Sayseng v Kellogg Superannuation Pty Ltd

[2007] NSWSC 1009

CITATION:	Sayseng v Kellogg Superannuation Pty Ltd & Anor [2007] NSWSC 1009
HEARING DATE(S):	23.08.07, 29.08.07, 05.09.07
JUDGMENT DATE :	12 September 2007
JUDGMENT OF:	Nicholas J
DECISION:	Para 55
CATCHWORDS:	COSTS – plaintiff’s claim for indemnity costs order against unsuccessful insurer – whether court should otherwise order under Pt 42 r 42.14 – whether successful trustee should pay plaintiff’s costs – whether departure from usual rule justified – whether trustee entitled to indemnity costs order against plaintiff – whether circumstances justify making of Bullock order against unsuccessful insurer to pay costs of successful trustee
LEGISLATION CITED:	Civil Procedure Act 2005, ss 56 - 60 Insurance Contracts Act 1984 (Cth) Supreme Court Rules 1970 Part 22 Uniform Civil Procedure Rules 2005 Part 20, Part 42 r 42.14
CASES CITED:	Colgate-Palmolive Co & Anor v Cussons Pty Ltd (1993) 118 ALR 248 Dias Aluminium Products Pty Ltd v Ullrich Aluminium Pty Ltd (No 2) [2005] FCA 1400 Dodds Family Investments Pty Ltd & Anor v Lane Industries Pty Ltd & Ors (1993) 26 IPR 261 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 Gould & Anor v Vaggelas & Ors (1983 – 1985) 157 CLR 215 Hannover Life Re of Australasia Limited v Sayseng [2005] NSWCA 214 Johnsons Tyne Foundry Pty Ltd v Maffra Shire Council (1948) 77 CLR 544 Oshlack v Richmond River Council (1998) 193 CLR 72 Roads and Traffic Authority of New South Wales and Ors v Palmer (No 2) [2005] NSWCA 140 Sayseng v Kellogg Superannuation Pty Ltd & Anor [2003] NSWSC 945 Diosdado Sayseng v Kellogg Superannuation Pty Ltd & Anor [2007] NSWSC 857 Diosdado Sayseng v Kellogg Superannuation Pty Ltd & Anor [2007] NSWSC 583
PARTIES:	Diosdado Sayseng - Plaintiff Kellogg Superannuation Pty Ltd - 1st Defendant Hannover Life Re of Australasia Ltd - 2nd Defendant
FILE NUMBER(S):	SC 5048/02
COUNSEL:	GB Beauchamp/ J Gollan - Plaintiff VM Heath - 1st Defendant DL Davies SC - 2nd Defendant
SOLICITORS:	Firths, the Compensation Lawyers - Plaintiff Minter Ellison - 1st Defendant Deacons - 2nd Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Nicholas J

Wednesday 12 September 2007

5048/02 Diosdado Sayseng v Kellogg Superannuation Pty Ltd & Anor

JUDGMENT ON COSTS

1 HIS HONOUR: The next question in these proceedings is the appropriate order to be made for the costs of the proceedings which were determined by Bryson J in his judgment delivered on 13 November 2003 ([2003] NSWSC 945), and of the proceedings which were determined by me in my judgment delivered 8 June 2007 ([2007] NSWSC 583).

2 On 13 November 2003 Bryson J made a declaration and orders in the following terms:

“1. Declare that the purported determination by Hannover Life Re of Australiasia Ltd in its letter of 27 April 2000 to William M. Mercer Pty Ltd of the question whether Diosadado Sayseng was in the condition of Total and Permanent Disablement with in the meaning of Group Life Contract No. VGL8034 was void and without effect.
2. Order that it be determined as a separate question in these proceedings whether Diosadado Sayseng was at the time or times relevant to his claim against the Kellogg Retirement Fund in the condition of Total and Permanent Disablement within the meaning of Group Life Contract No. VGL8034.
3. Reserve further consideration of:
(1) directions for the determination of the separate question,
(2) the plaintiff’s claims generally.”

