Dust Diseases Tribunal of New South Wales CITATION : Bluescope Steel Limited v Allianz Australia Limited (No 2) [2008] NSWDDT 30 PARTIES : Bluescope Steel Limited (plaintiff) Allianz Australia Limited (defendant) MATTER NUMBER(S) : 7240 of 2007 JUDGMENT OF: Curtis J at 1 CATCHWORDS: DUST DISEASES TRIBUNAL :- costs s18 Insurance Act 1902 LEGISLATION CITED: Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005 Accident Insurance Mutual Ltd v Sullivan (1986) 7 NSWLR 65 CASES CITED: Mohamed v Farah [2004] NSWSC 598 Holt v Wynter (2000) 49 NSWLR 128 Quirk v Bawden (1992) FLR 115 DATES OF HEARING: 13 October 2008 DATE OF JUDGMENT: 16 October 2008 Mr G J Parker instructed by Piper Alderman appeared for the plaintiff LEGAL REPRESENTATIVES: Mr G F Little SC instructed by Ellison Tillyard Callinan appeared for the defendant JUDGMENT: Dust Diseases Tribunal of New South Wales Matter Number 7240 of 2007 Bluescope Steel Limited v Allianz Australia Limited 16 October 2008 CURTIS J RULING ON COSTS 1. Following upon my order that the failure by Bluescope in September 2004 to observe and perform the conditions of the contract of insurance with MMI, first entered on 25 March 1957, be excused, the parties have not been able to agree on consequential orders. 2. The following matters remain in dispute: (a) Is Allianz liable to indemnify Bluescope for costs and expenses incurred in connection with the defence of Mr Cizzio's claim. (b) Does the indemnity extend to the payment of interest upon those costs and expenses. (c) Should costs follow the event in circumstances where the relief sought by Bluescope was in the nature of an indulgence. (d) If Bluescope is entitled to costs, should they be on an indemnity basis from the date of a Calderbank Offer made by Bluescope. The indemnity question 3. The policy provided that, in the event that Bluescope was found liable to pay compensation to Mr Cizzio: Then, and in every such case the insurer will indemnify the employer against all sums for which the employer shall be so liable; the insurer will also pay all costs and expenses incurred with the written consent of the insurer in connection with the defence of any legal proceedings in which such liability is alleged. 4. Condition 3 of the policy, the observance of which by Bluescope has been excused, provided that: The Employer shall not, without the written authority of the insurer, incur any expense of litigation, or make any payment, settlement, or admission of liability in respect of any injury to or claim made by any worker. 5. Mr Little SC for Allianz, submits that upon my order that the failure by Bluescope to observe this condition be excused, the indemnity clause of the policy operates in accordance with its plain terms. Because Allianz did not in writing consent to Bluescope's incurring costs and expenses in resisting the claim of Mr Cizzio, those costs and expenses are not within the terms of the cover. 6. Mr Parker for Bluescope, in rejecting this argument, relies upon the language of s18(2) of the Insurance Act 1902, which provides (2) Where an order of the nature referred to in subsection (1) has been made, the rights and liabilities of all persons in respect of the contract of insurance concerned shall be determined as if the failure the subject of the order had not occurred. He says that the indemnity clauses of the policy are to operate upon the factual presumption that the insured had not failed to obtain the written consent of the insurer before incurring the relevant costs and expenses. 7. I think both constructions are plausible. A similar problem was faced by the New South Wales Court of Appeal in Accident Insurance Mutual Ltd v Sullivan (1986) 7 NSWLR 65. In that case the insured held a policy of insurance which covered liability arising out of use of her motor car. The policy contained an exclusion in these terms: EXCLUSIONS This Policy Does Not Cover… Loss damage liability and/or compensation for damage and/or injury caused whilst the Motor Vehicle (f) Is being driven by the Insured or by any person with the consent of the insured if the driver was not duly authorised under all relevant law, by laws and regulations to be driving such vehicle for the purpose for which it was being used… 8. The insured, being unlicensed, claimed relief pursuant to s18. The insurer argued that her failure to have a driver's licence was not a breach of any condition or contractual term, but simply something which took her outside the cover provided by the policy. 9. In rejecting this argument, Priestley JA said at 71: The argument for the appellant/insurer in the present case is that since s18(1) speaks only of failure by the insured to observe or perform a term or condition of the insurance contract as a failure excusable by the court in the specified circumstances, exclusion from indemnity by the exclusion clause does not fall within the operation of the section. It seems to me however that when the remedial nature of the legislation is taken into account the words "term or condition" in fact convey a wider meaning than a narrower one the insurer presses for. It seems to me that in a real sense the respondent's indemnity in the circumstances of the present case was conditional upon the car being driven by a driver duly authorised by law at the time of the accident. If the words in the section do not convey a broad meaning of "term or condition" then the remedy for the harsh situation to which the section was directing itself would become illusory merely by insurers adopting a different form of words. Since the form of words used in s18(1) is itself elastic, and since … the relevant words in the policy are reasonably capable of a construction within the widest sense of the words in the section, it seems to me that [this is] the preferable construction. 10. To borrow His Honour's language, the liability of Allianz to pay the costs and expenses incurred by Bluescope in resisting Mr Cizzio's claim was, in a real sense, conditional upon written consent being first had and obtained from Allianz. I have excused Bluescope from observance of that condition. It follows that Allianz is liable to pay these costs and expenses. The interest question 11. In claiming interest upon the moneys expended by Bluescope in resisting Mr Cizzio's action, Mr Parker relies upon s101(4) of the Civil Procedure Act 2005 which provides that: The court may order that interest is to be paid on any amount payable under an order for the payment of costs. 12. I read this provision as applying to an order for costs made pursuant to s98 of the Civil Procedure Act 2005 and Pt 42 of the Uniform Civil Procedure Rules 2005. The claim for costs under present consideration arises pursuant to contract. 13. The relevant provision is s100(1) of the Act which relevantly provides: (1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. 