(Re McDonald) Amaca Pty Ltd v CSR Ltd

[2007] NSWDDT 25

Dust Diseases Tribunal

of New South Wales

CITATION:	(Re McDonald) Amaca Pty Ltd v CSR Ltd [2007] NSWDDT 25
PARTIES:	Amaca Pty Ltd (Cross-Claimant) CSR Ltd (Cross-Defendant)
MATTER NUMBER(S):	85/91/1; 90/91/1 of
JUDGMENT OF:	O'Meally P
CATCHWORDS:	Dust Diseases Tribunal :- Cross Claim - Partnership - Plaintiff alleged exposure to asbestos from partnership products - Partner defends plaintiff's action - Verdict for partner - Claim by partner for contribution by other partner to costs of defending plaintiff's action - Whether Partnership Deed gives rise to liability to contribute to costs - Partnership dissolved - Whether Deed of Dissolution releases other partner from liability to contribute - Whether absence of good faith in defence of plaintiff's action - Whether costs unreasonably incurred - Whether Tribunal has jurisdiction to hear cross claim - Whether payment of costs under Policy of Insurance to be taken into account
LEGISLATION CITED:	Compensation To Relatives Act 1897 Law Reform (Miscellaneous Provisions) Act 1946 Dust Diseases Tribunal Act 1989
CASES CITED:	CSR Ltd v Wren (1997) 44 NSWLR 463; (1997) 15 NSWCCR 650; CSR Ltd v Amaca Pty Ltd [2007] NSWCA 107; Amaca Pty Limited, formerly known as James Hardie and Coy Pty Limited v CSR Limited [2001] NSWSC 324; (Re: Jones-Mashman) Amaca Pty Ltd v CSR Ltd [2007] NSWDDT 17; William John Lovegrove v Greenleaf Pty Limited and Ors (DDT 61 of 1992, 20 December 1992, unreported); Anderson v Kaufman (1991) 7 NSWCCR 198; Morgan Equipment Co v Rodgers (1993) 32 NSWLR 467; Albion Insurance Company Limited v Government Insurance Office of New South Wales (1969) 121 CLR 342; QBE Insurance (Australia) Ltd v Wallaby Grip Ltd and Ors [2007] NSWCA 43
DATES OF HEARING:	5 June 2007, 30 August 2007, 12, 13, 14 September 2007
DATE OF JUDGMENT:	14 September 2007
EX TEMPORE JUDGMENT DATE:	14 September 2007
LEGAL REPRESENTATIVES:	Mr G M Watson, SC with Mr J C Sheller instructed by Holman Webb appeared for the Cross-Claimant Mr F Corsaro, SC instructed by Toomey Pegg Drevikovsky appeared for the Cross-Defendant

JUDGMENT:

O'MEALLY P

1 Amaca Pty Limited (Amaca) seeks to recover from CSR Ltd (CSR) the sum of $306,608 which represents half of the net costs and disbursements incurred by James Hardie & Coy Pty Limited (James Hardie), now Amaca, in defending two actions brought against it by Rae Sussane McDonald.

2 On 15 July 1991 at Westmead Hospital in Sydney Tony Harry George McDonald gave evidence in an action he had initiated against State Rail Authority of New South Wales, Queensland Alumina Limited and Alumil Pty Limited. He alleged that in the course of his employment by each of those defendants, negligently and in breach of statutory duty, he was exposed to asbestos dust and material which he inhaled. He alleged that the inhalation of asbestos dust and material made a material contribution to the large cell carcinoma from which he was then suffering. Within a few hours of giving evidence he died.

3 On 21 April 1997 the proceedings were reconstituted and his widow, Rae Sussane McDonald, was substituted as legal personal representative of his estate. She also initiated an action under the Compensation to Relatives Act1897 for her own benefit and that of her children. In the reconstituted proceedings and those under the Compensation to Relatives Act she sued also James Hardie, Meggitt Overseas Limited, Wallaby Grip (BAE) Pty Limited and Wallaby Grip (NSW) Pty Limited. The added defendants were alleged to have manufactured or supplied asbestos products which released asbestos to which Mr McDonald was exposed and which he inhaled.

4 I noted in the course of the judgment in Mrs McDonald's action:

5. The cause of Mr McDonald's death was a large cell carcinoma located in the upper part of his right lung. He was 47 years old. During his lifetime he smoked cigarettes, though ceased smoking some three years or so before his death. There is evidence which puts his smoking at 60 pack years and at 90 pack years. This evidence comes from histories, either in hospital or in medical documents, taken at a time when he was unwell, and I think it unsafe to act on those histories. There is other evidence that he had between a 25 and 30 pack years history of smoking and I am prepared to conclude that to be the fact. Twenty five pack years of smoking is, however, sufficient to cause lung cancer.

5 There were two principal questions in the action. The first was whether lung cancer could be caused or materially contributed to by asbestos exposure in the absence of asbestosis. If that question were answered in the affirmative, the second was whether the late Mr McDonald had exposure to asbestos sufficient to contribute materially to the lung cancer from which he died.

6 There was, and remains, a difference of medical scientific opinion on the question whether carcinoma might be attributed to asbestos exposure in the absence of asbestosis. The medical scientific community then held, and still holds, two views. The first is described as the necessary precursor hypothesis, that is, that asbestos is a necessary or obligate precursor to carcinoma of the lung. The second is the fibre burden hypothesis, that is, even if there is no evidence of asbestosis, if there has been exposure to asbestos sufficient to cause asbestosis, it is reasonable to attribute a causal contribution to the asbestos exposure.

