Dorrough, Christopher James & Anor v Bank of Melbourne Ltd Bank of Melbourne Ltd v Dorrough, Christopher James & Ors The National Mutual Life Association of Australasia Ltd v FAI General Insurance Co Ltd [1996] FCA 816

CATCHWORDS

PRACTICE AND PROCEDURE - Application for leave to discontinue cross-claim - litigation settled as between all parties except cross-respondent - whether litigation an appropriate vehicle for determination of issues - whether issues hypothetical - whether work done in preparation for litigation an “advantage gained in the litigation” - whether leave should be conditional - application for leave to cross-claim - no power to grant leave to cross-claim in absence of claim against proposed cross-claimant - costs on discontinuance.

Federal Court Rules O 5 r 1, r 8, r 9

The Salybia [1910] P 25

Trade Practices Commission v APM Investments Pty Ltd (No 2) 74 FLR 276

SCI Operations Pty Ltd v Trade Practices Commission (1984) 2 FCR 113 (FC)

Trade Practices Commission v Manfal Pty Ltd (No 3) (1991) 33 FCR 382

Covell Matthews v French Wools Ltd (1977) WLR 876

Stahlschmidt v Walford (1879) 4 QBD 217

Ainsworth v Criminal Justice Commission (1992) 175 CLR 564

Oil Basins Limited v The Commonwealth of Australia (1993) 178 CLR 643

Colgate-Palmolive Company v Cussons (1993) 46 FCR 225

CHRISTOPHER JAMES DORROUGH and CAROLE HAZEL DORROUGH v BANK OF MELBOURNE LIMITED; BANK OF MELBOURNE LIMITED v CHRISTOPHER JAMES DORROUGH and CAROLE HAZEL DORROUGH, THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED AND MAURICE BERNARD BYRNE; THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED v FAI GENERAL INSURANCE COMPANY LIMITED

No QG 196 of 1993

Cooper J

Brisbane

1 August 199

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION

No QG 196 of 1993

BETWEEN:

CHRISTOPHER JAMES DORROUGH and

CAROLE HAZEL DORROUGH

Applicants

AND:

BANK OF MELBOURNE LIMITED

Respondent

AND BETWEEN:

BANK OF MELBOURNE LIMITED

Cross-Claimant

AND:

CHRISTOPHER JAMES DORROUGH and

CAROLE HAZEL DORROUGH

First Cross-Respondents

AND:

THE NATIONAL MUTUAL LIFE ASSOCIATION

OF AUSTRALASIA LIMITED

Second Cross-Respondent

AND:

MAURICE BERNARD BYRNE

Third Cross-Respondent

AND BETWEEN:

THE NATIONAL MUTUAL LIFE ASSOCIATION

OF AUSTRALASIA LIMITED

Cross-Claimant

AND:

FAI GENERAL INSURANCE COMPANY

LIMITED

Cross-Respondent

JUDGE MAKING ORDER: Cooper J

WHERE MADE: Brisbane

DATE OF ORDER: 1 August 1996

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The notice of motion filed by FAI General Insurance Company Limited on 18

April 1996 be dismissed.

2. FAI General Insurance Company Limited pay the costs of and incidental to the motion filed 18 April 1996 of each of the respondents to the motion, such costs to be taxed if not agreed.

3. National Mutual Life Association of Australasia Limited have leave to discontinue its cross-claim against FAI General Insurance Company Limited in proceedings QG 196 of 1993.

4. National Mutual Life Association of Australasia Limited pay the costs of FAI General Insurance Company Limited of the proceedings including the cross-claim in QG 196 of 1993, including reserved costs, if any, from the date of the granting of leave to National Mutual Life Association of Australasia Limited to cross-claim against FAI General Insurance Company Limited to and including 4 April 1996 to be taxed, if not agreed.

