Ryan & Anor v Victorian Managed Insurance Authority
[2007] VSC 474
•23 November 2007
fpar
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PRACTICE COURT
No. 7095 of 2007
| GLENN RYAN and NARDIA PAPAS | Plaintiffs |
| v | |
| VICTORIAN MANAGED INSURANCE AUTHORITY | Defendant |
---
JUDGE: | HOLLINGWORTH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 August 2007 | |
DATE OF JUDGMENT: | 23 November 2007 | |
CASE MAY BE CITED AS: | Ryan v Victorian Managed Insurance Authority | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 474 | |
---
Practice & procedure – Costs – Appeal from VCAT – VCAT ordered that home owners entitled to reasonable costs of enforcing claim under insurance policy – VCAT subsequently ordered home owners to pay some of insurer’s costs under s109 of the VCAT Act – Whether VCAT had power to make latter order – Whether VCAT functus officio
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D Aghion | Rigby Cooke Lawyers |
| For the Defendant | Mr S Stuckey | LMS Lawyers |
HER HONOUR:
The plaintiff house owners (“the owners”) were insured by a company in the HIH group for the purposes of the House Contracts Guarantee Act 1987 (Vic) (“the Guarantee Act”). Part 6 of the Guarantee Act contains what is commonly referred to as “the rescue package”, which was designed to protect house owners who would otherwise have been unable, due to the demise of the HIH group, to recover in respect of damage suffered by them.
The owners sought indemnity under the Guarantee Act for incomplete and defective domestic building works. That claim was settled for $100,000, prior to hearing by the Victorian Civil and Administrative Tribunal (“VCAT”). The owners also claimed to be entitled to interest and an indemnity for their reasonable legal costs; the parties were unable to agree on those matters.
The original VCAT decision
On 27 September 2004, a Senior Member of VCAT found that the owners were entitled to interest, under the Insurance Contracts Act 1984 (Cth).[1] The Senior Member also ordered that:
The [owners] are entitled to have their reasonable legal costs and expenses of enforcing the claim against the [insurer] and such costs are to be paid on an indemnity basis, such costs to be agreed, and failing agreement, to be assessed by the Principal Registrar in accordance with s111 of the Victorian Civil and Administrative Tribunal Act.
[1]VCAT proceeding D339 of 2003.
The first Supreme Court appeal
The insurer appealed against that order to this court. The insurer in both the original proceeding in VCAT and the appeal to this court was Housing Guarantee Fund Ltd. Victorian Managed Insurance Authority, the current defendant, has subsequently assumed the relevant functions and powers of that entity and is now responsible for the administration of the rescue package scheme. I will use the expression ”the insurer” to refer to whichever of Housing Guarantee Fund Ltd and the current defendant was the insurer at the relevant time.
On 23 June 2005, Mandie J allowed the insurer’s appeal in relation to costs. His Honour set aside the Senior Member’s order and ordered that the owners were entitled to have:
… their reasonable legal costs and expenses of enforcing the claim against [the insurer] such costs to be agreed or, failing agreement, to be assessed by the Senior Member of [VCAT].
In his reasons for decision,[2] Mandie J held that the VACT order was clearly incorrect, to the extent that it required the costs to be paid on an indemnity basis. His Honour held that an order in those terms was not supported by the language of the insurance policy, which only entitled the owners to “their reasonable legal costs and expenses of enforcing the claim”.
[2]Housing Guarantee Fund Ltd v Ryan [2005] VSC 214.
His Honour also held that the Principal Registrar had no power to assess costs of the kind involved in the case, because the Victorian Civil and Administrative Tribunal Act1998 (Vic) (“the VCAT Act”) did not empower the Principal Registrar to do so, nor did it enable such power to be delegated to the Principal Registrar. His Honour held that the power to assess costs under s111 of the VCAT Act only related to an order for costs under s109 of the VCAT Act. As no order under s109 was being made, the Senior Member was required to assess the owners’ costs himself.
The VCAT orders of March 2007
After the matter was remitted back to VCAT by Mandie J, the same Senior Member heard further argument on 21 March 2006. For reasons which are not clear to me, he allowed the owners to argue yet again that they were entitled to their costs on an indemnity basis.
Almost a year later, on 5 March 2007, the Senior Member handed down his decision. He rejected the argument that the owners were entitled to indemnity costs, either pursuant to the insurance policy or because they had made a “Calderbank offer” to accept payment of $90,000 in settlement of their substantive claim. Even though he had heard full argument from the parties as to the method by which the costs should be assessed, he chose to make no decision at that time, instead pushing the matter back onto the parties, saying “I will leave the final decision on this matter to the parties unless they cannot agree.” Unfortunately, this meant that a further hearing would need to be held, and yet further costs incurred by the parties.