7 The evidence in the plaintiff's actions was that the late Mr McDonald had been exposed to asbestos material from a number of sources including asbestos from products manufactured by a partnership between James Hardie, CSR and Bradford Insulation Industries Pty Ltd (BI). Those products included 85 % Magnesia and K-Lite. Exposure occurred during the course of different employments between 11 January 1960 and 20 June 1997 and was to asbestos from both partnership products and non-partnership products. There is, however, no dispute that the late Mr McDonald was exposed to some asbestos which came from products manufactured by the partnership, which was established by a deed on 24 September 1964 and continued until 30 June 1974.

8 On 10 June 1997, after Mrs McDonald sued the original defendants and those joined after her husband's death, James Hardie issued cross-claims against CSR in each of Mrs McDonald’s actions, seeking contribution under s 5 (1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (the Law Reform Act) and under the Partnership Deed. CSR filed its appearances on 18 June 1997 and its first defences on 10 September 1997. CSR applied for and obtained an order that the cross-claims be severed from the principal proceedings. It has filed several amended defences since its first defences, the most recent on 12 September 2007, that is two days ago and some ten years after its original defence. Amaca has filed several amended cross-claims.

9 These two cross-claims are part of a large number between Amaca and CSR based on the Partnership Deed. Some of them have been litigated in the Tribunal and some in the Supreme Court. Others await resolution in the Tribunal or in the Supreme Court. I have otherwise been informed the number of outstanding cross-claims is approaching one hundred. The number of similar cross-claims and extra-curial attempts to resolve them have contributed to the delay in concluding this and other cases.

10 In due course all defendants in Mrs McDonald’s actions, other than James Hardie, came to an accommodation with her. This was achieved by a deed. From those defendants Mrs McDonald received a total sum of $189,000 together with 70 per cent of her costs. The proceedings against James Hardie continued and on 18 September 1998 concluded with a verdict in its favour.

11 Of the two principal issues referred to, James Hardie failed on the first, but succeeded on the second, that is to say Mrs McDonald succeeded in proving that carcinoma could be attributed to asbestos exposure in the absence of asbestosis where the exposure was sufficient to cause asbestosis (general causation), but failed because she was unable to prove that her late husband had been exposed to sufficient asbestos to cause asbestosis (causation in fact).

12 Both the Estate and the Compensation to Relatives actions were heard together. At the conclusion of the trial James Hardie made an application for costs. That application was heard on 28 October 1998. In the result, I ordered the plaintiff to pay James Hardie’s costs of the action, save for those costs incurred on and in relation to the issue of general causation. Mrs McDonald and James Hardie were ordered to bear their own costs of the application for costs.

13 In defending Mrs McDonald’s actions, James Hardie incurred costs of $763,216. It seeks in each of the two cross-claims, that is, the one brought in the Estate action and the other under the Compensation to Relatives Act, the sum of $153,304, making a total of $306,608 which is half the $763,216 it incurred, less the costs ordered against and paid by Mrs McDonald to James Hardie. Those costs were assessed at $150,000. Amaca also claims interest on the costs it seeks from CSR.

14 Because the plaintiff failed in her actions, the cross-claims under the Law Reform Act were abandoned. These cross-claims are based solely on the Partnership Deed.

15 Amaca says its entitlement to costs arises from the terms of the Partnership Deed entered into between CSR and James Hardie on 24 September 1964. CSR says that it has no liability or obligation to pay any sum to Amaca. Additionally, it has argued that James Hardie did not act in good faith towards CSR in its conduct of the proceedings, that its costs were not reasonably incurred, that the Tribunal has no jurisdiction to entertain the cross-claim and if they be unsuccessful on those issues, then the sum recoverable by Amaca should be reduced, not only by the amount of excessive costs and disbursements, but also by the sum of $42,052.45 which Amaca received under a policy of insurance in respect of costs incurred by James Hardie.

16 I shall deal with the issues raised separately. If I fail to deal with any issue or any aspect of the evidence, I invite counsel to raise those matters at the end of my reasons so they may then be dealt with.

The Partnership Deed
17 The Deed of Partnership is at page 47 of volume 1 of the Combined Tender Bundle. Because of the large quantity of documentary material, counsel were informed I would look at only those documents to which my attention was specifically directed. This was a course the Court of Appeal thought to be reasonable in CSR Ltd v Wren (1997) 44 NSWLR 463 at 491; (1997) 15 NSWCCR 650 at 689, where also there was a large volume of documentary evidence. I was not referred to all documents in evidence, but in giving judgment I intend to refer to all documents to which I was referred.

18 Under the deed, James Hardie, CSR and BI agreed to form a partnership to be known as the Hardie BI Company. That business would manufacture certain products in Australia and distribute them in Australia and elsewhere. BI was appointed the “sole selling and distributing agent” of partnership products in Australia. The conduct, management and control of the partnership business was to be mutual. The deed provided that the general management and control of the partnership business would vest in a partnership committee which would “have full power and authority to do and authorise to be done all such acts matters or things as might be done by the partners either jointly or severally in connection with the partnership business.”

19 It was also agreed that James Hardie would have the day to day management of the partnership business, subject to the control and directions of the partners’ committee.

20 Relevant to Amaca's claim is clause 4 of division 6 of the deed which provided as follows:

4. Subject to the covenant and warranty given by James Hardie in Clause 5 of this Division the partners jointly hereby indemnify and agree to keep James Hardie indemnified from and against all actions suits proceedings claims and demands whatsoever made or brought against James Hardie by any third party in respect of or arising out of any act by James Hardie as managing agent . [Emphasis added].