5. FAI General Insurance Company Limited pay National Mutual Life Association of Australasia Limited’s costs of and incidental to its motion filed 19 April 1996 to be taxed if not agreed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION

No QG 196 of 1993

BETWEEN:

CHRISTOPHER JAMES DORROUGH and

CAROLE HAZEL DORROUGH

Applicants

AND:

BANK OF MELBOURNE LIMITED

Respondent

AND BETWEEN:

BANK OF MELBOURNE LIMITED

Cross-Claimant

AND:

CHRISTOPHER JAMES DORROUGH and

CAROLE HAZEL DORROUGH

First Cross-Respondents

AND:

THE NATIONAL MUTUAL LIFE ASSOCIATION

OF AUSTRALASIA LIMITED

Second Cross-Respondent

AND:

MAURICE BERNARD BYRNE

Third Cross-Respondent

AND BETWEEN:

THE NATIONAL MUTUAL LIFE ASSOCIATION

OF AUSTRALASIA LIMITED

Cross-Claimant

AND:

FAI GENERAL INSURANCE COMPANY

LIMITED

Cross-Respondent

CORAM: Cooper J

PLACE: Brisbane

DATE: 1 August 1996

REASONS FOR JUDGMENT

The principal proceedings were instituted by Mr and Mrs Dorrough (“the Dorroughs”) against the Bank of Melbourne (“the bank”) on 1 December 1993 seeking relief in respect of loan obligations entered into between the Dorroughs and the bank. The loan was
sought to invest in a scheme promoted by Maurice Bernard Byrne (“Mr Byrne”) involving insurance policies issued by the National Mutual Life Association of Australasia Limited (“National Mutual”). The bank by its cross-claim sought to enforce the loan obligations against the Dorroughs and sought indemnity and contribution against the insurance company and the promoter, Mr Byrne, in respect of any liability the bank had to the Dorroughs arising from the conduct of the bank and its relationship to the investment scheme.

The promoter of the investment scheme, Mr Byrne, was made bankrupt in October 1992. However, he was an insured under policies of professional indemnity insurance issued by FAI General Insurance Company Limited (“FAI”). National Mutual sought leave to claim against FAI as a cross-respondent and obtain against it declaratory relief as to the entitlement of Mr Byrne to be indemnified under the “claims made” policies for the periods 31 March 1991 to 31 March 1992 and 31 March 1992 to 31 March 1993 in respect of the Dorroughs’ claim or the claims for indemnity and contribution. FAI resisted the granting of leave. On 27 September 1995 I granted National Mutual’s application. In consequence, FAI sought leave to defend the Dorroughs’ claim against the bank, the bank’s cross-claim against National Mutual and Mr Byrne and National Mutual’s cross-claim against Mr Byrne. Leave was granted to FAI on 6 October 1995.

The conduct of Mr Byrne’s defence had originally been undertaken by FAI and solicitors instructed by FAI. On 22 December 1994 FAI refused to act further in the matter on behalf of Mr Byrne. FAI purported to rescind the contracts of insurance on 18 January 1995 and 19 January 1996. Mr Byrne’s trustee in bankruptcy did not wish to take up the litigation after FAI refused to act further for Mr Byrne. In consequence, it was left to Mr
Byrne to represent himself in the proceedings. Mr Byrne was discharged from bankruptcy on 11 November 1995.

The principal proceedings and the cross-claims have been settled between all parties save for FAI. On 4 April 1996 I ordered that all claims of the Dorroughs, the bank, National Mutual and Mr Byrne against each other be struck out. The only remaining claim is National Mutual’s cross-claim against FAI.

By notice of motion filed 18 April 1996 FAI seeks leave, pursuant to O 5 r 1, r 8 and r 9 of the Federal Court Rules, to cross-claim against National Mutual, the bank, Mr Byrne and Alan Taylor as trustee in bankruptcy of Mr Byrne’s estate (“the trustee”). By its draft cross-claim, FAI wishes to litigate many of the factual issues which arose on the pleadings in the settled proceedings. FAI seeks thereby to establish that it was entitled to avoid the professional indemnity policies on the ground of fraudulent misrepresentation and fraudulent non-disclosure by Mr Byrne. Part of the material relied upon to avoid the policies is the dealings with the Dorroughs and also dealings with R J and L Hagan (“the Hagans”), D R and P M Mitchell (“the Mitchells”), C R and E Richards (“the Richards”), Dufume Pty Ltd (“Dufume”) and Bullivants National Health Products Pty Ltd (“Bullivants”) which dealings, it is putatively pleaded, were not disclosed or were misrepresented by Mr Byrne to FAI. The relief sought to be claimed by FAI against the proposed respondents is declaratory in nature. Namely that :-