3 On 22 June 2007, to give effect to my conclusions, a declaration and order were made in the following terms:

“1. Declaration that the plaintiff was totally and permanently disabled within the meaning of the insurance contract between the first defendant and the second defendant being Hannover Life Reinsurance of Australasia, Group Life Contract number VGL8034 on and from 21 March 1999.
2. Order that the second defendant pay to the first defendant the sum of $147,055.”

4 The amount was paid to the trustee on 29 June 2007. The question of interest was dealt with as a discrete matter in accordance with my judgment delivered on 8 August 2007 ([2007] NSWSC 857). A ruling on the related question of costs was made on 23 August 2007.

5 The plaintiff seeks orders that the trustee and the insurer pay his costs of both sets of the proceedings before Bryson J on a party/party basis, and that the insurer pay his costs thereafter from 10 February 2005 on an indemnity basis. Alternatively, if he is ordered to pay the trustee’s costs, he seeks a Bullock order against the insurer that the insurer pay them.

6 The trustee seeks orders that the plaintiff pay its costs of both sets of proceedings (except any which the insurer has been ordered to pay) on an indemnity basis, alternatively on a party/party basis, and interest on such costs. It opposes the order sought against it by the plaintiff.

7 The insurer accepts that it should be ordered to pay the plaintiff’s costs of the proceedings before Bryson J on a party/party basis. It opposes an order that it should pay the whole of the plaintiff’s costs of the proceedings before me on the ground that there should be an adjustment in its favour to take account of issues on which the plaintiff was unsuccessful. It opposes the making of the indemnity costs order and the Bullock order sought by the plaintiff.

8 The plaintiff and the insurer accept the trustee’s entitlement to an order for interest on costs.

9 The trustee filed a submitting appearance in respect of, and did not participate in, the hearing of the separate question determined by me.

Preliminary

10 The trustee also made an application that the present question of costs be heard and determined by Bryson J, on the basis that he was uniquely qualified to determine the issues of costs, at least as between it and the plaintiff. It is convenient to deal with this application at the outset.

11 The trustee submitted that as Bryson J had dealt with the evidence and submissions in respect of the various claims by the plaintiff against the trustee, he would be in a preferable position to determine the questions of costs now before me. Neither the plaintiff nor the insurer made a submission about the application.

12 In my opinion the application should be refused. As far as I am aware His Honour has had no involvement in the proceedings since he delivered judgment on 13 November 2003. I am unpersuaded that he is better placed than I am to deal with the costs question raised by the trustee in respect of the hearing before him. The parties came to court on 23 August 2007 prepared to argue their cases on costs on that day, and postponement would result in the incurring of additional costs and delay. In any event, it is not uncommon that a judge is called upon to decide questions of costs in proceedings which were not conducted before him.

13 The exercise of discretion in deciding this application is guided by considerations of justice, efficiency, the elimination of delay, and proportionality of costs (ss 56 – 60 Civil Procedure Act 2005). Those considerations require me to refuse the application.

Background

14 Relevant to the costs question is the following background.

15 On 18 October 1998, after ceasing work, the plaintiff lodged an application with the trustee for a disability benefit on the basis that he was totally and permanently disabled as a result of lower back injury.

16 The insurer rejected the claim on 27 April 2000. The trustee rejected the claim on 9 April 2001 and affirmed that decision on 20 September 2001.

17 On 11 October 2002 the plaintiff commenced these proceedings seeking declarations against both the trustee and insurer to the effect that they ought to have decided that he was totally and permanently disabled.

18 The plaintiff’s entitlement to payment from the trust fund is governed by rule 10 of the membership rules in Schedule I to the trust deed, which provides:

“10 TOTAL & PERMANENT DISABLEMENT
(1) Where, in the opinion of the Trustee, a Member becomes totally and permanently disabled while in service prior to the Normal Retirement Date and where the Trustee has effected a policy of insurance to secure part or all of the benefits payable in accordance with this Rule 10 and the Member becomes totally and permanently disabled within the meaning of the definition of such disablement in that policy, a benefit of the amount specified in sub-rule (3) of this Rule shall be payable in accordance with sub-rule (4) of this Rule.”