The Senior Member made the following orders on 5 March 2007:
1.The respondents are [sic] to pay the applicants’ costs of this proceeding on the basis that such costs are the reasonable costs and expenses incurred by the insured associated with the successful enforcement of the claim against the insured [sic] and such costs will commence with the preparation of the applicants’ claim on the insured [sic], such costs will be on a party and party basis and are to be assessed on scale ‘D’ of the County Court Scale.
2.This proceeding is set down for directions hearing at 2.15 pm on 29 March 2007 at 55 King Street, Melbourne before [the Senior Member] to address:
(a)How the applicants’ costs are practically to be assessed and fixed;
(b) The certification of counsel’s fees; and
(c)Any other matters the parties consider should be put before the tribunal.
There are a number of problems with the March orders:
(a) There was only one respondent, as the Senior Member recognised when he later amended the order from “the respondents are” to “the respondent is”.
(b) Referring to the parties both in their capacities as parties and under the insurance policy has led to confusion and error. In VCAT, the insured owners were the applicants, the insurer was the respondent. The order appears to be in error insofar as it refers to “the successful enforcement of the claim against the insured” and “the applicants’ claim on the insured”; in each case the reference to “the insured” should in fact be “the insurer”.
(c) The Senior Member has confused the concepts of costs of the proceeding and costs under the policy. What he was supposed to do as a result of Mandie J’s decision was to make an order that related to costs under the policy. That is not necessarily the same thing as the costs of the proceeding, although some or all of the costs of the proceeding may in fact be recoverable under the policy. The reference to both concepts in his orders led to considerable argument before me as to what the Senior Member might have meant by the phrase “on the basis that such costs are”, in order 1 of his March orders. A further problem is that the reference to “the preparation of the applicants’ claim”, being a reference to things which occurred prior to the commencement of the proceeding, does not sit well with the concept of costs “of this proceeding”.
Notwithstanding the numerous errors in them, there is no appeal against the orders of March 2007.
The orders the subject of this appeal
The Senior Member heard further argument on 10 May 2007, which led to him make further orders on 1 June 2007. At this hearing, as well as dealing with the question of the owners’ costs, the insurer sought:
(a) An order that the owners pay its costs of the remitted costs hearing on an indemnity basis, on the ground that it had served an offer that was more favourable to the owners than the March 2007 orders;
(b) Alternatively, an order that the owners pay the insurer’s costs of the remitted hearing on a party-party basis in accordance with scale D of the County Court scale, under s109 of the VCAT Act.[3]
[3]Section 109(2) provides that “At any time, the Tribunal may order that a party pay all or a specified part of the costs of another party in a proceeding”. Section 109(3) provides that VCAT may make an order under s109(2) only if it is satisfied that it is fair to do so having regard to a number of matters, including the conduct of the parties.
After amending two of the errors in his March 2007 orders, the Senior Member appointed Senior Registrar Jacobs as a special referee to decide the quantum of the owners’ “costs of the proceeding and of the claim” (once again, completely mixing up the two different concepts, when he was only supposed to be dealing with the costs under the policy). The Senior Member then ordered:
8.The respondent shall, in the first instance, pay the applicants’ party and party costs of the special reference assessed on scale ‘D’ of the County Court Scale; with a right reserved to the special referee to give a contrary opinion in respect of which party should bear the costs of the special reference.
9.I certify for the fees of the applicants’ counsel in the sum of $2,800 per day for appearance and $2,000 per half day for appearance.
10.The applicants shall pay the respondent’s costs of the remitter from the Supreme Court ordered by Mandie J in his order of 23 June 2005, such costs to be on a party and party basis assessed in accordance with scale D of the County Court Scale.
11.This hearing is adjourned to a date to be fixed, being a date after the tribunal has been informed by Senior Registrar Jacobs that he has finished his determination as to the applicants’ costs and his opinion as to the party’s [sic] costs of the special reference, together with whether he has an opinion contrary to that of the respondent paying the applicants’ party and party costs of the special reference.
By originating motion dated 4 July 2007, the owners sought leave pursuant to s148 of the VCAT Act to appeal against orders 8, 9 and 10. On 13 August 2007, Master Daly granted leave to appeal only against order 10.
