Rodgers v De Mol Investments Pty Ltd [No 2] - [2016] WASC 151

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: RODGERS -v- DE MOL INVESTMENTS PTY LTD [No 2] [2016] WASC 151

CORAM: KENNETH MARTIN J

HEARD: 23 MARCH 2016

DELIVERED : 23 MARCH 2016

PUBLISHED : 17 MAY 2016

FILE NO/S: CIV 2192 of 2010

BETWEEN: LYNDON DOUGLAS RODGERS
ROBERTA WINIFRED RODGERS
First Plaintiffs
GILROG PTY LTD
Second Plaintiff
AND
DE MOL INVESTMENTS PTY LTD
First Defendant
JAMAC CONSTRUCTION GROUP PTY LTD
Second Defendant
AON RISK SERVICES LTD
Fourth Third Party

Catchwords:

Costs - Proposed discontinuance of third party proceedings - All other aspects of complex multi-party litigation resolved - Defendant seeks leave to discontinue on basis of no orders as to costs - Supervening events in trial - No criticism of defendant in bringing third party proceedings - High level view of proceedings - No capitulation

Legislation:

Nil

Result:

Foreshadowed grant of leave to discontinue with no order as to costs

Category: B

Representation:

Counsel:

First Plaintiffs               :     No appearance
Second Plaintiff            :     No appearance
First Defendant             :     Mr P Mendelow
Second Defendant         :     No appearance
Fourth Third Party        :     Mr G Hancy

Solicitors:

First Plaintiffs               :     No appearance
Second Plaintiff            :     No appearance
First Defendant             :     WHL Legal Pty Ltd
Second Defendant         :     No appearance
Fourth Third Party        :     HBA Legal

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

Ann Street Mezzanine Pty Ltd v KPMG [2011] FCA 453
Chapman v Luminis Pty Ltd [2003] FCAFC 162
Clark v ING Life Ltd [2007] FCA 1960
Marsh v Baxter [2014] WASC 187; (2014) 46 WAR 377
McClure v The Mayor and Councillors of the City of Stirling (No 3) [2009] WASC 247
Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622
Re Western Australian Planning Commission; Ex parte Solomon [2010] WASCA 236 (S)
Rigging West Pty Ltd v Stanick Pty Ltd [2013] WASC 185
Rodgers v De Mol Investments Pty Ltd [2010] WASC 284
KENNETH MARTIN J:
(These reasons were delivered extemporaneously on 23 March 2016 and have been edited from the transcript.)

