Supreme Court New South Wales Medium Neutral Citation: Strahinja Pandurevic v Southern Cross Constructions (NSW) Pty Limited & Ors (No 3) [2012] NSWSC 1601 Hearing dates: 27 June 2012, 29 June 2012 Decision date: 21 December 2012 Jurisdiction: Common Law Before: Hidden J Decision: QBE costs: Allmen and Mecon to pay QBE's costs of 2nd, 3rd & 5th cross-claims. QBE's application for indemnity costs refused. Allmen's motion: judgment for Allmen in accordance with [1]. Orders in accordance with [3], [5], [7], [8] & [10]. Catchwords: PROCEEDINGS FOR DAMAGES FOR PERSONAL INJURY - costs - costs incurred by party without written consent of insurer - whether s 54 Insurance Contracts Act applicable - insurer liable to indemnify party - whether insurer should pay party's costs of proceedings - whether costs should be on indemnity basis Legislation Cited: Insurance Contracts Act 1984 (Cth) Cases Cited: - Strahinja Pandurevic v Southern Cross Constructions (NSW) Pty Limited & Ors [2012] NSWSC 623 - Leda Pty Ltd v Weerden (No 3) [2006] NSWSC 220 - Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 - Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 - Hillier v Sheather (1995) 36 NSWLR 44 - Antico v Health Fielding Australia Pty Ltd (1996-97) 188 CLR 652 - East End Real Estate Ltd v CE Heath Casualty and General Insurance Pty Ltd (1991) 25 NSWLR 400 - Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 - Government Insurance Office of New South Wales v Crowley (1975) 2 NSWLR 78 - Dargham v Kovacevic (No 2) [2011] NSWSC 651 - Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 - Break Fast Investments Pty Ltd v Giannopoulos [2012] NSWSC 495 Category: Procedural and other rulings Parties: Allmen Steel (2nd defendant) Mecon (cross-claimant/defendant) QBE Insurance (Australia) Pty Ltd (cross-claimant/defendant) Representation: Counsel: B Gee (Allmen Steel) JL Sharpe (Mecon) C Bannan (QBE Insurance (Australia) Pty Ltd Solicitors: B Gee (Allmen Steel) H Simon - Remington & Company (Mecon) PJ Hendriks - Hicksons Lawyers (QBE Insurance (Australia) Pty Ltd) File Number(s): 2008/289635 Judgment on costs Second, third and fifth cross-claims 1QBE was successful in these cross-claims: Strahinja Pandurevic v Southern Cross Constructions (NSW) Pty Limited & Ors [2012] NSWSC 623. It is entitled to its costs, but it seeks them in part on an indemnity basis. 2On 25 August 2011 it made an offer of compromise to Mecon and Allmen Steel, proposing that there be judgment for QBE with each party to pay its own costs. The offer was expressed to be open until 10.00am on 29 August, the date of the hearing of the proceedings, but it was not accepted by either of the other parties within that time. Accordingly, costs are sought on an indemnity basis from 25 August. Counsel for QBE, Mr Bannan, submitted that each offer of compromise complied with UCPR r 20.26(2) and (3), and that QBE was entitled to indemnity costs from the relevant date by virtue of r 42.15(A), there being no reason for me to order otherwise. 3Counsel for Mecon and Allmen, Mr Sharpe, submitted that the offers did not comply with the requirement under r 20.26(7)(b) that they be left open for a time which was reasonable in the circumstances. Acceptance was required within 4 days of the offers. Moreover, the day on which they were made, 25 August, was a Thursday and the offer was open only until the morning of the following Monday, 29 August. A weekend intervened. 4Other matters were raised by Mr Sharpe, but I am satisfied that the offers were not left open for a reasonable period. This is sufficient to dispose of QBE's application. Mr Bannan referred to Leda Pty Ltd v Weerden (No 3) [2006] NSWSC 220, in which Gzell J ordered indemnity costs where an offer had been left open for 4 days in the week preceding the hearing of the matter. The offer was made on 30 January 2006 and was open until 4.00pm on 3 February. Reference to a 2006 calendar reveals that this was a period between a Monday and a Thursday, all business days. In the present case, effectively, the offer was open for 2 business days prior to the day of hearing. 5Mr Bannan also cited Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85, in which the leading judgment dealing with costs was given by Basten JA. In that case the relevant offer of compromise was made at 11.30am on the day before the trial, and expressed to be open until 10.00am the following day. At [23], Basten JA described the time allowed as "a short period for the consideration of a global assessment of a reasonably complex dispute" and held that the offer was not left open for a reasonable time. That said, his Honour described the case as "truly borderline." That observation, however, should be understood in its context. The offer was to settle the claim for a specified amount. As Basten JA explained at [15], it was made at the end of a process of negotiation in which earlier offers had been made and the parties had had the opportunity to assess the value of the claim. 