21 The partnership subsisted from 24 September 1964 to 30 June 1974, a period of almost ten years. The partnership was dissolved by a Deed of Dissolution which bears date 26 June 1974. Clause 8 of that deed provided:

8. As and from the date of dissolution James Hardie, CSR and Bradford Insulation, by their execution hereof agree that the Partnership will be at an end, that all rights, duties and obligations of all the parties under the Principal Deed or any of them shall then cease and further that subject to Clause 9 hereof James Hardie, CSR and Bradford Insulation jointly and severally release the other parties and either of them from all such actions, causes of action, demands or claims which any of them has had or but for this Deed might have had against the others or either of the others. By way of clarification of this clause and not otherwise, James Hardie, CSR and Bradford Insulation shall as from the date of dissolution not be bound by Clause 2 of Division 4 of the Principal Deed.

22 Clause 2 of division 4 of the Principal Deed is irrelevant to any matter concerned with this cross-claim.

23 This is not the first time that CSR has raised this argument and, helpfully, there is authority on the question. In CSR Ltd v Amaca Pty Limited [2007] NSWCA 107 the question was whether, when Amaca had settled a plaintiff's claim, could it successfully recover contribution from CSR under the Law Reform Act, under the Partnership Act and under the Partnership Deed. CSR argued that the Partnership Deed precluded contribution. That argument failed. Mr Corsaro of Senior Counsel argued before the Court of Appeal, as he has before me, that the deed did not operate, because any act by James Hardie was not done by James Hardie as managing agent (see clause 4 of division 6 quoted above). In respect of that argument, Young CJ in Eq who delivered the principal judgment in the Court of Appeal, said at [24]:

[24] In my opinion, the Deed as a whole shows that everything except sales and distribution was under the control of the respondent [James Hardie] ; whilst it was the partnership which was doing the manufacturing, it was being managed by the respondent as the partnership's agent [Emphasis added] .

At [23] he said:
[23]. . . I find it very difficult indeed to see how, on the structure of the whole Deed, one can segregate out claims as a result of manufacturing K-Lite on the one hand, and claims with respect to managing the manufacturing of K-Lite on the other. …

24 The management of the manufacture of asbestos products was done by James Hardie as the partnership's agent, and the argument of Mr Corsaro that it was not, fails.

25 In Amaca Pty Limited, formerly known as James Hardie and Coy Pty Limited v CSR Limited [2001] NSWSC 324 it was argued before Bergin J, as it was argued before the Court of Appeal, that the deed did not impose an obligation upon CSR to contribute to damages paid by James Hardie. At [89] and following she said:

[89] There is nothing in the surrounding circumstances that suggests that the partners, or either of them, turned their minds to the possibility that one partner only could or might be sued by end users with a potential liability for millions of dollars. There is nothing to suggest that there was any contemplation of the likelihood that one or other of the partners was more likely to be chosen by such end user.

[90] There is nothing to suggest that either partner considered giving up, let alone was willing, to give up its entitlement to contribution from the other partner for partnership liabilities to third parties. …

[91] This circumstance suggests that the parties were approaching their obligations in respect of partnership products jointly rather than leaving liability to attach in a serendipitous fashion to one or other of them, depending upon the end user's choice of defendant.

[96] The granting of the indemnity to Bradford in the Deed also suggests to me that the partners were intending that they would be jointly liable for partnership products rather than releasing each of them from such liability, in particular releasing each other in contemplation of the chance that an end user might sue only one of the partners in respect of the liability.

[98] I am satisfied that in the context of the Deed, the partners relationship at the time and the surrounding circumstances, the terms of the Release do not include a claim of the type in these proceedings.

[106] I am satisfied that neither party contemplated that one only of them would be responsible for damages in respect of claims such as the Welch proceedings. …

[107] James Hardie is not barred by Clause 8 of the Deed from bringing the claim in these proceedings. In these circumstances James Hardie is entitled to contribution from CSR in respect of the amount of damages awarded against James Hardie attributed to the partnership products in the Welch proceedings.

26 On 8 August last, in (Re: Jones-Mashman) Amaca Pty Ltd v CSR Ltd [2007] NSWDDT 17, I considered the same question and came to the view that clause 8 of the deed did not prevent Amaca recovering half the damages it had paid to Mr Jones-Mashman. In that case, between [20] and [23] I considered whether clause 8 of the Deed of Dissolution operated to bar any claim for indemnity under clause 4 of division 6 of the deed of 24 September 1964. Applying the decisions of Bergin J and the Court of Appeal I concluded that the Deed of Dissolution did not have the effect contended for, and under the deed Amaca was entitled to succeed.

27 In my view, the indemnity in the Partnership Deed extended to costs incurred by one partner defending claims brought in respect of partnership products. There would be a difference between the approach to be taken when liability stems from the Partnership Deed, on the one hand, and from the Law Reform Act on the other, to which later advertence will be made.

28 Lest it become an issue in another place, I think it appropriate to observe that like a number of diseases, including mesothelioma and progressive massive fibrosis, carcinoma is an indivisible injury. Any tortfeasor who makes a material contribution to an indivisible injury is liable for the consequences of the whole. It is plainly the case here that the late Mr McDonald was exposed to products manufactured other than by the partnership, but, relevant to this claim, is the fact that the allegations made in the plaintiff’s actions, and the allegations and admissions made in this cross-claim are that he was exposed to asbestos from partnership products. It is the case that any asbestos exposure during an acceptable latency period makes a material contribution to both carcinoma and mesothelioma. That may be irrelevant because the allegation that a dust related condition (carcinoma) was attributable to dust (asbestos) was sufficient to invoke the jurisdiction of the Tribunal. It should also be noted that though the cross-claim does not expressly allege Mr McDonald was exposed to asbestos from partnership products, that he was, was admitted by CSR, and this case has proceeded on that basis.

