Federal Court of Australia

Darshn v Avant Insurance Limited (No 3) [2021] FCA 1035

ORDERS

THE COURT DECLARES THAT:

Upon the proper construction of the applicant’s 2018-2019 policy with the first respondent described in paragraph [38] of the reasons for judgment dated 25 June 2021 (Avant Policy), and in the circumstances that have happened, without limiting any right the applicant may have to seek indemnity in relation to the claims of group members in Supreme Court of New South Wales proceedings 279308 of 2017 (the TCI proceeding), the first respondent is obliged to indemnify the applicant in respect of:

(a)    his ‘Legal Defence Costs’ (as defined in the Avant Policy) in relation to his defence of the claims of Ms Sanchez in the TCI proceeding; and

(b)    any civil liability arising in relation to the claims of Ms Sanchez brought in the TCI proceeding.

THE COURT ORDERS THAT:

1.    The first respondent pay the applicant interest on the Legal Defence Costs that he has already paid, from the date of payment by the applicant to his lawyers to the date of payment by the first respondent to the applicant, calculated in accordance with s 57 of the Insurance Contracts Act 1984 (Cth).

2.    The first respondent pay the applicant’s costs of and incidental to the proceeding on a party-party basis.

3.    Within 14 days, the first respondent pay to the applicant:

(a)    $182,000 in partial satisfaction of his entitlement to costs of the proceeding; and

(b)    $189,000 in partial satisfaction of his entitlement to indemnity for Legal Defence Costs.

4.    The costs payable pursuant to paragraph 2 above be the subject of a lump-sum costs assessment in accordance with Part 4 of the Court’s Costs Practice Note (GPN-COSTS) (Practice Note) as follows:

(a)    within 7 days, the applicant file and serve an affidavit in support of the lump-sum claim (Costs Summary) in accordance with paragraphs 4.10-4.12 of the Practice Note;

(b)    within 14 days, the first respondent file and serve any affidavit responding to the matters raised in the Costs Summary in accordance with paragraphs 4.13-4.14 of the Practice Note; and

(c)    in the absence of any agreement having been reached within 21 days of the date of these orders, the matter of an appropriate lump sum figure for the applicant's costs be referred to a Registrar for determination.

5.    There be liberty to apply in relation to any issue of quantification of the costs already incurred by the applicant in defending the TCI Proceeding.

6.    The first respondent pay the second respondent’s costs of and incidental to the proceeding (including the costs of the second respondent’s interlocutory application dated 23 July 2021) as agreed or assessed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    These reasons deal with the form of orders to give effect to the Court’s reasons for judgment dated 25 June 2021 (Darshn v Avant Insurance Limited [2021] FCA 706) and issues of costs. These reasons should be read together with the reasons for judgment of 25 June 2021. I will adopt the abbreviations used in those reasons for judgment.

2    The issues to be dealt with in these reasons may be summarised as follows:

(a)    the form of orders;

(b)    costs issues as between Dr Darshn and Avant – Dr Darshn seeks an order that Avant pay his costs of the proceeding on an indemnity basis up to 25 June 2021 and thereafter on a party-party basis; Avant accepts that it should pay Dr Darshn’s costs in respect of his claims against Avant, but submits that this should be on a party-party basis; further, it also opposes Dr Darshn’s application for costs in relation to his claims against MIGA;

(c)    costs issues as between MIGA and Avant – MIGA has filed an interlocutory application (dated 23 July 2021) seeking an order that Avant pay MIGA’s costs of the proceeding, that is, an order in the nature of a Sanderson order (Sanderson v Blyth Theatre Co [1903] 2 KB 533).

3    The parties rely on the following affidavits:

(a)    Dr Darshn relies on two affidavits of Robert Ishak, a solicitor; the affidavits are dated 22 July 2021 and 18 August 2021;

(b)    Avant relies on an affidavit of Kate Martin, a solicitor, dated 28 July 2021; and

(c)    MIGA relies on an affidavit of Daniel Robinson, a solicitor, dated 23 July 2021.

4    The parties have filed written submissions and written reply submissions in relation to the issues outlined above.

5    I will deal with each of the issues in turn.

Form of orders

6    Dr Darshn seeks a declaration and orders in the following form (putting to one side the orders sought in relation to costs):

THE COURT DECLARES THAT:

1.    Upon the proper construction of the applicant’s 2018-2019 policy with the first [respondent] described in paragraph [38] of the reasons for judgment (Avant Policy), and in the circumstances that have happened, without limiting any right the applicant may have to seek indemnity in relation to the claims of group members in that proceeding, the first respondent is obliged to indemnify the applicant in respect of:

a.    his “Legal Defence Costs” (as defined in the Avant Policy) in relation to his defence of the claims of Ms Sanchez in Supreme Court of New South Wales proceedings 279308 of 2017 (TCI proceeding); and

b.    any civil liability arising in relation to the claims of Ms Sanchez brought in the TCI proceeding.