Background

The purpose of the hearing today is to hear an application by the first defendant to this action, De Mol Investments Pty Ltd (De Mol) for leave to discontinue its action against the fourth third party, Aon Risk Services Ltd (Aon), on terms that there be no order as to costs. That application is supported by its written submissions of 10 March 2015 and its reply submissions of 21 March 2016, and the affidavits of its solicitor, Ms Nicole Levy, filed on 11 and 18 March 2016.
De Mol's application is opposed by Aon, which has filed its written submissions of 16 March 2016, as well as an affidavit of its solicitor, Mr Mark Birbeck, filed 16 March 2016. Aon has also indicated, today, that it might want to put further relevant material (as to costs issues) before the court as it says, at par 5 of its written submissions, 'after judgment'. Aon suggests it is currently constrained about doing that - I take that statement at face value.
Accordingly, Aon seeks an opportunity to provide extra material. It might or it might not, bearing upon the position I otherwise arrive at on De Mol's application to discontinue.
The position is unusual in the sense that a trial did commence here. It ran effectively for 2 1/2 days. There was a consensually agreed adjournment at lunchtime on day three and a foreshadowed settlement between almost everyone - except as regards Aon.
A number of developments of significance occurred over the course of those 2 1/2 trial days. But, most fundamentally, the economic magnitude of the claims of the three plaintiffs - that is, Mr and Mrs Rodgers, and their company Gilrog Pty Ltd - dramatically reduced in ambit from that first mentioned in the opening by counsel for the plaintiffs.
By day three the plaintiffs' case was still being opened. But by then the claims had shrunk to very small economic proportions.
All of these facts are ascertainable from the parties' exchanged written submissions and from the trial transcript. I also again refer to the three sets of written submissions that I have received for the purposes of today's costs application - with De Mol seeking leave to discontinue against Aon, but on a basis of there being no order against it vis-à-vis Aon as to the costs of the third party proceedings.
De Mol's resisted application for leave to discontinue under Rules of the Supreme Court 1971 (WA) O 23 r 2(3) is (again) explicitly made upon the basis that - in the circumstances of the abatement of the wider action which I am about to discuss - it is only pursued on the basis of each party bearing their own costs.
That is, De Mol now seeks nothing from Aon in terms of relief, but does not agree to paying Aon any costs.
In other words, what De Mol proposes, in blunt terms, is that each party 'walk away' from the third party proceedings bearing and wearing their own legal costs. On that sole basis, De Mol seeks leave to discontinue. This is opposed by Aon - which is happy to see a discontinuance of the third party action against it by De Mol, but wants its (taxed) costs as the 'price' of such a discontinuance (or dismissal).
De Mol cannot unilaterally discontinue. The trial has begun and has reached, in effect, day three of the trial. Leave to discontinue against Aon is required.
So, essentially, what I am faced with is a discretionary exercise - in terms of whether or not I let De Mol have leave to discontinue - on the basis that De Mol will not pay any of Aon's costs, or to have this residual aspect of the trial run on to a finalisation.
De Mol says correlatively that if it cannot have leave to discontinue on the 'walk away on costs' basis, it will seek to proceed with the vestiges of this litigation. All that presently remains standing in the litigation is this unresolved third party action as between De Mol and Aon. The balance of the action has been resolved, as a settlement deed put before me (seen appended to Ms Levy's second affidavit) makes plain, albeit that deed has not yet been executed by all parties.

Case law

There are a number of well‑known case authorities on this discretionary issue. I was extensively referred to them by both counsel. Of particular importance is a Federal Court of Australia decision by Kenny J, albeit concerning a slightly differently worded Federal Court rule, Ann Street Mezzanine Pty Ltd v KPMG [2011] FCA 453.
Her Honour refers to the well-known authorities, and particularly to the reasons of McHugh J in Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624, which are invariably referred to in these situations.
Another significant decision that her Honour discusses at [28] is by the Full Federal Court, Chapman v Luminis Pty Ltd [2003] FCAFC 162, particularly at [7], where a number of principles are set out.

Analysis

In blunt terms, the required analysis distils down to a question of whether or not I can detect in the putative discontinuing party that it is, in effect, 'giving up', 'surrendering' or walking away from the litigation, after having started off the fight in the first place. Or is the situation different? Is it more of a genre of case described in the case authorities as to there arising in the litigation (as it has progressed) some supervening event of significance which has changed the landscape - or to use the words of the Full Court of the Federal Court in Chapman:
… 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 [7].
In the former class of case, that is, the surrender looking scenario by the former aggressor, there must usually follow an award of costs against it, favouring the party who is the beneficiary of the surrender. But in the latter genre of case, that is, where there emerges a supervening event in the litigation or some real modification of the case, then costs are normally not ordered against the discontinuing or terminating party. In that latter context, there are important policy considerations which mitigate towards promoting a settlement and correlatively against a court, in effect, countenancing the waste with what has become unnecessary litigation.
So the first issue here is - in this situation, has the party (De Mol) that wants to discontinue on the basis of not bearing costs acted reasonably? A judicial discretion is exercised when the court is embarked upon that exercise.
To the basket of case authorities that counsel have mentioned I add two more local decisions. First, I note the decision of Beech J in McClure v The Mayor and Councillors of the City of Stirling (No 3) [2009] WASC 247. In particular, I respectfully adopt his Honour's comprehensive analysis of the applicable principles. I note the general principles his Honour discusses at [26] - [29] and, in particular, by reference to the Lai Qin test as articulated by McHugh J. I would also add the observations of the Court of Appeal, Pullin and Newnes JJA, in Re Western Australian Planning Commission; Ex parte Solomon [2010] WASCA 236 (S).
I would also add my decision in Rigging West Pty Ltd v Stanick Pty Ltd [2013] WASC 185. That was not a case of mooted discontinuance. Rather, it was one of dismissal, in circumstances where the proceedings had, effectively, fallen away in terms of underlying subject matter. But the approach is broadly analogous. I discussed underlying principles, at [65], by reference to the Lai Qin decision. I evaluated different considerations there, at [67], in particular at subparagraphs (e), (f) and (k). I found that that plaintiff would need to bear some of the costs of the dismissal effected in that case.
Today, in rather exceptional circumstances, where my decision is needed immediately, what I propose to do is to note my consideration of the parties' extensive written submissions on this application which I have identified above. I also mention emerging from the trial itself, as relevant here, the plaintiff's written opening submissions of 29 February 2016.

