Waterman v Gerling Australia Insurance Co Pty Ltd (No 2)

[2005] NSWSC 1111

CITATION:	Waterman v Gerling (Costs) [2005] NSWSC 1111 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	25 October 2005
JUDGMENT DATE :	16 November 2005
JUDGMENT OF:	Brereton J
DECISION:	Orders made on 21 October 2005 are confirmed; defendants to pay plaintiff's costs generally.

CATCHWORDS:	COSTS - plaintiff succeeds on basis not raised until trial - whether severable issue - whether sufficient cause to deprive plaintiff of costs
LEGISLATION CITED:	Insurance Contracts Act 1984 (Cth) Supreme Court Rules 1970 (NSW), Part 52A r33
CASES CITED:	Alltrans Express Limited v CVA Holdings Limited [1984] 1 WLR 394 Anglo-Cyprian Trade Agencies Limited v Paphos Wine Industries [1951] 1 AllER 873 Beoco Limited v Alfa Laval Co Limited [1995] QB 137 Cretazzo v Lombardi (1975) 13 SASR 4, 16 Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 Trade Practices Commission v Nicholas Enterprises Pty Ltd (No. 3) (1979) 28 ALR 201 Hughes v Western Australia Cricket Association Inc (1986) ATPR 40-748, 48, 136 Kaines (UK) Limited v Osterreichische Warrenhandelsgesellschaft (formerly CGL Handelsgesellschaft MBH) [1993] 2 Lloyds Rep 1, 9 Lipkin Gorman v Karpnale Limited [1989] 1 WLR 1340 (CA) Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 423, [4] Murrihy v Radio 2UE Sydney Pty Ltd [2000] NSWSC 318 NRMA Limited v Morgan (No. 3) [1999] NSWSC 768 Waters v P C Henderson (Aust) Pty Ltd (NSWCA, 6 July 1994, unreported)
PARTIES:	John McIntyre Waterman Gerling Australia Insurance Company Pty Limited & anor (No 2)
FILE NUMBER(S):	SC 50184 of 2004
COUNSEL:	I R Pike (plaintiff) M K Condon (defendants)
SOLICITORS:	Lovett & Green (plaintiff) Norton White (defendants)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BRERETON J

16 November 2005

50184/04 John McIntyre Waterman v Gerling Australia Insurance Company Pty Limited & anor (Costs)

JUDGMENT

1 HIS HONOUR: On 21 October 2005, I gave judgment that the defendants pay the plaintiff $59,854.85 (being the sum insured together with interest under the Insurance Contracts Act 1984 (Cth)). I ordered that the defendants pay the plaintiff’s costs. I directed that those orders not be entered until 25 October 2005, in order to enable either party to make application for any special costs order, and to permit the parties to review my calculations of interest.

2 No party has taken issue with the interest calculation.

3 Mr Pike, for Mr Waterman, has pressed for a declaration, as claimed in paragraph 1 of the Amended Summons filed 28 February 2005, in the following terms:-

A declaration that the defendants are liable to indemnify the plaintiff for the sum of $40,000 (hull) and $1,000,000 (liabilities) under a policy of insurance no. VA 982204 (“the policy”) covering the aircraft Piper PA-28-140 registration no. VH BAQ (“the aircraft”) during the period of insurance from 6 June 1998 to 6 June 1999 for the loss of the aircraft on or about 2 January 1999.

4 It is a necessary consequence of my judgment of 21 October 2005 that the defendants are liable to indemnify the plaintiff for the sum of $40,000 (hull) under the policy during the period from 6 June 1998 to 6 June 1999, for the loss on 2 January 1999. A declaration to that effect would add nothing to the relief already granted. The question is whether it is appropriate to make a declaration which extends to the liabilities cover.

5 On the one hand, the litigation was brought by the plaintiff at least in part in order to establish that he was entitled to be indemnified in respect of any liability to third parties arising from the loss. It was for that reason that the proceedings, which otherwise were limited to a claim for $40,000 plus interest, were brought in this court. The litigation was conducted on a basis which did not depend on any distinction between the hull cover and the liabilities cover.

6 On the other hand, although an attempt on behalf of the Insurers to adduce evidence that there was no other passenger on board than one who has already made a claim in District Court proceedings which were discontinued and otherwise settled on terms not to be disclosed, and that there was no other person entitled to make a claim for any loss in relation to the accident, was rejected by me as being prejudicially late, it remains the position that there is no evidence of any loss which would attract the liabilities cover. Were a claim to be made in respect of any such loss, questions not agitated in these proceedings (such as whether there had been due notification of the claim) might arise. A declaration that the defendants are liable to indemnify the plaintiff for $1,000,000 (liabilities) under the policy in respect of the loss would go too far, because there is no evidence that as a result of the loss the plaintiff has incurred liabilities to any extent, let alone to the extent of $1,000,000, and in respect of any individual claim against the plaintiff, there might be grounds particular to that claim upon which the defendants could decline indemnity. The furthest a declaration could appropriately go would be the extent of any issue estoppel established by my judgment of 21 October, which holds that the insurers are estopped from denying that the policy remained on foot as at the date of the loss.

