Supreme Court New South Wales

• Medium Neutral Citation: New Cap Reinsurance Corporation Limited (in Liq) v Azmin Firoz Daya [2012] NSWSC 1205
• Hearing dates: 4 August 2012
• Decision date: 08 August 2012
• Jurisdiction: Equity Division - Corporations List
• Before: Brereton J

Decision

Plaintiff to pay fourth defendant's costs of the discontinued proceedings; interest to be paid on such costs

• Catchwords: COSTS - where plaintiff sought leave to discontinue proceedings - UCPR r 42.19 - whether the court should depart from ordinary rule that plaintiff pay defendant's costs upon discontinuance - factors to consider in departing from ordinary rule - where plaintiff discontinued against defendant having settled with his insurers - whether impecunious defendant was entitled to continue to defend proceeding once insurer was joined - where defendant has separate defences from insurers - where plaintiff achieved practical success against insurers through defendant - where plaintiff settled with insurer on terms that it would discontinue against defendant; COSTS - interest - Civil Procedure Act s 101 - whether interest on costs should be payable - where party entitled to costs has been out of pocket for some time
• Legislation Cited: (Cth) Corporations Act 2000, s 588G, s 588M, s 588H, s 1318; (NSW) Law Reform (Miscellaneous Provisions) Act 1946, s 6(4); (NSW) Uniform Civil Procedure Rules 2005, r 42.19; (NSW) Civil Procedure Act 2005, s 101
• Cases Cited: Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32; Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365; Metsikas v Quirk [2010] NSWSC 756; Cummins v Australia Jockey Club Ltd [2009] NSWSC 254; East Mark Holdings Pty Ltd v Owners Strata Plan 74602 [2009] NSWSC 1483; Re Minister For Immigration and Ethic Affairs Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622; One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548; Hexiva Pty Ltd v Lederer [2006] NSWSC 1259; Wood v Inglis [2010] NSWSC 749
• Category: Costs
• Parties: New Cap Reinsurance Limited (in liquidation) - 1st Plaintiff; John Raymond Gibbons (liquidator) - 2nd Plaintiff; Azmin Firoz Daya - 1st Defendant; Paul Laurence Williams - 2nd Defendant; Udayan Daniel Ghose - 3rd Defendant; William Peck - 4th Defendant; CX Reinsurance Company Limited - 5th Defendant; GE Frankona Reinsurance Limited - 6th Defendant; Aviva Insurance Limited - 7th Defendant; David Jonathan Marshall & Ors (Lloyd's Syndicate No. 39] as lead underwriters at Lloyd's - 8th Defendant: Royal & Sun Alliance plc - 9th Defendant; Certain Underwriters at Lloyd's - 10th Defendant; International Insurance Company of Hannover Ltd - 11th Defendant
• Representation: Counsel: A W Street SC - Plaintiff; L Gor - Fourth Defendant; Solicitors: Henry Davis York - Plaintiffs; HWL Ebsworth Lawyers - 5th to 11th Defendants
• File Number(s): 2005/259074

Judgment (ex tempore)

1 HIS HONOUR: This is an application by the plaintiff New Cap Reinsurance Corporation Ltd (In Liquidation) ("NCRE") pursuant to (NSW) Uniform Civil Procedure Rules 2005, r 42.19, for an "otherwise order", to the effect that it not be required to pay the costs of the fourth defendant William David Peck upon discontinuance of these proceedings against him.

2 Mr Peck was a non-executive director of NCRE from February 1998 until it went into administration on 21 April 1999. He and the other directors had Directors' and Officers' ("D & O") insurance. Prior to the institution of the present proceedings, the D & O insurers had declined indemnity under the policy, and told Mr Peck that if he pursued cover, that would be met by a claim to recover the fees that they had previously paid in connection with the defence of other related proceedings.

3 These proceedings were commenced on 20 April 2005, against four directors, Messrs Daya, Williams, Ghose and Peck, in respect of alleged insolvent trading contrary to (Cth) Corporations Act 2000, s 588G, and claiming compensation pursuant to s 588M. The statement of claim was filed on 22 December 2006. Mr Peck filed his defence on 1 June 2007. By consent, Mr Peck was ordered on 7 July 2008 to file an affidavit, inter alia, as to his financial circumstances and to produce documents. He served an affidavit on 9 July 2008, and a supplementary affidavit on 9 October 2008. On 15 June 2009, the plaintiffs filed an Interlocutory Process seeking to join the D & O insurers, and on 20 July 2009 Bergin CJ in Eq ordered their joinder; that order was made by consent, but on terms that it would remain open to the insurers to argue at the hearing that leave under the (NSW) Law Reform (Miscellaneous Provisions) Act 1946, s 6(4), should not have been granted.

