Royston v McCallum[2006] QSC 291

SUPREME COURT OF QUEENSLAND

[1] On 11 August 2006 I gave judgment dismissing the eight claims, counter-claims and third party claims which the parties brought against each other arising out of the Second Defendant’s unsuccessful attempt to recover, on behalf of the Fourth Defendant its insurer, damages against the Third Defendant:  see [2006] QSC 193.  By that action the Second Defendant had hoped to recover some or all of the amount of damages it had paid to compromise the Plaintiff’s claim.

[2] The parties have now asked me to attend to reckoning the costs of the action, and of the various claims which were intertwined within it.  I intend to deal with the submissions as briefly as the circumstances permit.

[3] The Second Defendant (whose interests in this regard are identical to those of the Fourth Defendant which was, in reality, the applicant for relief) accepts that it should pay the Third Defendant’s costs of and incidental to its unsuccessful claim, to be assessed upon the standard basis.

[4] The Third Defendant seeks to have those costs assessed on the indemnity basis.  It submits that:

‘The usual rule is that costs incurred by an insured in defending a … claim where … the insured is entitled to the benefit of his insurer’s indemnity, should be paid by the insurer on the indemnity basis.’

[5] The authority cited is Schleimer v Brisbane Stevedoring Pty Ltd [1969] Qd R 46 at 67.  That case is one in which indemnity was ordered pursuant to an express contractual indemnity contained in a hiring agreement, not a policy of insurance.  Separately a policy of insurance covered the indemnifier for the amount the contract obliged it to pay.  The case is not authority for the propositions for which it is cited.

[6] It is to be noted that the Third Defendant does not rely upon the provisions of UCPR 361.  It did make an offer to settle the action on 3 February 2006 on terms which if accepted would have yielded the Second Defendant an advantage it did not recover in the action.  However the offer was not in terms one that fitted the description of UCPR 361(1).  The offer was conditional and some of its terms depended upon other parties to the action being bound by the offer.  No attempt appears to have been made to procure those other parties’ involvement in the negotiations so that the offer was never capable of acceptance.

[7] There is no special rule, so far as I know, that an insured who successfully sues an insurer who has refused indemnity under its policy is entitled to indemnity costs.  This is not to say that the policy itself may not confer a right to recover the amount which the insured had to expend to obtain the indemnity.  This consequence will flow from the terms of the contract, not the exercise of a judicial discretion as to the making of an order for costs.

[8] Nevertheless this is a proper case in which to order costs on the indemnity basis.  The claim brought by the Second Defendant at the behest of the Fourth Defendant was one against which the Fourth Defendant was obliged to indemnify the Third Defendant pursuant to its issued policy of insurance.  To deprive the Third Defendant of the difference between the costs it expended and the costs it would recover on the standard basis would be to deprive it of part of the benefit which the policy was intended to provide. There is no claim for damages for breach of the contract of insurance such as the Third Party brought against the Fourth Defendant but the want of this claim should not be allowed to work a practical injustice on the Third Defendant.

[9] The Third Party seeks an order that the Third Defendant, who joined it, should pay its costs of successfully defending the Third Party proceedings.  I can see no answer to this claim.  The Third Party is clearly entitled to those costs.  They should be assessed on the standard basis.

[10] The Third Defendant asks for an order that the Second Defendant should pay any costs it is ordered to pay the Third Party by reason of its having failed on the Third Party proceedings.

[11] I decline to make such an order.  There would be no justice in requiring the Second Defendant to pay for what was the Third Defendant’s own frolic against the Third Party.  It must be remembered that that claim failed on the facts.  I found that the jinker was not relevantly defective when delivered by the Third Party to the Third Defendant.  It became defective thereafter by reason of the Third Defendant’s lack of maintenance.  It is implicit in my findings that Mr Gunnings should have known of that circumstance.  He caused his company to prosecute a claim upon a false premise.  The financial consequences of that decision should not be added to the Second Defendant’s obligations.