6His Honour said at [20]: "In considering whether the time allowed for acceptance is 'reasonable in all the circumstances' once a trial commences, or indeed final preparation commences, three factors come into play. The first is that both parties may reasonably be expected to have a clear perception of the strengths and weaknesses of their positions, so that the reasonableness of a particular offer may be speedily assessed. Secondly, because significant costs will be accruing on a daily, even an hourly basis, there is a heightened incentive to respond within the time permitted. Thirdly, and counterbalancing the first factor, the need to address the terms of an offer, provide advice and obtain instructions will often be a significant distraction from final preparation." 7The other members of the court, Giles and Tobias JJA, agreed with Basten JA. In particular, at [2] they agreed with his Honour's balancing of the relevant factors, adding "that the many observations to the effect that service of an offer of compromise under rules of court obliges the offeree to give serious thought to the risks of the proceedings and their outcome (eg Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724; Hillier v Sheather (1995) 36 NSWLR 44 at 422) mean that the court should not be ungenerous to an offeree in determining whether a time is reasonable." 8Of course, the present case must be decided on its own facts, and only limited assistance can be gained by examining the circumstances of other cases. I remain of the view that the time for acceptance was unreasonable notwithstanding the fact that, in the event, the issue between the parties turned only upon the construction of the relevant policy. That was not apparent to Mr Izzo, counsel then appearing for QBE, on 29 August. He initially was of the view that certain factual matters might need to be explored, and it was not until the end of that day that it was determined that that course would not be necessary. 9Accordingly, Allmen and Mecon are to pay QBE's costs of the second, third and fifth cross-claims. QBE's application for indemnity costs is refused. QBE is to pay Allmen's and Mecon's costs of that application. Allmen's motion 10Before me also is a motion by Allmen in respect of costs issues between it and Mecon. As I have said, in relation to QBE's application for indemnity costs Mr Sharpe represented both Mecon and Allmen. This was because, following my ruling that the Mecon policy answered to Allmen's claim, Mecon undertook the conduct of the proceedings on its behalf. For the purposes of this motion, however, Mr Sharpe appeared for Mecon and Allmen was represented by its solicitor, Mr Gee. 11The motion seeks judgment in favour of Allmen on the first cross-claim (brought against Mecon). That is not in contest. Allmen also seeks its costs of that cross-claim on an indemnity basis. Mecon does not dispute an order for costs on a party/party basis. Allmen also seeks an order that Mecon pay the costs ordered to be paid by Allmen to QBE in relation to the third cross-claim, and that order also is not in contest. 12Among the other orders sought is an order that Mecon pay Allmen's costs of the proceedings on an indemnity basis or, alternatively, a party/party basis. To this Mecon responded with a submission based upon a clause of the policy. 13The Mecon policy, extending to Allmen as a sub-contractor, provided indemnity for liability for personal injury by cl 5.00. Clause 5.01 also provided indemnity for "legal charges, expenses and costs" with Mecon's "prior written permission ... ." That written permission was never provided to Allmen; nor was it ever sought. Mr Sharpe submitted that if Allmen sought indemnity under the policy in respect of the costs incurred in defending the plaintiff's claim, it was essential for it to have obtained Mecon's prior written consent to do so. 14In response, Mr Gee relied upon s 54 of the Insurance Contracts Act 1984 (Cth). Relevantly for present purposes, s 54(1) provides: "(1)...where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim...by reason of some act of the insured..., the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act." By subs (6), a reference to an act includes an omission. 15Mr Gee submitted that Allmen's failure to obtain Mecon's written permission was an omission for the purposes of that section. He relied upon the decision of the High Court in Antico v Health Fielding Australia Pty Ltd (1996-97) 188 CLR 652. That was also a case involving the failure of an insured to obtain the insurer's consent for the purpose of indemnity for legal expenses incurred. The facts of the case, and other relevant provisions of the policy involved, were significantly different from the present case. What Mr Gee relied upon, however, was the finding of the majority that the insured's failure to obtain consent was an omission to which s 54 applied. 