7 In those circumstances, I do not think that any declaration is appropriate.

8 On the question of costs, Mr Condon submitted that the plaintiff should pay all of the defendants’ costs up to the date of the trial (when the reply was filed), or a significant proportion of the defendants’ costs of the proceedings generally, or alternatively that there should be no order as to costs. Although he formally applied to set aside or vary the costs order pronounced on 21 October, I indicated that the intent of the orders of that date was not to require any party to take such a course, but to leave the question of costs open for argument afresh if either party wished to do so. I have considered the costs question on the basis that my provisional order of 21 October does not have the effect of imposing any burden on the Insurers to displace it.

9 Mr Condon argued that:-

· The plaintiff had succeeded on one only of four main issues;

· That issue was only raised on the day of the hearing itself when leave was sought to file the reply;

· The application for leave to file a reply came very late and occupied a considerable time on the date of trial;

· Until the hearing, the plaintiff’s claim was founded on grounds which were ultimately rejected; and

· At the time when the proceedings were commenced, Supreme Court Rules, Pt 52A r 33 had the effect that the plaintiff was not entitled to costs where he recovered not more than $225,000, unless it appeared that there was sufficient reason for commencing or continuing the proceedings in this court.

10 The starting point is that the plaintiff, having been successful, is entitled to his costs. It is for the defendants to establish a basis for departing from that rule. A successful plaintiff who has failed on certain issues may be deprived of costs on those issues, or even ordered to pay the defendant’s costs of them [Hughes v Western Australia Cricket Association Inc (1986) ATPR ¶40-748, 48, 136]. But this course, while open, is one on which the court embarks with hesitancy [Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 423, [4]; Cretazzo v Lombardi (1975) 13 SASR 4, 16; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261; Trade Practices Commission v Nicholas Enterprises Pty Ltd(No. 3) (1979) 28 ALR 201; Waters v P C Henderson (Aust) Pty Ltd (NSWCA, 6 July 1994, unreported); NRMA Limited v Morgan (No. 3) [1999] NSWSC 768]. From these cases emerge consistent themes that:-

· Justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case; but

· It may be appropriate to award costs of a separate issue where a clearly definable and severable issue, on which the otherwise successful party failed, has occupied a significant part of the trial.

11 In Beoco Limited v Alfa Laval Co Limited [1995] QB 137, Stuart-Smith LJ (with whom Peter Gibson and Balcombe LJJ concurred) said that as a general rule [at 154]:-

… where a plaintiff makes a late amendment as here, which substantially alters the case the defendant has to meet and without which the action will fail, the defendant is entitled to the cost of the action down to the date of amendment.

12 This statement of principle, which was supported by reference to authorities [including Anglo-Cyprian Trade Agencies Limited v Paphos Wine Industries [1951] 1 AllER 873 (Devlin J) and Lipkin Gorman v Karpnale Limited [1989] 1 WLR 1340 (CA)], was applied in this court by Studdert J in Murrihy v Radio 2UE Sydney Pty Ltd [2000] NSWSC 318.

13 In Anglo-Cyprian Trade Agencies, the plaintiff had claimed £2,028, being the full value of certain wine bought by it from the defendant which the plaintiff said was valueless by reason of the defendant’s breach of contract. The defendant, while disputing breach of contract, contended that any defect could be cured by a modest and inexpensive remedy. At trial, the plaintiff amended to claim damages on that alternative basis. Devlin J rejected the claim for £2,028 but allowed £52 on the alternative basis, and awarded the defendant the entire costs of the action. It is readily apparent that the defendant was the true victor.

14 In Alltrans Express Limited v CVA Holdings Limited [1984] 1 WLR 394, the plaintiffs claimed £82,500 for breach of warranty on the sale of shares, but recovered £2 nominal damages. The Court of Appeal reversed a costs order in favour of the plaintiffs, and awarded costs to the defendant on the basis that in truth the defendant was the successful party.

15 In Lipkin Gorman, the plaintiffs claimed £250,000, adding by late amendment a claim for conversion of a bankers’ draft in the sum of £3,375. They failed on all but the claim for the £3,375. The Court of Appeal awarded the defendants the cost of the action down to the date of amendment (and 80% of the costs thereafter), on the basis that the defendants were the winners, subject to there being a discount in respect of the modest extent to which the plaintiffs had succeeded.

16 In Beoco, the plaintiffs propounded a claim of about £720,000 (with which interest came to about £1,000,000) for breach by the defendants of a contractual warranty in respect of design, selection of materials and workmanship of a heat exchanger which exploded. By a very late amendment, the plaintiffs raised an alternative claim for a lesser sum calculated on an entirely different basis [see Beoco, 148H-149A]]. Ultimately, the Court of Appeal limited still further what was recoverable on the alternative claim [see Beoco, 153D-E]]. It was part of the basis of the decision to award costs to the defendant that the defendant “was substantially the successful party because the plaintiff was aiming at recovering a sum in the order of £1,000,000, whereas all that it succeeded in getting was judgment for damages to be assessed, which on any basis were likely to be more modest” [see Beoco, 153G]].

