Muriniti; Newell v Lawcover Insurance Pty Ltd (No 2)

THE COURT: This appeal arises out of proceedings brought by the respondent, Lawcover Insurance Pty Ltd (Lawcover), in respect of a dispute relating to an indemnity insurance policy (the policy) issued to the appellants, who are legal practitioners. Lawcover sought a declaration as to the proper construction of cl 21 of the policy and an injunction to restrain the appellants from conducting an appeal in this Court from the decision of the Land and Environment Court in which personal costs orders were made against them. The primary judge, Sackar J, made declarations and injunctions as sought by Lawcover: Lawcover Insurance Pty Ltd v Leonardo Carlo Muriniti & Robert Duane Newell [2017] NSWSC 1557.

The background to the dispute involves a number of applications brought by a client of the appellants, Mrs Young, in proceedings against her neighbours, Mr and Mrs King (the Kings) in the Land and Environment Court. On 27 March 2017, Sheahan J made a joint and several personal indemnity costs order against the appellants pursuant to the Civil Procedure Act 2005 (NSW), ss 98 and 99 and/or the Legal Profession Uniform Law Application Act 2014 (NSW), Sch 2, cl 5 (the LPULA Act) in respect of an application for costs Mrs Young had brought against the Kings and 16 others: see Young v King (No 11) [2017] NSWLEC 34.

Lawcover, which had indemnified the appellants in respect of the costs ordered against them, determined not to appeal from the personal costs order against the appellants. It contended that in doing so it had properly invoked and acted in accordance with cls 21-23 of the policy. The appellants subsequently each filed a summons seeking leave to appeal from Young v King (No 11).

By summons filed in the Supreme Court on 28 June 2017, Lawcover sought declaratory relief to the effect that pursuant to the terms of the policy, the appellants were deemed to have consented to its decision not to appeal from Young v King (No 11); that it was entitled not to appeal; and that the appellants had no right to institute or conduct any appeal in their own right without Lawcover’s consent. Lawcover also sought injunctive relief against the appellants restraining them from instituting or conducting any appeal in their own right.

The appellants filed a cross-summons on 23 August 2017 challenging Lawcover’s entitlement to the relief sought. The appellants’ opposition to Lawcover’s claim was based on their contention as to the proper construction of cl 21 of the policy and also on the basis that Lawcover, in deciding not to appeal, had acted in bad faith and was thereby prevented from relying on the terms of the policy in making its decision not to appeal from Young v King (No 11).

The primary judge, Sackar J, made a declaration in favour of Lawcover that on the proper construction of the policy, the appellants were deemed to have consented to Lawcover’s decision not to pursue, on their behalf, an appeal against the judgment and orders in Young v King (No 11). His Honour also ordered that the appellants were permanently restrained from taking any steps to conduct or prosecute any appeal in their own name from the judgment and orders in Young v King (No 11).

The appellants have appealed against his Honour’s judgment and orders. Although the notice of appeal contains 16 separate grounds of appeal, the essential issues raised on the appeal were:

Lawcover issued a policy of professional indemnity insurance for the 2015/2016 financial year. The “law practice” was identified in the Schedule to the policy as L C Muriniti & Associates. The first appellant was the principal of the practice and the second appellant an employee of the practice during the period of insurance.

The relevant terms of the policy were as follows:

The Insurance Contracts Act provided as follows:

In 2004, McClellan CJ LEC, by consent, dismissed proceedings brought by Mrs Young against her neighbours, the Kings, in which Mrs Young had sought the removal of allegedly unlawful works and the reinstatement of a pre-existing drainage system on the Kings’ property (the principal proceedings). The dismissal of the proceedings followed an undertaking given by the Kings to carry out certain drainage and building works. The undertaking was based upon a solution proposed in a joint experts report given in the proceedings.

In 2004, L C Muriniti & Associates commenced to act for Mrs Young. In 2008, Mrs Young filed a notice of motion in the principal proceedings seeking to set aside the consent orders. The bases advanced for seeking to set aside the consent order were: that the undertaking given by the Kings was uncertain; that Mrs Young and/or the Kings were mistaken as to the purport of the undertaking; and that the Kings had made fraudulent misrepresentations to the court that the undertaking was a solution to the drainage issue that was the subject of the principal proceedings. Mr Newell acted as advocate for Mrs Young on this notice of motion and in all subsequent applications. On 19 October 2012, Sheahan J summarily dismissed the 2008 notice of motion: Young v King (No 4) [2012] NSWLEC 236.