19 The scheme of the fund, as it affected the plaintiff and the trustee, and the insurance contract evidenced by the policy as it affected the insurer and trustee was explained by Bryson J in his judgment (paras 7 – 22). In short, the trustee receives the payment of any benefit which the insurer is obliged to pay. The trustee, not the plaintiff, was the insured under the policy. The trustee’s relationship with the plaintiff is governed by the terms of the trust deed. It is required to make a determination of his application for benefits for total and permanent disablement in accordance with rule 10. Thus the plaintiff remained totally dependent for the success of his claim against the trustee on the latter being entitled to payment under the policy (Bryson J, para 66; Hannover Life Re of Australasia Limited v Sayseng [2005] NSWCA 214, per Santow JA, para 41).

20 The challenge to the trustee raised the issue whether it was reasonable for the trustee to reach the decision it did based on the body of material before it. In his judgment (paras 67 – 72), Bryson J described the wide-ranging scope of the plaintiff’s attack and set out his reasons for rejecting it. He also referred to allegations pleaded in the amended statement of claim which were not dealt with by plaintiff’s counsel. He found there was no basis for a finding that the trustee’s decision had miscarried.

21 On 13 January 2005 the plaintiff made an offer of compromise under SCR Part 22 (now UCPR Part 20) in the following terms:

“The Plaintiff offers to compromise the claim upon the following basis:
1. Judgment for the Plaintiff in the sum of $150,000 plus interest at the Supreme Court rate from 1 April 2001 to date of acceptance, plus costs as agreed or assessed.
2. This offer remains open for 28 days.
3. Provided the said sum is paid within 28 days of the date of acceptance then no interest shall be payable thereon. However, in the event that the said sum is not paid within 28 days from the date of acceptance then it is a condition of this offer of compromise that interest at the rate from time to time under Schedule J of the Supreme Court Rules shall be payable from the date of acceptance to the date of payment.”

The offer of compromise was not accepted.

22 The Court of Appeal dismissed the insurer’s appeal on 23 June 2005.

23 On 5 July 2005 the plaintiff made another offer of compromise in the same terms as the offer of 13 January 2005. It was not accepted.

24 The plaintiff’s case against the insurer was successful on the basis that it failed to discharge its duty to him to act in good faith and fair dealing. Accordingly, it was held (Bryson J, para 95) that the opinion or purported opinion of the insurer of 27 April 2000 should not be treated by the Court as an effectual opinion for the purpose of determining liability under the policy, and that the court itself should embark on deciding whether there was total and permanent disablement within the meaning of the policy.

25 Bryson J declared that the purported opinion was void, and ordered determination by the court of the separate question whether there was total and permanent disablement within the meaning of the policy. He deferred making an order disposing of the proceedings against the trustee as he recognised that the trustee might well reconsider the plaintiff’s entitlement again if he obtained a favourable decision against the insurer.

26 The plaintiff succeeded before me in having the separate question determined in his favour, but there were a number of issues which he eventually conceded or lost. These were a claim that he was entitled to be paid direct by the insurer a benefit in the sum of $232,069.28, which was maintained until 27 February 2007, and a claim that the insurer pay him direct the sum of $800,000 by way of an automatic acceptance level (AAL) under the policy, a claim which was first pleaded in the amended statement of claim filed in court during final submissions on 27 February 2007.

Submissions

27 The plaintiff submitted that he was entitled to indemnity costs against the insurer as a result of its failure to accept the offer of compromise of 13 January 2005 before it expired on 10 February 2005. It was put that, in substance and effect, he had obtained an order on the claim which in money terms was no less favourable to him than the terms of offer, with the consequence that he should have an order for indemnity costs under Part 42 r 42.14. It was put that in response to the offer it was open to the insurer to have offered to pay the amount to the trustee for payment out to the plaintiff upon the trustee forming the relevant opinion under r 10, and it was unreasonable not to have done so. Similar submissions were put in respect of the failure to accept the offer of compromise of 5 July 2005. Additionally, it was put that as it was made after the decision of the Court of Appeal the insurer apparently failed to review its position which, had it done so, would reasonably have led to acceptance of the offer.