Disposition

I will indicate the major factors which led me to the conclusion that I am about to articulate. I do accept, basically, the essential submission put by De Mol that it should have leave to discontinue - on a basis of there being no order as to costs (albeit I will withhold articulating and issuing orders in those terms, given what has been put to me from Aon about possible further material from Aon bearing upon costs orders).
The underlying trial conflict that unfolded here arose from events taking place in Beaufort Street, Mt Lawley, at the Rodgers' own land and on a next door three block development which was commenced in 2010. The next door development involved excavation to support a four storey building with two underground car park levels. That was next door to the Rodgers property being an old Beaufort Street 110-year-old building. This presented something of a nightmare in suburbia. Sadly, this is a situation not that uncommon in a changing and growing city of Perth as new buildings and new developments unfold around established areas of suburbia. In fact, what presented to me here is a situation which is likely to be encountered more often as Perth grows. [As background, I mention my 2010 interlocutory decision in Rodgers v De Mol Investments Pty Ltd [2010] WASC 284 concerning the unsuccessful application by the Rodgers for an injunction against the builder Jamac Construction Group Pty Ltd (Jamac) at that time - following early excavation and sheet piling works.]
With next door demolition and redevelopment situations comes an inevitable amount of dust, noise, dirt, disruption, clogging up of the surrounding parking spaces by trades vehicles, and irritants of that kind. Such is to be expected and usually tolerated, as new developments begin. But what was happening here in Beaufort Street was a very large and extensive building project that was under way which would need a construction period of at least 18 months. The development was right alongside an existing 110‑year‑old suburban dwelling that had, in recent times, been converted to office space for commercial use by the Rodgers company, Gilrog.
Problems leading to why this litigation developed into the saga it became commenced in 2010. There then followed highly complex, highly expensive, multi-party litigation. The whole mess that unfolded looks to me, as a neutral observer watching it unfold over six years, to be tied to two major deficiencies.
First, the resultant economic claims by the Rodgers and Gilrog as framed were always extravagantly misconceived in terms of their magnitude, in my view. They were of the order of $5.5 million plus interest on day one, as this trial commenced. But that was based on a legally unprincipled 'before and after' analysis of their asserted financial positions in 2010 to 2016.
I hold a measure of personal sympathy for the Rodgers, in terms of a bad position that they found themselves in. But the reality was always that they were always asking for far too much. Ultimately, the plaintiff's claims were exposed through a course of intensive scrutiny during the opening of their case by their counsel, which extended until halfway through day three of the trial, bearing in mind various amendments to the pleadings. That was the first really significant factor in terms of inhibiting any earlier settlement of this dispute, in my view.
By the end of day two of the trial, the Rodgers and Gilrog had pared back their claims (of $5.5 million, plus interest, plus exemplary and aggravated damages) to something in the order of seeking only $300,000 plus interest. That was a dramatic landscape change, in terms of the resultant economic viability of pursuing the action from that point.
One can understand a $7 million action occupying 15 days of a court's time, with six sets of counsel and solicitors. The pleadings were of great complexity - occupying a crammed lever-arch file with unending allegations and counter-allegations. Had the whole trial proceeded over a further 12 1/2 days it would have occupied every minute of that time and perhaps even longer. The trial would also have been complex from an evidentiary perspective. I was planning at one point to spend a day hearing expert evidence, concurrently, from five or so engineers on sheet piling issues and other techniques to mitigate cracking damage to surrounding neighbourhood structures.
The second major factor I attribute to the failure of this action to earlier resolve was the absence of a viable and responsive insurance policy for De Mol. The problem of the Rodgers' property being damaged by the works next door began to emerge in mid‑2010. Had there been an early and responsive insurance policy covering De Mol as developer, as there should have been, it seems to me that many of the unfolding, complicating and expensive dispute factors, as subsequently encountered and which gave rise to the ensuing litigation, and all the expense with it, might well have been avoided.
