FEDERAL COURT OF AUSTRALIA Elilade Pty Ltd v Nonpareil Pty Ltd (No.2) [2002] FCA 1073 ELILADE PTY LTD (ACN 073 980 800) v NONPAREIL PTY LTD (ACN 009 611 358) & CIC INSURANCE LIMITED (ACN 004 078 880) D.4 of 2000 MANSFIELD J 4 SEPTEMBER 2002 DARWIN IN THE FEDERAL COURT OF AUSTRALIA NORTHERN TERRITORY DISTRICT REGISTRY D.4 OF 2000 BETWEEN: ELILADE PTY LTD (ACN 073 980 800) APPLICANT AND: NONPAREIL PTY LTD (ACN 009 611 358) FIRST RESPONDENT CIC INSURANCE LIMITED (ACN 004 078 880) SECOND RESPONDENT JUDGE: MANSFIELD J DATE OF ORDER: 4 SEPTEMBER 2002 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The second respondent pay to the applicant its costs of the action. 2. The applicant pay to the first respondent its costs of the action. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NORTHERN TERRITORY DISTRICT REGISTRY D.4 OF 2000 BETWEEN: ELILADE PTY LTD (ACN 073 980 800) APPLICANT AND: NONPAREIL PTY LTD (ACN 009 611 358) FIRST RESPONDENT CIC INSURANCE LIMITED (ACN 004 078 880) SECOND RESPONDENT JUDGE: MANSFIELD J DATE: 4 SEPTEMBER 2002 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 On 31 July 2002, judgment was given in this matter. The orders were: 1. Judgment be entered in favour of the applicant against the second respondent in the sum of $238,605. 2. The second respondent pay to the applicant interest on the judgment sum of $238,605 under s 57 of the Insurance Contracts Act 1984 (Cth) from 1 January 1999. 3. The applicant's claim against the first respondent be dismissed. Issues as to costs were adjourned for further submissions. In these reasons I shall adopt the same description of the parties as in that judgment. 2 Elilade is clearly entitled to its costs against CIC. The disputed issue is whether those costs should be awarded on a solicitor and client basis. Elilade refers to the fact that CIC, on 15 April 1998, instructed a loss adjuster to assess its loss on the basis of the initial inundation of 200 mm of water, and then on 27 November 1998 to put a settlement offer to Elilade on that basis, but subsequently in June 1999 ceased all negotiations on the basis of an erroneous hydrology report that there could have been no flooding of Elilade's premises from the initial inundation. It also refers to the fact that its offer to CIC in the course of negotiations up to June 1999 barely exceeded the amount for which it has recovered judgment against CIC. Elilade further refers to the absence of any settlement offer CIC after June 1999. The position taken by CIC at the hearing reflected its position at April 1998, namely that it accepted that there had been an initial inundation of up to 200 mm of water in Elilade's premises, although it contended that the damage caused by the initial inundation was caused also, and effectively contemporaneously, by the second inundation. 3 Those circumstances, Elilade contends, indicate that CIC conducted the proceedings where, properly advised, it should have known it had no real chance of success: see per Woodward J in Fountain Select Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401. Hence, it contends, the Court in the exercise of its discretion under s 43 of the Federal Court of Australia Act 1976 (Cth) should order CIC to pay Elilade's costs on a solicitor and client basis. 4 Neither Elilade nor CIC have drawn to the Court's attention any offers to compromise Elilade's claim made under O 23 of the Federal Court Rules, or in the nature of a Calderbank letter: Calderbank v Calderbank [1975] 3 All ER 333. Moreover, following the cessation of negotiations at CIC's instigation in June 1999, the evidence does not disclose Elilade subsequently proposing resolution of its claim on any basis other than that as formulated in the proceedings, at a figure significantly in excess of that ultimately awarded. The course of negotiations up to June 1999, in the circumstances, does not in my view warrant the exercise of a discretion to order costs against CIC on a solicitor and client basis. I do not think it has been shown that up to June 1999 CIC had acted unreasonably in not accepting Elilade's then proposed settlement figure. The quantification of Elilade's loss as a result of the initial inundation was a difficult one, as the reasons for decision of 31 July 2002 indicate. There were difficult factual issues to address as to the extent of the initial inundation, and as to its consequences. Elilade succeeded in recovering an award of damages of $238,605, but upon the finding that the initial inundation was to a depth considerably in excess of 200 mm. 5 However, the failure of CIC to progress negotiations after June 1999 is not, in my view, now explained. It did not seek to prove the June 1999 hydrology report. Given its earlier attitude, which must have been based on more contemporaneous investigations than those of the hydrologist, and the position it took at trial, I am not of the view that the position it adopted for some time based apparently upon the hydrology report that there was no initial inundation was reasonable, or had any prospect of success. 