29 It was also submitted that James Hardie did not discharge any liability of the partnership. It was sued as a supplier and manufacturer of asbestos material over an extended period, to asbestos from which Mr McDonald was exposed both before and after he was exposed to asbestos from partnership products. It was said that defence costs were not a liability of the partnership because the partnership had no liability and was not sued. The fact that Mrs McDonald alleged exposure to asbestos which emanated from James Hardie’s own products as well as to asbestos from Partnership products is, as noted elsewhere, irrelevant to its claim based solely on the Partnership Deed.

Did James Hardie act in good faith
30 The second issue to be considered is whether James Hardie acted in good faith.

31 It has been noted that in a large number of claims there have been allegations of exposure to asbestos from products manufactured by the partnership. That such claims would be made was anticipated as early as 1983.

32 On 4 August 1983 Mr I Mutton, Corporate Lawyer for CSR, wrote to Mr L C Denmead, the Administrative Services Manager of James Hardie. Relevantly, that letter contained the following:

As you are aware, it is a distinct possibility that a person who claims damages as a result of exposure to asbestos-containing products manufactured by the partnership may well have also been exposed to asbestos-containing products manufactured separately by either of the partners or by other manufacturers. The almost limitless possibilities in this regard renders it to my mind almost impossible to settle upon a formula that will determine the quantum of the contribution that should be made by each of the partners towards the satisfaction of any judgment that might ultimately be obtained. For this reason I suggest that it is appropriate for each matter to be considered individually on the basis of the available evidence.

If the evidence establishes that the plaintiff was only exposed to products manufactured by the partnership then it would be appropriate for each of the partners to contribute equally towards the satisfaction of any judgement that might ultimately be entered.

…On the other hand, if the evidence establishes, for example, that the asbestos products in question were manufactured by the partners and James Hardie & Coy. Pty. Limited in its own right then it will be necessary to apportion the liability. It is my view that such apportionment should be considered after the facts have been established.

33 On 9 April 1986 Mr R W Bagnall, also a corporate lawyer with CSR, wrote to Mr M J Knight, Legal Officer of James Hardie. Relevantly, that letter contained this:

Neither James Hardie nor CSR, of course, has the right to commit - or seek to commit - the other to any settlement of claims against the former partners.

34 On 21 November 1986 Mr F D Loneragan, then the deputy managing director of James Hardie, attended a meeting with Mr Bennett of CSR. He made a note of the meeting; relevantly that note contained this:

CSR contribution to be determined by either a time basis which would apply mostly in insulation cases, and product basis which would apply mostly in sheet cases; that JH will run the cases but will keep CSR informed of developments and supply available evidence of a major nature.

35 On 11 February 1987 Mr W A Bennett, described as Executive Director of CSR, wrote to Mr Loneragan. Relevantly, the letter contained this:

I set out below the proposed basis for management of future asbestos claims where both James Hardie, CSR and Hardie/Bradford Insulation are involved.
I propose that in the event an order requiring the payment of damages against either of our companies (or their subsidiaries) is made in proceedings where it is established that the plaintiff was exposed to the products of both our companies (or their subsidiaries) each shall contribute towards the satisfaction of the order in proportions arrived at by:

- first apportioning the amount on the basis of the periods during which they carried on the business of manufacturing the products that gave rise to the exposure to the asbestos,

- second further apportioning the amount by reference to the market share(s) held by our companies during the period of the plaintiff's exposure.
We also propose that where the action is initiated against James Hardie but involves products of both our companies (or their subsidiaries) James Hardie shall conduct the cases but will consult with CSR on the conduct of the cases and will provide sufficient information to CSR to satisfy CSR's management and CSR's insurers that both the claims against CSR (or its subsidiaries) and the proposed apportionment is fair and reasonable.

36 The material which I have quoted is said by Mr Corsaro SC to have established an agreed protocol to be observed by James Hardie and CSR in each case in which a plaintiff commenced an action alleging exposure to asbestos from partnership products.

37 It is the case that James Hardie did not consult CSR in respect of the conduct of the actions brought and maintained against it by Mrs McDonald. It has been submitted for CSR that James Hardie failed to act towards it in the utmost good faith in that it substantially failed to inform CSR of developments in the litigation, failed to consult CSR and failed to obtain CSR's consent to any action it took with respect to the conduct of the defence of these proceedings.

38 CSR says the duty of utmost good faith was heightened because James Hardie chose to run a case which it viewed as a test case and in doing so, unwittingly or wittingly, potentially exposed CSR to massive expense. It refers to evidence that James Hardie rejected a settlement recommended by counsel retained for James Hardie, to which reference will later be made, and that James Hardie had a conflict of interest between its duty to its former partner and its own position. That conflict arose because of the allegation of exposure to asbestos from James Hardie's own products both before, after and during the partnership, and of exposure to asbestos from partnership products. On that point, one might say liability for exposure to partnership and non-partnership products would be relevant only if these proceedings were brought under s 5(1)(c) of the Law Reform Act, which requires contribution to be made taking into account what is just and equitable. The relative culpability of CSR and James Hardie and the contribution made by asbestos from the products of each would then be considered. The contribution made by partnership and non-partnership products is not something to be considered when liability arose under the Partnership Deed.

