Wynne v Insurance Commission of Western Australia - [2009] WADC 138

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: WYNNE -v- INSURANCE COMMISSION OF WESTERN AUSTRALIA [2009] WADC 138

CORAM: SLEIGHT DCJ

HEARD: 6 FEBRUARY & 13 AUGUST 2009

DELIVERED : 4 SEPTEMBER 2009

FILE NO/S: CIV 1624 of 2007

BETWEEN: MARK IRVINE WYNNE
Plaintiff
AND
INSURANCE COMMISSION OF WESTERN AUSTRALIA
Defendant

Catchwords:

Motor vehicle accident - Cross-actions by plaintiff and third party for damages for negligence - Defendant insurer for both the plaintiff and the third party - Insurer declines to exercise right of subrogation on either claim - Insurer requests plaintiff to plead in action by third party that third party guilty of contributory negligence for failing to wear a seatbelt - Plaintiff's claim dismissed and third party's claim allowed subject to contributory negligence for failing to wear a seatbelt - Whether plaintiff can claim costs incurred in actions and subsequent appeals under terms of insurance policy - Counterclaim and set-off claimed on costs awarded to third party

Legislation:

Motor Vehicle (Third Party Insurance) Act 1943

Result:

Claim and counterclaim dismissed

Representation:

Counsel:

Plaintiff: Mr R I Viner AO QC & Mr K H M Wong
Defendant: Mr R Sands

Solicitors:

Plaintiff: Friedman Lurie Singh & D'Angelo
Defendant: Talbot Olivier

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

Commercial & General Insurance Co Ltd v Government Insurance Office of NSW (1973) 129 CLR 374
Insurance Commission of Western Australia v Leigh & Ors (2001) 34 MVR 179
Oram v Hutt [1914] 1 Ch 98
Thornton Springer v NEM Insurance Co Ltd [2000] 2 All ER 489
Wesfarmers Federation Insurance Ltd v Stephen Wells t/a Wells Plumbing [2008] NSWCA 186
West Wake Price & Co v Ching [1956] 3 All ER 821
Woodside Petroleum Development Pty Ltd and others v H & R ‑ E & W Pty Ltd (in liq) & Anor, unreported; FCt SCt of WA; Library No 990124A; 16 March 1999
Wynne v Pilbeam & Anor [2003] WADC 258
Wynne v Pilbeam & Anor [2006] HCA Trans 493
Yellow Express Carriers Ltd v Government Insurance Office of New South Wales, (1960) SR (NSW) 227

SLEIGHT DCJ: This case concerns a claim for costs against the defendant ("ICWA"), which is the statutory third party insurer, in circumstances where there were conflicting claims by two claimants arising from a motor vehicle accident. The case has general importance in the conduct of conflicting claims in this State.
The plaintiff, Mr Wynne, was involved in a serious motor vehicle accident on 7 March 2000. Shortly after sunrise he was driving a Mazda coupe motor vehicle in an easterly direction in Hale Road, Wembley Downs and collided with the rear of a rubbish truck. Mr Wynne suffered serious injuries and is now an incomplete quadriplegic. The driver of the rubbish truck, Mr Pilbeam, was also injured. At the time of the collision, Mr Pilbeam was positioned in the rubbish truck but was not wearing the seatbelt provided.
Both Mr Wynne and Mr Pilbeam made a claim against the other alleging negligence and seeking damages for personal injuries. Both Mr Wynne and Mr Pilbeam were insured against liability for a claim for damages for personal injury arising from a motor vehicle accident under a compulsory third party insurance scheme pursuant to the Motor Vehicle (Third Party Insurance) Act 1943. Mr Wynne also made a claim against the City of Stirling as the employer of Mr Pilbeam and the City of Stirling was insured with the defendant ICWA.