16The majority referred (at 668) to the decision of the New South Wales Court of Appeal in East End Real Estate Pty Ltd v CE Heath Casualty and General Insurance Ltd (1991) 25 NSWLR 400. In particular, their Honours decided the following observation of Gleeson CJ about s 54 (at 403): "In my view, by choosing words of generality and avoiding reference to the particular type of contractual provision that might produce the result that the insurer may refuse to pay a claim, the legislature has evinced an intention to avoid the result that the operation of s 54 depends upon matters of form." The majority noted [at 669] that the section "takes as its starting point the existence of a claim and a contract the effect of which is that the insurer may refuse to pay the claim," and described the provision (at 675) as "remedial in character." 17Mr Gee took me to correspondence between him and Mecon, initially with the company itself and then with its solicitor, commencing with his letter of 21 April 2010 in which it was asserted that Allmen was covered by the Mecon policy, and indemnity under it was claimed. Mecon was asked to confirm in writing that it would stand in the place of Allmen pursuant to the policy. It is unnecessary to recite the correspondence that ensued thereafter until Allmen filed the first cross-claim against Mecon. It is sufficient to say that the effect of Mecon's response was that the policy did not answer to Allmen's claim and that Allmen should pursue indemnity from its own insurer, QBE. Mr Sharpe noted that in none of this correspondence did Allmen seek the written permission of Mecon which the policy required. Mr Gee, for his part, noted that nowhere in the correspondence did Mecon refer to that requirement. 18Mr Gee also relied upon the pleadings in relation to the first cross-claim. In the cross-claim Allmen pleaded that it had made a claim on the Mecon policy, and sought indemnity in respect of any amount, including costs, which it might be ordered to pay to the plaintiff, together with damages for consequential loss, interest and costs. In its defence to the cross-claim, Mecon admitted that the claim had been made but asserted that, by reason of the QBE policy, the Mecon policy did not respond to it. Allmen's failure to obtain Mecon's written consent was not pleaded. Indeed, the matter was raised for the first time in Mecon's submissions in respect of the present motion. 19Mr Gee also referred to relevant clauses of the Mecon policy. They included clause 10.01, requiring the insured to make no admission of liability, expressly or by conduct, or to settle any third party claims. Mr Gee argued that Allmen's conduct of the case was consistent with those requirements. He also referred to the obligation of Mecon, under the heading "Upmost Good Faith", to settle claims quickly, to have a genuine reason to refuse claims, and to disclose restrictions in the policy. He argued that Mecon's conduct in refraining from relying upon the absence of written consent until the eleventh hour, after the substantive issues in the proceedings had been disposed of by settlement or by my decision, was inconsistent with that requirement. 20I can see the force of that last argument but, in the event, I do not need to decide it. Mr Sharpe relied upon the plain words of cl 50.01 in the policy, emphasising that the required permission was never sought. He referred to Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1, and Government Insurance Office of New South Wales v Crowley (1975) 2 NSWLR 78, in both of which the question whether there should be implied in a policy requiring consent a term that that consent would not be unreasonably withheld. That question does not arise here. Both those cases, of course, were decided before the Insurance Contracts Act was enacted. The issue is whether s 54 of that Act is applicable. 21Clearly, in my view, it is. Indeed, it appears to me that this case presents the very sort of circumstances to which the section is directed. From the outset of its dealings with Mecon, Allmen contended that it was entitled to indemnity under the Mecon policy, obviously in relation to its costs as well as any damages which might be awarded against it. Throughout the proceedings thereafter Mecon did not raise its omission to obtain written consent. It is entirely appropriate that Allmen should be relieved of the consequences of that omission by the application of s 54. As Mr Gee also pointed out in written submissions, Mecon has not identified any relevant prejudice for the purpose of subs (1) of that section. 22Accordingly, the lack of written consent is not a barrier to Allmen's application that Mecon pay its costs of the proceedings. The merit of that application will appear from what follows. 23It is necessary to examine the other orders sought by Allmen which are in contest. These are the following: costs of the first cross-claim on an indemnity basis; Allmen's costs in connection with the third cross-claim on an indemnity basis or, alternatively, on a party/party basis; Allmen's costs in connection with the fourth cross-claim on an indemnity basis or, alternatively, on a party/party basis. Also sought is an order for payment of any costs ordered to be paid by Allmen to the first defendant, Southern Cross Constructions, in relation to the fourth cross-claim. No such order was made. In the event, the fourth cross-claim was settled on the basis that there would be judgment for Southern Cross Constructions, with each party to pay its own costs. 