39 Mrs McDonald's case was not the first case in which the issue of general causation had been considered in an Australian court. On 16 July 1993 one Elizabeth Mary Culkin succeeded in recovering about $34,000 from CSR in a case in which the issues were similar to those in Mrs McDonald’s. CSR contested that case from 13 July 1992 to 29 September 1992. Judgment was delivered on 26 October 1992. Professor Hans Weill, an international expert in cases of asbestos exposure, was called by CSR to give evidence before the Workers Compensation Board of Western Australia in Perth, as he was called by James Hardie to give evidence in Mrs McDonald’s case, before the Dust Diseases Tribunal of New South Wales.

40 Being dissatisfied with the decision of the Workers Compensation Board, CSR appealed to the Supreme Court of Western Australia. The appeal was argued from 19 to 22 September 1994 and judgment dismissing the appeal was delivered on 18 October 1994. CSR unsuccessfully applied for special leave to appeal to the High Court of Australia. Parenthetically, it might be observed that the costs incurred by CSR would have exceeded considerably the amount in issue.

41 In William John Lovegrove v Greenleaf Pty Limited and Ors, (DDT 61 of 1992, 20 December 1992, unreported) the evidence then presented was not sufficient to establish that the plaintiff's carcinoma was relevantly connected with exposure to asbestos. If my memory serves me, a thoracic physician practising in Newcastle was alone among the experts in ascribing a connection between Mr Lovegrove's carcinoma and his asbestos exposure. There was a plethora of concrete and more eminent medical opinion that the plaintiff's exposure to asbestos did not make a material contribution to his carcinoma. Mr Lovegrove's action failed. He was a smoker.

42 When Mrs McDonald's actions were initiated, there were conflicting decisions on the part asbestos exposure played in causing or contributing to carcinoma in the absence of asbestosis, but before they were heard, a group of scientists had met in Helsinki and developed what became known as the Helsinki Criteria. The Helsinki Criteria accepted the fibre burden hypothesis. Included in the group of scientists who met in Helsinki was Professor Henderson, whose Chair is at Flinders University in Adelaide. He is a leading pathologist with an international reputation. He has particular interest in asbestos related diseases. Professor Henderson was one of a number of experts called in Mrs McDonald's cases to support the fibre burden hypothesis.

43 On 13 August 1998, before two American witnesses, Professor Weill from Tulane University in Louisiana and Professor McLaughlin from Johns Hopkins Hospital in Baltimore were called, Mrs McDonald’s solicitors wrote to the solicitors then acting for James Hardie. Initially Messrs Diamond Peisah & Co acted for James Hardie, but by the time the proceedings were reconstituted and the Compensation to Relatives action commenced, James Hardie had engaged Messrs Allen Allen & Hemsley to act. The letter of 13 August 1998 contained this:

In discussions outside the Tribunal on Wednesday 12 August 1998 when it appeared the cross-claims were able to be dismissed as part of a large arrangement, the best terms your client offered the Plaintiff to settle these claims against your client was a judgment for your client and an order that the Plaintiff pay all your client's costs of the proceedings. Later that afternoon your client offered to receive $100,000.00 costs on the same basis, with that offer open only to 4pm. You were aware that our client, Mrs McDonald, was overseas with intermittent telephone contact available.
….
The Plaintiff's offer was to pay your client the sum of $20,000.00 costs and give it a judgment in its favour.

44 At page 170 of vol 1 of the Combined Tender Bundle is a James Hardie file note of a telephone call from Mr Roy Williams, then a partner at Allen Allen and Hemsley. It is in these terms:

RE: RAE MCDONALD
Asking me to attend at Court to discuss settlement. Attending at Court. Watson and Duncan Graham have both formed the view that the case should settle on the basis of v & j without conditions and without confidentiality for JH and with the plaintiff paying JH 25K. Their arguments are succinctly that we are now at the high point and if we lose from here it will be devastating, and in addition we might not be able to cross-examine Henderson further on points that we need to. Discussion with Roy Williams who was reluctant and thought that there might be merit in pressing ahead although with the barristers having apparently lost some of the fire in their belly this might be hard. Discussion then with Peter Shafron. After reviewing the entire case Peter's view was that we should proceed at least until Hans Weill and Joe McLaughlin have gone into evidence and then their evidence has been put into 25(3). Insts then to Simone Burford to continue for the time being.
13 August 1998.

45 That note was made by Mark Knight to whom reference earlier has been made. Mr Knight was then a solicitor providing consultancy services to James Hardie. The case did not settle. It proceeded and evidence was taken from a large number of experts.

46 It is said by CSR that the failure to observe the protocol established and evidenced by the letters from which I have quoted, and the failure to consult CSR about the progress of the case, constituted an absence of good faith on the part of James Hardie. In answer to that, Mr Watson SC for Amaca says that if there were a protocol, as it seems to me there was, in filing its defence to the cross-claim in the terms in which it did, the protocol was no longer in force, but had been terminated by CSR. Mr Miller, Legal Counsel employed by CSR, who gave the only oral evidence in this case, was aware of the cross-claim. He received it and instructed solicitors to file a defence to it. Relevant to this issue, CSR’s defence denied that it had any obligation to contribute to any amount which James Hardie might be required to pay the plaintiff. Mr Miller's evidence was that the plaintiff's offer of settlement should have been accepted; had it been accepted costs would have been saved; the failure of James Hardie to consult CSR was a lack of good faith.

47 The evidence of Mr Miller was that he would have advised the acceptance of the offer, but I find it difficult to appreciate how he could realistically make that statement. He was not familiar with the evidence in the trial, nor with all the reports to be tendered, nor with the views of all of the experts. In view of the fact that CSR had called Professor Weill from Louisiana to give evidence in Perth, one assumes, he was familiar at least with the views of Professor Weill. It would be a courageous thing to advise settlement of a case in ignorance of the bulk of the evidence. It is easier to judge a situation when the facts are known than when they are unknown. Hindsight is easier than foresight. It is easier to predict the past than it is to predict the future.