[12] The Third Defendant advances a further ground as a basis for recovering the costs it has been ordered to pay the Third Party.  It seeks them in the form of damages for breach of the contract of insurance issued by the Fourth Defendant.  The breach is identified as the Fourth Defendant’s failure to meet the Third Defendant’s costs of defending the claim against it by the Second Defendant.  There are two answers to this ground.  The first is that it was not pleaded and it is far too late now to contemplate amending the pleadings to add further claims as the Third Defendant seeks to do.  The second answer is that the costs incurred by the Third Defendant in prosecuting the Third Party proceedings are too remote from the alleged breach.  The insurer might have been liable to pay its insured’s costs of defending the action against it but it was, as I have found, unreasonable for the Third Defendant to commence the Third Party proceedings.

[13] The Third Defendant seeks an order that the Second Defendant pay its costs of the counter-claim it brought against the Second Defendant.  The Second Defendant resists such an order on the ground that the counter-claim was misconceived.  It was predicated upon the notion that the Third Defendant had paid damages to the Plaintiff and was entitled to an indemnity, pursuant to the motor vehicle policy of insurance issued by the Fourth Defendant, to recover the amount it had paid by way of an indemnity under the policy.  In fact the Plaintiff’s claim was paid out by the Fourth Defendant to discharge its liability and that of the Second Defendant.  The Plaintiff never prosecuted his action against the Third Defendant.  The counter-claim was unnecessary and added to the complication of the proceedings which should have been kept simpler.  I do not intend to add to the complication by making separate orders in respect of the cost of the counter-claim which are, in any event, likely to be insignificant.

[14] The Fourth Defendant accepts that it should pay the costs of the claims made by the Third Defendant and the Third Party for indemnity under the policy of insurance which, according to the opinion I expressed in the judgment, inured to protect the Third Defendant and Third Party against the Plaintiff’s claim.  For the reason mentioned in Paragraph 8 those costs should be on the indemnity basis.

[15] The Fourth Defendant accepts that it is liable to pay damages to the Third Party.  Those damages are to be assessed by reference to the difference between the costs which the Third Party expended in defending the suit brought against it by the Third Defendant and the amount of the costs it recovers from the Third Defendant.  For reasons which appear later those costs should not include the costs incurred by the Third Party in obtaining Dr Grigg’s report.

[16] The Third Defendant objects to the inclusion in the costs it must pay the Third Party the expense of obtaining Dr Grigg’s report.  I think the objection is a good one.  It is apparent from my findings that Mr Andrews invited Dr Grigg to provide a report to the Court on the basis of a jinker which he presented for inspection in a condition materially different to that which existed when Mr Royston was injured.  I found that on 12 April 2006 when Dr Grigg inspected the jinker at the Third Party’s premises:

‘… the number plate had been moved sideways so widening the aperture through which one put one’s arm to reach the starting rope, and a new platform had been put in place which had a shorter access ladder.  This also had the effect of increasing the size of the aperture.  I have no doubt these changes were made for the purpose of Dr Grigg’s inspection.’

[17] There was, I infer, a degree of sharpness in Mr Andrews’ behaviour.  I found the Third Party had a good defence to claim against it, but Mr Andrews sought to enhance his company’s prospects by altering the condition of the jinker without telling Dr Grigg of the alteration.  Such conduct should be actively discouraged and to require the Third Party itself to pay the costs of obtaining Dr Grigg’s report should be a suitable discouragement.

[18] There is no sufficient reason why the Third Party should recover from the Third Defendant or the Second and/or Fourth Defendants the costs it incurred in joining the Fourth Party and pursuing its claim for indemnity against it.  The claim was unsuccessful.  The Third Party’s decision to make that claim is insufficiently connected with the Second Defendant’s claim against the Third Defendant, or the Third Defendant’s claim against the Third Party, to make it just to require the Second or Fourth Defendant to pay the costs.  The Third Party’s decision to join the Fourth Party was not something compelled or occasioned by the institution of proceedings by the Second Defendant.