28 With respect to the costs of the issues of the quantum of the benefit, and the AAL, as I understood it, the plaintiff accepted that it would be appropriate that any order in his favour did not include his costs in relation to these issues. Alternatively, it was put that any adjustment in favour of the insurer to a general order for costs should be minimal.

29 In support of the order sought against the trustee it was put that, because it had decided to insure, the trustee had put itself in a position whereby it was bound by the insurer’s opinion as to whether the plaintiff was in a condition of total and permanent disablement under the policy. The plaintiff could only claim against the trustee, and for that claim to succeed it was necessary for him to vitiate the insurer’s decision to satisfy the second limb of r 10, which governed his entitlement to payment from the fund. He put that he successfully established before Bryson J what was required under the second limb, with the inevitable consequence that the trustee would concede the first. It was argued that, when the proceedings are viewed overall, the plaintiff should be regarded as successful against both the trustee and the insurer in that he has established entitlement to payment from the fund, being a result which should carry with it an order for costs against both defendants. In other words, the plaintiff has ultimately succeeded in the claim defended by both defendants and, accordingly, costs should follow the event. It was also put, in effect, that in the circumstances it was not to the point that the particular challenge to the trustee’s decision failed, a situation which Bryson J recognised by not disposing of the proceedings against it.

30 Alternatively, the plaintiff submitted that if it were found that he was liable for the trustee’s costs, the insurer should pay those costs by the making of a Bullock order. It was argued that, in the circumstances, the plaintiff was compelled to join the trustee as he had no direct claim against the insurer. Furthermore, it was put that, because the success of his claim against the trustee depended upon the latter being entitled to payment under the policy, the insurer effectively controlled the settlement of his claim by the trustee. Accordingly, it was put that the wrongful denial by the insurer of liability under the policy precluded the trustee from meeting the claim. It was submitted that it was not enough for the plaintiff to succeed in vitiating the insurer’s declination of liability. It remained necessary to maintain the claim against the trustee unless and until it formed the opinion required of it under r 10, a situation which the Court of Appeal found Bryson J to have correctly recognised by not disposing of the proceedings against it (Hannover Life Re of Australasia Ltd, para 89).

31 In short, it was put that joinder of the trustee was proper to ensure recovery of the plaintiff’s claim, the root of which was the insurer’s denial of liability. In these circumstances a Bullock order was justified in accordance with the principles considered, for example, in Gould & Anor v Vaggelas & Ors (1983 – 1985) 157 CLR 215 pp 229 ff; 260. In these circumstances it was submitted that it was appropriate to order the insurer to pay the costs of the trustee for which the plaintiff was liable.

32 For the trustee it was submitted that it was wholly successful before Bryson J in defending the plaintiff’s claims, and is therefore entitled to the usual order for costs in its favour. It further submitted that the conduct of the plaintiff in pursuing the allegations against the trustee was so unreasonable or delinquent that he should be ordered to pay its costs on an indemnity basis. It was put that the allegations of breach of trust were groundless, and that due consideration of them would have led to the realisation that his case was hopeless. It was put that these were serious allegations which should not have been made without evidence to support them. Reliance was placed on the reasons of Bryson J (paras 64 – 71) for rejection of allegations, pleaded or otherwise, which he found to be unsubstantiated. Reference was also made to claims made but abandoned during the hearing. In particular, reference was made to the allegations that the trustee’s decision on the disablement issue was tainted by taking into account the insurer’s decision, and/or that it was so unreasonable as to justify the court’s intervention, on which the plaintiff failed. In short, it was put that it was always unreasonable for the plaintiff to make groundless allegations of breach of trust against the trustee which were not necessary for any outcome which he could legitimately hope to have achieved in the litigation.

