TD's Insurance Pty Ltd v Reliance Online Pty Ltd [No 3] - [2023] WASC 118

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   TD's INSURANCE PTY LTD -v- RELIANCE ONLINE PTY LTD [No 3] [2023] WASC 118
CORAM:   CORBOY J
HEARD:   ON THE PAPERS
DELIVERED          :   17 APRIL 2023
FILE NO/S:   CIV 1911 of 2017
BETWEEN:   TD's INSURANCE PTY LTD AND THOMAS JAMES DORING & MATTHEW CHARLES DORING AS TRUSTEES FOR THE PHIL DORING TESTAMENTARY TRUST IN THEIR CAPACITY AS PARTNERS IN AND TRADING AS PHIL DORING INSURANCE BROKERS (RECEIVERS & MANAGERS APPOINTED) and others according to Schedule 1
Plaintiffs

AND

RELIANCE ONLINE PTY LTD
First Defendant

VANTAGE HOLDINGS GROUP PTY LTD
Second Defendant

ANDREW PAUL DONNELLY
First Third Party

KIMBERLEY JAMES HANSON
Second Third Party

Catchwords:

Costs - Interlocutory hearings - Non-compliance with court orders - Whether indemnity costs should be awarded

Legislation:

Nil

Result:

Costs orders made

Representation:

Counsel:

Plaintiffs	:	No appearance
First Defendant	:	No appearance (on the papers)
Second Defendant	:	No appearance (on the papers)
First Third Party	:	No appearance (on the papers)
Second Third Party	:	No appearance (on the papers)

Solicitors:

Plaintiffs	:	No appearance
First Defendant	:	Bennett + Co
Second Defendant	:	Bennett + Co
First Third Party	:	Forbes Kirby
Second Third Party	:	In person

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

TD's Insurance Pty Ltd v Reliance Online Pty Ltd [2022] WASC 15

CORBOY J:

The proceedings

TD's Insurance Pty Ltd and others (the Plaintiffs) operated an insurance broking business (the Broking Business). In October 2015, receivers and managers were appointed to some of the Plaintiffs.
Reliance Online Pty Ltd (Reliance) was a wholly owned subsidiary of Vantage Holdings Group Pty Ltd (Vantage). Mr Donnelly was the chief executive officer of Vantage until 7 January 2016. He was also a director of Reliance until 6 January 2016 and a director of Vantage until 4 March 2016. Mr Hanson was a director of Reliance between 27 October 2015 and 6 January 2016.
In November 2015, the Plaintiffs agreed to sell and Reliance agreed to purchase the Broking Business (the Sale Agreement). Mr Donnelly and Mr Hanson executed the agreement on behalf of Reliance.
Vantage granted a guarantee in respect of the obligations of Reliance under the Sale Agreement. Mr Donnelly executed the Sale Agreement on behalf of Vantage.
In February 2016, the Plaintiffs commenced proceedings against Vantage and Reliance (the Defendants) in the Supreme Court of Victoria. The Plaintiffs alleged breaches of the Sale Agreement, including by Vantage entering into an agreement to sell most, if not all, of its assets and the assets of associated companies, except for its shareholding in Reliance, to PSC Insurance Group Ltd (the PSC Sale).
On 22 February 2016, Elliott J made an order restraining Vantage from dealing with funds obtained from the PSC Sale to an amount of $1 m. The injunction remained in force until 3 November 2016.
The Defendants filed a defence that substantially consisted of denials of the allegations made by the Plaintiffs. Further, in April 2016 they commenced third party proceedings against Mr Donnelly, Mr Hanson and Amicus Legal Pty Ltd. Amicus Legal is a firm of solicitors that the Plaintiffs alleged 'purported' to act on behalf of the Defendants in relation to the Sale Agreement - 'purported' as the gist of the claim made against the firm was that it had acted on instructions from Mr Donnelly who, in turn, was acting without authority and in breach of his duties as a director of the Defendants in negotiating for and making the Sale Agreement.
The statement of claim in the third party proceedings alleged, among other things, that Mr Donnelly and Mr Hanson breached their statutory and common law duties as directors of the Defendants in executing the Sale Agreement. Mr Donnelly and Mr Hanson denied those allegations.
Subsequently, the Plaintiffs' claims against the Defendants were compromised and on 3 November 2016, Eliott J ordered that the proceedings between the Plaintiffs and the Defendants be struck out. By order dated 10 May 2017, his Honour directed that the proceedings be transferred to this court to enable the third party action to be further prosecuted.
The third party proceedings against Amicus Legal were subsequently settled but the Defendants' claims against Mr Donnelly and Mr Hanson proceeded to trial before Le Miere J. His Honour held that Mr Donnelly and Mr Hanson breached their statutory and common law duties as directors of Reliance and Mr Donnelly breached his duty as a director of Vantage: TD's Insurance v Reliance Online Pty Ltd.[1]
[1] TD's Insurance Pty Ltd v Reliance Online Pty Ltd [2022] WASC 15.

