Supreme Court New South Wales Medium Neutral Citation: Morse v Riley (No 4) [2014] NSWSC 299 Hearing dates: 19 March 2014 Decision date: 19 March 2014 Jurisdiction: Common Law Before: Beech-Jones J Decision: 1. Order that prayers 1 and 2 of the Notice of Motion filed 28 January 2014 be dismissed. 2. The order made by Sackar J on 29 January 2014 (that no judgment is to be entered on the Cross Claim until further order of the Court) is vacated. 3. Judgment is to be entered in favour of the Cross Defendant on the Cross Claim. 4. Each party to bear its own costs of the Cross Claim. 5. Grant liberty to apply to Beech-Jones J. Catchwords: COSTS - no question of principle. Legislation Cited: Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6 Cases Cited: - Chubb Insurance Co of Australia Ltd v Moore [2013] NSWCA 212; 302 ALR 101 - Harrem Pty Ltd v Tebb [2008] NSWSC 510 - Morse v Riley (No 3) [2014] NSWSC 236 Category: Interlocutory applications Parties: Joanna Louise Morse (First Plaintiff) Joanna Chapman Investments Pty Ltd (Second Plaintiff) Michael Thomas Riley (First Defendant) Julie Anne Riley (Second Defendant) LawCover Insurance Pty Ltd (Cross Defendant) Representation: Counsel: T. Molomby SC, M. Fraser (Plaintiffs) No appearance (Defendants) J. Downing (Cross Defendant) Solicitors: Castagnet Lawyers (Plaintiffs) Submitting appearance (First Defendant) HWL Ebsworth (Cross Defendant) File Number(s): 2011/177707 ex tempore Judgment 1The background to this matter is set out in Morse v Riley (No 3) [2014] NSWSC 236 ("Morse (No 3)"). At [8] of that judgment I indicated that I was next due to consider an application by the plaintiffs to join Mr Riley's professional indemnity insurer, LawCover Insurance Pty Ltd ("LawCover"). That application was heard on the balance of what remained of 13 March 2014 and judgment was reserved. 2During the course of submissions on that application, counsel for LawCover, Mr Downing, made two points in opposition to the application for a grant of leave under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). 3The first was that under the terms of the relevant policy of insurance providing cover for Mr Riley there was an exclusion in respect of acts of dishonesty. It was contended that a proper characterisation of the plaintiffs' claim meant that all of the alleged defaults by Mr Riley were of that character. Thus it was submitted that cover could never engage and leave should be refused under s 6(4). 4Second, Mr Downing contended that the policy was a "claims made" policy with the claim only having been made in the 2006/2007 year, and because the events giving rise to the liability occurred well prior to that year, s 6(1) could never be engaged (see Chubb Insurance Co of Australia Ltd v Moore [2013] NSWCA 212; 302 ALR 101 at [72] to [104] especially at [85] per Emmett JA and Ball J ("Chubb")). 5This second point clearly caught senior counsel for the plaintiffs, Mr Molomby SC, by surprise. He sought and was granted time to consider it and file supplementary written submissions. Eventually on 17 March 2014 submissions were provided from the plaintiffs conceding the correctness of this second point and indicating that, in light of it, the motion would not be pressed. 6The parties have agreed short minutes to dispose of the motion, but the question of costs is not agreed. LawCover seeks its costs of the motion on the ordinary basis, whereas the plaintiffs submit the appropriate order is that there be no order as to costs. 7In circumstances where a matter, including a motion, is not determined the Court is deprived of the usual determinant of costs, namely, a finding as to which party succeeded. Nevertheless, the Court can in such circumstances make an order for costs if it can conclude that it is inevitable that one party would have succeeded, or it is clear that another party surrendered, or there was unreasonable conduct by one or other of the parties in the conduct of the matter. 8In this case, there was an effective surrender by the plaintiffs. However, they submit that there should nevertheless be no order for costs against them because of the failure of LawCover to bring the point they conceded on to their attention at any time prior to the hearing of the motion on 13 March 2014. They point out that the motion was filed in circumstances of some urgency when they discovered that the first defendant was proposing to agree to entry of a consent judgment against him in favour of LawCover on his cross claim, and to cease to actively defend the substantive proceedings (see Morse (No 3) at [2]). 9Counsel for LawCover, Mr Downing, noted that one letter from LawCover to the plaintiffs referred to the fact that the policy was a "claims made" policy. He nevertheless accepted that, until he provided his submissions on 13 March 2014, this point was not brought to the plaintiffs' attention. However he submitted that it is a matter which the plaintiffs should have discovered themselves. He says it was they who brought an application under s 6(4) and it was incumbent upon the plaintiffs and their representatives to familiarise themselves with the applicable law concerning s 6 so far as it may apply to "claims made" policies. 10Mr Molomby SC referred me to the following passage from the judgment of Palmer J in Harrem Pty Ltd v Tebb [2008] NSWSC 510 [18] to [19]: "[18] If timely disclosure of such a 'killer point' had been made, senior counsel would never have left the costs argument to a hastily instructed junior. Further, senior counsel would have been able to point out at once that the 'killer point' was without substance and that express power for the order sought was provided by UCPR 23.8. [19] What has occurred in this case is an instance of 'trial by ambush'. The culture which fostered that practice in litigation is long dead. The pressure and cost of litigation is now so great that the Court requires the real issues in the case to be identified to both sides as soon as possible so that both can fairly come to grips with them without delay. "Trial by ambush' is actively discouraged in this Court. Practitioners who engage in that tactic do not enjoy the Court's respect. I say this in order to remind the profession that significant points of law, particularly those going to jurisdiction, should be brought to the attention of the opponent as soon as possible. If the point is a good one, wasteful litigation might be avoided. If the opponent presses ahead regardless and fails, an indemnity costs order may follow. But at least the parties will have avoided the waste of time and money which has occurred in this case." 11Mr Molomby SC submitted that his Honour's comments about the need for members of the profession to bring significant and, indeed, potentially "killer" points of law to their opponent's attention in a timely manner, lest there be a costs consequence, were of general application. 12I have found the contentions on this reasonably evenly balanced. In the ordinary course it seems to me incumbent upon parties, such as the plaintiffs, who bring applications under these types of provisions to familiarise themselves with their legal operation. However, it is nevertheless to be remembered that at all material times knowledge of the terms of Mr Riley's insurance policies and the identity of the insurer lay with LawCover. Moreover, it is difficult to ignore the fact that LawCover over a period of time is likely to have become a repository of a significant degree of knowledge as to the operation of s 6 which in itself is confusing and unclear. 13In the end, it seems to me that if there is a fatal point in answer to an application such as this which is brought in the circumstances of urgency that I have described, then it is incumbent upon LawCover to bring it to the plaintiffs' attention reasonably expeditiously. It must have been clear from a reasonably early stage that the bulk of, if not all, of the events giving rise to the relevant alleged liability on the part of Mr Riley occurred in a policy year prior to that in which Mr Riley notified LawCover of the potential for a claim to be made against him. On the basis of Chubb, I expect LawCover realised that was fatal to the application. I have no doubt that if that had been brought to the plaintiffs' attention then, in light of how the motion in fact transpired, they would not have pursued their application. 14In circumstances where there is an institutional defendant who is in that position, in my view it is incumbent upon them to make that point to the plaintiffs so that they can consider their position. If they choose to bat on then, of course, they wear the consequences. 15In those circumstances, I consider that the appropriate order is that there be no order as to costs of the motion. I will otherwise make orders 1, 3 and 4 in the document entitled Proposed Orders which is initialled by me, dated today and placed with the papers. ********** 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 March 2014