33 In opposition to the plaintiff’s claim under Part 42, r 42.14 for indemnity costs, the insurer submitted that the offers required acceptance of a judgment in favour of the plaintiff and as such were based on a misconception of the arrangement between the insurer and the trustee and a failure to recognise that he could not obtain judgment for an amount under the policy payable by the insurer to him. It was put that it was not until 27 February 2007 that the plaintiff accepted that the insurer’s liability was to the trustee, and that he was not entitled to judgment against it. It followed, so it was put, that it was reasonable for the insurer not to agree to judgment for the plaintiff as proposed. Further, it was put that acceptance of the offers involved payment of interest at Supreme Court rates, whereas the appropriate basis was under the Insurance Contracts Act 1984 (Cth), which was an additional ground justifying non-acceptance. Another ground was that at the time of the offers the trustee’s opinion stood, and the plaintiff had no entitlement to any payment unless and until both limbs of r 10 were satisfied. In the circumstances, it was argued, that the order sought by the plaintiff should be refused.

34 The insurer also submitted that there should be an adjustment to any general costs order in favour of the plaintiff so as to take into account its success against him on the several issues referred to in para 26 above. In particular, reference was made to the AAL issue and the steps which the insurer needed to take by way of evidence, including that of Miss Nugent and Mr Creely, and submissions to meet it. The Court was also asked to take into account the insurer’s costs of attending court on the directions hearing on 1 August 2007. It was submitted that an order in favour of the plaintiff should be adjusted to allow for the insurer’s success on these issues and in respect of that attendance.

35 The insurer also opposed the plaintiff’s claim for a Bullock order. It submitted that there was no basis upon which it should be required to pay the trustee’s costs, it being the party which succeeded against the plaintiff before Bryson J. It argued that the plaintiff’s decision to join the trustee was not attributable to the insurer’s conduct or to its separate relationship with the trustee. Although the insurer did not assert that it was unreasonable for the plaintiff to join the trustee, it argued that the plaintiff needed to show more to obtain the order he sought.

Consideration

36 As for the plaintiff’s claim against the insurer for an order for indemnity costs for its failure to accept the offers of compromise, I am satisfied that, in all the circumstances, the Court in the exercise of its discretion should not make the order.

37 I uphold the insurer’s submissions to the effect that it was reasonable to conclude that the terms of each offer were based on a misconception of the insurer’s obligations under the policy. In my opinion the insurer is not open to criticism for rejecting a proposal whereby it was required to accept a judgment which could not have been obtained by the plaintiff in the proceedings. Accordingly, I find the insurer has demonstrated the existence of circumstances which justify denying the plaintiff entitlement to indemnity costs under Pt 42 r 42.14.

38 The plaintiff’s claim for an order against the trustee must be rejected upon the application of the usual principle that costs follow the event. His claim for relief against the trustee failed altogether, and nothing was established which justifies departure from the ordinary rule. Accordingly, subject to whether a Bullock order should be made, he should be ordered to pay its costs in the proceedings.

39 The trustee’s claim for an indemnity costs order against the plaintiff attracts consideration of well-established principles. It is to be remembered that the question of the kind of costs order to be made in any particular case is one which requires the judicial exercise of a very wide discretion. A Court must keep in mind that the ordinary rule is that costs follow the event and that the making of an order for indemnity costs is one which should not lightly be made. Nevertheless, it is well settled that, in a particular case, the facts and circumstances may justify the making of an order for the payment of costs on a basis other than a party and party basis.

40 The range of factors which a Court may consider in deciding whether or not it is appropriate to warrant departure from the making of an order on the usual party and party basis is to be found in, amongst other places, Colgate-Palmolive Co & Anor v Cussons Pty Ltd (1993) 118 ALR 248, particularly at p 257. It includes the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions. The range of factors set out in this passage of the judgment of Mr Justice Sheppard are certainly not exhaustive, and his observations have been adhered to by the Courts on many occasions since.