THE COURT ORDERS THAT:

2.    The first respondent pay the applicant interest on his Legal Defence Costs incurred to the date of payment calculated in accordance with s 57 Insurance Contracts Act 1985 (Cth) from 14 July 2020.

…

4.    Within 7 days of this order, the first respondent pay to the applicant:

 …

(b)    $189,659.25 (or such other amount [the] Court deems fit) in partial satisfaction of his entitlement to indemnity for Legal Defence Costs.

7    At the hearing today, Avant did not oppose a declaration in terms of paragraph 1 as set out above. I am content to make such a declaration, which reflects the conclusion in [173] of the reasons for judgment of 25 June 2021.

8    Unlike earlier iterations of Dr Darshn’s proposed orders, Dr Darshn no longer seeks an order for the payment of all the defence costs he has incurred in relation to the TCI Proceeding. This is because, as Dr Darshn accepts, Avant needs to be given the opportunity to verify whether the amounts already incurred by Dr Darshn satisfy the definition of “legal defence costs” in the 2018-19 Avant policy. The expression “legal defence costs” is relevantly defined as meaning the “necessary and reasonable” costs of defending a claim made against the insured (see [43] of the reasons for judgment dated 25 June 2021). I note that the costs that Dr Darshn has incurred to date in relation to the TCI Proceeding total $312,248.31 – see paragraphs 63-65 of Mr Ishak’s affidavit of 22 July 2021 and pages 486-489 of Exhibit RI-1 to that affidavit. To accommodate the possibility that there may be disagreement between the parties about whether those costs were “necessary and reasonable”, it was agreed by Dr Darshn and Avant at the hearing today that I would reserve liberty to apply in relation to any issue of quantification of the costs already incurred by Dr Darshn in defending the TCI Proceeding.

9    There is a difference between the parties as to interest. Dr Darshn seeks an order in the terms set out above. In my view, there should be an order for interest, but it should be limited to the amounts that have already been paid by Dr Darshn that are agreed or found to be within the meaning of the expression “legal defence costs” in the 2018-19 Avant policy. Interest should run from the date of payment of the relevant amount by Dr Darshn to his lawyers until the date of payment of the amount by Avant to Dr Darshn. In my view, the terms of s 57 of the Insurance Contracts Act are satisfied in respect of the amounts that I have identified, as they were amounts that Avant was “liable to pay” to Dr Darshn under the contract of insurance, and it was unreasonable for Avant to have withheld payment of those amounts from the dates on which they were paid by Dr Darshn. I will therefore order that Avant pay Dr Darshn interest on the “legal defence costs” that he has already paid, from the date of payment by Dr Darshn to his lawyers to the date of payment by Avant to Dr Darshn, calculated in accordance with s 57 of the Insurance Contracts Act 1984 (Cth).

10    Dr Darshn seeks an advance payment of approximately $189,000 reflecting the costs he has already incurred and paid in defending the TCI Proceeding. Given that the total amount that he has already incurred is a significantly greater amount (namely, $312,248.31 – see paragraph 63 of Mr Ishak’s 22 July 2021 affidavit) it seems likely that Dr Darshn is entitled to at least $189,000 by way of reimbursement of legal defence costs in respect of the TCI Proceeding. In the circumstances, and having regard to the period of time in which he has already been kept out of money to which he is entitled, I will order an advance payment of $189,000 towards Dr Darshn’s legal defence costs in respect of the TCI Proceeding. I will make this payable within 14 days.

Costs as between Dr Darshn and Avant

11    Dr Darshn seeks an order that Avant pay his costs of this proceeding up to and including 25 June 2021 on an indemnity basis, and that Avant pay his costs on and from 26 June 2021 on a party-party basis.

12    Further, Dr Darshn seeks an order that $340,000 (or such other amount as the Court considers appropriate) be paid within seven days, by way of partial satisfaction of his entitlement to costs. As for the balance of the costs, Dr Darshn seeks an order that these be fixed by way of a lump sum costs process in accordance with the Court’s Costs Practice Note (GPN-COSTS).

13    In support of the application for indemnity costs, Dr Darshn relies on Avant’s conduct in denying his claim for indemnity and Avant’s conduct of the proceeding (in particular, its conduct relating to the production of documents). In the alternative, Dr Darshn relies on the service of a Calderbank letter on 13 April 2021 (a copy of which appears at pp 480-485 of Exhibit RI-1 to Mr Ishak’s 22 July 2021 affidavit).

14    Dr Darshn seeks an order that Avant pay his costs of the proceeding as a whole; that is, an order that Avant pay the costs of his claims against MIGA as well as Avant.