24As to the third cross claim, by Allmen against QBE, Mr Gee relied upon my observation in my judgment of 7 June 2012 at [3] that it was brought merely to protect Allmen's position. By a letter of 22 March 2011, Mr Gee informed Mecon's solicitor that if Mecon did not agree to indemnify Allmen, Allmen would have no alternative but to cross-claim against QBE and that, in the event of that cross-claim being unsuccessful, a Bullock/Sanderson order against Mecon would be sought in respect of the costs of that cross-claim, both of Allmen and QBE. As I have said, Mecon accepts that it must meet the costs ordered to be paid by Allmen to QBE. However, Mr Gee argued, it should also be ordered to pay Allmen's costs of that cross-claim. 25Mr Gee adopted a similar position in relation to the fourth cross-claim, by Allmen against Southern Cross Constructions. He notified Mecon's solicitor by a letter of 23 August 2011 that, in the absence of indemnity by Mecon, Allmen would seek an order that Mecon pay its costs of this cross-claim. He submitted that such an order should be made, notwithstanding the terms upon which the cross-claim was ultimately settled. 26Mr Gee argued that, if Mecon had agreed to indemnify it at an earlier stage, Allmen would not have had to incur the costs of pursuing the fourth cross-claim. He drew an analogy with the decision of Hislop J in Dargham v Kovacevic (No 2) [2011] NSWSC 651, a case also involving Mecon, in which his Honour held that Mecon was liable to indemnify one of the defendants and that, if it had acknowledged its liability to do so prior to the commencement of the proceedings, certain costs incurred by that defendant would have been avoided. 27In response, Mr Sharpe again relied upon the fact that Allmen had never sought the written consent required by the policy. Moreover, he argued, the issue could have been dealt with early, quickly and cheaply by an application for a declaration as to which of the two policies, Mecon or QBE, responded to Allmen's claim. That may be so but, as Mr Gee pointed out, that course was equally available to Mecon. 28I have not found these issues easy to resolve but, on balance, I am persuaded that Mecon should pay Allmen's costs of the third and fourth cross-claims for the reasons identified by Mr Gee. It was Mecon's refusal to provide indemnity to Allmen, which I found to be erroneous, which required Allmen to bring the third cross-claim and to incur the costs of pursuing the fourth cross-claim. Indeed, it was that same refusal which left Allmen to protect its interests throughout the proceedings from its own resources. 29The question remains whether any of the costs sought should be awarded on an indemnity basis. On that issue Mr Gee relied upon the history of Allmen's dealings with Mecon which I have outlined. As he put it in written submissions, throughout the proceedings Allmen has taken all reasonable steps to defend them. Mecon's denial of liability necessitated Allmen incurring legal costs in connection with that defence. Mecon has obtained the benefit of Allmen defending the proceedings and in those circumstances, he submitted, it would be unjust for costs to be awarded other than on an indemnity basis. 30Mr Gee referred me to the well known exposition of the relevant principles by Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225, and the helpful review of the principles, with reference to more recent authority, by Black J in Break Fast Investments Pty Ltd v Giannopoulos [2012] NSWSC 495 at [20] ff. Put shortly the discretion to award costs on an indemnity basis is a wide one, but its exercise depends upon finding special or unusual features of a case which justify a court in departing from the ordinary practice of awarding costs on a party/party basis. 31I have not found this issue easy to resolve either. I can see the force of Mr Gee's submissions. On the other hand, Allmen could have sought a declaration at an early stage and it did fail to seek Mecon's written permission, as the policy required. Even though I found that s 54 of the Insurance Contracts Act applies to that omission, it cannot be said that Allmen is entirely without fault in the matter. Taking all the circumstances into account, I am not persuaded that the case has special or unusual features such as might justify an award of costs on an indemnity basis. 32Accordingly, there will be judgment for Allmen in accordance with para 1 of the notice of motion, and I make the orders sought in paras 3, 5, 7, 8 and 10. As Allmen has been substantially successful, Mecon is to pay its costs of the motion. ********** 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. Decision last updated: 21 December 2012