(a) FAI is not liable to indemnify Mr Byrne in respect of any claims for indemnity made against him by National Mutual and the bank;

(b) FAI has lawfully avoided the contract of insurance for the period 31 March
1991 to 31 March 1992;

On the draft cross-claim the only connection pleaded between National Mutual and the bank and the material allegations to support the relief claimed is that in the now settled proceedings each claimed contribution and indemnity from Mr Byrne (paragraph 9). So far as the trustee is concerned, beyond pleading his appointment (paragraph 3), there is no pleading of any conduct on the trustee’s part relevant to the proposed cross-claim. The material allegations are directed to Mr Byrne, the insurance cover, Mr Byrne’s conduct and its effect upon FAI, Mr Byrne’s right to indemnity under the policies and the principal avoidance of the policies by FAI.

The application of FAI is opposed by National Mutual, the bank, the trustee and Mr Byrne.

National Mutual by notice of motion filed 19 April 1996 seeks leave to discontinue its cross-claim against FAI. If leave is granted discontinuance by National Mutual will have the effect of concluding all proceedings in this court in proceedings QG 196 of 1993. The application is supported by the Dorroughs, the bank, Mr Byrne and the trustee. It is, of course, opposed by FAI. Order 5 of the Federal Court Rules contemplates that there is in existence a proceeding at the time the cross-claim is brought or leave is granted to bring it. Later settlement of the original claim will not effect a then existing cross-claim to be litigated to a conclusion (The Salybia [1910] P 25 at 27).

The basis advanced by FAI that it should have leave to cross-claim in these proceedings is a concern on its part that Mr Byrne or the trustee will claim indemnity under the policies of insurance in respect of separate proceedings instituted by the Hagans and the Mitchells, the Richards, Dufume and Bullivants.

The Hagans, the Mitchells and the Richards have commenced proceedings in the Supreme Court of Queensland against the bank and Mr Byrne. The proceedings relate to loans and investments made in connection with the investment scheme promoted by Mr Byrne involving National Mutual’s insurance policies. National Mutual has been joined as a third party by the bank. FAI is not a party to these proceedings. Nor has Mr Byrne or the trustee claimed an indemnity under either policy of insurance in respect of the claims in these proceedings.

The proceedings of Dufume were commenced in the Supreme Court of Victoria against National Mutual wherein it is sought to make National Mutual liable for the conduct of Mr Byrne in the promotion of the investment scheme relating to National Mutual insurance policies. Mr Byrne has been joined as a third party. Neither the bank nor FAI have been joined as a party. Mr Byrne has not claimed indemnity from FAI under the policy in respect of this claim. Nor has the trustee.

The proceedings brought in the Supreme Court of Queensland by Bullivants are against Mr Byrne and companies associated with him. The action concerns an investment scheme relating to insurance policies issued by Tower Life Australia Limited (“Tower Life”). None of FAI, the bank and National Mutual is a party to the proceedings. Neither Mr Byrne
nor the trustee has made a claim for indemnity against FAI in respect of the claims in these proceedings. There is no suggestion that the bank or National Mutual ever had any factual connection with the events the subject of these proceedings or are in any way legally interested in them.

The claim by Bullivants relates to the policy year 31 March 1991 to 31 March 1992. The Hagan and Mitchell, Richards and Dufume proceedings relate to claims made during the policy year 31 March 1992 to 31 March 1993.