48 On the question of the lack of good faith I would say but two things. First, any obligation to observe the protocol was, in my view, abrogated by the defence filed by CSR repudiating any liability to make payment of any sum to James Hardie. Secondly, the conduct of James Hardie in the circumstances of the case and the steps it took in defending it were reasonable. In the Tribunal, the issue had been considered with little evidence and it had been considered by the Workers Compensation Board of Western Australia. The decisions were in apparent conflict. S 25B had not at the time of Mrs McDonald's proceedings been inserted into the Dust Diseases Tribunal Act 1989, but it would seem from the manner in which par 72 of my reasons was expressed, it was in contemplation; but that is beside the point. S 25(3) of the Dust Diseases Tribunal Act was in force and it was a legitimate forensic course to have evidence from Professor Weill and Professor McLaughlin and Professor Henderson preserved for future cases, notwithstanding the advice of counsel. I am not satisfied that James Hardie acted other than in good faith.

Were costs reasonably incurred

49 The next issue to be considered is the reasonableness of the costs incurred by James Hardie. Passed to me this morning was a schedule prepared by CSR detailing costs rendered and disbursements made by James Hardie after 13 August 1998, the date upon which the plaintiff communicated with James Hardie's solicitors concerning settlement. Costs incurred after 13 August 1998 totalled $156,215 and disbursements $70,533. It is the case that Allen Allen & Hemsley delivered invoices to James Hardie on what appears to have been a monthly basis. It is not plain to me, nor to anyone else, whether the amount of $66,260 in the first invoice after 13 August 1998 includes work done before 13 August 1998, nor is it clear to me whether there were contractual arrangements with counsel and expert witnesses in respect of cancellation fees or fees that may have arisen before or after 13 August 1998. There is no basis upon which $66,260 should be disallowed.

50 In view of the fact that CSR qualified Professor Weill in Mrs Culkin’s case and called him to give evidence before the Workers Compensation Board of Western Australia, it would be difficult to pursuade me that James Hardie unreasonably incurred costs in qualifying him to give evidence in Mrs McDonald’s case. Nevertheless, in delivering reasons upon James Hardie's costs application, I expressed the view that the travelling costs of the overseas witnesses and their accommodation costs while in Sydney were not things which should be paid by the plaintiff. Here it should be noted that the evidence of Professor Weill and Professor McLaughlin was relevant to both issues I was required to determine. It would have been possible to receive the evidence of Professor Weill and Professor McLaughlin by videolink. Though the Tribunal at the time did not have videolink facilities at its own premises, its practice when taking expert evidence from overseas was to use the facilities of the Administrative Appeals Tribunal. I do not know why that procedure was not adopted in this case. In my view it could have been. To the extent to which the disbursements include fares from the United States and accommodation in Sydney they should be disallowed. Otherwise, I am of the view that the costs incurred and disbursements made by James Hardie in defending the claims and its conduct in doing so were reasonable and those costs and disbursments should be allowed.

Does the Tribunal have jurisdiction over the cross-claim
51 The next issue to be determined is whether the Tribunal has jurisdiction to entertain the cross-claim.

52 S 11 of the Dust Diseases Tribunal Act invests the Tribunal with jurisdiction to hear and determine cases involving dust-related conditions and ancillary matters. It provides:

11 (1) If -
(a) a person is suffering, or has suffered, from a dust-related condition or a person who has died was, immediately before death, suffering from a dust-related condition, and
(b) it is alleged that the dust-related condition was attributable or partly attributable to a breach of a duty owed to the person by another person, and
(c) the person who is or was suffering from the dust-related condition or a person claiming through that person would, but for this Act, have been entitled to bring an action for the recovery of damages in respect of that dust-related condition or death,
proceedings for damages in respect of that dust-related condition or death may be brought before the Tribunal and may not be brought or entertained before any other court or tribunal.
(1A) Proceedings by any tort-feasor liable in respect of damages referred to in subsection (1) to recover contribution from any other tort-feasor liable in respect of that damage may be brought before the Tribunal.
NOTE. This subsection does not prevent those proceedings being brought in another court.
(2)…
(3) If the cause of action giving rise to proceedings to be brought under subsection (1) or (1A) also gives rise to a claim in respect of some other matter, the claim may be included in those proceedings even though it does not relate to a dust-related condition from which a person is suffering or has suffered.
(4) Any matter that is ancillary or related to a matter that is the subject of proceedings to be brought under subsection (1) or (1A) may also be included in those proceedings.
(5)…

53 The argument of CSR is that it was not proved that the late Mr McDonald was “suffering or ha[d] suffered from a dust-related condition” and therefore this cross-claim is one that is not justiciable in the Tribunal. In case it becomes relevant elsewhere, it should be said that the defence of lack of jurisdiction was raised only on 7 June 2007. On 6 June 2007 CSR sought leave to file an amended defence raising the reasonableness of the costs incurred by James Hardie. Leave was given. Leave was not given to challenge the jurisdiction of the Tribunal. Whether it be the case or not, if the Tribunal has jurisdiction it has it, if it does not it does not, and no more need be said about that.