History of proceedings

In or about August 2000 Mr Wynne instructed solicitors D'Angelo & Partners to act on his behalf. The solicitor in charge of the file was Mr John Cooke, a partner of the firm.
By letter dated 29 August 2000 D'Angelo & Partners, acting on behalf of Mr Wynne, gave notice to ICWA of Mr Wynne's intention to claim damages for personal injuries sustained in the motor vehicle accident. It requested that the letter be treated as a notice of intention to claim pursuant to the provisions of the Motor Vehicle (Third Party Insurance) Act 1943 and enquired as to the attitude of ICWA on the issue of liability.
By letter dated 4 September 2000 ICWA wrote to D'Angelo & Partners advising as follows:
"Enquiries have been completed, and we are of the opinion that Roger Kim Pilbeam, the driver of the other vehicle was not negligent.
Regrettably, liability for your client's claim is denied."
By letter dated 24 September 2001 D'Angelo & Partners wrote to solicitors Marks Healy (the solicitors then acting for ICWA) advising that Mr Wynne would be commencing proceedings against the driver of the other vehicle (Mr Pilbeam) and the City of Stirling (the owner of the vehicle and Mr Pilbeam's employer).
Mr Pilbeam had also given notice of an intention to claim damages for personal injuries arising from the accident. No evidence was presented of the immediate response of the ICWA to this claim. However, according to Mr McKelvie, who gave evidence on behalf of the defendant, ICWA took the attitude that as insurers for both drivers, it had a conflict of interest. Therefore it could not admit either claim and left the two respective claimants to resolve the issue of liability between themselves.
As a result of the attitude of ICWA, Mr Pilbeam commenced proceedings in the District Court of Western Australia seeking damages against Mr Wynne for personal injuries suffered by Mr Pilbeam in the accident (Action No 1941 of 2001). Likewise, Mr Wynne commenced an action in the District Court against both Mr Pilbeam and the City of Stirling (Action No 1037 of 2002).
By letter dated 15 November 2001 D'Angelo & Partners wrote to Marks & Sands stating as follows:
"6.We further note that the solicitors for the driver, Simon Walters, has indicated that they have been endeavouring to serve the writ on our client without success. We are presently awaiting instructions from our client to accept service.
7.We do note that if we are instructed to defend the action, we would appreciate if you could obtain the Insurance Commission's instructions as to whether they would be indemnifying our client in respect of the costs incurred in relation to defending the action, given that we would be prepared to advise our client that the Insurance Commission equally could be instructed to act on our client's behalf in relation to the action launched by Mr Pilbeam on the proviso that our client does not waive his entitlements to pursue any claim against the City of Stirling and/or Mr Pilbeam.
8.Alternatively if an action is commenced against our client, we will clearly obtain from our client instructions with regards to commencing third party proceedings against the Insurance Commission pursuant to the policy of insurance that our client would have had with the Insurance Commission in respect of the motor vehicle accident."
By letter dated 19 June 2002 D'Angelo & Partners again wrote to Marks & Sands stating as follows:
"We would appreciate confirmation from your client, the Insurance Commission of Western Australia, that they will indemnify our client in respect of costs associated with defending the action against Mr Pilbeam and avoid the necessity of issuing third party proceedings."
By letter dated 30 August 2002 D'Angelo & Partners wrote to solicitors Talbot Olivier (who were then acting for defendant ICWA) stating as follows:
"We would appreciate if you could kindly confirm whether it would be necessary to issue third party proceedings against the Insurance Commission of Western Australia and whether your client would be agreeable to providing us with an indemnity in relation to the costs associated with the claim by Mr Pilbeam against Mark Wynne."
By letter dated 9 September 2002 Talbot Olivier wrote to D'Angelo & Partners stating as follows:
"Please note that entirely on a without prejudice and without admission of liability basis, we are meeting with Mr Pilbeam's lawyers at a settlement conference at the Insurance Commission on 16 September 2002 at 2.30 pm to discuss possible settlement of Mr Pilbeam's claim."
The letter did not address the issue of indemnity for costs raised in the letter from D'Angelo & Partners dated 30 August 2002.
By letter dated 4 November 2002 D'Angelo & Partners again wrote to Talbot Olivier stating as follows:
"We would appreciate if you could advise of your client's position and whether it would be necessary to issue third party proceedings in relation to District Court Action No 1941 of 2001."
By letter dated 14 November 2002 Talbot Olivier wrote to D'Angelo & Partners stating that they were seeking their client's instructions in respect to Mr Wynne's costs of the proceedings. The letter further stated as follows:
"Our client has instructed us to request that you amend the defence to plead Mr Pilbeam's contributory negligence in that he was not wearing a seat belt at the time, which was contrary to the instructions from his employer."
By a further letter dated 5 February 2003 Talbot Olivier wrote to D'Angelo & Partners stating as follows:
"We refer to previous correspondence in relation to your inquiry as to whether our client is prepared to indemnify your client in respect to the costs of the claim by Mr Pilbeam against your client.
We are instructed to advise you that the Insurance Commission is not prepared to provide any indemnity relating to costs. Any liability of the Insurance Commission to pay costs is dependent on the outcome of the District Court proceedings.
Please advise when you will be amending the defence to plead contributory negligence for Mr Pilbeam's failure to wear a seat belt."
By letter dated 13 February 2003 D'Angelo & Partners again wrote to Talbot Olivier raising the issue of an indemnity for costs and asked that Talbot Olivier raise the matter again with ICWA. The letter concluded by stating:
"We reserve the right to bring an application for third party proceedings after the matter has been listed for a pre‑trial conference."
By an order made by consent on 22 November 2002 it was ordered that the trials on liability in Action No 1941 of 2001 and Action No 1037 of 2002 be heard concurrently before the same trial Judge.
In relation to the claim by Mr Pilbeam against Mr Wynne, the defence filed by Mr Wynne's solicitors in Action No 1941 of 2001 included as requested by ICWA a plea that Mr Pilbeam was guilty of contributory negligence by failing to wear a seat belt. Mr Wynne also pleaded other grounds of contributory negligence. Of course, the pleading that Mr Pilbeam was guilty of contributory negligence by failing to wear a seat belt, could only be for the benefit of ICWA as the compulsory third party insurer of Mr Wynne.
The costs implications of the competing claims being heard together was not resolved by the parties before trial. Mr Cooke's evidence was that he did not turn his mind to all the possible ramifications [T31]. Further, no third party proceedings were commenced by Mr Wynne against ICWA.
Both actions came on for trial as to liability only before his Honour Judge Macknay in the District Court and in a decision handed down on 25 November 2003 his Honour dismissed the claim by Mr Wynne and allowed the claim by Mr Pilbeam. However, his Honour found that Mr Pilbeam had been guilty of contributory negligence by failing to wear a seat but left the question of the extent to which Mr Pilbeam's claim for damages should be reduced to be assessed by the Judge dealing with the issue of damages (see Wynne v Pilbeam & Anor [2003] WADC 258).
Without any express agreement or approval by ICWA, Mr Wynne lodged an appeal in both actions. The appeals were dismissed by the Full Court in a unanimous decision delivered on 21 October 2005 (see Wynne v Pilbeam & Anor [2005] WASCA 200).
Mr Wynne's solicitors then lodged an application for special leave to appeal to the High Court. Again this was done without any express agreement or approval by ICWA. The application for special leave was dismissed by the High Court (see Wynne v Pilbeam & Anor [2006] HCA Trans 493).
It is not disputed that ICWA was kept informed as to the progress of the proceedings, including the appeal proceedings. This was because the City of Stirling was also a party to all proceedings and was insured by ICWA (although not the Motor Vehicle Personal Injury Division) and was represented in such proceedings by ICWA's solicitors, Talbot Olivier.