41 However, I have not been persuaded by the trustee that in the circumstances of this case an order for indemnity costs against the plaintiff is justified. In reaching this conclusion I have given close consideration to Bryson J’s analysis (paras 64 – 71). In my assessment, his conclusions do not provide the basis for a finding that the plaintiff’s conduct in litigating the issues against the trustee was so unreasonable or delinquent as to justify an indemnity costs order. His Honour’s observations fall short of such criticism. I have inferred that His Honour accepted the trustee’s submissions for rejecting the plaintiff’s allegations. Further, in the circumstances, it is reasonable to expect that had His Honour seen fit to brand the plaintiff’s conduct in making them as relevantly delinquent, it is probable he would have recorded his opinion in his judgment. That he did not do so strongly suggests that he did not find the conduct of the plaintiff was in the category which would attract an order for indemnity costs. Also relevant to the exercise of discretion is the common experience in the normal course of litigation that issues are raised but not pursued without risk of exposure to an indemnity costs order.

42 I have earlier held that the plaintiff should pay the trustee’s costs in the proceedings. These costs should be paid on a party and party basis.

43 As to the insurer’s claim to a favourable discount for issues on which the plaintiff failed, and for its attendance on 1 August 2007, the approach to be taken is to consider the matter overall, and to make an order which is fair and reasonable in the circumstances (Oshlack v Richmond River Council (1998) 193 CLR 72, para 67). It is well accepted that it will be an appropriate exercise of the Court’s discretion to deprive a party of its costs in respect of an issue which it lost at trial (Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at p 21; Dias Aluminium Products Pty Ltd v Ullrich Aluminium Pty Ltd (No 2) [2005] FCA 1400, para 3). An allocation of costs in cases involving multiple issues in which the successful party had lost on some separate issues can never be done with mathematical precision and, ordinarily, a broad brush approach is to be taken (Fexuto p 52; Dodds Family Investments Pty Ltd & Anor v Lane Industries Pty Ltd & Ors (1993) 26 IPR 261 p 272). Nevertheless, the overriding consideration is to exercise the Court’s wide discretion with regard to the administration of justice in the case.

44 My task is to make an order which, doing the best I can by way of overall assessment, is a fair one. To reflect the plaintiff’s ultimate success, and taking into account the matters raised by the insurer, as well as the acceptance by the plaintiff that some allowance should be made, I propose to order the insurer to pay 90% of the plaintiff’s costs of the proceedings before me on a party and party basis.

45 I now turn to the question whether the insurer should be made to bear the trustee’s costs which, in the normal course, the plaintiff would be ordered to pay. The insurer submitted that it ought not to be made responsible for these costs by way of a Bullock order as sought by the plaintiff.

46 Under a Bullock order the unsuccessful defendant is ordered to pay the plaintiff the costs the plaintiff is ordered to pay the successful defendant, “… or alternatively, and this is the modern form of order, by ordering the unsuccessful defendant to pay the costs of the plaintiff and of the successful defendant” (Johnsons Tyne Foundry Pty Ltd v Maffra Shire Council (1948) 77 CLR 544 per Williams J p 572).

47 The relevant authorities were reviewed by Giles JA in Roads and Traffic Authority of New South Wales and Ors v Palmer (No 2) [2005] NSWCA 140 as follows:

“30 By a Bullock order, from Bullock v London General Omnibus Co (1907) 1 KB 264, a plaintiff who has brought proceedings against two defendants, and has succeeded against one but failed against the other, may obtain an order that the unsuccessful defendant pay the costs the plaintiff has been ordered to pay to the successful defendant. Many forms of words have been used to explain when the order will be appropriate. In Sved v Council of the Municipality of Woollahra (1998) NSW Con R 55-852 at 55,605 I said -