In the proceedings in this court the settlement is such that Mr Byrne is not obliged to pay any sum of money under the settlement. The proceedings as between the parties other than FAI and National Mutual have been struck out. There is not basis upon which there will arise in the future in these proceedings a claim by the bank or National Mutual against Mr Byrne for contribution and indemnity in respect of the claim by the Dorroughs the subject of the settlement. Therefore, the allegation by FAI in paragraph 9 of the draft cross-claim will not be made out if FAI seeks to assert as a material fact the existence of a present claim for indemnity or contribution. As a plea of a past fact it is irrelevant to establishing any proper basis to bring proceedings against the bank and National Mutual for the declaratory relief now sought. In the absence of some material facts being pleaded against the bank, National Mutual or the trustee, there is no basis shown on the draft cross-claim that those parties have an interest in the proposed proceedings, that there is any lis between them and FAI or that all or any of them is a proper contradictor in those proceedings. FAI seek to overcome this deficiency on two bases. The first is that the respondents to its notice of motion will not give an undertaking not to join FAI, seeking relief
against it on the basis of the policies of insurance which it has purported to avoid, in the proceedings in the Supreme Courts of Queensland and Victoria issued by others. The second is that FAI contends that it has gained a legitimate advantage in the litigation in this court which it ought not be deprived of. The advantage claimed is the detailed preparation done in these proceedings which “will be wasted and potentially lost if these issues are litigated in other proceedings”. This “legitimate advantage”, it is submitted, makes this court and the present proceedings the appropriate venue and vehicle to litigate the issues raised on the draft cross-claim. It is therefore a reason, FAI submits, to grant leave to it to cross-claim and to deny to National Mutual leave to discontinue its cross-claim against FAI.

The jurisdictional fact which enables FAI to make its application is the existence of the claim against it by National Mutual. Absent that claim there would be no power under O 5 r 1, r 8 or r 9 of the Federal Court Rules to grant leave to FAI to cross-claim against National Mutual and to add to that cross-claim the bank, Mr Byrne and the trustee as additional parties. In these circumstances, the first question to be determined as between the two applications is whether National Mutual should have leave to discontinue against FAI.

The principles to be applied on an application for leave to discontinue are those stated by Woodward J in Trade Practices Commission v APM Investments Pty Ltd (No 2) 74 FLR 276 (at 279 - 280) :-

“On the question of the principles to be applied in cases of discontinuance, counsel for APM relied in particular on the decision of Graham J in Covell Matthews v French Wools Ltd [1977] 1 WLR 876 at 879. After citing several earlier authorities, his Honour said:

‘The principles to be culled from these cases are, in my judgment, that
the court will, normally, at any rate, allow a plaintiff to discontinue if he wants to, provided no injustice will be caused to the defendant. It is not desirable that a plaintiff should be compelled to litigate against his will. The court should therefore grant leave, if it can, without injustice to the defendant, but in doing so should be careful to see that the defendant is not deprived of some advantage which he has already gained in the litigation and should be ready to grant him adequate protection to ensure that any advantage he has gained is preserved.’

Applying these principles to the case before him, his Honour made an order for discontinuance, conditional upon the party seeking it agreeing:

(a) not to renew its application (which his Honour said was probably academic);

(b) that the order would be without prejudice to a relevant contention of the other party which it might wish to raise in other proceedings; and

(c) to ‘an appropriate order for costs’ against it.

I would respectfully adopt Graham J’s formulation of principles so far as it goes, but it leaves open the question as to what should be done in a case where leave cannot be granted without some injustice to the respondent, or in which it may not be possible or appropriate to ensure that every advantage which the respondent may have gained in the course of litigation is preserved.

In my view the matter must remain one for the exercise of the court’s discretion in each case, even if the interests of the respondent cannot be fully protected. I do not believe that Graham J was suggesting that, unless the respondent’s rights can be completely protected, an application for discontinuance must be refused. If he was implying that, then I must respectfully decline to follow his Honour to that extent.”

(Affirmed on appeal; SCI Operations Pty Ltd v Trade Practices Commission (1984) 2 FCR 113 (FC) at 143 per Sweeney J, 162 per Lockhart J, 185 per Shepphard J). The court’s discretion to grant leave is unfettered (SCI Operations at 143 per Sweeney J, 162 per Lockhart J, 182 per Shepphard J; Trade Practices Commission v Manfal Pty Ltd (No 3) (1991) 33 FCR 382 at 383) save, of course, that it must be exercised judicially.

