Local Court of New South Wales CITATION: Kriengsak & Anor v Parke Davis & Anor [2003] NSWLC 18 JURISDICTION: Civil PARTIES: Kriengsak & Anor Parkd Davis & Anor FILE NUMBER: 165151/00 PLACE OF HEARING: Downing Centre DATE OF DECISION: 26/09/2003 MAGISTRATE: Magistrate H Dillon CATCHWORDS: Procedure - Costs - Irregular commencement and continuance of proceedings - Whether Solicitors ought pay client's costs - Insurance - Subrogation - Refusal of plaintiff to lend his name to proceedings - Remedies for subrogated insurers LEGISLATION CITED: aiden Shipping Co v Interbulk Ltd [1986] AC 965 Athanaopoulos v Moseley (2001) 52 NSWLR 262 Australian Workers Union v Bowen (1946) 72 CLR 575 Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] 2 WLR 475 Nilsen v Loyal Orange Trust (1999) 76 IR 180 CASES CITED: Orchard v South Eastern Electricity Board [1987] QB 565 Petersen v Moloney (1951) 84 CLR 91 Procinsky v McDermott and Rogers [1955] 4 DLR 606 Woodside Petrleum Development Pty Ltd v Herew Pty Ltd (1999) 20 WAR 380 at 387 Ridehalgh v Horsefield [1994] Ch 205 Vetris v Cashman (1998) 72 SASR 449 at 458 REPRESENTATION: Mr K Manion i/b Smith Partners Mr S Rares SC i/b Barrie Fudge & Co ORDERS: 1. Costs to follow the event; 2. NRMA (insurer) to pay Defendant's costs in an amount agreed within 28 days or assessed on the indemnity basis from the commencement of proceedings. Judgement 1 This matter was set down for hearing on 28 March 2002. When the matter was called on, counsel for the plaintiffs was unable to adduce evidence. The claim was consequently dismissed and a verdict entered for the defendants. Apparently anticipating this outcome, the solicitors for the defendants filed a Notice of Motion on 27 March. In summary, that motion, which is the subject now of this judgment, is an application for orders that the plaintiffs' solicitors, or the NRMA (the plaintiffs' insurers), or both, pay the defendants' costs on the indemnity basis, such costs to be agreed or assessed. 2 The grounds on which the motion is brought are that the proceedings were an abuse of process in that the plaintiffs' solicitors are said by the defendants to have purported to act on the plaintiffs' behalf without a proper retainer, and that the true client was the NRMA. 3 Background and facts 4 The proceedings arose out of a motor vehicle collision which took place on 3 July 1999. The plaintiffs' motor vehicle was insured by the NRMA. After the collision it seems that the plaintiffs hired a motor vehicle for four days at a cost of $158.00 from Hertz. The cost of the hire of the vehicle was charged to the NRMA Courtesy Car account. It is common ground that at the time the plaintiffs' motor vehicle was damaged the NRMA operated a scheme under which it provided access to, and paid for the use of, a rental vehicle provided by Hertz pursuant to an agreement reached by NRMA and Hertz. 5 It is also clear that, at that time, the insured's policy specifically excluded coverage of losses which occurred because the insured was unable to use the vehicle in question and "the cost of hiring a vehicle." The policy also had conditions requiring the co-operation of the insured in relation to proceedings brought to recover losses. On page 23 of the policy the condition was expressed in the following way: In the event of a claim, your cooperation is essential. Your obligation to cooperate is outlined … on page 7. [The obligations included giving information and help required by the insurer; the giving of written statements or relevant documents; and the attendance of the insured at court to give evidence.] You must help us even if we have paid your claim. We may attempt to recover the amount of our payment from another party if they were responsible for the loss or damage. We will do this in your name . (Emphasis added.) 6 On 24 May 2000, Ms Bronwyn Smith of Smith Partners, wrote a standard letter of demand to the Proper Officer of Parke Davis Pty Ltd, the first defendant, announcing that they acted for NRMA Insurance Ltd in the matter of Mr Kriengsak and Ms Bandiera, and requested the payment of the sum of $158.00 within 14 days. The defendant refused the payment and an Ordinary Statement of Claim was filed in the names of the plaintiffs by Smith Partners in the Small Claims Division at this Court on 23 June 2000, claiming the sum of $158.00. It is, I think, a matter of common knowledge that there are many hundreds of like claims being processed through this Court. On the face of it, this case was no different from many others at the time it was filed. 