14. I think it unreasonable that Allianz should be required to pay from October 2004, interest on costs incurred without its knowledge or consent, and in breach of contract. However on 2 November 2006, Allianz received Bluescope's claim for indemnity and thereupon made a commercial decision to resist the claim. Thereafter the moneys were held to the advantage of Allianz's pocket rather than Bluescope's. The appropriate commercial adjustment is that Allianz pay interest on the moneys awarded in respect of costs at Supreme Court rates from 2 November 2006. Should costs follow the event? 15. Pt 42 r42.1 of the Uniform Civil Procedure Rules provides that costs should follow the event "Unless it appears to the court that some other order should be made as to the whole or any part of the costs". Ritchie's commentary at 8721 states that: The appropriateness of requiring a successful party to bear their own costs of the proceedings will normally depend on satisfaction that the successful party had either encouraged the unsuccessful party to contest the proceedings, or otherwise misconducted themselves in relation to either the transaction the subject of the proceedings, or to the conduct of the proceedings. 16. Illustrations of departure from the general rule are to be seen in applications for extension of time, for amendment, or for adjournment, where a party does not seek the vindication of a right, but the grant of an indulgence "and there is, for that reason, a departure from the general rule that costs follow the event" (per Barrett J in Mohamed v Farah [2004] NSWSC 598). 17. The seminal cause of this litigation is the negligence of Bluescope's solicitor, Mr Scott Hay. It is because of his negligence that his client, Bluescope, was compelled to seek the indulgence of the court pursuant to s18 of the Insurance Act 1902. That negligence is the misconduct in relation to the transaction the subject of the proceedings which justifies a departure from the general rule. 18. Mr Parker has submitted that the following circumstances militate against departure from a general rule: (a) "Indulgence" is to be viewed from a different perspective where the underlying right, that of indemnity, was purchased by the payment of a premium. (b) Mr Scott Hay was not wilfully negligent. (c) Allianz suffered no prejudice. (d) Allianz stubbornly turned its face against investigating the merit of Mr Cizzio's claim and Bluescope's defence, and against all offers of compromise. (e) Bluescope is an innocent party and should not be deprived of its costs because of its solicitors' negligence. 19. I do not regard any of these propositions as persuasive. By payment of the premium, Bluescope entered a contract with MMI which contract required of Bluescope that it observe certain reasonable conditions. Bluescope broke that contract. No premium was paid in consideration of a right to be excused from the contractual breaches. 20. If Mr Hay had been wilfully negligent, Bluescope would have failed in its application for relief pursuant to s18. The question of costs would not arise. I have found that his negligence is sufficient misconduct to justify a departure from the general rule. 21. In the exercise of my discretion on the question of costs, I countenance prejudice as extending beyond the limited meaning which that word bears in the operation of s18. The managers of Allianz have I think, a legitimate claim to umbrage at Bluescope's high-handed breach of contract, in circumstances where Allianz had in good faith responded to earlier claims upon the policy. The conduct of Bluescope, albeit inadvertent, was so unreasonable as to be deserving of censure. Mr Miller could have, and should have, obtained copies of relevant documents from Bluescope's NSW Worker's Compensation Manager before retaining Mr Hay. 22. I bear that fact in mind when considering the decision by Allianz to let this matter go to trial rather than settle out of court. Section 18 contemplates that, although the insurer suffers no prejudice, there are circumstances in which it is unreasonable that the insured should be excused from compliance with its contractual obligations. There is little case law on the subject, and I can understand that Allianz wanted the dispute resolved judicially. That decision, made in consequence of the primary default by Bluescope, does not, to my mind, militate against my conviction that in the present case the costs order should depart from the general rule. 23. I decline to order that Allianz pay the costs of Bluescope. Should Bluescope pay the costs of Allianz? 24. In an analogous context in Holt v Wynter (2000) 49 NSWLR 128 at 147, Sheller JA said that "In relation to costs, ordinarily a successful applicant, who has allowed him or herself to get out of time, should pay the costs of the application unless the respondent's opposition was wholly unreasonable". I do not think that in this case the opposition of Allianz to the relief sought by Bluescope was initially unreasonable. 25. That is not the end of the matter. On 8 August 2007 Bluescope offered to settle the claim by accepting indemnity against its net liability to Mr Cizzio ($50,000) and bearing its own costs of legal defence of the principal action ($30,000) and its own costs of these proceedings. Allianz made no counter offer. 26. It is not here necessary to discuss the good reasons of policy that underlie the force of Calderbank offers. As Higgins J observed in Quirk v Bawden (1992) FLR 115, "The process of negotiation does not end with one offer made and declined". Parties owe to the courts and the community a duty of continuing dialogue so as to make economic use of scarce judicial resources. If, following attempted settlement, a party is vindicated in its position it will ordinarily have its costs. If not, it will pay the costs of the other side. 27. Because the decision by Allianz to litigate rather than attempt settlement was a commercial decision, made by a party experienced in litigation, it should bear the ordinary consequence of commercial decisions made in such a context. That is, if you don't do better than the offer, you don't get your costs from the date of the offer. 28. Balancing those considerations of fault, indulgence, and the rules relating to compromise, which are here in tension, I have concluded that Bluescope, seeking indulgence but realistically offering compromise, should pay the costs of Allianz up to and including 8 August 2007. Thereafter each party should pay its own costs. 29. The parties are to bring in short minutes of order reflecting these reasons. Mr G J Parker instructed by Piper Alderman appeared for the plaintiff Mr G F Little SC instructed by Ellison Tillyard Callinan appeared for the defendant DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.