Nonox Australia v Certain Underwriters at Lloyds Subscribing to Contract No CV0263CGL [2014] NSWSC 222

Supreme Court New South Wales

Medium Neutral Citation: Nonox Australia v Certain Underwriters at Lloyds Subscribing to Contract No CV0263CGL [2014] NSWSC 222 Hearing dates: 07/03/2014 Decision date: 07 March 2014 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: Dismiss application for separate determination. Catchwords: PRACTICE AND PROCEDURE - Application for separate determination of issues - whether there is a clear dividing line between issues - whether there is risk of overlap of witnesses - whether separate determination will be quicker and cheaper - Uniform Civil Procedure Rules 2005 (NSW), r 28.2 - Civil Procedure Act 2005 (NSW) s 56. Legislation Cited: Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Tepko Pty Ltd v Water Board (2001) 206 CLR 1 Category: Procedural and other rulings Parties: Nonox Australia Pty Ltd (Plaintiff) Certain underwriters at Lloyd's subscribing to contract No CV0263CGL (First Defendant) Berkley Insurance Company (Second Defendant) Marsh Pty Ltd (Third Defendant) Representation: Counsel: J Duncan (Plaintiff) D H Mitchell (First and Second Defendants) M Tsang (Third Defendant) Solicitors: Clayton Utz (Plaintiff) Moray & Agnew (First and Second Defendant) King & Wood Mallesons (Third Defendant) File Number(s): 2013/297111