7 Evidence was given on the motion by the defendant applicants that on 2 August 2000 Mr Kriengsak had called the NRMA to complain about the solicitors who had filed the statement of claim, Smith Partners. Business records of the NRMA record the following file notes: Our client Mr Kriengsak called wanting to make a complaint about Smith Partners. Our client states they have been harassed by Smith Partners. Our client says he has been asked why he needs the hire car, and he was asked whether there was a bus stop near his home. I explained that we are recovering the costs in his name, and as per his policy we are entitled to do this. He must also co-operate with un in the event of a claim. He states that he has paid his insurance and it is our problem if we do not recover the money. I said that if everyone had this attitude we could not recover our losses and premiums would be more expensive, and we would not be offering the cars at no cost. Our client was not interested in listening to anything I said and kept talking over me. He then ended the conversation by saying he was going to the Today Tonight Show and asked me for my full name – which I gave him. (That conversation took place at 11.56am.) 8 The NRMA later that day called Ms Bronwyn Smith of Smith Partners: I spoke to Bronwyn Smith regarding this. She advised that the only contact they have had with our client was today. She advised they sent our insured their standard letter on 28/7/00 asking insured to contact her office to provide "further and better particulars". The insured then spoke to one of her secretaries/assistants this morning around 11am, and the secretary then goes through a series of standard questions (similar to questions we ask) and that was all. Bronwyn advised there will be no further contact with our client as long as the other party settles. If the other party does not settle then the client will be contacted and asked to sign an affidavit so the matter can go to court. 9 The matter then proceeded through various interlocutory stages at some which costs were reserved. The matter was listed for hearing in November 2001 but the hearing date allocated was vacated. The matter was then listed for 28 March 2002. On 21 March 2002, Smith Partners wrote to Barrie Fudge and Co. advising that "the Plaintiffs will be unavailable" at the hearing and they had been "instructed to discontinue proceedings". 10 The Costs application 11 Mr Rares makes two principal arguments in the application. First, he says that the real party bringing the action was the NRMA. It could only have done so pursuant to a right of subrogation. Subrogation was put in issue in the Amended Notice of Grounds of Defence filed on 17 January 2001. Finally, the NRMA had no right of subrogation and had no authority from the plaintiffs to bring an action in their names. 12 Second, he says that the solicitors on the record, Smith Partners, were in fact retained by the NRMA, not the plaintiffs, and well knew, at least by 2 August 2000, that Mr Kriengsak not only did not lend his name to the proceedings but was opposed to any involvement in the matter. He says that there was no proper retainer from Mr Kriengsak and to have brought the proceedings in his name was therefore an abuse of process. 13 Mr Rares submits that the solicitors ought therefore be liable to some or all of the costs ordered against the plaintiffs. He argues that it would be "monstrously unfair" to make the order against the plaintiffs themselves since they had no interest in participating in the proceedings and they brought on behalf of the NRMA in reality. 14 Mr Manion, counsel for the nominal plaintiffs, but in fact instructed by Smith Partners whose retainer is from the NRMA, argued in response that Smith Partners were properly retained as at 2 August 2000 and from the outset of these proceedings because they had instructions from NRMA. 15 Second, he submitted that at least until the Court of Appeal decision in Anthanasopoulos v Moseley (2001) 52 NSWLR 262, which was delivered on 27 August 2001, there was an arguable case that the NRMA was subrogated to the rights of the plaintiffs, notwithstanding the exclusion clause in the insurance policy contract. He argued that, therefore, it would not be appropriate to award indemnity costs prior to 27 August 2001. 