The interlocutory proceedings

On 18 March 2019, Acting Master Whitby (as her Honour then was) made orders by consent for discovery and inspection and the filing and service of witness outlines. The orders required witness outlines to be filed and served by 19 April 2019 for the Defendants; 17 May 2019 for Mr Donnelly and Mr Hanson.
The time for compliance with those orders was extended by consent on 27 May 2019 and 18 July 2019. The Defendants filed and served their witness outlines on 1 August 2019.
At a hearing held on 2 September 2019, Registrar Whitby extended the time for Mr Donnelly and Mr Hanson to file their witness outlines to 1 October 2019. Mr Hanson did not comply with the direction, but he filed his witness outline on 1 November 2019.
Registrar Whitby also made orders at the hearing on 2 September 2022 in anticipation of the third party action being entered for trial. The orders included:
(a)Provisionally listing the action for a trial commencing on 9 March 2020.
(b)Requiring the parties to take steps to prepare a trial book of documents. Those steps contemplated a settled book being delivered to the trial judge by 24 February 2020.
On 1 November 2019, the Defendants entered the third party action for a trial commencing on 9 March 2020.
A case management conference was held on 18 November 2019. Mr Donnelly had not filed and served any witness outlines by that time. Further, Mr Donnelly's solicitor, Mr Phillip Kelly of Symons & Co Legal, failed to attend the hearing.
At the hearing, Registrar Whitby withdrew leave for Mr Donnelly to file and serve witness outlines. The Registrar's associate subsequently wrote to Mr Kelly requesting an explanation for his failure to attend the hearing.[2] Mr Kelly provided an explanation by letter dated 19 November 2019.[3]
[2] Affidavit of Alexander James Tharby affirmed 4 March 2020, annexure 'AJT-7'.
[3] Affidavit of Phillip John Mark Kelly sworn 6 March 2020, annexure 'PJMK 7'.
On 26 February 2020, Mr Hanson, who was self‑represented, sent an email to the court requesting that the trial listing be vacated. He expressed concern about his ability to comply with proposed orders for completion of the trial bundle given what he asserted was the Defendants' failure to comply with orders previously made for the preparation of the bundle.[4] The Defendants opposed Mr Hanson's foreshadowed application.
[4] Letter dated 25 March 2020 from Mr Hanson to the associate to Corboy J.
On 28 February 2020, the solicitors for the Defendants communicated with Mr Kelly. They were informed that Mr Donnelly wished to give evidence notwithstanding that he had been denied leave by Registrar Whitby to file a witness outline.[5]
[5] Affidavit of Mr Tharby, par 13.
A directions hearing was held on 28 February 2020. Mr Kelly confirmed that Mr Donnelly sought leave to adduce evidence in the forthcoming trial. The hearing was adjourned to enable an outline of Mr Donnelly's evidence to be prepared so that his oral application could be further considered. Mr Kelly advised that the outline would be available by close of business, 2 March 2020.
The adjourned directions hearing was held on 4 March 2020. An outline of Mr Donnelly's evidence was not provided prior to or at the hearing. Rather, Mr Kelly advised that he had received a draft witness statement on 2 March 2020 which had been prepared by Mr Donnelly. As the statement had apparently not been prepared in consultation with Mr Kelly, or another lawyer, it was not surprising for the court to be advised that it would be necessary to remove 'the objectionable material, of which there is quite a bit' before the statement could be filed and served.[6]
[6] ts 4, 4 March 2020.
The Defendants opposed Mr Donnelly being given leave to adduce evidence in the trial. They filed written submissions on the issue in advance of the hearing on 4 March 2020.[7]
[7] 'Defendants' Outline of Submissions in Opposition to the First Third Party's Application to Adduce Evidence' dated 4 March 2020.
The following directions were made at the hearing:
(a)the trial listing for 9 March 2020 was vacated;
(b)the matter was listed for a strategic conference on 10 March 2020;
(c)the trial was to commence on 12 March 2020 but only for the purpose of an opening address by counsel for the Defendants;
(d)the trial was otherwise adjourned to 20 April 2020;
(e)Mr Kelly was to file an affidavit by 6 March 2020 deposing to the communications between his firm and Mr Donnelly concerning the directions for filing witness outlines;