From the standpoint of National Mutual, the bank, Mr Byrne and the trustee,
there is no utility in maintaining the present cross-claim. It cannot lead to any relief on the cross-claim because the declaratory relief relates to claims for indemnity and contribution arising out of the dealings involving the Dorroughs. Nor do any of these parties presently wish to litigate the issue of FAI’s liability, if any, under the policies of insurance to indemnify Mr Byrne generally or in relation to the Supreme Court actions. The trustee is not a party to the Supreme Court proceedings and is an unwilling contradictor. It has been open to the bank, National Mutual or Mr Byrne in the Supreme Court actions, to which they are parties, to seek to join FAI if they were so minded. The time for doing so in a timely way under the rules of the Supreme Court of Queensland and Supreme Court of Victoria has long passed. Joinder in those actions would now require leave and an explanation of the delay in seeking joinder. The position of each of the parties to those actions is that, on the basis of information presently available, the joinder of FAI is neither necessary nor desired. Should circumstances materially change, that decision may require reconsideration. In those circumstances, they are not prepared to give an undertaking in all cases to refrain from seeking any relief against FAI in respect of claims arising against Mr Byrne in the 1991 to 1992 and 1992 to 1993 insurance years.

The position of the bank and National Mutual is no different from that of the plaintiff in each of the Supreme Court actions against Mr Byrne. If the bank or National Mutual has a right to join FAI as a party in the Supreme Court proceedings, so do the plaintiffs in those actions where Mr Byrne is a defendant. For the respondents to FAI’s motion to be required to undertake not to seek to join FAI as a party seems both unjust and futile if FAI remains exposed to joinder by any other party, including Tower Life, in the action commenced by Bullivants. It is also clear that the absence of the plaintiffs and Tower
Life from the proceedings in this court means that those entities will not be bound by any declaration made on the cross-claim. This potentially leaves the issues to be re-litigated again between those parties and FAI if FAI is successfully joined in the Supreme Court proceedings. If the question of Mr Byrne’s entitlement to indemnity generally, and in the specific cases where claims have been made against him, is to be determined between FAI and all parties who have an interest in that issue and are proper contradictors in proceedings instituted by FAI, then the present proceeding is not an appropriate vehicle for the determination of those issues. If the question of indemnity of Mr Byrne under the insurance policies in respect of any particular claim presently before a Supreme Court arises as an issue, then the appropriate place for its determination is in those proceedings. If no person having a real interest wishes to raise the issue in respect of that claim then the question is a hypothetical one and not properly the subject of judicial adjudication or the granting of declaratory relief (Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582, 596; Oil Basins Limited v The Commonwealth of Australia (1993) 178 CLR 643 at 648 - 649).

As to FAI’s second ground for resisting leave, I do not accept that preparation of a case constitutes “an advantage gained by litigation” in the sense the term was used by Graham J in Covell Matthews v French Wools Ltd [1977] 1 WLR 876 at 879. That term means, in this context, something akin to the fruits of the litigation such as the benefit of issue estoppel or interlocutory judgments or orders made in favour of the party against whom it is sought to discontinue (see for example Stahlschmidt v Walford (1879) 4 QBD 217 at 219). However, it is unnecessary to finally determine the matter because I am satisfied that the work undertaken will not be lost.

The “extensive preparation” undertaken by FAI in relation to this litigation is deposed to by FAI’s solicitor, Ms Crowther :-

“34. I crave leave to refer to the list of documents delivered on behalf of FAI on 16 January 1996. The list of documents produced on behalf of FAI is necessarily lengthy. It is comprised of two volumes and runs to 5,491 individual entries.

35. Comprehensive discovery has been undertaken on behalf of FAI, upon a review of the following categories of documents which are or have been in the possession, custody or power of FAI and which potentially relate to the matters in question in these proceedings:

(a) FAI’s claim files relating to the various claims referred to in paragraphs 13 and 15(c) of FAI’s defence to National Mutual’s cross-claim and relating to the Bullivants action;

(b) FAI’s files relating to the placing of Mr Byrne’s professional indemnity policies, including the master policy referred to in paragraph 7(a) of FAI’s defence to National Mutual’s cross-claim;

(c) The files of the brokers through which Mr Byrne obtained professional indemnity insurance with FAI and through which Mr Byrne notified the claims referred to in paragraph 14 above;

(d) The documents obtained by FAI in relation to the carriage of these proceedings from or produced on behalf of FAI in relation to:

(i) Mr Byrne;

(ii) Mr Byrne’s trustee in bankruptcy;

(iii) a number of witnesses;

(e) The documents discovered by Mr Byrne’s legal representatives, Thynne & Macartney, in related Magistrates Court proceedings no 7606 of 1995;

(f) Correspondence between FAI’s legal representatives and third parties.