Mrs Young successfully appealed from the order summarily dismissing the notice of motion and the matter was remitted to the Land and Environment Court for rehearing. Sheahan J, on 9 July 2015, after a full hearing, dismissed the 2008 notice of motion to set aside the consent orders: Young v King (No 6) [2015] NSWLEC 111. His Honour ordered Mrs Young to pay the Kings’ costs of proceedings in the Land and Environment Court since 8 March 2004. His Honour’s reasons for dismissing the application, in summary, were as follows:

In the course of his judgment, his Honour made remarks critical of the conduct of the appellants: see at [84], [88]–[91], [147], [173] and [227]–[228].

On 20 August 2015, Mrs Young filed a notice of motion in which she sought orders for indemnity costs in her favour against the Kings and 16 non-parties. These included experts retained by her as well as by the Kings in the principal proceedings and various legal representatives, including her former lawyers and the Kings’ legal representatives. Mrs Young sought an adjournment of the hearing of that application due to Mr Newell’s ill health. The application was granted in part: the date for the inter-partes costs application was maintained, but the applications for the personal costs orders against the appellants were stood over to be heard later: Young v King (No 7) [2015] NSWLEC 178.

On 1 December 2015, Sheahan J, following a hearing on 30 November 2015, made an order for summary dismissal of Mrs Young’s costs application on the application of 8 of the 16 non-parties. His Honour ordered that Mrs Young pay the costs of those non-parties on the summary dismissal application: Young v King (No 8) [2015] NSWLEC 187.

On 19 February 2016, his Honour dismissed Mrs Young’s costs application against the Kings and the remaining 8 non-parties and ordered Mrs Young to pay the costs of her costs application on an indemnity basis insofar as it related to the costs incurred by the Kings and on an ordinary basis in respect of the costs of the 8 non-parties. His Honour stood over the application by the Kings for personal costs orders against the appellants to a date to be fixed and also ordered that the costs order made against Mrs Young in Young v King (No 6) be amended to order that costs incurred by the Kings be payable on an indemnity basis: Young v King (No 9) [2016] NSWLEC 4.

Appeals from Young v King (No 6) and Young v King (No 9) were dismissed by this Court on 19 October 2016: Young v King [2016] NSWCA 282.

On 27 March 2017, after a hearing on 2–4 August 2016, pursuant to the Civil Procedure Act and/or the LPULA Act, Sheahan J ordered the appellants to pay, jointly and severally, on an indemnity basis, the costs of 11 of the non-parties in respect of the various costs applications that had been brought in the proceedings. The first appellant was ordered personally to pay the costs of the Kings: Young v King (No 11) [2017] NSWLEC 34.

In making the personal costs order against the appellants, Sheahan J found that they had:

Pursuant to cl 43 of the policy, Lawcover had indemnified the respondents in respect of the personal costs order made against them in Young v King (No 11) on 27 March 2017.

At the heart of the appeal in this Court is the proper construction of cls 21, 22 and 23 of the policy.

Lawcover, having obtained written advice from their solicitors, Yeldham Price O’Brien Lusk (YPOL), and also advice from counsel, formed a preliminary view that it should not pursue an appeal, as any appeal was unlikely to succeed. This view was based on a number of considerations, including that YPOL had advised that although it considered that there were appealable errors in the judgment in Young v King (No 11), there was less than a 50 per cent chance of success on an appeal. In this regard, Lawcover formed the view that even if the errors in Young v King (No 11) were upheld, there was little prospect that the personal costs orders made by Sheahan J would be overturned.

Lawcover at this time considered that there were other reasons for not appealing, including that findings had been made in various judgments in the Land and Environment Court that Mrs Young’s conspiracy allegations lacked a reasonable or credible evidentiary basis; that any attempt to convince the Court of Appeal that there was a conspiracy would amount to an impermissible collateral attack on those findings; and that if any appeal was unsuccessful and personal costs orders were made, the policy limit would be exceeded, with a possible consequence that the appellants would be forced into bankruptcy.

On 11 April 2017, Lawcover wrote to the appellants, enclosing YPOL’s written advice, and informing them that it did not intend to pursue the appeal. The letter continued

Lawcover nominated five senior counsel to whom it would consent to provide an opinion pursuant to cl 33 of the policy.

On the same day, Lawcover filed a notice of intention to appeal to protect the position should it be required to appeal pursuant to cl 34 of the policy if a lawyer’s opinion under cl 33 was given that the decision should be appealed.

On 24 April 2017, the first appellant wrote a lengthy letter to Lawcover, stating that the appellants “strongly oppose[d] any omission to appeal the decision” in Young v King (No 11) and that it was “entirely in bad faith to invoke clause 21 (‘QC clause’)”. Presumably, this was meant to be a reference to cl 22. He also contended that the appellants had been “kept entirely in the dark as to the purport of the position adopted by Lawcover”.