(f)the costs of the hearing were reserved.
On 6 March 2020, Mr Kelly made and filed an affidavit in compliance with the order made on 4 March. The affidavit contained an account of dealings between Symons & Co and Mr Donnelly, commencing from in or about January 2019. In summary, Mr Kelly stated that:
(a)initially another solicitor, Mr Ennis‑Johns, had the conduct of Mr Donnelly's instructions until about mid‑September 2019;
(b)Mr Donnelly was involved in multiple proceedings in the Federal, Supreme and District Courts;
(c)there were meetings across 2019 in which Mr Donnelly had been informed about the directions made by the court for completing interlocutory steps, including the filing and service of witness outlines;
(d)there were further meetings between Mr Kelly and Mr Donnelly after Registrar Whitby's order had been made on 18 November 2019;
(e)Mr Kelly received the trial bundle from the Defendants' solicitors on 28 February 2020;
(f)on 2 March 2020, Mr Kelly was given a USB stick by Mr Donnelly which was said to contain a draft witness statement and various other documents.
The court made further directions at the strategic conference held on 10 March 2020:
(a)Mr Donnelly was required to file and serve an affidavit by 13 March 2020 setting out the advice received and the steps taken in relation to providing a witness outline;
(b)Mr Donnelly was directed to file and serve the final version of his witness statement by 13 March 2020;
(c)the trial listing on 12 March 2020 was vacated and the matter was listed for a directions hearing on 19 March 2020;
(d)the costs of the strategic conference were reserved.
On 13 March 2020, an affidavit made by Mr Donnelly, and an outline of the evidence he proposed to give in the trial, were filed and served. It is not necessary to canvass the detail of Mr Donnelly's explanation for why he had not filed a witness outline in compliance with previous directions. In summary, he referred to the various proceedings in which he was involved and the demands that the proceedings, and his business commitments, had made on his time. He also complained about the unsatisfactory nature of his dealings with a former employee of Symons & Co.
Further orders were made on 19 March 2020 with a view to a trial commencing on 20 April 2020. The orders included Mr Donnelly being given leave to file and serve a witness outline and a supplementary outline. The Defendants and Mr Hanson were given leave to file further witness outlines in response to Mr Donnelly's foreshadowed evidence. Orders were also made for additional discovery, the provision by Mr Donnelly of written opening submissions and for objections to the tender of documents to be notified in advance of the trial. The costs of the hearing were reserved.

The application for costs

It became necessary to vacate the trial listing in April 2020 because of the disruption to court sittings caused by Covid‑19. The third party action finally went to trial in late 2020 and mid‑2021.
The Defendants have applied for an order that Mr Donnelly pay the costs of and incidental to the hearings on 28 February, 4, 10 and 19 March 2020 'in respect of and arising out of [Mr Donnelly's] failure to comply with Order 5 of the orders made 18 March 2019 (as amended from time to time)' (the order requiring Mr Donnelly and Mr Hanson to file witness outlines, initially by 17 May 2019). As noted above, Mr Donnelly did not comply with any order made for the filing and service of a witness outline prior to the directions hearing on 28 February 2020. The Defendants seek costs on an indemnity basis.
The Defendants contend that Mr Donnelly's failure to comply with the orders made for the filing of witness outlines, and his late application to adduce evidence, caused the trial listing for 9 March 2020 to be vacated and precipitated the subsequent interlocutory hearings for which they seek costs.
In summary, Mr Donnelly put in issue three matters in opposing the Defendants' application:
(a)what had occurred at the directions hearing held on 4 March 2020 and the reasons why the trial listing for 9 March was vacated;
(b)the consequences of his failure to comply with directions for the filing and serving of witness outlines and his application to adduce evidence which was made at the hearing on 4 March 2020;
(c)whether his conduct was such that indemnity costs should be awarded.