Judgment (ex tempore - revised 10 march 2014) 1HIS HONOUR: I have given reasons earlier today dealing with an application for security for costs. I will not repeat what I said. The result is that these reasons should be read in conjunction with my earlier reasons to understand the nature of the issues and who the various parties are. 2As I foreshadowed in those earlier reasons, there is now an application for separate and subsequent determination of all issues of quantification of such loss as the plaintiff may have sustained, in respect of which it seeks indemnity from the underwriters or damages from the broker, Marsh. 3The affidavit evidence in support of the application suggests that if questions of quantification were deferred, there could be some saving of time and hence of costs. The estimates given are that the inclusion of quantum issues would add two or three hearing days to what is currently (if the order were made) thought to be a three day hearing on liability issues. 4There is no doubt that the court must approach the discretion, under UCPR r 28.2 to order separate decision of questions, bearing in mind steadfastly s 56 of the Civil Procedure Act 2005 (NSW). Thus, the court is required to approach the exercise of the r 28.2 discretion in a manner that seeks to facilitate the just, quick and cheap resolution of the real issues in dispute. 5As between the plaintiff and the underwriters at least, it might be thought that the real issues are those that go to liability. That is because, at least in respect of the Hong Kong claims, the underwriters have already conducted a substantial investigation of those claims, through solicitors and others appointed by them. 6Thus, if it were decided that the policy did respond and that the nondisclosure defence was not made out, it would follow that the underwriters would have a fair idea of where they stand in monetary terms. 7Of course, that could be dealt with in a separate way, by declaring that, subject to the policy limits and the like, the underwriters were bound to indemnify the plaintiff in respect of the Hong Kong claims. That would not involve the court in any question of quantification. 8However, the claim against Marsh cannot be dealt with quite so simply. Marsh is not an insurer. It is the broker retained by the plaintiff to effect the insurances. The claim is that (if the underwriters succeed) Marsh failed to carry out its retainer, and is thus liable (on the contractual measure) for such damages as result. That could be met by making an order that the damages be assessed, but it is not quite as quick and easy a process as might be undertaken in respect of the Hong Kong claims. 9Further, focusing on the Hong Kong claims ignores the fact that there is another claim in the wings, from some transport company in Singapore. Relatively little is known at present about that claim. The underwriters have not had any opportunity of investigating it. They are not in a position to say even whether it is a claim which arose during the currency of the insurance policy. 10No doubt those matters could be dealt with. But it does mean that if the matter proceeds to a hearing of all issues against the underwriters, including issues in respect of the Singapore claim, the only final resolution could be a declaration that the underwriters are bound to indemnify the plaintiff. 11The ordinary process of the court is that all issues be dealt with in one hearing. There are obvious reasons of convenience why this is so. However, r 28.2 recognises that there may be exceptions to the general course, and as I have said, that question requires to be considered bearing steadfastly in mind the guidance offered by s 56 of the Civil Procedure Act. 12On the face of the affidavit evidence, there are some attractions of separating out liability and quantum issues. However, in the real world, experience suggests that sometimes the separation is not clear; in some cases there is no clear line, or division, on the one side of which stands questions for prior determination and the other, questions for subsequent determination. 13Further, if there is a real risk that there will be witnesses common to both sides of questions, the supposed advantages of separate determination may evaporate rapidly. Particularly where credibility in the broad sense may be in issue, an inevitable result of separation may be that the one judge cannot deal with all issues and that two judges will have to consider the same question of credibility. I cannot help but recall a case in my experience at the bar where the reverse of that happened. The plaintiff succeeded on a separate trial on a liability issue. His evidence on the quantum issues was so appalling that the trial judge commented that, had all issues been dealt with together, the plaintiff would have failed entirely. 14No doubt it is risks of that kind which prompted Kirby and Callinan JJ to observe in Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at [168] that savings in time and expense are often illusory, and that the supposed benefits of separate determination are often chimerical rather than real. In this case, I think there is much weight in the submission of Mr Mitchell that what might be called (and he did call) economies of scale can operate in favour of a more effective overall determination and against a separate determination. 15Another complicating factor in this case is that the plaintiff's claims include not only a claim for indemnity in respect of the claims made against it by transport companies, but also a claim for consequential loss. That claim raises several issues as between the plaintiff and the underwriters on the one hand and the plaintiff and Marsh on the other. It is unclear how a separation into liability and quantum issues would impact in those circumstances, because it is by no means clear on which side of the line particular issues fall. 16I accept that a saving of some two days, if it can be achieved, is significant. However, and again as Mr Mitchell submitted, difficult questions may arise if, separate determination having been ordered, the plaintiff is held entitled to succeed in principle against the underwriters but not against the broker (or vice versa). Would the assessment against the unsuccessful defendant or defendants then proceed while the fight between the plaintiff and the other or others was being fought out through the appellate courts? Or would assessment be delayed until all avenues of appeal had been exhausted? There is no obvious answers to these questions. But if questions of quantification were delayed, to ensure that they were argued once only and that all defendants who were held liable were bound by them, the s 56 imperative might be seen to be breached in respect of two at least of its limbs: the second and the third. 17In all the circumstances, it seems to me that this is not an appropriate case for separate determination of issues. I say that because I am not satisfied that there is a clear dividing line. I am not satisfied that there will be no overlap of witnesses. And I am not satisfied that, in the long run, the outcome will be either quicker or cheaper. 18Accordingly, the plaintiff's notice of motion filed on 28 February 2014 is dismissed. 19I return to the question of the amount of security for costs to be given and to the question of costs. 20The amount of security that has been claimed was estimated on the basis that total costs chargeable by the underwriters' lawyers to their clients would be of a certain figure, of which between 75% and 85% would be recoverable on assessment. The amount that is claimed takes the upper end of that range. To my mind, it is more appropriate to take a figure which is more in the middle of the range. 21As I have said before, it is proposed that security be ordered by instalments. This is a case where it is appropriate to do so. I think the best way of accommodating the considerations to which I have referred is to reduce the total amount for which security is sought to a figure approximately in the middle of the range of figures quoted by the underwriters' solicitor and to divide that into instalments which offer varying reductions from the total claimed. 22Accordingly, I order that the plaintiff provide security for the first and second defendants' costs of the proceeding in the sum of $245,000. I order that security be provided either as the parties may agree or otherwise by cash or bank guarantee by instalments of $45,000 within 28 days; a further $40,000 within seven days of service of the plaintiff's evidence; and a further $160,000 not more than 28 days prior to the date fixed for commencement of the final hearing. 23I order that the proceedings be stayed if the instalment payable within 28 days be not paid within that time, or if the instalment payable within seven days of service of the plaintiff's evidence be not paid in time, or if the instalment payable not more than 28 days prior to the commencement of the hearing be not paid in time. 24I order the plaintiff to pay the first and second defendants' costs of both notices of motion. 25I make no order as to costs of either of the notices of motion as between the plaintiff and the third defendant. 26To clarify the orders I have made, the stays that will come into force if security for costs be not provided in accordance with those orders operates only as between the plaintiff and the first and second defendants.