The pleadings

(a) Statement of claim

In an amended statement of claim dated 6 February 2009 the plaintiff, Mr Wynne pleaded that:
(i)it was a term of the policy of insurance pursuant to s 4 of the Motor Vehicle (Third Party Insurance) Act 1943 that the plaintiff would be insured in respect of liability for negligence (par 4);
(ii)that with the knowledge and acquiescence of the defendant, the plaintiff instructed solicitors and counsel to defend the action commenced by Mr Pilbeam and further on instructions of the defendant pleaded that Mr Pilbeam was guilty of contributory negligence for failure to wear a seatbelt (par 7 of the statement of claim);
(iii)that the plaintiff incurred legal costs in defending the action commenced by Mr Pilbeam, pursuing an appeal to the Full Court and making applications for special leave to the High Court (par 12 of the statement of claim);
(iv)that by reason of the matters pleaded, the plaintiff suffered a liability for negligence. The plaintiff particularised this liability to be:
(a)the damages recoverable or recovered by Mr Pilbeam;
(b)the legal costs incurred by Mr Pilbeam;
(c)the legal costs incurred by the plaintiff in both actions, the appeal to the Court of Appeal and the application for special leave to the High Court.
(v)that by reason of defending the action by Mr Pilbeam and alleging contributory negligence and pursuing these matters to trial, an appeal and an application for special leave, the plaintiff acted in the interests of the defendant (par 13A of the statement of claim);
(vi)that the plaintiff is entitled to be indemnified by the defendant for all liability incurred by the plaintiff.

(b) Defence

In a Further Amended Defence and Counterclaim dated 5 February 2009 the defendant pleaded:
(i)that it denied it acquiesced with the plaintiff commencing an action or defending the claim of Mr Pilbeam and that the solicitors for the defendant wrote to the plaintiff's solicitors by letter dated 5 February 2003 informing them that the defendant was not prepared to provide any indemnity to the plaintiff in relation to costs (par 2 of the defence document);
(ii)that it denied the plaintiff was insured under the insurance policy for any of the liability claimed except the damages recoverable or recovered by Mr Pilbeam and any reasonable costs incurred by Mr Pilbeam in pursuing his claim for damages for personal injuries but not including any costs incurred by Mr Pilbeam in defending the claim brought by the plaintiff (par 3 of the defence document);
(iii)alternatively, the plaintiff failed to comply with s 10(5) of the Motor Vehicle (Third Party Insurance) Act 1943 as amended by entering upon and incurring the expense in litigation without the consent in writing of the defendant and accordingly is not entitled to an indemnity in respect of costs incurred by the plaintiff in the litigation;
(iv)that costs order were made against the plaintiff in Action No 1037/02, in the decision of the Full Court and by order of the High Court being the costs incurred by Mr Pilbeam and the City of Stirling. The defendant has paid costs of $60,000 to Mr Pilbeam in relation to these proceedings relating to the defence by Mr Pilbeam of the plaintiff's claim and appeals and the defendant seeks by way of a counterclaim and set‑off a reimbursement of such costs being the costs awarded by the various courts.

(c) Amended reply to defence counterclaim and set‑off (filed on 5 February 2009)

The plaintiff pleaded in an amended Reply and Defence to Counterclaim:
(i)a denial that he breached s 10(5) of the Act and says that the plaintiff entered upon or incurred expense of litigation with the consent in writing of the defendant. The consent is to be implied from a course of correspondence between the plaintiff's solicitors and the defendant's solicitors;
(ii)alternatively, the defendant represented to the plaintiff that it consented to the plaintiff entering upon the litigation and the plaintiff acted upon that representation and acted to his detriment by incurring expenses in conducting both his claim in Action No 1037/02 and defending the action commenced by Mr Pilbeam. Thereby the defendant is estopped from denying it consented or acquiesced in the plaintiff entering upon the litigation and thereby incurring expense;
(iii)alternatively, the defendant waived and elected not to insist upon strict compliance by the plaintiff with s 10(5) of the Act;
(iv)alternatively, the defendant approbated the plaintiff entering upon Action No 1037/02 and defending the Pilbeam action and thereby incurring expenses in litigation and cannot now reprobate the plaintiff having done so.
The plaintiff otherwise denied that the defendant was entitled to any indemnity and denied the defendant was entitled to claim the set‑off claimed.

Central issues

During the trial I identified for counsel the central issues in this matter upon which I required submissions.

