Costs orders against non-party insurers are not common in
Australia. However, the English authorities highlight the risk of
direct cost orders against insurers whose insureds cannot satisfy a
successful claimant's costs. Plymouth & South
West Co-Operative Society Ltd v Architecture Structure &
Management Ltd1 demonstrates that insurers
may not be protected by the fact that the policy limit of indemnity
has been exhausted.
The plaintiff in Plymouth sued the
defendant for negligent architectural services. The defendant
insured had ceased trading and was facing liquidation. The
insured's professional indemnity insurers defended the
plaintiff's claim. The plaintiff succeeded and was awarded
damages of ₤2.07 million plus costs of around
The insured's professional indemnity policy was subject to a
₤2 million limit of liability. Insurers paid out the full
limit of liability which effectively left the insured responsible
for the plaintiff's costs. With the insured declared insolvent
following judgment the plaintiff sought an order that insurers pay
Insurers were held liable for the plaintiff's costs on the
insurers had decided to defend the claim in an attempt to limit
their own liability;
insurers had funded and conducted the unsuccessful
insurers had fought the claim exclusively to defend their own
the plaintiff had incurred and increased its costs in response
to this defence; and
the defence had failed entirely.
The Position In Australia
Plymouth is one decision in a line of
English cases in which non-party insurers have been held liable for
costs2. However, applications for costs orders against
non-party insurers are rare in Australia despite Australian courts
having similar discretionary powers to order costs3.
The significance of orders of this nature was acknowledged by
the Victorian Supreme Court in Akedian Co Ltd v Royal
Insurance Australia Ltd4. Akedian
successfully sued its insurance broker for negligence in placing
certain insurance. The broker's defence was conducted by its
professional indemnity insurer. After obtaining judgment Akedian
sought orders that the insurer be jointly and severally liable for
Akedian's costs. Although the court did not ultimately rule on
the application, Byrne J was prepared to entertain the application
but cautioned that the "question of the liability of the
underwriter to pay costs in this case is a difficult one and...a
decision on it will be of considerable significance
Plymouth should trigger warning bells
for professional indemnity insurers, and liability insurers
generally, in Australia. This is because Australian courts may well
ultimately be guided by the English decisions.
Insurers in New South Wales will be pleased to hear that the
Uniform Civil Procedure Rules5 restrict
the courts' discretion to order costs against non-parties to
circumstances where a non-party insurer's conduct amounts to an
abuse of process or contempt of court. The courts have recognised
that "establishing an abuse of process...is a relatively
difficult obstacle for a party wishing to obtain costs against a
non-party to overcome"6.
Nevertheless, all insurers should bear the
Plymouth decision in mind when defending
proceedings on behalf of an insured which might ultimately not be
able to satisfy an adverse costs order, even where the policy limit
of indemnity has been exhausted.
1  All ER (D) 248 (Dec)
2 see also Chapman Ltd v
Christopher  1 WLR 12
3 See for example section 24 of the Victorian
Supreme Court Act 1986 and section 98 of the
Civil Procedure Act 2005 (NSW)
4  1 VR 80
5 Rule 42.3(2)(c)
6 per Ipp JA in Project 28 Pty Ltd v Tim Barr
Pty Ltd &Ors  NSWCA 240
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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