"It is not sufficient for the making of a Bullock order that it was reasonable for the plaintiff to bring the proceedings against both defendants, although sometimes the condition for making a Bullock order is stated in that way (eg Johnsons Tyne Foundry, Pty Ltd v Maffra Corporation (1948) 77 CLR 544 at 556; Altamura v Victorian Railways Commissioners (1974) VR 33 at 35). One statement of principle is that the order may be made where the costs have been reasonably and properly incurred by the plaintiff as between it and the unsuccessful defendant (eg Johnsons Tyne Foundry Pty Ltd v Maffra Corporation at 572-3; Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA Pty Ltd (1984) 157 CLR 149 at 163; Gould v Vaggelas (1984) 157 CLR 215 at 247, 229); it has also been said that the conduct of the unsuccessful defendant must have been such as to make it fair to impose some liability on it for the costs of the successful defendant, or that the conduct of the unsuccessful defendant must show that the joinder of the successful defendant was reasonable and proper to ensure of recovery of the damages sought ( Steppke v National Capital Development Commission (1978) ACTR 23 at 30-31; Gould v Vaggelas at 229; Fennell v Supervision & Engineering Services Holdings Pty Ltd (1988) 47 SASR 6 at 7-8, 15; Lackersteen v Jones (No 2) (1988) 93 FLR 442 at 449). The difference in formulations is probably more apparent than real, as reasonableness as between the plaintiff and the unsuccessful defendant will normally be demonstrated by some conduct of the unsuccessful defendant which made it proper that the successful defendant be joined or that the unsuccessful defendant should bear the costs of the successful defendant. Such conduct was found in Lackersteen v Jones (No 2) in the unsuccessful defendant denying the authority of its agent whereby the plaintiff joined the agent who became the successful defendant, and more widely has been found in the unsuccessful defendant telling that the plaintiff in one way or another that it should look to the successful defendant for its remedy ( Altamura v Victorian Railways Commissioners ; Gould v Vaggelas ; Fennell v Supervision & Engineering Services Holdings Pty Ltd )."

31 In Almeida v Universal Die Works Pty Ltd (No 2) [2001] NSWCA 156 Priestley JA accepted a wide view of relevant conduct of the unsuccessful defendant, saying (at [8]) that "any conduct by the defendant or state of affairs in which the defendant is an integral part which makes it fair and reasonable for other parties to be joined as defendants will be relevant to deciding on fair costs orders". In that case all three defendants were under common control, and his Honour thought it relevant that the unsuccessful defendant had so arranged its affairs that the plaintiff was uncertain who was the occupier or head contractor in charge of work on the site on which the injury occurred. Santow JA preferred to regard the arrangement of affairs as background to the conduct of the unsuccessful defendant in denying that it was the head contractor, that conduct causing a rational plaintiff to join the other defendants.”

See also: Coombes v Roads and Traffic Authority & Ors (No 2) [2007] NSWCA 70 paras 10 ff).

48 As in all cases in which the Court is asked to decide where the burden of costs should lie, the discretion is a wide one to be exercised with regard to the overall requirements of justice in the circumstances of each case.

49 It was not disputed that it was reasonable for the plaintiff to join both defendants. The litigation was triggered by the insurer’s denial of liability under the policy, and by the trustee’s denial of the plaintiff’s claim on the fund. The trustee was necessarily a defendant as it was the only party against which the plaintiff had a direct claim. Thus, essentially, the case concerned the entitlement of the plaintiff as a beneficiary under the fund administered by the trustee.

50 The relationship between the insurer and the trustee, and the trustee and the plaintiff, has been described in many places in these proceedings, including para 19 above. As Bryson J pointed out (paras 66, 67) even if the trustee had reached a conclusion favourable to him, the plaintiff would not have an entitlement to benefit unless insurance were available, as r 10 made the availability of insurance under the policy part of the conditions for payment of the benefit. The upshot was that the plaintiff remained totally dependant for the success of his claim upon the trustee on the latter being entitled to payment under the policy. He was forced to rely on payment by the insurer to the trustee under the policy who, in turn, enabled payment by the trustee to him from the fund (Hannover Life Re of Australasia Ltd paras 41, 57). Thus, the insurer effectively controlled the settlement of claims by members upon the fund.

51 The direct result of the insurer’s denial that the plaintiff was in a condition of total and permanent disablement was that the second limb of r 10 was not satisfied, thereby obliging the trustee to deny the plaintiff’s claim which, in turn, exposed it to the risk of proceedings to challenge the validity of that denial. It follows, in my opinion, that the wrongful conduct of the insurer precluded the trustee from meeting the plaintiff’s claim regardless of the trustee’s bona fide conduct in forming its own opinion under r 10.