The plaintiff's claim:

1.Was the policy of insurance wide enough to cover the costs incurred by the plaintiff defending the action commenced by Mr Pilbeam?
2.If yes, was it a condition of the policy and/or a statutory requirement that the defendant's consent must be given in writing by the defendant to the plaintiff defending the action before any recovery can be claimed?
3.If yes, was such consent in writing given?
4.If not,
(i)is the defendant estopped from relying upon the fact that consent was not given in writing; or
(ii)did the defendant waive the benefit of a condition that the consent be given in writing; or
(iii)is the defendant prevented from relying upon the condition that consent must be given in writing as a result of an approbation.

5.If the defendant is liable to indemnify the plaintiff for the reasonable costs incurred by the plaintiff in defending the action by Mr Pilbeam, does that entitlement extend to costs incurred by the plaintiff in pursuing an appeal to the Full Court and seeking leave to appeal to the High Court?
6.If the defendant is liable to the plaintiff for costs incurred in the Mr Pilbeam action, is the defendant also liable for any of the plaintiff's costs on the plaintiff's claim in Action No 1037 of 2002, including the trial, the appeal to the Full Court and the application for special leave to the High Court?

Counterclaim

7.Can the defendant succeed on its counterclaim when the defendant has failed to plead any basis of an obligation or liability to pay costs to Mr Pilbeam?
8.Is the defendant's claim against the plaintiff confined to exercising a right of subrogation on enforcement of costs orders obtained?
9.If the right of recovery of costs against the plaintiff is confined to enforcement of the costs order given in favour of Mr Pilbeam, can enforcement of those orders be made the subject of a counterclaim in these proceedings when:
(a)the costs have not as yet been taxed and therefore no immediate liability exists for payment;
(b)the costs awarded were to Mr Pilbeam.

10.Can the defendant claim a set‑off of amounts recoverable under costs orders for the benefit of Mr Pilbeam and not the defendant personally?
11.How, if at all, can any amount paid by the defendant to Mr Pilbeam for costs in defending the action by the plaintiff equate to awarded costs against the plaintiff?

Is the policy of insurance wide enough to cover the costs incurred by the plaintiff defending the action commenced by Mr Pilbeam?

The statutory scheme set up under the Motor Vehicle (Third Party Insurance) Act ("the Act") provides a form of compulsory third party insurance. While the scheme has similarities with ordinary contracts of insurance, there is one significant difference. The obligations between the insurer and the insured are subject to statutory provisions. In the decision of Insurance Commission of Western Australia v Leigh & Ors (2001) 34 MVR 179 McKechnie J at par 35 (with whom Wallwork and Owen JJ agreed) stated obiter that the nature of the obligation was not contractual but analogous to contractual obligations. However this observation does not appear to be in accordance with the statutory provisions which specifically provide for contractual arrangements, albeit subject to the statutory provisions. Section 4 of the Act provides that when any motor vehicle is on the road there is required to be in force in relation to the motor vehicle:
"… [A] contract of insurance entered into by the owner of the motor vehicle under which the owner has insured subject to and in accordance with this Act against any liability which may be incurred by the owner or any person who drives the motor vehicle in respect of the death of or bodily injury to any person directly caused by or by the driving of, the motor vehicle."
Section 6 of the Act provides that:
"Any policy of insurance pursuant to the Act must:
(a)be issued by the Commission;
(b)except as provided in this section insure the owner of the vehicle mentioned in the policy and any other person who at any time drives that vehicle, whether with or without the consent of the owner, in respect of all liability for negligence which may be incurred by that owner or other person in respect of the death of or bodily injury to any person directly caused by or by the driving of, the vehicle in any part of the Commonwealth; and
(c)be in a form substantially similar to that contained in the schedule."
The schedule to the Act provides a standard form for such a policy of insurance which reads inter alia as follows:
"The INSURANCE COMMISSION OF WESTERN AUSTRALIA, subject to the warranties and conditions contained in this policy and to the provisions of the Motor Vehicle (Third Party Insurance) Act 1943, in this policy referred to as the Act, agrees to insure the owner of the motor vehicle described in the traffic licence issued herewith and any other person who drives that motor vehicle, whether with or without the consent of the owner, in respect of all liability for negligence which may be incurred by the owner or other person in respect of the death of or bodily injury to any person directly caused by, or by the driving of, that motor vehicle in any part of the Commonwealth during the period from the date of the issue of this policy to the date of expiry of the said traffic licence." (my emphasis)
The schedule also contains a condition as follows:
"1.The owner and any other person claiming indemnity under this Policy shall comply with the provisions of sections 10 and 11 of the Act."
ICWA has issued a policy of insurance, containing identical wording to the schedule, which applies to all insurance pursuant to the Act. The coverage provided arises by way of a contract of insurance created at the time a person pays for and is issued a motor vehicle licence.
By virtue of the express provisions of the policy, its terms and conditions are subject to the provisions of the Act. Section 7(1) of the Act relevantly provides as follows:
"7. Liability of the Commission
(1)Any person who has obtained a judgment against an insured person in respect of negligence causing death or bodily injury, being death or bodily injury directly caused by, or by the driving of, a motor vehicle specified in a policy of insurance under this Act may recover by action from the Commission such amount of the money (including costs or a proportionate part thereof) payable pursuant to the judgment as relates to death or bodily injury and is unsatisfied (my emphasis)
Provided that —
(i)when the judgment against the insured person was obtained within the State, this subsection shall not apply unless before the action in which such judgment was obtained came on for hearing, the Commission knew that that action had been commenced; and
(ii)the right to recover under this subsection shall be subject to any limitations prescribed by the policy of insurance as to the amount in respect of which the insured is indemnified."
Section 10 of the Motor Vehicle (Third Party Insurance) Act1943 sets out obligations of the owner or insured person to give notice of any accident which results in death or causes bodily harm to any person and also to give notice of any claim made upon him in respect of an accident.
Subsections 10(5) and (6) of the Act further provide as follows:
"(5)An insured person and the owner and the driver of an uninsured motor vehicle shall not, without the consent in writing of the Commission —
(a)enter upon or incur any expense in any litigation;
(b)make any offer or promise of payment or settlement;
(c)make any payment or settlement; or
(d)make any admission of liability
in respect of which the Commission is, or may become, liable under the provisions of this Act but this provision shall not prevent any person truthfully answering any questions reasonably asked of him.
(6)The Commission shall be entitled to recover from any person who has failed to comply with any provision of this section, or, if 2 or more persons have so failed, from them jointly and severally, all moneys paid and costs incurred by the Commission in relation to any claim arising out of the accident in respect of which such failure has occurred."
Pursuant to s 11 of the Act the Commission has power to deal with claims against insured persons. Section 11(1) provides as follows:
"11. Power of the Commission to deal with claims against insured persons
(1)The Commission may on behalf of an insured person and the owner and driver of an uninsured vehicle —
(a)conduct negotiations in respect of a claim against any such person, owner or driver;
(b)accept or instruct any solicitor to accept service of legal process issued in respect of the claim;
(c)assume the conduct and control of legal proceedings in respect of the claim; and
(d)at any stage in the negotiations or proceedings —
(i)admit negligence on his behalf, where there is no claim against the person, owner or driver as the case may be, in relation to damage to property and the Commission has no right of recovery against the person, owner or driver, under the provisions of section 7(5), section 8(3) or section 15;
(ii)pay, compromise or settle the claim."