15    Avant accepts that, given the outcome of the proceeding, there should be an order that it pay Dr Darshn’s costs of his claims against Avant. Avant contends that such costs should be determined on a party-party basis. Avant contends that any costs order in Dr Darshn’s favour should not cover his costs of pursuing claims against MIGA, which it says were already dealt with in an order that those claims be dismissed with “no order as to costs” (see [5] of the reasons for judgment dated 25 June 2021). Further, Avant submits that there should not be any advance of money towards Dr Darshn’s costs, given his impecuniosity and the prospect of an appeal. In relation to a lump sum costs order, Avant submits that the material to support the lump-sum amount should already have been filed and served by Dr Darshn, but he has not done so.

16    In my view, the matters relied on by Dr Darshn in support of an order for indemnity costs are not sufficient to justify the making of such an order. The principles applicable to the making of such an order are set out in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 232-234 per Sheppard J; see also Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116 (Melbourne City Investments) at [5] per Jagot, Yates and Murphy JJ.

17    In the present case, while I have concluded (at [229] of the reasons for judgment of 25 June 2021) that Avant breached its duty of utmost good faith in rejecting Dr Darshn’s claim for indemnity, I am not satisfied that this should result in an order for indemnity costs in relation to the proceeding. In particular, Avant’s defence of the proceeding does not fall into any of the categories described by the Full Court in Melbourne City Investments.

18    As for Avant’s conduct of the proceeding, while it is true that Avant resisted the production of certain documents, including on the ground of legal professional privilege, and was ordered to produce the documents, I do not infer from the circumstances that there was any improper conduct on the part of Avant or conduct of such a nature that would justify making an order for indemnity costs. An order in Dr Darshn’s favour on a party-party basis will reflect the fact that Dr Darshn was successful in respect of the document-production issues.

19    In relation to the Calderbank letter, in my view, the letter does not contain a sufficient element of compromise to make it unreasonable for Avant to have rejected it: see Veda Advantage Limited v Malouf Group Enterprises Pty Limited (No 2) [2016] FCA 470 at [31] per Katzmann J. The letter from Dr Darshn’s lawyers to Avant’s lawyers contained the following offer:

(a)    Your client agrees that Dr Darshn is entitled to be indemnified by them in respect of the TCI class action;

(b)    On that basis, your client further agrees to reimburse Dr Darshn for his costs and expenses paid to date arising out of the TCI class action (and to indemnify him for further costs and expenses incurred but not paid to date, and for future costs and expenses);

(c)    Our client agrees to the Federal Court proceedings being discontinued by consent pursuant to r 26.12(2)(b) of the Federal Court Rules 2011 (Cth);

(d)    Our client agrees to an order that your client pay 70% of: (a) his party/party costs in the Federal Court proceedings; and (b) any liability for costs he incurs to the second respondent.

20    Apart from a modest reduction in costs, the offer did not contain any element of compromise. Accordingly, I do not consider this to provide a basis to order costs on an indemnity basis from the date of that letter.

21    For these reasons, I decline to make an order for the payment of costs on an indemnity basis.

22    I turn now to consider whether the costs order in Dr Darshn’s favour should relate to his costs of the proceeding as a whole (i.e. his claims against Avant and MIGA) or only of his claims against Avant. While it is true that an order was made that Dr Darshn’s claims against MIGA be dismissed with “no order as to costs”, I consider that order to relate to issues of costs as between Dr Darshn and MIGA. I do not consider it to preclude an application by Dr Darshn against Avant in respect of the costs of pursuing his claims against MIGA.

23    There is some overlap between this issue and the question whether a Sanderson order should be made in favour of MIGA, discussed later in these reasons. I discuss the principles applicable to the making of a Bullock or Sanderson order later in these reasons. In my view, the same principles are relevant in considering whether Avant should be ordered to pay Dr Darshn’s costs of pursuing his claims against MIGA. I consider it appropriate to order that Avant pay those costs. First, Dr Darshn acted reasonably in suing MIGA (and also acted reasonably in resolving his claims against MIGA when he did). Secondly, there was a substantial connection between the claims against Avant and the claims against MIGA. Thirdly, there was conduct by Avant that makes it fair to impose liability on Avant for these costs. I refer, in particular, to the correspondence at pages 5 and 7 of Exhibit RI-1 to Mr Ishak’s 22 July 2021 affidavit (set out later in these reasons). Fourthly, balancing the competing considerations as set out in the parties’ submissions, I consider it appropriate for Avant to bear these costs.

24    Accordingly, there should be an order that Avant pay Dr Darshn’s costs of and incidental to the proceeding on a party-party basis.