16 He also argued, finally, that this Court should draw no conclusions adverse to the plaintiff respondents on the motion from the fact that there was no evidence called in the hearing when it was called on. 17 Conclusions 18 In the original hearing of the Athanasopoulos matter, in relation to subrogation, I held, on 30 March 2000, that the NRMA was not subrogated to the rights of the plaintiffs because the payment of car hire fees was a voluntary payment and had been specifically excluded from the insurance contract. Ipp AJA (at 277) explicitly supported this conclusion and Beazley JA did so implicitly. 19 I accept that it was always on the cards that the decision I made in Athanasopoulos would be appealed by the unsuccessful party because the case had considerable commercial significance for insurers who were anxious to obtain a binding ruling from a superior court. While I also accept that mere magistrates do not bind other judicial officers on questions of law, any finding by a magistrate on a question of law will, depending on the cogency of the reasoning underlying it, have a degree of persuasive authority, pending a binding resolution of a novel legal issue by a superior court. 20 It therefore seems to me that on 30 March 2001, the NRMA was on notice that (a) subrogation had been placed in issue by the defendants and (b) a Local Court had, in other proceedings, concluded in identical circumstances that the NRMA had no right of subrogation. It seems to me that it would therefore be reasonable to make an indemnity costs order at least from that date. 21 There is, however, another consideration to be taken into account. On 2 August 2000, the solicitors were effectively put on notice that Mr Kriengsak was not prepared voluntarily to lend his name to the proceedings brought in his name. They then had the option of either seeking a court order requiring him to lend his name See Australian Workers' Union v Bowen (1946) 72 CLR 575 at 589 per Dixon J where he emphasised that the fact that one party has a beneficial interest in another's right of action doest not, of itself, mean that the first party has authority to use the other's name. See also Derham, SR Subrogation in Insurance Law LBC, Sydney 1985 p.119. or of repudiating the contract of insurance for breach of the condition that the insured would co-operate. It would appear that no attempt was ever made to obtain an order that Mr Kriengsak lend his name to the proceedings. Nor did it bring proceedings in its own name, joining Mr Kriengsak and Ms Bandiera. See Procinsky v McDermott and Rogers [1955] 4 DLR 606 at 610 and Derham, ibid, at p72. (Mr Kriengsak may, by his lack of co-operation, have breached his contract with the NRMA, but that it not the issue for determination here.) 22 In Woodside Petroleum Development Pty Ltd v H&R-E&W Pty Ltd (1999) 20 WAR 380 at 387. See also Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] 2 WLR 475. Ipp J said; But the right of subrogation does not entitle the insurer (in the absence of an assignment) to proceed in his own name against the alleged wrongdoer. The insurer is required to obtain authority from the assured authorising the insurer to proceed in the assured's name against the wrongdoer. If the assured refuses to give such authority the insurer can bring proceedings to compel it to do so: see Esso Petroleum Ltd v Hall Russell & Co [1989] 1 AC 643 at 663. Although no allegation as to the right of subrogation has to be made in the statement of claim, the defendant may raise the absence or inadequacy of that right in its defence; it is then for the insurer to justify its right to proceed in the name of the assured. The other side of the coin is that, where an insurer sues an alleged wrongdoer in its own name, purporting – wrongly – to exercise the right of subrogation, the third party may defend the claim by disputing the existence of any right on the part of the insurer to so bring the action in question: see Esso Petroleum. In Lord Napier & Ettrick v Hunter [1993] AC 713 it was held that the right of subrogation arises from an implied promise by the assured, in the policy of insurance, to allow the insurer to take proceedings against the wrongdoer (who causes loss covered by the policy) in the assured's name. Thus the right arises in law, albeit that it is enforceable in equity to the extent necessary to reimburse the insurer who has indemnified the assured against the loss. 23 Once it had become plain to the NRMA and its solicitors on 2 August 2000 that Mr Kriengsak was not willing to lend his authority to the proceedings brought