General insurance law

Under insurance law, a distinction is drawn between loss based liability policies and liability based policies. In the case of loss based liability policies, the insured's loss includes legal costs incurred by the insured in connection with the claim and costs recoverable from the insured by a third party. However in the case of liability based policies, the question of whether third party costs and the insured's own costs are recoverable depends on the wording of the policy (see Kelly & Ball "Principles of Insurance Law", ch 14, par 14.0060).
In "Halsbury Laws of England" (4^th ed, Vol 25 at p 353, par 672) the general law is stated as follows:
"It is open to question how far an insurance against third party liability confers liability against costs unless there is some specific reference to costs in the policy. Where the insured is held to be liable to the third party, and the costs also are awarded against him, it is reasonably clear that his liability for costs is part of the legal liability to the third party, against which he is entitled to be indemnified. It is difficult to see how the same can be said of costs incurred in combating the claim, as these are expenses incurred by the insured, even though he may be under a legal liability in respect of them to his solicitor. If, however, the insured succeeds in his defence and is held not to be liable to the third party, the event insured against, namely, liability to the third party, has not happened. The costs of the defence have been incurred, not as a consequence of any legal liability to the third party, but for the purpose of disproving its existence. In the absence, therefore, of some express provision in the policy, the costs of a successful defence are not covered, even though they were incurred with the consent of the insurers. It is, however, possible to effect insurance specifically to cover legal expenses."
It is clear that the reason that the personal costs of the insured are not covered in a liability based policy without express wording goes back to the essence of a liability based indemnity. The indemnity only covers the liability to a third party as described in the policy (see Yellow Express Carriers Ltd v Government Insurance Office of New South Wales, (1960) SR (NSW) 227, Herron JJ at 232 with whom Street CJ agreed; Thornton Springer v NEM Insurance Co Ltd [2000] 2 All ER 489, Colman J at p 500; West Wake Price & Co v Ching [1956] 3 All ER 821; Commercial & General Insurance Co Ltd v Government Insurance Office of NSW (1973) 129 CLR 374 per Menzies, Walsh and Mason JJ).
In the Yellow Express Carriers' case (supra) the Court of Appeal in New South Wales considered an entitlement to claim for costs incurred by an insured person in defending a claim pursuant to the third party personal injury statutory insurance scheme in New South Wales at that time. The case concerned personal injuries suffered by a third party who claimed damages as a result of injuries suffered when a drum of cable fell from the plaintiff's motor vehicle whilst it was travelling along a road. Initially the statutory third party insurer entered an appearance and filed a defence to the action, but shortly afterwards ceased to conduct the defence on the basis that it was uncertain as to whether the liability of the plaintiff was covered by the compulsory third party insurance scheme. The third party was successful in the action and the third party insurer satisfied the judgment by payment but refused to pay the plaintiff the amount of costs which it had incurred to its own legal advisors after the insurer had withdrawn from the conduct of the defence. The policy of insurance covered "liability incurred … in respect of … bodily injury to any person caused by or arising out of the use of the motor vehicle". The wording of the policy was pursuant to s 10(1)(b)(i) of the Motor Vehicles (Third Party Insurance) Act 1942 – 1951. Owen J at p 232 (with whom Street CJ agreed) stated as follows:
"The only obligation owed by an insurer under the Act and under a policy issued pursuant to the Act to his insured to pay the latter's costs incurred in his defence is, in my opinion, that which is set out in section 18(1)(d). Under that section the authorised insurer 'may take over during such period as he thinks proper the conduct on behalf of' the insured 'of any proceedings taken or had to enforce' any claim in respect of a liability insured against and 'may defend or conduct such proceedings in the name and on behalf of such a person'. If he does so then the insurer 'shall indemnify such person against all costs and expenses of or incidental to any such proceedings whilst the authorised insurer retains the defence or conduct thereof'. In the present case the insurer took over the conduct of the defence for a period which ended on 24 April 1954. Thereafter and pursuant to the right given to it by s 18(1)(b) it ceased to conduct the defence, and for the costs thereafter incurred by the plaintiff to its own solicitors the defendant, in my opinion, is not liable under the policy or the statute.
While the letters to which I have referred earlier amount to a consent in writing to the plaintiff incurring the expenses of litigation within s 20(1)(e)(iii), I think that there is nothing in the policy or in the Act itself which imposes any obligation on the insurer to pay the costs incurred by the insured to his solicitor after receiving such consent. So far as the policy and the Act are concerned the insured incurs such costs at his own risk."
Owen J went on to state that in the circumstances of the case before the court, "there must be read into the agreement … an implied term that if, at the trial, it was shown that the accident was one arising out of the use of the insured motor vehicle so that the policy covered the claim, the insurer would make good to the insured costs reasonably incurred by it in complying with the insurer's request".