A core problem here was that the head building contractor, Jamac, was expected under its main contract with De Mol as principal, to procure comprehensive insurance to respond, in respect of any adjacent property damage to nearby surrounding buildings. An insurance policy that was procured on behalf of Jamac from Allianz Australian Insurance Ltd (Allianz) did name De Mol as a co-insured with Jamac for the risks covered.
However, in 2010, when commencing and continuing sheet piling work produced vibrations that in turn resulted in widespread cracking being suffered to the adjacent Rodgers building, and all the problems that went with that ongoing physical damage, the Allianz policy did not respond for De Mol. This caused problems in terms of what viable remedial action could be taken for the Rodgers - absent viable cover for De Mol.
The underlying reasons concerning the denial of liability by Allianz are complex. The Allianz policy contains an exclusion clause 18, that Allianz relied upon to repudiate liability to De Mol. Whether or not that policy as a matter of its true contractual interpretation did respond, or did not respond, is no longer the question. The fact is that it did not respond - when it was needed by De Mol.
That gap seems to me, from a causation perspective, to have led to almost all the ensuing trouble since encountered. Had there been, back in 2010, an early positive insurance indemnity response to De Mol to fix then the physical damage as caused to the Rodgers' property, then much of the woe that has subsequently been encountered, by my assessment, would have been avoided.
In evaluating what happened here at trial, one cannot help but be struck by the vast truncation in the magnitude of the plaintiffs' claim, in an economic sense, between day one and day three (at lunch-time) in the trial. After the plaintiffs' receipt of $240,000 from De Mol, thereby settling the action as between the Rodgers, Gilrog and De Mol, that event left the Rodgers only pursuing a smallish claim for (wasted) outlaid capital expenditures, used earlier in renovating their property. That was about $90,000 or so, as alleged waste. There was also a smallish claim of lost rental of the commercial premises over a period as the Beaufort Street property was not capable of being used. The other claims were abandoned.
Hence, the trial landscape drastically changed from a $7 million plus exposure for these defendants to a situation in which the primary claim of the plaintiffs reduced, as against the second, third and fourth defendants, to, in effect, some $100,000 plus interest (once funds paid and received were brought to account), during the morning of day three.
The economic shift in circumstances was obvious. I pointed it out to the parties around noon, as the day three transcript will show, when it was proposed that nevertheless the trial would still proceed.
Subsequent to that, sense prevailed. All the parties, save for Aon, agreed to a settlement. The terms of the settlement are open and put before me. Several parties have not yet executed the deed that all parties have otherwise agreed to execute to perfect the settlement. But, basically, as between the second, third and fourth defendants, by reference to cl 5.1 of the settlement deed (appended to one of Ms Levy's affidavits), between them they will contribute another $110,000 to appease the plaintiffs. All parties (save for Aon) will give up on pursuing their costs as against each other, save for the payments made under the deed.
The inter-relationship of claims and cross-claims as between defendants, claims for indemnity against various parties, etc, can all be wheedled out of the voluminous trial submissions. One thing no one could ever disagree with is that these numerous claims, cross-claims and indemnification claims were highly complex. Hence, they were going to be highly expensive to run, litigate and resolve. Today I have spent, effectively, a whole day just hearing the arguments over whether De Mol should be released - in other words, given leave to discontinue - against Aon, on a basis of Aon and De Mol walking away and bearing their own costs.
A key part of that evaluation requires, as I said, for me to consider whether De Mol acted reasonably or not in the overall litigation.
In my view, De Mol has acted reasonably. I do not assess De Mol as having pursued an extravagant claim by joining Aon as a third party, in circumstances where De Mol had earlier also pursued Allianz as a third third party, then subsequently compromised, shortly before trial, with Allianz - on the basis of a payment of $240,000. That Allianz settlement money was effectively then being funnelled from De Mol to the Rodgers.