17 Accordingly, although the general rule, as stated in Beoco, is said to be that, where a plaintiff makes a late amendment which substantially alters the case the defendant has to meet and without which the action would have failed, the defendant is entitled to the costs of the action down to the date of the amendment, this “general rule” has emerged in the context that though the late amendment has resulted in some slight measure of success for the plaintiff, ultimately the true victor, having regard to the case as a whole, has been the defendant.

18 It is true that that was not so in Murrihy, in which the plaintiff succeeded in having a jury find that two of the three imputations which he pleaded were conveyed by the matter complained of and were defamatory of him, those imputations having been added by amendment at the outset of the trial. Studdert J regarded it as significant that it was conceded that the plaintiff could not have succeeded on the claim as pleaded before that amendment [Murrihy, [8]-[9]].

19 In Beoco, Stuart-Smith LJ acknowledged that there were circumstances in which what his Lordship described as “the general rule” should not be applied, referring to Kaines (UK) Limited v OsterreichischeWarrenhandelsgesellschaft(formerly CGL Handelsgesellschaft MBH) [1993] 2 Lloyds Rep 1, 9. In that case, the judge was satisfied that, even had the amendment been made earlier, the action would have been vigorously resisted; the defendant’s witnesses were disbelieved; and the plaintiff recovered substantial damages. Steyn J said:-

Then I come to the question of costs. Here what is stressed on behalf of the defendants is there was an eleventh hour amendment which changed the nature of the plaintiffs’ case. That is perfectly true. It is also perfectly true that the plaintiffs have been beaten down in respect of the amount recovered considerably. On the other hand, they have recovered very substantial damages and that has been the result of an acceptance of the evidence of their witnesses and the rejection of the evidence of the defendants’ witnesses. What is of importance, I think, is that if that amendment had been made at a very much earlier stage, it is clear that this claim would still have been vigorously resisted. In my judgment, there is no reason why in exercise of my discretion I should make any special order for costs. I order that the plaintiffs are entitled to their costs.

20 In the present case, the plaintiff has recovered in substance what he sought at the outset, albeit not on the legal basis originally articulated. It cannot be said that, despite nominal success for the plaintiff, the defendants were the true victors.

21 The estoppel issue was raised, not as part of the claim, but by way of reply to the defences asserted by the Insurers. Although it is correct that the estoppel issue was not formally pleaded until the reply was filed by leave at the hearing on 15 September 2005, Mr Waterman’s affidavit, which had been served in May 2005, deposed to facts which could only have been relevant to a case based on waiver or estoppel. Formal notice of intention to seek leave to file the reply was given on behalf of the plaintiff about a week before the trial.

22 The present case is one in which I can be satisfied that, had the reply been filed earlier, the defendants would still have vigorously resisted the claim: they resisted an early application for leave to substitute the insurers as defendants for AAIG which had initially been named as defendant; they came to the final hearing armed with submissions as to why the reply should not be allowed to be filed; they then developed substantial arguments as to why the claim based on estoppel, if allowed, should not succeed; and after judgment was reserved, they filed further written submissions on the estoppel issue.

23 Had estoppel been pleaded at outset, it is difficult to identify any part of the proceedings which would have been avoided: there still would have been a need to file a summons, to attend on several directions hearings, and to attend at the trial. The evidence relevant to the estoppel issue substantially overlapped that on the Insurance Contracts Act issue. The additional evidence directed only to estoppel was ultimately only one paragraph of Mr Waterman's affidavit. It cannot be said that a substantial part of the proceedings was occupied by a severable issue on which the plaintiff failed.

24 Both parties have litigated this claim in the Commercial List with senior and junior counsel. On the Insurance Contracts Act point, it involved an issue of difficulty and importance. There was sufficient reason - including the application for declaratory relief, and that the availability of the liabilities cover of up to $1 million was at stake, even if not directly - to commence and continue it in this Court.

25 Ultimately, the plaintiff had to resort to litigation to obtain indemnity under a policy which, on the findings contained in my 21 October judgment, the insurers ought to have paid. In those circumstances and given the relatively small quantum of the claim, it would be a significant injustice to the plaintiff were he not also to recover his costs.

26 Thus:-

· this is not a case in which the defendants were the true victors. The plaintiff succeeded in substance;

· there was earlier notice of the estoppel issue, though it was not formally pleaded until the trial;

· the claim would have been resisted, whenever the estoppel issue was raised;

· the issues on which the plaintiff failed were not clearly severable; and

· the case was appropriately litigated in the Commercial List.

27 No one of those reasons is decisive. But together they distinguish the case from those in which the Beoco rule applies, and those in which an otherwise successful party might be deprived of costs on a severable issue, and produce the result that there is insufficient reason to depart from the prima facie position that the successful plaintiff is entitled to his costs.

28 The orders which I made on 21 October 2005 are therefore confirmed, and the defendants are to pay the plaintiff’s costs.

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17/11/2005 - - Paragraph(s)