It was submitted on behalf of the plaintiff that the decision of the majority in Yellow Express Carriers' case (supra) that the express wording of the policy and legislation did not cover costs incurred by the insured in defending the claim of the third party is distinguishable on the basis the relevant legislation in New South Wales included a provision in s 18(1)(d) that imposed an obligation on the insurer to pay costs incurred when it conducted proceedings. It is suggested that this provision, which does not exist in the Western Australian legislation, was critical to the decision of the majority. However, in my opinion, this provision was not critical to the decision of Owen J (with whom Street CJ agreed) concluding that the policy did not cover costs of the insured in defending the claim of the third party (other than by way of an implied contractual term). Reference to s 18(1)(d) was made simply to indicate that the only obligation to pay costs by the insurer other than those costs arising under a liability to the third party were costs allowed under s 18(1)(d). In any event, I conclude that although the Western Australian legislation contains no equivalent to s 18(1)(d) such a provision is largely superfluous. To suggest that the insurer might not be liable for costs when it is the instructor to solicitors in the circumstances where it takes over the conduct of the action is a nonsense. The costs that will be incurred will be at the instruction of the insurer and therefore it is contrary to commonsense to suggest that it might not be liable for those costs.
Herron J in the same case expressed obiter the view that the liability under the policy may extend to beyond simply liability owed to the third party. However, he did not express a view as to whether it extended to liability for legal costs incurred by an injured person in defending a claim by a third party.
The General Insurance Co Ltd case (supra) concerned a claim for contribution between two insurance companies. A workman was injured as a result of the negligent operation of a mobile crane on a construction site. The employer's workers compensation insurer indemnified the employer against a judgment and then sought a contribution from the employer's third party motor vehicle insurer, GIO of New South Wales. The claim was dismissed at first instance and on appeal was allowed. The court held that both policies applied and therefore the workers compensation insurer was entitled to a contribution from the third party motor vehicle insurer. The case has relevance in this matter on the issue of costs which was dealt with by the court at p 384 as follows:
"There is a further matter. The claim for contribution extended to one half of $30,283.41 (i.e. judgment of $28,000 with $925.20 costs, plus the employer's costs of defending the action $1,358.21). For the respondent it was argued that no part of $1,358.21, the costs of defending the action, was proper subject matter for contribution. With that we agree. The costs were incurred by the appellant in the exercise of its right to defend the action brought against the employer which it had insured. The indemnity granted to the employer, however, was against claims for which the employer should be liable for any injury to an employee. Accordingly, the policy of the appellant did not cover the costs which the appellant incurred in defending the action. Nor did the third party policy. The indemnity thereby granted was against liability 'incurred by the owner and/or the driver in respect of the death of or bodily injury to any person caused by or arising out of the use of the motor vehicle'. Neither policy, therefore, covered the costs incurred by the employer or the appellant in defending the rigger's action. According, in our opinion the liability of the respondent is limited to one half of $28,925.20, i.e. $14,462.60."
Senior counsel appearing for Mr Wynne sought to distinguish this case on the basis that it was a claim concerning a contribution between two insurers. However, in my opinion, the decision concerning costs has general application and confirms that costs incurred in defending an action will not be covered unless specifically covered by the wording of the policy.
In this matter the wording of the policy and the scheme of insurance under the Act needs to be examined to ascertain whether the plaintiff, Mr Wynne is covered for the various items of costs claimed in the statement of claim. In summary, Mr Wynne is seeking:
(a)the costs incurred in defending the action of Mr Pilbeam;
(b)the costs incurred in conducting Mr Wynne's own claim against Mr Pilbeam;
(c)the costs of the appeals.
The wording of the policy describes the insurance as being "in respect of all liability for negligence which may be incurred" by the owner or driver. There is no dispute that the wording of the policy covers Mr Wynne's liability under a judgment in favour of Mr Pilbeam including any award for costs. This is conceded by the defendant ICWA. This concession is consistent with s 7 of the Act which entitles a claimant to seek payment on the judgment (including costs) directly against ICWA.
In view of the wording of the policy, I conclude that the policy document issued pursuant to the provisions of the Motor Vehicle (Third Party Insurance) Act 1943 is a liability based policy and does not cover liability for costs incurred by an insured person defending the claim of a third party (in this case Mr Pilbeam). The liability of the plaintiff Mr Wynne to pay for his costs does not arise out of his negligence but out of his decision to dispute his negligence and from the contractual arrangement between Mr Wynne and his solicitors to provide legal representation. This conclusion is consistent with the general principles of insurance law referred to above, the decision of the majority in Yellow Express Carriers' case (supra) and the decision of the court in General Insurance Co Ltd's case (supra).
As noted above in Yellow Express Carriers' case (supra) it was held by the court that an implied contract existed that the insurer would cover the costs of an insured defending the action of a third party. That was in a situation where the insurer declined to acknowledge liability under the policy but ultimately was found liable. I believe that such an implied contract arose in part from the unique nature of an insurance contract which gives rise to a duty at common law of good faith. This duty is described in Sutton "Insurance Law in Australia" (3^rd ed at par 3.7) as follows:
"The contract of insurance is an example of that special class of contracts known to the common law as contracts uberrimae fidei, that is, of the utmost good faith, a requirement which imposes an obligation of fair dealing on both parties to the transaction. The term 'good faith' has many different meanings in the legal context but in essence it encompasses notions of fairness, reasonableness and community standards of decency and fair dealings."