6 On the other hand, there were issues in the proceedings which it was clearly reasonable for CIC to contest. Those issues included the extent of the initial inundation, and the extent of damage to Elilade's stock and plant as a result of the initial inundation, allied with the measure and extent of the damage caused by the second inundation. Its contention that there were two proximate causes of all the damage to the stock and plant of the business of Elilade took but a little time in the course of the hearing. 7 In all the circumstances, I am not persuaded that it is appropriate to order CIC to pay the costs of Elilade on a solicitor and client basis. Although I think its withdrawal from negotiations in June 1999 was not reasonable, the issues which it did contest in the course of the hearing were not such as to indicate to me an ulterior motive on its behalf for contesting the proceedings, or an inappropriate disregard for the facts or the law. It did not contest the proceedings, in substance, upon bases which had no chance of success. That is, the issues which it contested during the course of the hearing were not issues upon which it had no chance of success. See generally Colgate-Palmolive Co. v Cussons Pty Ltd (1993) 46 FCR 225. 8 Accordingly, in my judgment, the appropriate order is that CIC should pay Elilade its costs of the proceedings. I decline to order that those costs be taxed on a solicitor and client basis. 9 Nonpareil seeks costs against Elilade. I do not see any basis upon which that order should not be made. The cause of action of Elilade against Nonpareil was independent of its cause of action against CIC. It would be unfair to Nonpareil, in the circumstances, to order that its costs be recoverable from CIC only, and not from Elilade. I accordingly order that Elilade pay to Nonpareil its costs of the action. 10 There remains Elilade's application for a Bullock order: cp Bullock v London General Omnibus Co. [1907] 1 KB 264, namely an order that it be entitled to recover from CIC the costs which it has been ordered to pay to Nonpareil. It is necessary for Elilade to establish that the costs payable by it to Nonpareil were reasonably and properly incurred by it, in effect, by reason of the attitude of CIC to Elilade's claim against CIC or in a practical sense by reason of it having to prosecute its claim against CIC: see Gould v Vaggelas (1984) 157 CLR 215 at 230. The proper focus is to ask whether CIC's conduct in relation to Elilade's claim was such as to make it fair to impose some liability on CIC for the costs Elilade must pay to Nonpareil. 11 I do not think that the circumstances in Framar Money Management Pty Ltd v Territory Insurance Office (1986) 87 FLR 251 present a direct analogy with the present case. In that case, the insured successfully recovered against an insurer moneys due under the policy, but failed in its claim against the insurance broker for breach of duty in failing to procure an appropriate insurance policy. The insurer in that case denied the existence of the contract of insurance at all and denied any liability to make any payment under the policy due to the circumstances in which the policy was procured. The consequence, as the Court found, was that the insured was prompted reasonably to join the insurance broker, as it had the duty on behalf of the insured to procure an enforceable policy against the risk which eventuated. In the present case, I have found that Nonpareil procured from CIC the policy which it was under a duty to procure. CIC did not dispute the existence of a policy of insurance, but contended that in the particular circumstances the obligation to indemnify under it either did not arise at all (because there were two concurrent causes of the claimed loss, one of which was an exempt event) and alternatively it disputed the extent of the claimed loss from the insured event. 12 Elilade's claim against Nonpareil was not prompted by the position which CIC adopted in the proceedings, at least in respect of the substantive issues. It was prompted by the perception that the insurance broker should have procured for it insurance covering a risk which the insurer did not agree to cover. It was not the defence of CIC which, in substance, prompted the joinder of Nonpareil but the acceptance by Elilade that the insurance policy contained a flood exemption. 13 In those circumstances, in my judgment, it is not appropriate to make an order in the nature of a Bullock order. I accordingly make the following orders as to costs: 1. CIC pay to Elilade its costs of the action. 2. Elilade pay to Nonpareil its costs of the action. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate: Dated: 30 August 2002 Counsel for the Applicant: Dr JP de Koning Solicitor for the Applicant: Michael Whelan & Associates Counsel for the First Respondent: Mr S Walsh QC with Ms J Kelly Solicitor for the First Respondent: Cridlands Lawyers Counsel for the Second Respondent: Mr B O'Loughlin Solicitor for the Second Respondent: Lawson Downs Date of Last Submissions: 27 August 2002 Date of Judgment: 4 September 2002