[19] The Fourth Party which succeeded in its defence of the Third Party’s claim against it does not seek any order for costs against the Third Party.

[20] The Fourth Party does, however, seek an order that the Second and Fourth Defendants should pay its costs of participating in the proceedings, to be assessed on the standard basis until 26 July 2005 or 20 February 2006, and thereafter on the indemnity basis.

[21] The Fourth Party was given leave to defend the principal claim, brought by the Second Defendant against the Third Defendant.  It was, of course, successful.  It is, nevertheless, inappropriate to visit its costs upon the Second Defendant.  The Fourth Party could have recovered its costs against the Third Party who failed in his claim for indemnity against the Fourth Party.  For its own reasons it does not seek an order for costs against its insured but the Fourth Party’s involvement in the main action was unnecessary.  That was ably and successfully resisted by both the Third Defendant and the Third Party.  Although those defenders were no doubt encouraged by the Fourth Party’s spirited assistance it was not necessary.  The Fourth Party became a party to the proceedings only at the instance of the Third Party.  Its own initiative in seeking leave to defend the principal claim in addition to the defence offered by the Third Defendant and the Third Party does not provide a proper basis for requiring the Second Defendant to pay its costs.

[22] This leaves only the costs of the adjourned trial on 20 February 2006.  That day had been appointed for the trial of the action but it quickly became apparent that it could not then proceed to finality because the Fourth Parties (only one of whom continued to participate in the proceedings) had not complied with directions which had been made to ensure that the action was ready.  Those parties in fact raised new grounds to resist the Second Defendant’s claim which could not be dealt with immediately.  My recollection is that the Third Defendant objected to the trial proceeding on a question of law only and indicated that the outcome of the trial might depend upon questions of fact.  The point was also taken that the Second Defendant would have to prove that the amount paid to settle the Plaintiff’s claim was reasonable.  I made directions which overcame that problem but the point is that, for a number of reasons, the trial could not proceed on 20 February and could not have finished that day had it commenced.  It required three days.

[23] I fear that no order will be completely fair to all parties.  I think that all parties should have realised prior to the 20th that the hearing could not proceed to finality on that day and acted so as to avoid the waste of costs.  I think in the circumstances there should be no order as to the costs incurred by the appearance of the Second, Third and Fourth Defendants and the Third and Fourth Parties on 20 February 2006.

[24] The Third Defendant seeks an order that it recover interest on the costs to which these orders have given it an entitlement.  Section 48 of the Supreme Court Act 1995 confers a right to interest if costs are not paid within 21 days of assessment.  There is nothing in this case to take it out of the ordinary application of the section.  The case referred to justify a special order under the section was one in which a vexatious claim was brought against a party which was obliged to expend many millions of dollars over many years in defence of the claim.  It is not this case.

[25] I make the following orders:-

(a)I order the Second Defendant to pay the Third Defendant’s costs of and incidental to its defence of the claim against it by the Second Defendant to be assessed on the indemnity basis.

(b)I order the Third Defendant to pay the Third Party’s costs (except for the costs of obtaining the report of Dr Grigg) of and incidental to its claim against the Third Party, to be assessed on the standard basis.

(c)I order the Fourth Defendant to pay the Third Defendant’s and the Third Party’s costs of and incidental to the claims by those parties for indemnity under the policy of insurance issued by the Fourth Defendant, those costs to be assessed on the indemnity basis.

(d)I order the Fourth Defendant to pay to the Third Party by way of damages the difference between the costs it incurred in defending the Third Party claim against it and the costs it recovers pursuant to order (b) from the Third Defendant with the exception of the costs expended in obtaining Dr Grigg’s report which I order it not recover from either the Third Defendant or the Fourth Defendant.

(e)Notwithstanding the preceding orders I order that there be no order as to the costs of the appearance of the Second, Third and Fourth Defendants, and the Third and Fourth Parties on 20 February 2006.

[26] I make no order with respect to the costs of any claim save for those the subject of specific orders.