36. The documents comprising the various categories referred to in paragraph 35 above which were reviewed on FAI’s behalf for discovery purposes number in excess of 10,000 individual documents. The gathering in of the documents, their collation, receipt, enumeration and review has necessarily been a difficult and lengthy logistical exercise.

37. The discovery process has been further complicated for FAI by the fact that the documents in its possession, custody or power have been obtained from various sources. Complex questions have arisen as to
whether privilege applies, the basis of the privilege and whose privilege it is, all of which were considered in reviewing the documents for discovery purposes.

38. It was necessary for Gadens Ridgeway to write on FAI’s behalf to certain of the parties referred to in paragraph 35(d) above for the purpose of enquiring whether those parties object to the discovery of the documents (subject to preservation of privilege) which those parties have provided to FAI in the course of these proceedings and also enquiring as to the basis of any objection and whether those parties are prepared to waive any claim for privilege which they may have in relation to the documents.

39. Supplementary discovery of a further 261 documents has also been conducted on behalf of FAI. I crave leave to refer to the supplementary list of documents delivered on behalf of FAI on 22 February 1996.”

The nature of the documents discovered and the general approach taken by FAI in undertaking this preparation can be gleaned from certain correspondence which passed from FAI to other parties to the litigation.

On 2 November 1995 FAI’s solicitors wrote to the solicitors for the other parties to these proceedings and to Mr Byrne, who was not then represented by solicitors, as follows :-

“We refer to the directions hearing of this matter on 6 October 1995 at which our client, FAI General Insurance Company Limited (“FAI”) was ordered to file and serve a list of documents upon National Mutual Life Association of Australasia Limited (“National Mutual”) by 4pm 3 November 1995.

In preparing our client’s list, we are taking the view that FAI is obliged to discover all documents relating, not just to any matters in question between FAI and National Mutual, but to any matters in question in these proceedings.

As you will appreciate, this considerably widens the scope of our client’s discovery.

The documents which our client will discover in relation to the indemnity question alone are voluminous. (By way of example, we refer you to paragraph 15 of FAI’s defence to National Mutual’s cross-claim. FAI will discover all documents which it holds relating to the various matters which are there pleaded. FAI will also discover all documents which it holds relating to other
claims notified to it by Maurice Byrne, including the Hagan, Mitchell, Dufume and Richards claims.) As indicated, however, FAI will also discover all documents relating to any other matters in question in these proceedings.

Given the amount of documentation involved and the complexity of the matters in question in these proceedings, we are writing to inform you that we will be unable to complete discovery and to file and serve our client’s list by 4pm 3 November 1995.

We propose serving our client’s list before the next directions hearing on 16 November 1995 and sooner, if possible.”

On 1 March 1996 FAI, by its solicitors, again wrote to the solicitors for the other parties to the proceedings. The letter contained the following under a heading “Discovery by FAI” :-

“1.1 FAI’s approach to discovery was outlined in our letter to the parties dated 19 December 1995. FAI has been given leave to defend each and every claim in this action. My client has a large volume of documents that are relevant to the issues in dispute between the parties to the action from several sources, including:

(a) its claims officers’ files;

(b) its underwriting files;

(c) its broker’s files;

(d) copies of Mr Byrne’s documents;

(e) copies of Mr Byrne’s trustee in bankruptcy’s documents;

(f) copies of the documents of Mr Byrne’s associate Mr Francis; and

(g) copies of documents obtained by the trustee from third parties pursuant to his powers under the Bankruptcy Act.

1.2 FAI has endeavoured to provide comprehensive discovery in order to facilitate a trial of the issues in dispute between the parties. I repeat Couper QC’s comments that a great deal of time, effort, and consideration has been applied to the difficult discovery process FAI has had to undertake. This is so bearing in mind the nature, extent and breadth of the allegations made by FAI. These allegations were not previously raised. As a result of the broad issues in dispute between the parties and the large volume of relevant documents held by FAI, discovery has necessarily been lengthy. When considering the discoverability of individual documents by FAI, any question of relevance has been decided in favour of disclosure (and hence in favour of a speedy resolution of the discovery process) to ensure that no documents which might assist in the resolution of the action were not
available to the other parties. ...”