25    As for the application for an advance payment towards costs, I consider it appropriate for there to be some advance payment (given Dr Darshn’s entitlement to costs and the quantum of costs he has already paid: see Mr Ishak’s affidavit of 22 July 2021 at paragraph 68), but I consider that the amount should be less than that sought by Dr Darshn. I consider an appropriate advance to be $182,000 reflecting the costs he has paid to date in respect of this proceeding. Having regard to the total costs incurred in respect of this proceeding (approximately $722,000 – see paragraph 66 of Mr Ishak’s 22 July 2021 affidavit) it is reasonable to assume that the party-party costs will be at least $182,000. I will make this payable within 14 days.

26    As for a lump sum order, I consider it appropriate to make orders for the fixing of a lump sum in respect of Dr Darshn’s costs, with the lump sum to be determined by a Registrar.

Costs as between Avant and MIGA

27    By its interlocutory application dated 23 July 2021, MIGA seeks an order that Avant pay MIGA’s costs of the proceeding, that is, an order in the nature of a Sanderson order.

28    Avant opposes the making of such an order.

29    The key authorities in relation to the making of a Bullock or Sanderson order are referred to in the parties’ submissions. I refer, in particular, to Gould v Vaggelas (1985) 157 CLR 215 at 229-230 per Gibbs CJ; Lackersteen v Jones (No 2) (1988) 93 FLR 442; 38 NTLR 101; [1988] NTSC 72 at [24] per Asche CJ; Mouratidis v Brown [2002] FCAFC 330 at [80]-[84] per Wilcox and Higgins JJ; and Australian Securities and Investments Commission v One Tech Media Ltd (No 6) [2020] FCA 842 at [50], [52] per Davies J. Apart from disputing the applicability of those authorities in a case where the matter has not gone to judgment against the successful defendant, I did not understand Avant to dispute the principles relied upon by MIGA.

30    In my view, although this is not a case where the case against the successful defendant (or respondent) has gone to judgment, the principles discussed in the above cases regarding the making of a Bullock or Sanderson order are equally applicable. In substance, what occurred here is that, in light of documents produced by Avant in the days leading up to the trial, Dr Darshn (acting reasonably) abandoned his case against MIGA. In so doing, Dr Darshn and MIGA agreed that the case against MIGA should be dismissed with no order as to costs. MIGA expressly reserved the right to seek costs against Avant. I do not see why, in such circumstances, the principles that inform the making of a Bullock or Sanderson order should not apply or apply by way of analogy.

31    In my view, in the circumstances of this case, it is appropriate to make an order that Avant pay MIGA’s costs of and incidental to the proceeding (including MIGA’s interlocutory application). First, Dr Darshn acted reasonably in suing MIGA (and in resolving his claims against MIGA when he did). MIGA was Dr Darshn’s insurer at the time the claim was made against him in the TCI Proceeding. Secondly, there is a substantial connection between the claims against the two respondents. This is apparent when one considers that, in his claim against Avant, Dr Darshn contended that he had given notice of relevant facts and circumstances sufficient to rely on s 40(3) of the Insurance Contracts Act, while in the claim against MIGA a key issue was whether Dr Darshn had knowledge of relevant facts and circumstances and so fell within an exception to coverage under the MIGA policy. In circumstances where Avant was denying liability, it was a rational course for Dr Darshn to sue MIGA. Thirdly, the conduct of Avant makes it fair to impose liability on Avant for MIGA’s costs. In particular, Avant suggested to Dr Darshn that he approach his current insurer when Dr Darshn sought cover from Avant – see pages 5 and 7 of Exhibit RI-1. At page 5 of that exhibit, there is an email from Avant to Dr Darshn in response to his request for assistance in relation to the TCI Proceeding. In the email, Avant noted that Dr Darshn did not currently hold any policy with Avant. It was then stated:

Accordingly, we recommend you direct this matter to your current Medical Defence Organisation for their assistance.

32    Subsequently, on 14 July 2020, Avant sent a letter to Dr Darshn (page 7 of Exhibit RI-1) which stated in part:

Accordingly, given the new proceedings on foot [i.e. the TCI Proceeding], not previously notified to Avant we recommend you should pursue cover with your current MDO, to protect your interests as their active member.

We would be happy to review any correspondence your current MDO may have in response to Avant’s position.

33    This position was maintained in paragraph 19 of Avant’s original concise statement:

If the Avant policies do not respond then the Applicant has his claim on the MIGA policy to fall back on.

The above wording was removed in Avant’s amended concise statement dated 7 May 2021, filed after the resolution of Dr Darshn’s claims against MIGA.

34    Fourthly, balancing the competing considerations referred to in the parties’ submissions, I consider it appropriate for Avant to bear MIGA’s costs. That is, balancing the consideration that an unnecessary multiplicity of actions should not be forced on litigants (so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions) and the consideration that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful, I consider it appropriate in the circumstances of this case for Avant to bear MIGA’s costs of the proceeding.

Associate:

Dated:    26 August 2021