Case authorities are rightly explicit in terms of saying that a court, at this point in a case, is unwise to attempt a mini‑trial of the merits of the issues that might otherwise have been ventilated, had the matter proceeded. What Aon and De Mol both say to me today is that if their residual dispute is to go on to its substantive determination, it will still need something in the order of seven days of trial time to then determine.
That prospect presents in circumstances where every other issue in the wider litigation is now resolved, under terms that I have just indicated (including the other parties surrendering any potential costs entitlements as against each other).
I can understand Aon's position in seeking its taxed legal costs as the price of a discontinuance disposition by De Mol. I have read its written submissions closely. I have also listened to the arguments put on its part by Mr Hancy today. Still the core problem that I hold concerning Aon's stance is that it is too self-focused and introspective. It does not consider the wider picture of the disposition as a whole to which it was joined, as it must, and as I will do.
Aon, by my assessment, only looks at its position in the litigation. It does not look more widely to the overall disputation involving multiple battles, occurring as between sometimes seven other parties to the litigation. The very considerable consumption of court time and resources that go with that high level of disputation must be considered. A quelling of that dispute overall by agreement is to be encouraged where sensibly achieved.
Here, it seems to me that observations by Rares J in the Clark v ING Life Ltd [2007] FCA 1960 decision are relevant here. I note what his Honour said at [19] and then at [25] - [32], but particularly his Honour's comments at [25] and [29] upon the nature of litigation:
[25]Courts have always encouraged parties to resolve proceedings without the need for engaging in full litigation of the dispute. There is a good public purpose for that encouragement. It saves the resources of the state from having to be engaged in the resolution of proceedings which the parties themselves are able to bring to an end consensually. And settlements enable parties to resolve differences consensually in ways that cannot necessarily be achieved by orders that courts have powers to make. Litigation is fraught with risk. It is even more risky than providing insurance cover, or as this case shows, taking out insurance policies sequentially with two insurers for the same risk.
…
[29]All these factors would be capable of bewildering ordinary citizens into thinking that litigation of any kind would be risky. Litigation is fraught with its own trauma and stress inevitably associated with committing one's own resources and family to a speculative endeavour. Anything can happen in litigation. Often the experience of the courts, and those who practise in them, is that the unlosable case can be lost and the unwinnable case can be won. Of course, life just does not have the crisp simplicity which hindsight can provide to assess one's past actions. Adept's argument is based on the certainty of hindsight and ignores the reality of natural experience …
Out of respect to the arguments run on behalf of Aon today, that insofar as it contends that had the matter run on, the case of De Mol against it for damages was likely to fail, by the absence of any admissible evidence concerning a market availability in 2010 of a responsive policy that would cover vibration damage caused by sheet piling - that, on my assessment, is unconvincing to me.
There are several answers. Most significantly, I do not have to provide them now. From a 'helicopter' perspective I need only evaluate whether that argument will support Aon's contention that the case against Aon was so demonstrably hopeless that it was always going to fail, and so that it was unreasonable of De Mol to have pursued Aon. I would not reach that conclusion.
