1988] 2 Qd R 553. In that case money was paid into Court in satisfaction of a cause of action. The plaintiff sought payment out of that amount in satisfaction of the claim and also for payment out of the plaintiff’s costs from interest which had accrued. The plaintiff contended that she could lay claim to all money under the control of the Court and the defendant contended that the plaintiff could only accept the offer and the accrued interest must revert to the defendant. Demack J was not assisted by authority and concluded that the control by the Court of the money in Court must be exercised in a way consistent with the purpose for which the money was paid into Court. If the accrued interest was paid to the plaintiff, the action would be settled on terms which were never offered. The offer was the principal sum.
I do not think this decision assists the manner in which I should exercise the discretion. In Hixon the payment in was made voluntarily pursuant to rules of court. It could be accepted or rejected. In the present case the payment in was in consequence of an order which provided that it was to be paid to the credit of this action and invested in the common fund until further order. As has been seen, the order also provided that no part of the money paid in or interest earned could be paid out to any person or party until further order.
By the time of the order for payment in the amount to be paid to provide indemnity under the second excess layer was not known. It was known that NWP had incurred expense in obtaining the declaration that HIH held the relevant part of the second excess layer. The circumstances differ from those in Hixon where the amount of the offer was fixed and it was accepted.
In the present case the terms of the order make it clear that the Court was to control the Funds in Court and there was no specified limitation on the amount which could be ordered to be paid out or to whom as was held to be the case in Hixon in view of the purpose of the payment in as provided in the Rules of Court.
It can be seen from the legislation and rules that there are no indicators as to the way in which the discretion is to be exercised. It must be exercised judicially taking account of the particular circumstances of the case: Stabiland Ltd v Stephens & Carter Ltd [1999] 1 WLR 1201, Barr-Simon v Attorney-General (Cth) & Anor (2003) 133 FLR 230.
The second submission by HIH is that payment out to NWP will cause hardship to creditors in the liquidation. There is no evidence of hardship having been suffered by NWP and the discretion should not be exercised in their favour to the detriment of other creditors.
I reject that submission. The hardship to NWP is obvious in that they had incurred substantial costs and expenses because of the false denial of indemnity by HIH. Various amounts of their losses were mentioned in argument. I need not mention the precise amount but they could exceed the balance of the Funds in Court. I do not think that the position of other creditors of HIH should influence the manner in which the discretion is exercised. The funds in Court provided a form of security to NWP and not other creditors of HIH.
In my view, the factors relevant to the exercise of the discretion all point one way and there is a strong case for the exercise of the discretion in favour of NWP.
As has been mentioned Willis Corroon also seeks payment of their costs from the balance of the Funds in Court.
I decided to postpone consideration of that application until after outstanding claims by NWP have been resolved. These claims include a claim for damages against HIH suffered as a result of having to establish that HIH was an insurer of the second excess layer and a claim for interest against HIH pursuant to s 57 of the Insurance Contracts Act 1984. If NWP succeed in these claims, it will have to be decided if the damages or interests awarded, and any costs awarded to NWP against HIH, should be paid out of any balance of the Funds in Court.
NWP also seeks damages from Willis Corroon in consequence of a finding made by me on 6 September 2000 that they were in breach of duty to NWP in contract and in tort. Willis Corroon asserts that any causes of action arising out of such breach of duty are statute-barred. These claims and this defence will have to be considered if pressed.
It may be that upon the resolution of all of these matters orders may be made for payment out of the balance of Funds in Court which will exhaust them and thereby result in the applications for payment out by Willis Corroon being unnecessary.
I reject the contention by Willis Corroon that if there is an insufficient balance of the Funds in Court to pay the entitlements of both NWP and Willis Corroon, the balance should be distributed to them proportionate to the respective amounts due. In my view, NWP is entitled to recover from the Funds in Court the amount to which it is entitled which should not be reduced to achieve proportionality with any amount due by HIH to Willis Corroon. I have mentioned the matters which indicate that the discretion should be exercised in favour of NWP. They do not justify the discretion being exercised in the way sought by Willis Corroon and there is another matter relevant to exercising the discretion to order proportionate payments against them. Their failure to ensure that the subject contract of insurance was adequately documented is a factor which launched the proceedings by NWP against HIH and Willis Corroon and the entitlement of NWP should not be reduced by reason of claims by Willis Corroon against HIH. These claims are likely to be for costs of the proceedings and the various applications and for indemnity for any successful claims by NWP against Willis Corroon.
I shall consider the minutes of order to be submitted by the parties in consequence of these reasons.