The directions hearings on 28 February and 4 March 2020

As previously noted, Mr Hanson applied for the trial listing to be vacated at the hearings on 28 February and 4 March 2020. He supported his application with an affidavit in which he explained why he was not ready for the trial to proceed on 9 March 2020.[8] In summary, Mr Hanson stated that:
(a)The Defendants had not provided their proposed trial bundle until 20 February 2020, contrary to the direction made by Registrar Whitby on 2 September 2019 (the direction required the bundle to be delivered by 28 January 2020).
(b)Mr Donnelly had foreshadowed adding documents to the trial bundle but those documents had not been identified nor had they been provided to Mr Hanson. Further, the Defendants had advised on 20 February 2020 that further documents had been discovered. Those documents were to be added to the trial bundle. It was not possible to prepare for the trial until all documents had been discovered and copies provided.
(c)It was also not possible to comply with directions requiring a chronology to be settled and trial submissions to be prepared until the trial bundle had been completed and reviewed.
(d)Mr Donnelly had foreshadowed seeking leave to file and serve a witness outline. The Defendants' trial submissions were likely to change if leave was granted.
[8] Affidavit of Kimberley James Hanson sworn on 3 March 2020.
Mr Hanson's ultimate submission was that he would be unfairly prejudiced if the matter went to trial on 9 March 2020 as there would be insufficient time for him to review the proposed trial bundle and related documents and any witness outline that might be filed and served by Mr Donnelly. It would also be necessary to consider the effect that a witness outline might have on the Defendants' case.
As noted above, Mr Kelly confirmed at the directions hearings on 28 February and 4 March 2020 that Mr Donnelly sought to file and serve a witness outline. He also applied at the directions hearing on 4 March 2020 to vacate the trial listing. However, no application to vacate had been filed and served and Mr Donnelly had not made an affidavit in support of any such application.
Accordingly, there were two issues considered at the directions hearings on 28 February and 4 March 2020: whether the trial listing for 9 March 2020 should be vacated and whether Mr Donnelly should be granted leave to file and serve a witness outline notwithstanding the order made by Registrar Whitby on 18 November 2019. As Mr Hanson recognised in his affidavit, those issues were potentially inter‑related.
That proved to be so, principally because of aspects of Mr Hanson's defence to the Defendants' claims and the need to ensure that he was not unfairly prejudiced by Mr Donnelly's non‑compliance with the various orders made during 2019 for the filing and service of witness outlines. The effect of Mr Hanson's defence and witness outline was to assert that he was not involved in negotiating the Sale Agreement and that he had relied on various statements made by Mr Donnelly and a solicitor in executing the agreement. That was apparently accepted, at least in general terms, by the Defendants. Their allegation against Mr Hanson was that he ought to have made further enquiries to inform himself of the 'true state of affairs' prior to executing the Sale Agreement - that is, he ought to have informed himself about Mr Donnelly's authority to negotiate and execute the Sale Agreement and the effect that the agreement had on the Defendants' affairs.
Consequently, at least on the pleadings and witness outlines filed and served as at 4 March 2020, any substantive defence to the claims made by the Defendants rested with Mr Donnelly and turned on whether he had breached his statutory and/or common law duties in negotiating and executing the Sale Agreement for the reasons alleged by the Defendants.
The orders that were made at the directions hearing on 4 March 2020 were summarised above. Those orders were made having regard to the following matters:
(a)Mr Hanson had a justifiable concern about the time available to consider the Defendants' proposed trial bundle and further discovered documents. Mr Hanson had been late in complying with the court's directions but he had complied by the time of the hearing on 4 March 2020. Mr Hanson's concerns were apparently genuine.
(b)Mr Hanson's concerns about time could be accommodated by pushing the trial date back by 4 ‑ 5 weeks. Counsel for the Defendants, Mr Bennett, indicated that he could open the Defendants' case prior to 20 April 2020 to assist Mr Hanson in fully comprehending the case he had to meet.
(c)There was no apparent defence to the claims made by the Defendants against Mr Donnelly if he was not permitted to give evidence. The order made by Registrar Whitby on 18 November 2019 was, of course, appropriate given the history of non‑compliance during 2019. However, Mr Donnelly had not been represented at the case management conference and there might have been an explanation for his non‑compliance, and for the non‑attendance of Mr Kelly, that would justify a further review of the order given the consequences for Mr Donnelly. That possibility could be explored by requiring evidence from, initially, Mr Kelly.
(d)There might be an injustice to Mr Hanson if Mr Donnelly was not permitted to give evidence at the trial. Whether that was so would depend on the explanation for Mr Donnelly's non‑compliance and the evidence he might be able to give in the trial.
(e)Mr Kelly's explanations and his proposed witness statement could be relevant to determining any order for the costs of the hearings.