It is clear that much of the preparatory work undertaken by FAI in the present proceedings would be able to be utilised in the determination of any issue as to FAI’s right to avoid the relevant contracts of insurance with Mr Byrne should that issue arise in any other proceedings. Any advantage derived by FAI would not be lost by allowing National Mutual to discontinue its cross-claim against FAI. It is also apparent that the discovery undertaken in these proceedings as to the claims by the Hagans and the Mitchells, the Richards and Dufume would not be wasted if FAI was ever joined in those proceedings by one of those claimants.

The work done as to the circumstances of the claim by the Dorroughs goes in part to the issue of FAI’s right to avoid the contracts of insurance for fraudulent misrepresentation or non-disclosure by Mr Byrne of those dealings. If the issue of indemnity arises in the Supreme Court proceedings the work done on this issue is immediately relevant and available.

The preparation work undertaken to date is only lost and wasted if no occasion ever arises in which FAI has to make out its right to deny indemnity to Mr Byrne. Such loss can be compensated for with an appropriate order for costs.

It is submitted by FAI that if leave to discontinue is to be granted it should be conditional upon National Mutual undertaking not to seek to join FAI in any other proceedings in relation to the issue of indemnity of Mr Byrne under the policies of insurance. As I indicated above, it would be unjust to make such an undertaking a condition applicable
only to National Mutual when others would be free to raise the issue in other proceedings. The position of FAI can be protected by appropriate orders in the other proceedings if National Mutual should at some future date seek to join FAI in those proceedings.

FAI further submits that leave to discontinue should be made conditional upon National Mutual paying FAI’s costs on an indemnity basis.

The circumstances in which the court ought, as a matter of discretion, to award costs on other than a party and party basis was considered by Sheppard J in Colgate- Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 especially at 232 - 234. FAI does not bring itself within any of the categories there discussed. There is nothing in the circumstances disclosed such that justice would require that National Mutual pay FAI’s costs on an indemnity basis as the price of leave to discontinue the proceedings. That National Mutual declined to discontinue its cross-claim at earlier times after invitation to do so by FAI does not, of itself, justify an entitlement to indemnity costs. At those earlier times, the Dorroughs’ claim and the related claims were still on foot. National Mutual, at those times, was entitled to pursue its cross-claim against FAI. There is no suggestion that that cross-claim was not bona fide or one which National Mutual should not properly have brought.

The question then becomes one of whether costs on a party and party basis should be paid by National Mutual to FAI. National Mutual submits that no order for costs should be made in favour of FAI as a condition of or consequent upon discontinuance. The basis of the submission is that the conduct of FAI in withdrawing the indemnity to Mr Byrne, the alleged refusal of FAI to provide National Mutual with evidence of an entitlement to
avoid the policies of insurance and the use of these proceedings as a means of achieving a tactical advantage in respect of the litigation involving Bullivants and Tower Life, which litigation has no connection whatsoever with National Mutual, was sufficient to refuse FAI the benefit of a costs order.

It is not possible to say at this time on the material before the court whether or not the purported avoidance of the policies of insurance was effective and whether FAI had a good defence to the claim of National Mutual. I approach the matter on the basis that there was a bona fide commercial dispute as to the liability of FAI to indemnify Mr Byrne in respect of the claims arising in the present litigation.