Lawcover responded to that letter on 27 April 2017, relevantly as follows:

By letter dated 3 May 2017, the first appellant wrote to Lawcover, stating that Lawcover did not have the consent of the appellants not to appeal the decision in Young v King (No 11) and that the appellants required the decision to be appealed. The first appellant further stated that he rejected Lawcover’s assertion that it had fulfilled its obligations under the policy, including pursuant to cl 21, and rejected that there had been any occasion for Lawcover to invoke either cl 22 or cl 33 of the policy.

On 17 May 2017, the appellants were advised that Lawcover had extended the time for them to invoke “the QC clause” to 24 May 2017. The first appellant responded by letter dated 24 May 2017, advising that he proposed to seek declaratory relief against Lawcover, but that the second appellant intended to appeal the decision in Young v King (No 11) “in his own right”.

On 25 May 2017, Lawcover wrote to the first appellant, noting that his letter of 24 May 2017 indicated that he did not oppose Lawcover “taking the Claim Resolution Steps” and that it proposed to do so. Lawcover noted, however, that it would allow a further seven days for the first appellant to inform it of the declaratory orders that he was proposing to seek.

The first appellant responded on the same date, contending that “we do not understand what the dispute, difference of opinion or occasion is that according to [Lawcover] triggers the right to invoke the QC Clause”. The letter again confirmed the second appellant’s intention to appeal from Young v King (No 11) in his own right.

Also on the same date, 25 May 2017, the second appellant unilaterally filed a notice of change of solicitor, on which he stated that he “now appears for himself in these proceedings in place of [Mr Yeldham of YPOL]”.

On 26 May 2017, Lawcover offered the appellants a further extension of time in which to invoke cl 33. However, on 28 June 2017, the appellants each filed a summons seeking leave to appeal from Young v King (No 11). On the same day, Lawcover filed the summons in the Equity Division seeking the declaratory and injunctive relief referred to at [4] above.

The primary judge, at [169], recognised that although cl 21 was “inelegantly worded”:

In giving cl 21 that construction, his Honour rejected the construction advanced by the appellants that the clause required a “preliminary decision” to be made before making an actual decision to appeal or not to appeal. Rather, his Honour stated, at [170]:

His Honour considered that this construction gave a “harmonious” operation to cls 21, 22 and 23, having regard to the provisions of the policy as a whole, including in particular cl 20, which he stated had “a similar pattern” and was consistent with “the insurer’s overriding control of the claim as outlined in clauses 15 and 16.”

The principles governing the construction of insurance policies are well established and were not in dispute. In McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65, Gleeson CJ stated, at [22]:

This statement was cited with approval by the High Court in Wilkie v Gordian Runoff (2005) 221 CLR 522; [2005] HCA 17 at [15], the Court adding, at [16]:

In Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561; [2016] NSWCA 370 Leeming JA observed, at [86]:

Leeming JA found the observations of Mance LJ in Gan Insurance Co v Tai Ping Insurance Co Ltd (No 2) [2001] EWCA Civ 1047; [2001] 2 All ER (Comm) 299 of assistance where there is a constructional choice as to the proper meaning of a contract or a term of a contract. In Gan Insurance Co v Tai Ping Insurance Co Ltd (No 2), the concern was with a clause which had at least two possible meanings. Mance LJ stated, at [16]:

The appellants submitted that cl 21 required the insurer to seek the insured’s consent before any decision to appeal is made. However, on their construction of the meaning of this requirement it was that the insurer was required to:

The appellants submitted that this meant that the insured would have the opportunity to make their views known to the insurer in relation to an appeal and seek clarification from the insurer as to the basis of any ‘proposed decision’. They also submitted that in seeking the insured’s consent to the making of a decision as to whether to appeal, the insurer would be expected to disclose the basis of its proposed decision. The appellants submitted that an insured would be given a limited time in which to consider and seek clarification of ‘the opinion’, by which we have understood them to mean the ‘proposed decision’, after which ‘the decision’ to appeal or not to appeal would be made. They contended that the construction of cl 21 that they propounded would not derogate from the requirement to give the clause a businesslike operation.

The appellants further submitted that this construction did not mean that two ‘decisions’ needed to be accommodated, that is, ‘a proposed decision’ that was under consideration and which might be made and ‘the decision’ whether or not to appeal. They recognised that after the consultative process they contended was required by cl 21 the insurer had to make ‘the decision’ as to whether or not to appeal. On their argument, it was that decision that was the subject of the processes for which cl 22 provided and, in the absence of notification in accordance with cl 22, to which a deemed consent was given.