4 Subsequently, on 16 September 2009, the plaintiffs filed an amended statement of claim. Mr Peck filed a cross-claim against the D & O insurers on 24 November 2009, and the insurers filed a defence to it on 27 November 2009. They filed and served an amended defence, and an amended defence to Mr Peck's cross-claim, on 3 September 2010. On 12 January 2011 they filed and served a further amended defence and further amended defence to Mr Peck's cross-claim. Mr Peck filed a reply on 7 November 2011. He had sworn and filed an affidavit on 30 August 2011, and a further affidavit on 20 December 2011.

5 Following a mediation conducted in October, December and January 2012 the plaintiffs, Mr Goss and the insurers entered into a deed of settlement and release. That deed is subject to confidentiality provisions. Under it, in consideration of payment of a settlement sum, the plaintiffs agreed to discontinue the insolvent trading proceedings against the insurers, against Mr Daya, and against Mr Peck. In respect of Mr Peck, particular provision was made by cl 3.2 of the deed in respect of the possibility that a costs order might be made consequent upon the discontinuance.

6 The ordinary consequence of a party obtaining leave to discontinue proceedings is that the discontinuing plaintiff must pay the defendant's costs of the proceedings. UCPR, r 42.19, which applies to proceedings that are discontinued by the plaintiff, either by consent or pursuant to the leave of the Court, provides that unless the Court orders otherwise, the plaintiff must pay such of the defendant's costs as at the date on which the notice of discontinuance was filed had been incurred by the defendant in relation to each claim in respect of which the proceedings are discontinued. While it is clear that the Court retains a discretion to otherwise order, it is apparent from that rule that the ordinary position is that a discontinuing plaintiff must pay the defendant's costs.

7 The effect of the rules is that if some other order is to be made, the discontinuing party will have to show some proper justification for a different costs consequence [Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32; Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365]. Some circumstances in which it has been held appropriate to depart from the prima facie position include where the plaintiff has already achieved practical success in the proceedings, or where costs have been significantly increased by the unreasonable conduct of the defendant, or where the proceedings have been rendered futile by circumstances beyond the plaintiff's control [Metsikas v Quirk [2010] NSWSC 756]. Thus, while UCPR, r 42.19, provides what is in effect a default position upon discontinuance, it does not create a presumption, and if it can be shown, for example, that the plaintiff has discontinued because it has, by reason of action taken by the defendant in the meantime, achieved practical success in the proceedings, the Court may nonetheless order the defendant to pay the costs [see, for example, Cummins v Australia Jockey Club Ltd [2009] NSWSC 254, [22-23]]. On the other hand, where there is in effect a capitulation by the plaintiff, it will not be appropriate to depart from the default position [see Bitannia v Park Lane Constructions]. In some cases, where the plaintiff has neither wholly achieved practical success nor capitulated, the position may be intermediate, and where a plaintiff obtains a measure of success short of complete success in respect of the relief it seeks, an appropriate outcome may be that there be no order as to costs [East Mark Holdings Pty Ltd v Owners Strata Plan 74602 [2009] NSWSC 1483]. In such cases, an approach akin to that espoused by McHugh J in Re Minister For Immigration and Ethic Affairs Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 may be appropriate [East Mark Holdings, at [5] - [7]].

8 In Lai Qin, however, McHugh J acknowledged (at 624) that in an appropriate case a Court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. In this context, Burchett J, in One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548, drew what I respectfully agree is an important distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. Whereas in the former type of case, there will be lacking any basis for an exercise of the Court's discretion otherwise than by award of costs to the successful party, the latter type of case more often creates problems, since there may be difficulty in discerning a clear reason why one party rather than the other should bear the costs.

9 Essentially, as I apprehend the present case, the plaintiffs contend that, having reasonably initiated the proceedings, and having obtained a substantial recovery from Mr Peck's insurers under the settlement to which I have referred, there is no utility in continuing proceedings against Mr Peck, who himself is impecunious, and that it is therefore reasonable and appropriate for them to cease further pursuing the proceedings.

10 A number of aspects of this proposition require examination. The first is Mr Peck's undisputed impecuniosity. What has to be noted about this, however, is that this is not a recent development, nor a development during the course of proceedings. It was the position at the outset of the proceedings. Moreover it is not an answer to say that he had insurance; the insurers had declined indemnity prior to the initiation of the proceedings, and, it was not as if the proceedings were discontinued against Mr Peck once a defendant worth powder and shot had been identified and joined in the form of the insurers.