To impose an implied term of indemnity for costs incurred in the factual situation of Yellow Express Carriers' case was fair and reasonable given that the insurer surrendered its right to represent the insured and forced the insured to defend the claim under the false premise (and one which was motivated out of its own interests only) that liability did not exist under the policy for the third party's claim.
In my opinion the factual circumstances of this case are distinguishable from the factual circumstances in Yellow Express Carriers' case (supra). It is very clear in this case that the claim by Mr Wynne to contest the claim by Mr Pilbeam arose out of Mr Wynne's decision to make a claim for himself. In the letter from ICWA to Mr Wynne's solicitors dated 4 September 2000, ICWA made it very clear that it considered Mr Pilbeam not liable for the accident and the sole cause of the accident was Mr Wynne's negligence. Notwithstanding ICWA's position, Mr Wynne chose to pursue his claim against Mr Pilbeam and by doing so created a situation where he also needed to defend the claim of Mr Pilbeam. The issue of contributory negligence only went to the extent of Mr Pilbeam's entitlement for damages.
It was not pleaded nor argued in this case that any obligation arose by virtue of an implied term or as a result of the obligation of the parties to act in "good faith". However even if the case had been argued on this basis, I conclude that it could not be said that there was an implied term that ICWA would cover the personal legal costs of defending Mr Pilbeam's claim and Mr Wynne making his own claim. This is even more so in relation to the appeal processes which related solely to the cause of the accident and did not concern the issue of contributory negligence for failing to wear a seat belt. There is no evidence that there was an expressed or implied approval by ICWA for Mr Wynne to undertake these appeal processes. Further, there has been no evidence presented to me that ICWA would have received any benefit if these appeal processes had been successful.
In my opinion the decision of ICWA not to exercise any right to assume control of either action could not, certainly in the circumstances of this case, constitute any entitlement for an indemnity in relation to personal costs incurred by Mr Wynne which otherwise, as I have found, was not covered by the insurance policy. It is clear from s 11 of the Motor Vehicle (Third Party Insurance) Act 1943 (WA), ICWA is not obliged to assume control of proceedings on behalf of an insured person against whom a claim is made (although it normally does except where there are conflicting claims). Accordingly, ICWA was entitled not to act for Mr Wynne and Mr Pilbeam in their respective actions. Even if by making such a decision it could be said ICWA acquiesced in Mr Wynne defending the claim of Mr Pilbeam, no right of recovery arises out of ICWA exercising its statutory right [Yellow Express Carriers case supra, Owen J (with whom Street CJ agreed) at 232, Herron J at 237].
I also conclude that Mr Wynne's claim for costs incurred in making his own claim for damages is not allowable under the policy. I do not consider that there is any basis for finding that ICWA is liable under the policy for these costs. Such a liability does not arise from the negligence of the plaintiff Mr Wynne and therefore in my opinion the indemnity of the policy does not arise. Further, to allow such a right of indemnity would in effect be permitting a common law offence of maintenance (Oram v Hutt [1914] 1 Ch 98 per Lord Parker of Waddington at 104). Even if I am wrong in my earlier conclusion that Mr Wynne is not entitled to recover personal costs incurred in defending the claim by Mr Pilbeam, his costs relating to his own action cannot be included simply because the two matters were heard together. The actions were not consolidated but simply an order had been made that the trial of the two actions occur at the same time.
Different considerations apply in relation to the limited costs incurred in complying with the request by ICWA to plead contributory negligence by failing top wear a seat belt. The benefit of such a pleading was solely for the benefit of the defendant ICWA as to the extent of damages it would have to pay to Mr Pilbeam. The fact that ICWA received a benefit from Mr Wynne pleading contributory negligence is not by itself sufficient to give rise to a right of indemnification as pleaded in par 13A of the statement of claim. However, there are additional factors to take into account. If Mr Wynne had declined to plead the contributory negligence this would have created a dilemma for ICWA as it was not a party to the proceedings. In such circumstances an implied term might arise that Mr Wynne was under an obligation to agree to protect the insurer's interest by pleading such contributory negligence. However, consistent with the reasoning in Yellow Express Carriers' case (supra), I believe the implied term would include an obligation on the part of ICWA to reimburse Mr Wynne's costs insofar as additional costs were incurred in pleading the contributory negligence requested by ICWA and arguing this point at trial. I believe it is arguable that to refuse to pay such costs would be contrary to the obligation to act in good faith.
However, Mr Wynne in these proceedings neither pleaded nor was argument presented to me that an obligation to pay for the legal costs relating to the contributory negligence issue arose by virtue of an implied term. Accordingly, I believe I should not make an order for such costs to be indemnified without Mr Wynne first making an application to amend his statement of claim and both parties being given an opportunity to be heard on the issue.