The appellants submitted that until ‘the decision’ whether to appeal or not to appeal had been made, the contractual consequences contemplated by the policy did not come into play. As we understand it, they contended that Lawcover could not make that ‘decision’ unless and until it had engaged in the consultative process as outlined above and Lawcover had not done so. It followed, on their argument, that cls 22 and 23 had not come into operation.

The construction of cl 21 for which the appellants contended therefore, was, it seemed, that it involved a process whereby the insurer was to consult with the insured and to alert the insured as to the decision the insurer was proposing to take and the reasons for proposing to decide one way or the other. Put another way, they argued that the purpose of cl 21 was to facilitate a consultation so that the insured could understand why the insurer had come to this preliminary or proposed decision as to what course would be likely to be taken, and if the insured thought appropriate the insured could then express views as to that proposed course.

Lawcover submitted that the primary judge’s construction of cls 21-23 was correct.

As the primary judge observed, cls 21-23, and, we would add, cls 21 and 22 in particular, are inelegantly drafted. However, we consider that these clauses operate coherently in the manner determined by the primary judge.

The requirement in cl 21 was for the insurer to seek the insured’s consent before the insurer takes certain action, namely, “before deciding whether or not to pursue an appeal”. The drafting inelegance to which reference has been made is found in the phrase “before deciding whether or not to pursue an appeal”. That difficulty is not found in cl 20, which provided that “[w]e will not settle any claim against any insured without the prior consent of that insured”. One might ask why the same form of expression was not used in cl 21 if a similar process was involved. Looking at the matter most favourably to the appellants, an argument could possibly be made therefore, that given the difference in language between cl 20 and cl 21, that cl 21 could have the meaning for which the appellants contended, namely, that their consent was required during or as part of any decision making process that Lawcover engaged in before any actual decision was made.

Notwithstanding the possible availability of such an argument, we are satisfied that the construction of cl 21 for which the appellants contended does not make business sense, either on the terms of the clause by itself, or having regard to the terms of the policy as a whole. However inelegantly drafted the terms of cl 21-23 might be, it is apparent from their terms that the phrase “before deciding whether or not to pursue an appeal” means before deciding whether or not to appeal in the sense of making the actual decision to commence or not commence an appeal. No other construction makes business sense. Further, cl 21 made no reference to, provision for, or impliedly requires any such form of preliminary consultation, as the appellants contended was inherent in cl 21.

Other provisions of the policy support the construction which we consider to be correct. First, the heading to this section of the policy, “Deciding Whether To Appeal”, indicates that cls 21-23 related to a decision to appeal and not to some preliminary decision process. Next, it is apparent from the structure of the policy that cls 21-23 are intended to operate together and in accordance with principle must do so harmoniously. The common factor in each of these clauses is the consent or absence of consent of the insured to a decision.

The clauses can only operate cohesively and have a businesslike operation if the ‘decision’ in each clause, express or implied, is the same decision. Thus, the decision whether or not to pursue an appeal requires the insured’s consent: cl 21. If the insured does not consent, the insured has 14 days to notify the insurer that a lawyer’s opinion is sought. The obtaining of and consequence of doing so are governed by cl 33 and 34. The lawyer’s opinion is given “as an expert”: cl 33. Pursuant to cl 34, the insurer and the insured agree to be bound by the lawyer’s opinion.

It would be a nonsense to suggest that a lawyer would be appointed to determine, as an expert, whether the insurer should make a preliminary decision of the type for which the appellants contended. The appellants sought to meet this illogicality by submitting that cl 22 “presupposes that a decision whether to appeal or not has been made by the insurer”. They contended, however, that nothing in their construction of cl 21 “cuts across that proposition”. However, they have provided no reasonable argument as to why the ‘decision’ in cl 21 for which they contended their consent was required ought to be construed as being a different ‘decision’ from that referred to in cl 22.

Clause 23 provided that the insured will “be deemed to have consented” if notice is not given under cl 22. As a matter of clear implication, the “deemed consent” is to a ‘decision’. As a matter of construction of cl 23, that can only be the ‘decision’ in cl 21, as that is the only decision that requires consent. The appellants also sought to skirt around this flaw in their construction of cl 21 by accepting that the relevant decision in respect of which cl 23 operates is a decision whether to appeal. In effect, this is the same argument as they advanced in respect of cl 22 and should be rejected.

Clause 16 also bears upon the proper construction of cl 21. Clause 16 provided, relevantly, that, subject to cls 21-23, the insured is to have control of the conduct of any appeal. The qualification, by reference to cls 21-23, is that before pursuing any appeal, the insurer must obtain the insured’s consent, either actual (cl 22), or deemed (cl 23), or must abide by a lawyer’s opinion as to whether to appeal. If cl 21 had the operation for which the appellants contended, the reference to it in cl 16 would be superfluous.