The only question of law raised in the notice of appeal, dated 20 August 2007, is:
Was [VCAT] functus officio in respect of costs of the proceeding before [VCAT] up to and including 5 March 2007, by reason of the order made on 5 March 2007 that the [insurer] should pay the [owners’] costs of the proceeding, including all reserved costs?[4]
[4]I note that the owners did not argue before VCAT that it was functus officio and had no power to make order 10. Rather they made submissions as to whether costs should be ordered against them at all, and, if so, on what basis. However, leave to appeal having been granted by the Master, and the argument raised being a legal one only, I would not dismiss the appeal on the ground that the point was not raised below.
The only ground of appeal is:
The order in respect of costs made on 5 March 2007 provides that the [insurer] is to pay the [owners’] costs of the proceeding before [VCAT]. The proceeding included the remitter from Mandie J, the hearing on 21 March 2006 and the order delivered on 5 March 2007. By consent, that order was amended so as to include all reserved costs. [VCAT’s] power to make any further order in respect of costs of the proceeding was thus discharged on 5 March 2007. There was no express or implied reservation of any right to either party to make any further claim in respect of the costs of the proceeding before [VCAT], unless those costs related to the directions hearing referred to in order 2 of the orders made on 5 March 2007.
The Senior Member’s use of the expression “costs of the remitter” in order 10 is itself ambiguous. Read literally, it means the costs (if any) of remitting the proceeding back to VCAT. However, when one reads his reasons for decision, it becomes clear that what the Senior Member meant by order 10 was that the owners were to pay the insurer’s costs of the hearings since the time of remission back to VCAT. Neither party contended before me that order 10 meant anything other than that; the argument was as to whether he should have made that order at all.
The Senior Member gave the following reasons for ordering that the owners pay the insurer’s costs:
(a) Because the insurance policy did not deal with the insurer’s costs, his only power to award costs in favour of the insurer was division 8, part 4 of the VCAT Act.
(b) On 30 January 2006 (six months after Mandie J’s decision), the insurer had made an offer to the owners to pay their party-party costs of the proceeding on County Court scale D (“the insurer’s offer”); the insurer’s offer had not been accepted.
(c) Because the insurer’s offer was not more favourable to the insurer than the decision of March 2007, he would not use it as a basis for awarding indemnity costs in favour of the insurer.
(d) However, the insurer was more successful in the March 2007 orders than the owners were. It was therefore fair that the owners pay the insurer’s party-party costs of the hearings that have taken place since the remitter.
I agree with the insurer that VCAT had not exhausted its powers in relation to costs when it made order 10. Even if the power under s109(2) of the VCAT Act could only be exercised on one occasion (which seems doubtful), at no time prior to 1 June 2007 had the Senior Member exercised his discretion under s109 in respect of any part of the costs of the proceeding. Prior to that time, he had only dealt with the owners’ contractual entitlement to costs under the insurance policy. I reject the owners’ argument that, in making the March orders relating to costs under the policy, the Senior Member must be taken to have implicitly exercised his discretion under s109(2) and determined not to award costs in favour of the insurer. The only question that was before VCAT when it made the March orders was the issue of the owners’ contractual entitlements. That is sufficient to dispose of the appeal, however, I will respond to a couple of additional points raised by the owners in argument.
The owners argue that there is an “obvious inconsistency” between order 1 of the March orders and order 10. I disagree. The effect of order 1 is that the insurer is to pay the owners’ reasonable legal costs and expenses of enforcing the claim. The effect of order 10 is that the owners are to pay the insurer’s costs for a limited time period, namely since the remission back from the Supreme Court. The fact that there is some overlap in time, which may ultimately lead to a setting off in respect of some costs, does not make the orders inconsistent.
The owners also argue that if the insurer succeeds here, then it could, on any contested warranty claim, recover its costs under s109 at the same time as being contractually obliged to pay an owner’s costs. They argue that such a result would be absurd. Whilst such a result is legally possible (because of the different sources of the power to award costs), it seems unlikely that it would often occur in practice. I reject any suggestion that the decision in this case would lead to a flood of unfair costs decisions in favour of the insurer. That is because the ordinary costs rule in VCAT is that each party bears its own costs of the proceeding (s109(1)). The discretion to award costs under s109(2) may only be exercised where it is fair to do so having regard to certain matters, including the conduct of the parties.
What is unusual in this case is that after Mandie J determined that the owners were not entitled to indemnity costs, they attempted to have another bite at the same cherry after the matter was remitted back to VCAT. Even if I were hearing this as a review on the merits (which I am not), it does not seem to me inappropriate for the Senior Member to have decided that the owners should pay the insurer’s costs of arguing yet again as to whether they should recover indemnity costs.
The appeal will be dismissed.
---
0