The Owners - Strata Plan 30791 v Southern Cross Constructions (ACT) Pty Ltd (in liq)

[2019] NSWSC 299

Supreme Court

New South Wales

Medium Neutral Citation:	The Owners – Strata Plan 30791 v Southern Cross Constructions (ACT) Pty Ltd (in liq) [2019] NSWSC 299
Hearing dates:	On the papers
Decision date:	21 March 2019
Jurisdiction:	Equity - Technology and Construction List
Before:	Stevenson J
Decision:	That the plaintiff pay the costs of the eighth defendant, including the costs the eighth defendant incurred as insurer of the seventh defendant less the costs incurred by the plaintiff in obtaining leave to proceed against the eighth defendant
Catchwords:	COSTS – party/party – general rule that costs follow the event – proceedings discontinued or dismissed –defendant company deregistered – defendant’s insurer paid costs of defending proceedings – defendant’s insurer continued to incur costs not knowing of deregistration – insurer joined as defendant – plaintiff discontinued against insurer on sixth day of hearing – whether insurer should have costs incurred prior to its joinder as defendant
Legislation Cited:	Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807; [2004] UKPC 39 Knight v FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28 O’Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559 PM Works Pty Ltd v Management Services Australia Pty Ltd trading as Peak Performance PM [2018] NSWCA 168 Yu v Cao (2015) 91 NSWLR 190; [2015] NSWCA 276
Category:	Costs
Parties:	The Owners – Strata Plan 30791 (First Plaintiff) Albert Bonansea and Ivana Bonansea (Second Plaintiff) Angus John Nicholas Brooks (Third Plaintiff) Julius Wolfgang (Fourth Plaintiff) Roslyn Bainton (Fifth Plaintiff) Michelle Anne Carruthers (Sixth Plaintiff) Alison Pate (Seventh Plaintiff) Vanessa Winley (Eighth Plaintiff) Southern Cross Constructions (ACT) Pty Limited (in liquidation) (First Defendant) Pile & Bucket Pty Limited (Second Defendant) Allianz Australia Insurance Limited (Third Defendant) Northwood Pty Limited (Fourth Defendant) Jeffery and Katauskas Pty Limited (Fifth Defendant) Hughes Trueman Pty Limited (Sixth Defendant) NMK (Aust) Pty Limited (Seventh Defendant) QBE Underwriting Limited as Managing Agent for the Members of Lloyd’s Syndicate 386 (Eighth Defendant)
Representation:	Counsel: A J L Ogborne with A Avery-Williams (Plaintiffs) G E S Ng (Eighth Defendant)   Solicitors: Holman Webb Lawyers (Plaintiffs) Yeldham Price O'Brien Lusk (Eighth Defendant)
File Number(s):	SC 2013/179839

Judgment

1. On the sixth day of the hearing of these proceedings, 3 February 2019, Mr Ogborne, who appears with Ms Avery-Williams for the plaintiff Owners Corporation, informed me that the Owners Corporation proposed to discontinue these proceedings against the eighth defendant, QBE Underwriting Limited.

2. The question now is what costs order should be made in favour of QBE.

3. QBE is the insurer of the seventh defendant, NMK (Aust) Pty Limited.

4. The Owners Corporation joined NMK as seventh defendant on 14 September 2015.

5. On 10 November 2015, QBE assumed conduct of the proceedings on behalf NMK and, apart from a sum of $2,500 (which was the relevant deductible) has paid all of the costs of resisting the Owners Corporation’s claim against NMK since then.

6. The total costs incurred are in the order of $68,000 in addition to which disbursements in the order of $100,000 have been incurred.

7. Unbeknownst to QBE, and I assume the Owners Corporation, NMK was voluntarily deregistered on 16 July 2017. It thereby ceased to exist: s 601AD(1) of the Corporations Act 2001 (Cth).

8. QBE only discovered that fact over a year later, on 20 October 2018. It immediately notified the Owners Corporation which, on 16 November 2018, joined QBE as eighth defendant under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW).

9. The Owners Corporation accepts it must pay QBE’s costs since 16 November 2018: r 42.19(2) of the Uniform Civil Procedure Rules 2005 (NSW).

10. The question is whether the Owners Corporation should also pay QBE the amount of costs it incurred, as NMK’s insurer, prior to that date.

Non-party costs order

11. Prior to 16 November 2018, QBE was not a party to the proceedings. However, on behalf of NMK, it incurred costs in respect of these proceedings since very shortly after its insured, NMK, was joined as seventh defendant.

12. QBE is thus seeking an order in its favour for costs it incurred as a non-party.

13. Mr Ogborne did not suggest that I have no power to make such an order. However he drew my attention to authorities which suggest that the making of an order for the payment of costs in favour of a non-party is “exceptional” and must be treated “with considerable caution”: O’Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559 at [24] (Nicholson J).

14. Although a non-party costs order is seen to be “exceptional”:

“…exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their expense… The ultimate question [being] whether in all the circumstances it is just to make the order”: Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807; [2004] UKPC 39 at [25] (Lord Brown).

15. That passage has been cited by the Court of Appeal on a number of occasions, including in Yu v Cao (2015) 91 NSWLR 190; [2015] NSWCA 276 at [139] and PM Works Pty Ltd v Management Services Australia Pty Ltd trading as Peak Performance PM [2018] NSWCA 168 at [39].

16. Mr Ogborne submitted that one reason I should not make the order as sought by QBE is that there was no basis for the suggestion that the conduct of the Owners Corporation in proceeding against NMK was unreasonable or improper. In that regard, Mr Ogborne pointed to the fact that before the Owners Corporation had joined NMK to the proceedings, NMK had been named as a concurrent wrongdoer in the List Responses filed by three other defendants, Northwood Pty Limited, Jeffrey and Katauskas Pty Limited and Hughes Trueman Pty Limited. Mr Ogborne also submitted that contemporaneous documents recorded that NMK had carried out relevant excavation works.