52 Shortly stated, the reality was that the plaintiff’s path was blocked as a result of the insurer’s breach of its duty of good faith and fair dealing towards him. Relevantly, in Hannover Life Re Australasia, Santow JA said:

“64 … Mr Sayseng depended upon this "indirect path" not being obstructed by the insurer's unfair dealing towards him. Equally, the insurer depended on Mr Sayseng performing his related obligation of utmost good faith, particularly in matters of disclosure. It therefore should be recognised that a failure by the insurer to give effect to the requirements of the policy, including an obligation of utmost good faith to both the Trustee and employees, would result in a failure to give effect to the expressed contractual intention of the Trustee, namely, to provide retirement benefits to employees. That would indeed result in a failure to give effect to the common intention of the parties, so causing injustice to the third party employee.”

…

“72 … I consider that the duty of good faith and fair dealing should nonetheless apply as between insurer and third party employee. I do so given the latter's total dependence on payment by the insurer to the Trustee in circumstances where that must have been appreciated by all parties to the tripartite arrangement and because, in particular, the policy is held by the Trustee for "the benefit" of the employees in the wider sense of benefit;”

53 Of direct relevance to the present issue are the following observations of Bryson J:

“78 … There was no basis for Mr Sayseng or any other Insured Person to assume that insurance by Hannover was effectively available to them personally, or available in any other manner than the indirect path of their having an entitlement to a payment from the Kellogg Retirement Fund, with the Trustee having a corresponding entitlement under the Group Life Contract to have insurance money paid into the Fund.”
…

“80 In my opinion there is no difficulty about the standing of Mr Sayseng to bring his claim against Hannover, notwithstanding that he is not a party to the insurance policy issued by Hannover. The Trustee as first defendant is a party to the insurance policy, and is a party to this litigation. On a whole view of the trust deed, the Trustee holds the Fund, of which the Policy is an asset, on trust for the persons who, in due administration, are entitled to payments out of the Fund; Mr Sayseng claims that he is such a person and that the Trustee is entitled to insurance moneys, and whether or not he in fact is so entitled can only be established by determining the proceedings as a whole…”

…

89 …Mr Sayseng is not a party to the Group Life Contract and his interests are indirectly but very strongly involved in the decision of the insurer in the manner which I dealt with when considering Mr Sayseng's standing. Both he indirectly and the Trustee directly have interests in compliance by the insurer with its duty to proceed fairly to form its opinion. … It is further supported by the structure of the insurance arrangements in the Group Life Contract, in which fair decision on the entitlement of the trustee to insurance cannot be made without dealing fairly with Mr Sayseng as claimant.”

54 In my opinion, the plaintiff’s submissions should generally be accepted. Upon an overall view of the substance of the plaintiff’s claim in this litigation, the insurer’s conduct in wrongfully denying liability to the trustee under the policy was fons et origo of the proceedings. It was proper to join the trustee to ensure entitlement to the claim (Gould p 260). In the circumstances, in my opinion, it is fair and just that the insurer should bear the consequences by way of an order against it in relation to the trustee’s costs in the proceedings.

55

1. Dismiss the first defendant’s application that the question of costs of the proceedings be heard and determined by Bryson AJ.

2. Order the second defendant to pay the whole of the plaintiff’s costs of the proceedings which were determined by Bryson J in his judgment delivered on 13 November 2003 ([2003] NSWSC 945), and 90 per cent of the plaintiff’s costs of the proceedings which were determined by me in my judgment delivered 8 June 2007 ([2007] NSWSC 583).

3. Order that the second defendant pay the first defendant’s costs of the proceedings, being the proceedings which were determined by Bryson J in his judgment delivered on 13 November 2003 ([2003] NSWSC 945), and the proceedings which were determined by me in my judgment delivered 8 June 2007 ([2007] NSWSC 583), and interest on such costs at the prescribed rate from the dates on which the costs were paid by the first defendant until paid by the second defendant.

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