11 It was also argued that, from the time of the joinder of the insurers, there were active defendants who were vigorously defending the proceedings, such that it was not necessary for Mr Peck to continue to do so. I am unable to accept this argument. First, the joinder of the insurers was, as I have said, upon terms that leave was reserved to them to argue at the final hearing that leave under the Miscellaneous Provisions Act should not have been granted. Had that argument succeeded, Mr Peck would have been left exposed and uninsured. Moreover, regardless of the question of revoking any grant of leave, the insurers were agitating defences that they were not liable because the policy had been avoided, and they were also agitating defences that their liability was limited. So far as the limit of liability is concerned, that did not necessarily leave Mr Peck any more exposed than he otherwise would have been, but it meant that he was still exposed to a judgment in so far as it exceeded the limit. More significantly, so far as the arguments that the policy had been avoided were concerned, if successful, that again would have left Mr Peck exposed and uninsured. Mr Peck had his own defences under Corporations Act, s 588H, and s 1318, and an Anshun estoppel, which were not being agitated by the insurers. In those circumstances, putting to one side the question of impecuniosity, it would have been an act of recklessness on the part of a defendant in Mr Peck's position to leave the defence of his interests to the insurers.

12 So far as the question of impecuniosity is concerned, I am unable to accept that an impecunious defendant should file a submitting appearance, or vacate the field, just because an insurer is involved, at least if the impecunious defendant's interests are independently at stake. Impecuniosity, in the sense of an inability to meet a judgment of the size claimed, or even to contribute significantly to it, does not equate to bankruptcy. Mr Peck, as a defendant who wished to maintain that he was not liable as alleged, was fully entitled vigorously to conduct a defence that would result in him being held not liable.

13 It is said that the plaintiffs have achieved substantial success. They have certainly achieved a significant measure of a success against the D & O insurers. As against Mr Peck, the effect of their filing a notice of discontinuance is, strictly speaking, that they have failed, and that Mr Peck has been totally successful. The real position, however, is not so simple, because the plaintiff's success against the insurers assumes success through Mr Peck, and that is what makes this evaluation more complex and difficult than it otherwise would have been. However, as was submitted on behalf of Mr Peck, before the terms of the deed of settlement were known, if the plaintiff were to settle with the insurers and not with Mr Peck, but on the basis that it was going to discontinue against Mr Peck, it ought to have taken into account its potential exposure to Mr Peck in that settlement, and in agreeing to its terms. As it turns out, the deed of settlement makes manifest that that matter was adverted to and taken into account.

14 For those reasons, I have ultimately come to the conclusion that sufficient ground for an "otherwise order" is not made out, and therefore that the plaintiffs should pay the fourth defendant's costs.

Interest

15 The fourth defendant applies for an order under (NSW) Civil Procedure Act 2005, s 101, that interest be paid on the amounts payable under any such costs order. A number of cases show that nowadays little is required to justify the making of such an order, and if it is not made as of course, then it will ordinarily suffice to show that the proceedings have been on foot for some time, and that the party has been out of pocket in respect of costs for some time.

16 I referred to the cases which support that approach in Hexiva Pty Ltd v Lederer [2006] NSWSC 1259, and more recently in Wood v Inglis [2010] NSWSC 749, in which the appropriate form of order is set out. The evidence establishes so much in this case. I will afford counsel an opportunity to address the form of order if they wish. Accordingly, subject to any submissions as to their form, my orders are:

(1) Decline to "otherwise order" for the purposes of Rule 42.19 upon the plaintiffs' discontinuance against the fourth defendant, so that the plaintiffs are to pay the fourth defendant's costs of the discontinued proceedings. For more abundant caution that does not extend to the costs of the cross-claim.

(2) Order that interest is to be paid on any amount payable in respect of the costs to which the fourth defendant is entitled pursuant to Rule 42.19, as follows:

(a) interest shall be payable on that proportion of each amount of costs and disbursements allowed on assessment which were actually paid by the costs creditor, which the total amount of costs and disbursements allowed on assessment to the costs creditor under rule 42.19 bears to the total amount of costs and disbursements which the costs creditor has paid or was liable to pay as between practitioner and client incurred since 1 May 2005 to date in connection with the discontinued proceedings;

(b) interest shall be payable at the rate of 7.5 per cent per annum from the date of payment by the costs creditor of each amount of costs and disbursements actually paid by him until the costs debtor has paid the amount due to the costs creditor under any costs order made in these proceedings or any further order relating to interest on costs in these proceedings;

(c) for the purpose of this order the costs creditor is the fourth defendant and the costs debtor is the plaintiffs.

(3) Reserve liberty to apply in the event of any difficulty arising in the implementation of this order.

(4) Grant leave to the plaintiff to discontinue against the fourth defendant and to file a notice of discontinuance accordingly.

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Decision last updated: 08 November 2012