By joining FAI against its will, National Mutual necessarily put FAI to cost and expense in defending in these proceedings FAI’s refusal to indemnify Mr Byrne in respect of the Dorroughs’ claim. Once joined, FAI not unreasonably sought leave to defend the claims made against Mr Byrne in the proceedings, it being asserted that FAI was liable to indemnify him if such claims were made out. It would be unjust that FAI should bear the costs thrown away by it in the defence of these proceedings because it is denied an opportunity at the conclusion of the litigation, if it was successful in its defence, to recover the costs from some party. If National Mutual had an entitlement to discontinue against FAI without leave under O 22 r 2(1)(a) or (b) of the Federal Court Rules it would, by the operation of O 22 r 3, become liable to pay FAI’s costs. Absent some disentitling conduct I do not think FAI should be denied its costs simply because National Mutual is obliged to obtain leave to discontinue. There is in my view no disentitling conduct on FAI’s part. Whether or not those costs were properly and necessarily incurred in these proceedings will
be determined by the taxing officer. The submission that the costs were incurred as a defensive tactic to resist indemnity if the Bullivant claim succeeds and not properly incurred in these proceedings is a matter for taxation and not a proper basis to deny FAI an order for costs. Therefore, I intend to make a costs order in FAI’s favour.

An issue arises as to the date upon which FAI’s entitlement to recover such costs should terminate. In my view, once the matter was settled between all the other parties, FAI was no longer exposed to any potential liability for the Dorroughs’ claim. After that date the conduct of FAI can only have been directed to advance its interests in respect of the claims against Mr Byrne in the other proceedings. National Mutual should not be required to pay those costs incurred by FAI after settlement. The settlement was concluded and given effect to by orders of the court on 4 April 1996. FAI will have its costs of the proceedings to and including 4 April 1996.

In my opinion no good purpose would be served by refusing leave to National Mutual to discontinue its claim against FAI. In reality the application is only opposed to give FAI a jurisdictional basis under O 5 r 1 of the Federal Court Rules to apply to cross-claim. The original claim of National Mutual will never be litigated. FAI’s rights, if any, to refuse to indemnify Mr Byrne under the policies are in no way impaired by discontinuance and FAI remains free to assert those rights at a later date should the occasion to do so arise. National Mutual will have leave to discontinue.

For substantially the same reasons as persuades me to grant leave to National Mutual to discontinue, leave to FAI to cross-claim against National Mutual, the bank, Mr
Byrne and the trustee will be refused.

FAI has failed on its motion for leave to cross-claim and will be ordered to pay the costs of the respondents to that motion.

FAI also resisted the motion of National Mutual for leave to discontinue. That resistance was to enable it to maintain its motion for leave to cross-claim. FAI should pay National Mutual’s costs on the motion to discontinue.

No basis has been made out in my view that such costs on either motion should be paid by FAI on an indemnity basis.

THE COURT ORDERS THAT :

1. The notice of motion filed by FAI General Insurance Company Limited on 18 April 1996 be dismissed.

2. FAI General Insurance Company Limited pay the costs of and incidental to the motion filed 18 April 1996 of each of the respondents to the motion, such costs to be taxed if not agreed.

3. National Mutual Life Association of Australasia Limited have leave to discontinue its cross-claim against FAI General Insurance Company Limited in proceedings QG 196 of 1993.

4. National Mutual Life Association of Australasia Limited pay the costs of FAI General Insurance Company Limited of the proceedings including the cross-claim in QG 196 of 1993, including reserved costs, if any, from the date of the
granting of leave to National Mutual Life Association of Australasia Limited to cross-claim against FAI General Insurance Company Limited to and including 4 April 1996 to be taxed, if not agreed.

5. FAI General Insurance Company Limited pay National Mutual Life Association of Australasia Limited’s costs of and incidental to its motion filed 19 April 1996 to be taxed if not agreed.

I certify that this and the preceding eighteen (18) pages are a true copy of the reasons for judgment of his Honour Justice Cooper.

Date: 1 August 1996

Associate

Counsel for Bank of Melbourne Ltd : P Applegarth

Solicitors for Bank of Melbourne Ltd: Corrs Chambers Westgarth

Counsel for National Mutual Life

Association of Australasia Limited: G McArthur

Solicitors for National Mutual Life

Association of Australasia Limited: Deacons Graham James

Counsel for Maurice Bernard Byrne: M W D White QC

Solicitors for Maurice Bernard Byrne: Thynne & Macartney

Counsel for FAI General Insurance

Company Limited: S S W Couper QC

Counsel for FAI General Insurance

Company Limited: Gadens Ridgeway

Date of Hearing: 13 May 1996

Place of Hearing: Brisbane

Date of Judgment: 1 August 1996

Top