54 Anderson v Kaufman (1991) 7 NSWCCR 198 is authority for the proposition that the jurisdiction of the Tribunal is invoked according to the allegations made in a statement of claim. That was a case in which a plaintiff sued a medical practitioner alleging that he negligently failed to diagnose a pulmonary condition which subsequently developed into mesothelioma. At first instance the statement of claim was struck out on the basis an allegation of professional negligence did not come within the Tribunal’s jurisdiction. On the face of it, one would have thought that an action for medical negligence was not within the jurisdiction of the Tribunal. Nevertheless, because the plaintiff alleged that the failure to diagnose led to the development of mesothelioma, it was held the statement of claim was effective to invoke the Tribunal’s jurisdiction. At 204 Priestley JA said:

(2) The well known approach courts must take to such application [to terminate the proceedings] , that is a plaintiff ought not be denied access to a hearing on the merits unless his lack of cause of action is clearly demonstrated; see Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129;
(3) The rule that in such applications the allegations in the statement of claim must be accepted as true: see, for example, per Gleeson CJ in Keefe v Marks (1989) 16 NSWLR 713 at 717.

55 If the primary jurisdiction of the Tribunal is invoked according to allegations in a statement of claim, so also may the ancillary or concurrent jurisdiction of the Tribunal be invoked in a cross-claim; that is to say it is open to Amaca to maintain its cross-claim in the Tribunal as it would have been open to it to sue in the Supreme Court.

56 Mr Corsaro SC says that in considering the question of jurisdiction I should determine that the Tribunal has no equitable jurisdiction; that what I am being invited to do is to proceed according to equity and not law. He cites from the judgment of Giles J (as his Honour then was) in Morgan Equipment Co v Rodgers (1993) 32 NSWLR 467 at 482 and says it is authority for the proposition that the doctrine of contribution is substantially equitable:

Consistently with the fundamental equitable principle, therefore, contribution should be available for costs reasonably incurred in the successful defence, in whole or in part, of the creditor’s claim where that defence will enure to the benefit of the co-surety.

57 Mr Corsaro SC says the doctrine of contribution is predicated on the concept of discharging a liability by paying in excess of the share of the overall value of the obligation, or the prevention of enrichment.

58 With all respect to Mr Corsaro SC, I do not regard Morgan Equipment as authority for the proposition that the doctrine of contribution is substantially equitable. It is authority for the proposition that, consistently with fundamental equitable principle, contribution is available for costs reasonably incurred in the successful defence of a creditor’s claim where that defence will enure to the benefit of the co-surety. Indeed, in Albion Insurance Company Limited v Government Insurance Office of New South Wales (1969) 121 CLR 342 Kitto J said at 350, “The general doctrine of contribution, as I have said, forms part of the common law”.

59 This cross-claim is within the Tribunal’s jurisdiction.

60 In giving judgment for Amaca, as I intend to do, I will not be exercising equitable jurisdiction. In [20] of CSR Ltd v Amaca Pty Ltd [2007] NSWCA 107 Young CJ in Eq thought it very doubtful that the Tribunal could deal with equitable claims for contribution. In [33] and [40] of QBE Insurance (Australia) Ltd v Wallaby Grip Ltd and Ors [2007] NSWCA 43, Handley AJA seemed to express a tentative view that it may. It would, however, be of assistance, if this case is to go elsewhere that some expression of opinion be given on the effect of s 10(4) of the Dust Diseases Tribunal Act. Subsection (4) provides:

(4) In any proceedings brought under section 11 or transferred under section 12, the Tribunal has the same power to make decisions as the Supreme Court would, but for this section, have had in relation to similar proceedings brought in the Supreme Court.

61 Elsewhere in the Act are provisions giving the Tribunal the same power to punish for contempt as a judge of the Supreme Court (s 26) and giving to a judge of the Tribunal the same protection and immunity enjoyed by a judge of the Supreme Court (s 8). If the Supreme Court could exercise equitable jurisdiction in a case such as this, why cannot the Tribunal? If a judge of the Supreme Court in a case such as this might expand reasons after judgment is delivered orally, may not a judge of the Tribunal do the same?

Are costs paid under an insurance policy deductible

62 The next and last question to be considered is whether the sum of $42,052 should be taken into account in arriving at the amount to be paid by CSR to Amaca. There is no issue that that amount was paid to James Hardie by an insurance company under an insurance policy for costs incurred in each of the plaintiff's claims. On the face of it, it appears to me that it would be a fair thing to take into account. However, such a course is resisted by Mr Watson SC.

63 At page 97 of volume 1 of the Combined Tender Bundle is a copy of a deed entered into between CSR and, among other corporations, Amaca. On page 2 of that deed, under the heading “Operative Provisions,” the following appears:

1. Release
1.1 CSR Group and Former James Hardie Group release and discharge one another from:
(a) any liability to account to one another in respect of; and

(b) any claims, actions, losses or demands of whatsoever nature arising from or in respect of

monies paid or payable to, or received by, either or any of them at any time either before or after the date of this Deed and under or in respect of:

(c) any of the policies; or

(d) any other contracts of insurance entered into or policies of insurance obtained by either or any of them which responds to liabilities of the Partnership,

being monies relating to liabilities of the Partnership. …

64 On the preceding page of the deed under the heading “Recitals”, reference is made to a number of policies with QBE (International) Limited. These policies related to liabilities of the partnership.

65 It seems to me that the words in par 1.1(a) “any liability to account” operate to release Amaca from liability to account to CSR for “monies paid…or received…under…any of the policies…relating to liabilities of the Partnership” and that, despite its apparent unfairness, Amaca is not required to account to CSR for that sum.

66 There will be judgment for Amaca on the cross-claim.

67 I direct the parties to bring in short minutes identifying the amount to be paid to Amaca taking into account my opinion that the evidence of Professors Weill and McLaughlin could reasonably have been taken by videolink.