in his name it became incumbent upon them to do something urgently to obtain the necessary authority and ratification or to discontinue the proceedings. On the evidence before me it seems that the NRMA and Ms Smith took the view that Mr Kriengsak was obliged to co-operate (by lending his name to the proceedings) and that they would worry about that issue only if the matter failed to settle. Despite an opportunity to put on evidence by way of affidavit or orally, no explanation has been forthcoming from the NRMA or the solicitors about what, if anything, was done to obtain Mr Kriengsak's authority to proceed in his name. The only inference to be drawn is that nothing was done. It is not clear to me, however, once it became evident quite some time ago that these proceedings were being fought hard by the insurer behind the defendants, why nothing was done. 24 It is even more puzzling that nothing was apparently done once it was made clear in the amended defence in January 2001 that subrogation was a live issue. The most likely explanation is probably that this was one case among hundreds being processed in the solicitors' office and that the question of lack of authority from the insured simply did not occur to anyone as a problem. I very much doubt that anyone in Ms Smith's firm or at the NRMA took a conscious or reckless decision to run the case conscious that it was or may be an abuse of process to do so. 25 In any event, no evidence was presented either when the matter was called on for hearing or in the subsequent motion proving that the plaintiff had authorised the proceedings before they were brought or that he had subsequently ratified them See Petersen v Moloney (1951) 84 CLR 91 at 100-101 per Dixon, Fullagar and Kitto JJ. or that proceedings had been taken to require his ratification or authorisation of the proceedings. The NRMA and its advisers had had since January 2001, when it was notified of the amended defence, to rectify the problem and failed to do so. 26 Secondly, the NRMA and its advisers were on notice from 30 March 2001 that they had no right of subrogation whether or not Mr Kriengsak had lent his name to the proceedings but did not consider withdrawing them until a year later. Even when the Court of Appeal in effect ratified my finding on the subrogation issue they took no action to discontinue the proceedings. 27 In all the circumstances, I therefore think that it is appropriate to make a costs order on the indemnity basis from the commencement of the proceedings to its conclusion. 28 I am urged to make the order against the solicitors either in its entirety or jointly with the NRMA. The Local Court has power to make costs orders against non-parties in appropriate circumstances just as other courts in this State have. I agree with Mr Rares that it would be unfair to make the order against the nominal plaintiffs. On the other hand, the litigation is commercial litigation pursued by the NRMA as part of its insurance business. There is no evidence of male fides, unprofessional conduct, professional misconduct or gross negligence on the part of the solicitors. The ordering of costs against a non-party will always be exceptional. See Aiden Shipping Co v Interbulk Ltd [1986] AC 965 at 980 per Lord Goff. An order against a solicitor should only be made in a clear case, and the discretion ought be exercised with care. See Nilsen v Loyal Orange Trust (1999) 76 IR 180; Orchard v South Eastern Electricity Board [1987] QB 565 at 572 per Donaldson MR; Ridehalgh v Horsefield [1994] Ch 205. In Vestris v Cashman (1998) 72 SASR 449 at 458, Lander J said, "The judge should treat any application for such an order with considerable caution." 29 Here it is appropriate to make the an order against the NRMA because it was the real party bringing the action which ultimately failed. With due respect to counsel for the defendants, I do not, however, think that this was a case of deliberate abuse of process, nor do I regard it as a "clear case" where the solicitors, by their unprofessional conduct or for other sufficiently cogent reason, have made themselves liable to a costs order. 30 Orders 31 1. Costs will follow the event. 2. The NRMA is to pay the defendants' cost in an amount agreed within 28 days or assessed on the indemnity basis from the commencement of the proceedings. I intend this order to include all costs which were reserved following interlocutory applications. 32 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.