The subsequent hearings

Mr Kelly's affidavit of 6 March 2020 confirmed that he had provided an explanation to Registrar Whitby for his failure to attend the case management conference on 18 November 2019. I accepted that the failure to attend was inadvertent and was caused by miscommunication within the office of Symons & Co; Mr Donnelly was not personally at fault.

However, Mr Kelly's affidavit only provided a partial explanation for Mr Donnelly's failure to comply with the directions made during 2019 for the filing and service of witness outlines. Mr Kelly assumed the conduct of Mr Donnelly's instructions in about mid‑September 2019 and much of his affidavit concerned apparent dealings between other employees of Symons & Co and Mr Donnelly. Further, those dealings appeared to have been largely undertaken on an informal basis. The impression gained from Mr Kelly's affidavit was that Mr Donnelly mostly met with employees of Symons & Co in coffee shops and his instructions, and any advice that he was given, were not properly recorded. Accordingly, the order for Mr Donnelly to provide an affidavit was made.
Mr Donnelly's witness outline:
(a)referred to a number of transactions and dealings concerning the Defendants and other entities;
(b)provided an account of the negotiations for the Sale Agreement and his reasons for pursuing those negotiations;
(c)contained some evidence relating to the claims for loss and damage made by the Defendants.
I granted leave to file and serve the outline having regard to its contents and the possible injustice to Mr Donnelly and Mr Hanson if Mr Donnelly was precluded from giving evidence at the trial. It was still anticipated at the time leave was granted that the trial would commence on 20 April 2020.

Indemnity costs

The Defendants contended that costs for the hearings on 28 February and 4, 10 and 19 March 2020 should be assessed on an indemnity basis having regard to the following matters:
(a)Mr Donnelly's failure to file and serve a witness outline prior to 13 March 2020 and his failure to provide any proper explanation for his non‑compliance with the court's directions during 2019;
(b)Mr Donnelly's application at the directions hearing on 4 March 2020 to vacate the trial listing had been made 'on the fly';
(c)the purpose of the hearings on 4, 10 and 19 March 2020 was to deal with the consequences of Mr Donnelly's failure to comply with the court's directions regarding the filing and service of witness outlines and his late application for leave to adduce evidence;
(d)Mr Donnelly's continued failure to comply with the orders made on 19 March 2020;
(e)the fact that Mr Donnelly was seeking an indulgence in applying for leave to file and serve a witness outline and to be permitted to adduce evidence in the trial given the order that had been made by Registrar Whitby.
The court has a discretion, to be exercised judicially, to award indemnity costs. It may be appropriate to make an indemnity costs order where there has been some element of improper or unreasonable conduct by a party or the party's legal advisers.