68 Is there any matter not covered that you would wish me to cover?

MR WATSON

No, but there is something on costs which your Honour might need to consider.

HIS HONOUR

I'll come back to that. Mr Corsaro, is there anything I haven't covered that you would wish me to cover?

MR CORSARO

There are one or two points, if I may raise them, your Honour, taking up the invitation. I would take these matters having been determined against me but I just want to make sure that these matters have been dealt with in the way that your Honour has dealt with the issues generally. In relation to clause 4 of division 6 of the partnership deed I did put to your Honour a submission that because of the nature of the claim being made, being one incorporating both partnership exposure and pre-partnership exposure, it should not be classified as being a claim for indemnity in respect of - it was inappropriate to view the costs incurred as incurred in respect of a requirement to be indemnified for an action arising out of the partnership deed. I am sorry, I just do not have the document handy. I am happy to rely on -

HIS HONOUR

I thought I had dealt with that.

MR CORSARO

I am not sure that you specifically mentioned it but I am happy to deal with it on the basis that it was encompassed in your Honour's view. I think your Honour dealt with the construction point, if I may put it loosely in that way by reference to whether or not we maintained, it fell outside the actions of Amaca as a managing agent, I do not think your Honour dealt with the other aspect of the construction point but again I am happy to accept that your Honour intended it to just be -

HIS HONOUR

I did.

MR CORSARO

Secondly, your Honour has referred to the duty as we put it, and I would understand that your Honour is referring to it loosely as a duty of good faith. We do put it that way in the writing. We also put the duty both orally and in writing, see paragraph 18 of our written submission, as a duty to avoid avoidable loss.

HIS HONOUR

I did not deal with that. I will deal with that now.

MR CORSARO

Again I take it that your Honour -

HIS HONOUR

69 Mr Corsaro has drawn to my attention that I did not deal with a submission that James Hardie failed to avoid avoidable loss. Associated with that, of course, is whether in the circumstances of the case it acted reasonably. I have determined that it acted reasonably. Such of the avoidable loss as it did not avoid, in my view, were the costs of travel and accommodation of the two witnesses who were called from America, but not otherwise.

MR CORSARO

We also put it on the basis of an implied term of the agreement to only recover in respect of an indemnity under 6.4 reasonable costs.

HIS HONOUR

I think I dealt with that. The costs were reasonable.

MR CORSARO

Next can I deal with the jurisdiction point in two aspects and may I do so with respect. Although Mr Watson seems to have largely abandoned what was originally pleaded against us at the time these submissions were prepared, the further amended cross-claim put in paragraphs 24 and 25 an alternative case against CSR and may I invite your Honour to look at it.

HIS HONOUR

I dealt with it on the basis of the issues that were agreed upon before I began to deliver judgment. The pleadings in a number of respects are, I was going to say, defective. Not defective perhaps, but they do not reflect the issues I was asked to resolve.

MR CORSARO

I appreciate that. Your Honour, all I wanted to say is this, we did not make a submission that it was a Morgan Equipment case that made it equitable. What we submitted is that in respect of matters between partners, this was a matter relating to the taking of accounts which would be equitable. In other words it does not arise by virtue of Morgan Equipment that it becomes equitable because we say, with respect, in the submission it would not be -

HIS HONOUR

I have misrepresented your position?

MR CORSARO

Indeed. I have got broad shoulders and as long as it is -

HIS HONOUR

What you have said will be reproduced.

MR CORSARO

Thank you your Honour, and lastly may we just revisit the jurisdiction point. The other way that we put the jurisdiction point, and again I understand that your Honour has rejected it -

HIS HONOUR

Mr Corsaro, I do not know whether it is necessary for you to do this. It seems to be a practice of the Court of Appeal these days to entertain appeals not only on grounds which were raised and argued in the court below, but also on grounds which either were not raised in the court below or on matters not dealt with in the judgment appealed from. So, if you need protection, you are protected, are you not?

MR CORSARO

I have to rely on the writing and what I have said on transcript. What I do not want there to be any suggestion about is that I did not get up to say to your Honour that there was also other submissions that I put on that matter. I am happy to deal with it on the basis that your Honour has said.

HIS HONOUR

Do you want to adumbrate them?

MR CORSARO

I can indicate what it was. When one goes to paragraph (1A) of section 11, your Honour will recall this, and I do not have the Act at hand, I did not bring it with me. I indicated that in connection with cross-claims, assuming that your Honour has primary jurisdiction to entertain a plaintiff's claim for a dust-related condition under section 10 the cross-claim provisions come within 11(1A) only. That is not an action between a person suffering from a dust-related condition and someone else.

HIS HONOUR

I am sorry I did not deal with it as explicitly as that, but I had that in contemplation.

MR CORSARO

Thank you, your Honour, that is all I wanted to say.

MR WATSON

We would apply for costs, and costs on an indemnity basis from 15 August 2006. I will just show my learned friends and I do not think there will be any need to tender it.

MR CORSARO

Your Honour, there was an offer of compromise, as I understand. I have it in my hands and even if one does - there is no need for Mr Watson to do the mathematics. I am sure that once the mathematics are done the offer of compromise will have been exceeded and I do not think I can resist an order from costs from 15 August 2006.

70 The cross-defendant will pay the cross-claimant's costs as agreed or assessed, including costs on an indemnity basis from 15 August 2006.

Mr G M Watson, SC with Mr J C Sheller instructed by Holman Webb appeared for the cross-claimant.

Mr F Corsaro, SC instructed by Toomey Pegg Drevikovsky appeared for the cross-defendant.