In fact, I have to say in all frankness that, as I reviewed the parties' lengthy written trial submissions in preparation for the trial, that it seemed to me that any one of the defendants or the third parties, had they lost, at the end of the trial would then face a potential exposure to being held accountable for multiple sets of legal costs of a 15-day trial. That result may have been the case for Aon and it would then have faced a multi-million dollar exposure.
Costs of a 15‑day trial for one party (in circumstances where I am told that preparation up to trial would have been in the order of about $400,000, and which does not surprise me in the slightest) would have been enough, let alone having to bear multiple sets of costs.
Again, I do not have to finally determine this point, but had I held, for instance, that Aon owed a duty of care to De Mol, and that the Allianz policy (properly construed) did not respond, on the proper construction of exclusion clause 18 (several days' work in its own right) and, then, that the existence of clause 18 and its negative indemnification implications was not made known to De Mol, so that De Mol ended up not being covered by Allianz and, inferentially, Jamac was also not covered by Allianz, there was a real potential here for De Mol to have succeeded, had it been found exposed to the Rodgers. De Mol would then have sought to recover its damages and costs against Aon.
In those circumstances, the damages would have included not just De Mol's exposure to the Rodgers, in terms of anything that De Mol had to pay them (on a basis of an unapportionable Civil Liability Act 2002 (WA) private nuisance exposure, which is perhaps likely, on the state of the current law in Western Australia in terms of unapportionability: see the observations in Marsh v Baxter [2014] WASC 187; (2014) 46 WAR 377 [362] - [365]) - for De Mol would then have been seeking as damages from Aon not just what it had to pay out by way of its liability to the Rodgers, but it would have also been seeking to recover back its costs exposures, as incurred, as consequential losses.
Now, again, I do not now have to resolve any of that as a matter of finality, but only from the 'helicopter' (high altitude) perspective of the whole litigation, and it seems to me that that was a respectably arguable consequential economic loss claim against Aon by De Mol.
In other words, far from assessing De Mol's claims against Aon as being hopeless, misconceived or bound to fail, my assessment was - after 2 1/2 days into the trial - that Aon faced a respectable case from De Mol, and that if it lost, it then faced an exposure not just in money, but also to the damages as suffered by De Mol in terms of its reasonable costs exposures.
Given all that, what is now put before me by De Mol as a 'peace proposal', on the basis of a discontinuance by leave, but with De Mol and Aon bearing their own costs, bearing in mind the surrounding landscape where the other parties, as regards their legal costs, have accepted a similar outcome, looks to me, taking the holistic perspective (ie, taking account of all the litigation not just Aon's position as fourth third party in it), as being a reasonable and sensible commercial outcome that should be promoted and encouraged by the court - rather than rejected.
Hence, I do not assess the present situation as any sort of surrender scenario as regards De Mol. I assess it in the other category - that of there being a seismic shift in underlying circumstances - which certainly occurred between day one and day three in this trial. On that basis I indicate that I would prima facie accede to the position of De Mol, in terms of it having leave to discontinue, on a basis of there being no orders as to costs facing Aon.
As indicated, these reasons will not translate, at this point, to me making orders that the action now be discontinued on that basis. These reasons can now stand in abeyance for the parties to consider. It may be that Aon will seek to put fresh materials before me which it could not to this point submit, bearing upon a decision concerning costs. I will allow the parties seven days, in order to assemble and put any further material before me to that end.
[NOTE: Subsequently, Aon submitted no further materials. There are foreshadowed consent orders as between De Mol and Aon ending their third party proceedings, with no orders as to costs sought.]