Issues 2 to 6

The issues of consent, waiver, estoppel and approbation do not arise for consideration as they are predicated on Mr Wynne having a right of recovery under the policy of personal costs incurred defending a claim. However, as I have found above, no such entitlement existed.
However, for completeness sake I believe I should comment briefly on the issue of consent. The issue of consent arises by virtue of s 10(5) of the Motor Vehicle (Third Party Insurance) Act 1943 which prohibits an insured person from entering into litigation without the consent in writing of ICWA. A failure to obtain such consent constitutes a breach of a condition of the policy and gives ICWA a right of recovery against the insured person for all monies paid and costs incurred by ICWA (s 10(6) of the Act).
Subsection 10(5) of the Act is one of a number of provisions which are meant to ensure that the insured person does not disadvantage ICWA by creating a liability without ICWA having some control over the situation.
The written consent required by subsection 10(5) can be given in the form of correspondence between the parties (Yellow Express Carriers' case (supra), Wesfarmers Federation Insurance Ltd v Stephen Wells t/a Wells Plumbing [2008] NSWCA 186). In this case ICWA clearly chose not to conduct the defence of the claim of Mr Pilbeam. The evidence of Mr McKelvie, a representative of ICWA, was that ICWA made a decision that it had a conflict of interest and therefore left each party to conduct the defence of the other party's claim. However, there is no written correspondence from ICWA (or its solicitors) to Mr Wynne's solicitors, giving consent to Mr Wynne entering an appearance to the writ issued by Mr Pilbeam and expressly consenting or directing Mr Wynne's solicitors to conduct the defence.
It was only after Mr Wynne's solicitors had filed an appearance and commenced to conduct a defence of the claim by Mr Pilbeam that the solicitors acting for ICWA sent a letter dated 14 November 2002 requesting Mr Wynne's solicitors to amend the defence to plead contributory negligence by Mr Pilbeam not wearing a seatbelt.
In the context of ICWA deciding it would not act for Mr Wynne and Mr Pilbeam on basis of a conflict of interest, I conclude that the letter of 14 November 2002 constituted a written consent for Mr Wynne to conduct the defence of the claim against him by Mr Pilbeam. ICWA by its conduct and the letter dated 14 November 2002 made it clear that it chose not to conduct the defence of the claim by Mr Pilbeam but was content to allow the defence to be conducted by Mr Wynne's solicitors subject to the pleading of contributory negligence requested.
I do not need to deal with the more complex issues of estoppel, waiver and approbation given my earlier conclusions in this decision concerning the liability of ICWA for costs and my conclusions on the issue of consent.

Counterclaim

Counsel appearing for the defendant ICWA, without conceding the issue, acknowledged the difficulties the defendant faced in being successful on the counterclaim.
In my view no entitlement for reimbursement of costs has been established. The liability of Mr Wynne for such costs is personal to the third party, Mr Pilbeam, albeit that under the rights of subrogation ICWA may be able to recover such costs in Mr Pilbeam's name (Woodside Petroleum Development Pty Ltd and others v H & R ‑ E & W Pty Ltd (in liq) & Anor, unreported; FCt SCt of WA; Library No 990124A; 16 March 1999, Ipp J at p 10). However, ICWA has no direct entitlement against Mr Wynne and therefore, in my opinion, cannot raise the liability of Mr Wynne for such costs by way of a counterclaim or set‑off in these proceedings. Mr Pilbeam's entitlement for costs arises by virtue of the existing costs orders made in the previous proceedings and in my view are only enforceable through those proceedings by him or in his name by ICWA.

Final orders

On the basis of the above I dismiss Mr Wynne's claim for an indemnity for costs incurred in:
(a)the costs of defending Action No 1941 0f 2001;
(b)the costs of conducting Action No 1037 of 2002
(c)the costs of conducting the appeal to the Court of Appeal and making an application for special leave to the High Court.
Further, I dismiss the counterclaim of ICWA.
Finally I give leave for Mr Wynne to apply to amend his statement of claim to plead an implied term that ICWA would pay the costs of Mr Wynne pleading and arguing at trial contributory negligence by Mr Pilbeam failing to wear a seatbelt.