Article by John Van de Poll, Partner and Mark Victorsen, Partner
May 2015

Yesterday, the High Court delivered judgment in the matter of Selig v. Wealthsure Pty Ltd [2015] HCA 18. 

At a Glance

The significance of this decision is in the orders for costs that were made by the Court.  Of interest to insurers in this particular case, is that the Court determined that the actions of QBE (the insurer of the unsuccessful respondents) in pursuing the appeal, where sufficient to warrant an order that QBE pay the costs.  This is contrary to the usual order that the defendants themselves (rather than their insurer) pay the costs.

Whilst to many this may not seem unusual as insurers would ultimately be liable for the insured’s costs under the indemnity policy, what makes this decision different is that by ordering QBE themselves to pay the costs they fall outside the scope of the policy and therefore they are in addition to rather than contained within the policy limits.

This is a timely reminder that insurers cannot always rely on the limits of a particular policy to protect them against excessive costs orders.  This is especially the case when the costs of the litigation might erode the indemnity available as courts will be more inclined to this type of order if it means protecting the insurance funds available to meet any judgement.   

The Detail

In determining the appeal, the appellant sought an Order that the professional indemnity insurer (QBE, a non-party), pay the costs of the appeal and the costs of the appeal in the Federal Court. 

The Court made the Order noting the insurer had the conduct of the defence in the matter at trial and consequently, made the decision to appeal from the judgment of the primary judge.  The full Federal Court had accepted that the insurer had the right to conduct the appeal on behalf of the first and second respondents (after the second respondent’s trustee in bankruptcy elected to discontinue the appeal). 

In considering whether to make the Order, the Court noted that there is no specific rule as to when this type of Order for costs will be made against a non-party but noted that it could be made against the non-party if the interests of justice required that it be made. 

The Court noted the decision to appeal was made at a time when the first and second respondents had no interest in the outcome of the litigation and found the insurer was acting for its own benefit in conducting the litigation, seeking to better its position.  In deciding to make an Order for costs the Court noted the insurer’s decision to continue with the appeal, reduced the amount of funds available to pay the appellants by virtue of its own increasing legal costs which were eroding the sum insured.  The conduct of the insurer put the appellants at further significant legal expense. 

It is a landmark decision insurers should be conscious of, especially when the conduct of the litigation might erode the indemnity available. It will inevitably lead to an increasing acceptance by Courts of the ability to make Orders of this kind against non-parties. 

Whilst the risk of an Order of that nature has perhaps always existed, the strength of the pronouncement by the High Court highlights the availability of the Order.  It makes decisions regarding litigation more challenging and complex.  The test adopted by the High Court, “in the interests of justice” means that factors that will be taken into account will be broad, and places significant focus on commercial considerations. 

For further information please contact:

John Van de Poll
Partner
T:(02) 9390 8406
E: jvp@holmanwebb.com.au

Mark Victorsen
Partner
T: (07) 3235 0102
E: mark.victorsen@holmanwebb.com.au