17. For QBE, Mr Ng submitted that the Owners Corporation should never have brought the proceedings against NMK and that the proceedings were brought “without any proper basis” and were bound to fail.

18. I am not in a position to reach any such conclusion. NMK’s involvement in the shoring works which are the subject of these proceedings did not appear to be extensive but, as there has been no hearing on the merits, I am not in a position to conclude that it would inevitably have succeeded.

19. The further matters put by Mr Ogborne in favour of the proposition that no costs order should be made as sought by QBE were:

“[8]   … any claim by NMK for the payment of its costs in the proceedings prior to deregistration was a chose in action of NMK and, on NMK being deregistered, that property vested in ASIC. As NMK has not been reinstated, that property remains vested in ASIC. The deregistration of NMK under the Corporations Act…had consequences for the parties and the litigation, including preventing the [Owners Corporation] from recovering their costs against NMK. QBE has not sought the reinstatement of NMK. The subsequent joinder of QBE to the proceedings does not provide any basis for circumventing the provision of the Corporations Act…

…

[13]   A company may only apply for voluntary deregistration if the company is not a party to any legal proceedings. In the absence of any explanation as to how NMK came to be voluntarily deregistered on 16 July 2017 at a time when it was a party to these proceedings and its sole director had sworn an affidavit in the proceedings (and, therefore, must have been aware that NMK was a party to the proceedings), the Court should not make an order for the costs incurred by NMK in the proceedings to be paid by any party to the proceedings.

…

[15]   As a result of NMK obtaining voluntary deregistration despite being a party to the proceedings, the [Owners Corporation] were forced to expend costs to obtain leave to take proceedings against QBE. It can hardly be a proper exercise of the costs discretion to order the [Owners Corporation] to pay the costs of NMK in circumstances where the unexplained actions of NMK in obtaining voluntary deregistration caused the [Owners Corporation] to have to expend unnecessary costs.”

20. I do not see these matters as a reason to deny QBE the costs order it seeks. I certainly do not see QBE’s application as one which seeks to “circumvent” the relevant provisions of the Corporations Act. Nor do I see why consideration of the juridical nature of NMK’s claim for costs, now that it is deregistered, requires consideration.

21. The question is whether, in the exercise of the broad discretion I have concerning costs, such an order is required by the interests of justice: Knight v FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28 at 192-193; Yu v Cao at [139] (McColl JA); Dymocks Franchise Systems at [25] (Lord Brown).

22. It may be that the sole director of NMK can be criticised for not informing the parties of his decision to cause NMK to be deregistered. But the fact is that QBE has incurred the costs of defending these proceedings on behalf of NMK, both during the time NMK existed and thereafter when it did not. Until 16 July 2017, those costs were incurred by NMK, albeit with the benefit of insurance cover from QBE.

23. After 16 July 2017, NMK did not exist and did not itself incur costs. But QBE did incur costs as, not knowing of its insured’s deregistration, it continued to fund the defence of the proceedings on behalf of the party that appeared to QBE, and no doubt to the Owners Corporation, to still be the seventh defendant.

24. The Owners Corporation has now abandoned the claim against QBE and thus, in substance, the case that it formerly sought to make out against NMK.

25. As QBE has actually incurred the costs in question, my conclusion is that the appropriate exercise of discretion is to order that its costs include the costs it incurred as NMK’s insurer from 14 September 2015.

26. I find the present case to be “exceptional”, in the Dymocks sense, such as to warrant the making of that order. And I find that, in the circumstances, it is just to make the order.

Gross sum costs order

27. On behalf of QBE, Mr Ng sought a gross sum costs order in the sum of $135,000, being approximately half of the professional fees in fact charged to QBE by its solicitor and all of the disbursements incurred. The primary basis upon which Mr Ng argued for a gross sum costs order was that “it is difficult to imagine a clearer example of a situation in which claims have been brought against an insured and an insurer without any proper basis”.

28. For the reasons I set out above, I am not able to reach any such conclusion. Otherwise I cannot see any basis for ordering a gross sum costs order.

Indemnity costs

29. On behalf of QBE, Mr Ng also sought an order for indemnity costs by reason of various Calderbank and like offers made, including one on 11 January 2016.

30. Many offers were made. At the outset they were “walk away” offers inviting the Owners Corporation to agree to have the proceedings dismissed with no order as to costs. More recently, the offers included provision that the Owners Corporation pay QBE’s costs. Each of these offers, in effect, invited the Owners Corporation to surrender as against NMK, and later against QBE.

31. As the merits of NMK’s case, and later QBE’s case, against the Owners Corporation has not been determined, I am not in a position to conclude that it was unreasonable of the Owners Corporation not to accept those offers.

32. Accordingly, I do not propose to make any order for indemnity costs.

Conclusion

33. Mr Ogborne submitted any order should not include any costs incurred by QBE relating to the deregistration of NMK or the joinder of QBE. In my opinion, that is a matter for the costs assessor.

34. Mr Ogborne also submitted that the costs incurred by the Owners Corporation in obtaining leave to proceed against QBE should be “offset” against the costs order. I accept that submission.

35. I order that the Owners Corporation pay the costs of QBE, including the costs QBE incurred as insurer of the seventh defendant, less the costs incurred by the Owners Corporation in obtaining leave to proceed against QBE.

36. If any party wishes to make a submission as to the precise form of that order, they have liberty to do so by 5pm on 25 March 2019.

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Decision last updated: 21 March 2019