Determination

The requirement for directions hearings on 28 February and 4 March 2020 was not solely attributable to Mr Donnelly's failure to comply with the orders made in 2019 about the filing and service of witness outlines. The Defendants' solicitors requested the hearing because of concern over the time required to settle the trial bundle. Mr Hanson applied for the trial dates to be vacated, in part, for that reason.
However, much of the hearings was devoted to the consequences of the order made by Registrar Whitby on 18 November 2019 and Mr Donnelly's foreshadowed application to, in effect, have that order revoked. Further, Mr Donnelly also sought to have the trial dates vacated at the hearing on 4 March 2020 but did not file and serve an application or provide a supporting affidavit prior to the hearing.
The effect of the affidavits made by Mr Kelly and Mr Donnelly has been summarised above. The affidavits did not provide a proper explanation for why Mr Donnelly had failed to comply with the directions made for filing and serving a witness outline prior to 13 March 2020. There was ample time between March and November 2019 for a witness outline to be prepared notwithstanding Mr Donnelly's other court and business commitments. The only explanation offered beyond those commitments was to blame a former employee of Symons & Co. Both that former employee and Mr Donnelly appear to have taken a haphazard approach to the conduct of Mr Donnelly's defence in these proceedings, most particularly in relation to the preparation of any witness outline.
In my view:
(a)Mr Donnelly acted unreasonably in failing to comply with the court's directions for the filing and service of witness outlines prior to the directions hearing held on 28 February 2020. No proper explanation for his default has been provided to the court. That will be reflected in an award of indemnity costs in respect of the directions hearing on 4 March 2020.
(b)The hearing on 10 March 2020 was necessary because an outline of Mr Donnelly's evidence had not been filed and served by 4 March and Mr Kelly's affidavit did not provide a full account of the dealings between his firm and Mr Donnelly that might have explained the failure to comply with the court's orders. Further, it appeared that Mr Donnelly chose to, or had been left to, draft his witness outline without any, or any proper, involvement of his legal advisers. The witness outline was not filed and served until 13 March 2020. That was an unreasonable approach to the preparation of the outline given the trial listing of 9 March 2020 and the circumstances in which Mr Donnelly had applied for leave to adduce evidence and to vacate the trial listing. Moreover, the witness statement and Mr Donnelly's affidavit had not been filed and served by 10 March 2020 so that the hearing time was wasted.
(c)Mr Donnelly's late application to vacate the trial listing was a further instance of his failure to properly consider the conduct of his defence but that, in itself, did not justify an award of indemnity costs given that Mr Hanson's application was already before the court.
(d)The other matters raised by the Defendants did not justify an award of indemnity costs.
In relation to the directions hearing held on 28 February 2020:
(a)Mr Donnelly will be ordered to pay two‑thirds of the costs of the Defendants' appearance at the hearing by counsel and an instructing solicitor;
(b)the apportionment reflects two matters: first, that the hearing was occasioned by concerns over the preparation of the trial bundle by the Defendants and Mr Hanson's ability to properly prepare for the trial in light of those concerns and second, the hearing also considered Mr Donnelly's failure to comply with the directions made in 2019, the effect of his non‑compliance and his foreshadowed application to be permitted to adduce evidence at the trial;
(c)the costs are to be assessed on a party/party basis.
In relation to the directions hearing held on 4 March 2020:
(a)Mr Donnelly will be ordered to pay two‑thirds of the Defendants' costs of the hearing;
(b)the apportionment reflects the same matters referred to above in relation to the hearing held on 28 February 2020;
(c)the costs are to be assessed on an indemnity basis.
In relation to the hearings on 10 and 19 March 2020:
(a)Mr Donnelly is to pay the Defendants' costs of the hearing on 10 March 2020, the costs to be assessed on an indemnity basis.
(b)Mr Donnelly is to pay 80% of the Defendants' costs of the hearing on 19 March 2020. That apportionment reflects the following matters: the hearing was required because of Mr Donnelly's failure to comply by 10 March with the orders made on 4 March 2020; the Defendants were unsuccessful in opposing Mr Donnelly's application for leave to adduce evidence; and there were other matters canvassed at the hearing concerning the conduct of the trial.
(c)The costs of the hearing on 19 March 2020 are to be assessed on a party/party basis.
The effect of those orders is that the Defendants are required to bear one‑third of their costs of the hearings held on 28 February and 4 March and one‑fifth of their costs of the hearing held on 19 March 2020.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TM
Court Officer
17 APRIL 2023