The context in which cls 21-23 operate also points to the construction given to cl 21 by the primary judge as being correct. Given the time limits in which an appeal must be brought, a decision whether or not to appeal must be made expeditiously. So far as is presently relevant, an appeal must be brought within 28 days of the judgment or order being made: the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 51.16, or within three months if a notice of intention to appeal is filed and served: UCPR, r 51.9. Within that time frame, the insurer must decide whether or not to appeal, or to use the language of cl 21, “whether or not to pursue an appeal”.

Clauses 21-23 and 33-34 have to operate within that time frame. If there was a process of consultation required in respect of a preliminary decision, the risk of not being able to meet these time specifications is obvious. This would be even more so if, after such a preliminary and consultative process, a decision whether to appeal had to be made and the procedure in cl 22 for obtaining an independent lawyer’s opinion under cl 33 was invoked.

Appeal ground 1 is rejected.

The second issue on the appeal, which assumes the correctness of the primary judge’s construction of cl 21, raises the question whether, if Lawcover decided not to appeal as it did in this case, the appellants were entitled themselves to appeal from the costs order made against them in Young v King (No 11) as they purported to do, such that the primary judge erred in restraining them from doing so.

The appellants challenged the injunctive relief ordered by his Honour. They submitted that, although Lawcover had taken a decision not to appeal, to which they have been deemed to have consented, they contended that they are nonetheless entitled to bring an appeal in their own names and to conduct the appeal themselves.

The appellants contended that there was nothing in the policy to preclude them from themselves bringing an appeal and that plain words in the policy would be required for there to be “such a draconian consequence”. Before the primary judge, the appellants contended that they had the right to conduct the appeal themselves, at their own cost. However, their primary position was that Lawcover was liable, under the terms of the policy, for the financial consequences of an appeal. They relied upon cl 35 of the policy, which provided that Lawcover “will not cancel or avoid the Policy”. The appellants appeared to move away from this argument on appeal. However, as we explain below, the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), s 4 is relevant to the question whether Lawcover would be liable to pay any such costs.

Lawcover submitted that the appellants were precluded by the terms of the policy from bringing an appeal themselves in the face of its decision not to do so: see cls 15(c) and 16. They submitted that this operation of the policy was supported by cls 17 and 20. Lawcover further submitted that cls 21-23, 33(e) and 34 provided for three possibilities only: consent by the insured to Lawcover’s decision as to whether to appeal; the deemed consent of the insured to Lawcover’s decision as to whether to appeal; and the agreement to be bound by a lawyer’s opinion appointed under cl 33 as to whether an appeal should be pursued. It submitted that there was no fourth possibility under the terms of the policy whereby an insured may personally bring and conduct an appeal.

It followed, on this submission, that the appellants by themselves filing a notice of appeal, had breached cl 15(c) of the policy and that Lawcover was entitled to have that breach restrained.

The policy to which Lawcover and the appellants are contractually bound is a professional indemnity insurance policy. A fundamental aspect of insurance law is that when an insured person becomes party to a claim to which an insurance policy responds, the claim is brought or defended by the insurer in the name of the insured, as the case may be. In the present case, that traditional aspect of insurance policies is, in any event, a term of the policy: see cl 16(d).

The question in issue in this case is whether the appellants are constrained by the terms of the policy or otherwise from prosecuting an appeal themselves in circumstances where Lawcover made a decision in accordance with the terms of the policy not to appeal. In the opinion of the Court, this question must be answered in favour of Lawcover.

Clause 4 of the policy specified the claims for which Lawcover agreed to indemnify the insured. It was accepted that the policy covered personal costs orders made by a court in proceedings in respect of which an insured provided legal services to a client of the insured: see also cl 43. Clause 8 specified the matters which are excluded from the indemnity otherwise provided under the policy. Clearly, in respect of excluded matters, the person or persons otherwise insured under the policy would have the right to conduct proceedings themselves.

Clauses 15-17 prescribed what the insurer and the insured respectively may and may not do in respect of a claim. Pursuant to cl 15, the insured agreed that, without the insurer’s consent, they will not admit liability for a claim, settle a claim or incur any costs in respect of a claim. Pursuant to cl 16(a), the insurer has conduct of a claim including, relevantly, any settlement or any appeal, but subject to cl 20-23. Clause 17 provided an exception to cl 16 where the claim is for less than the excess, authorising the insured to assume the conduct of a claim or to settle a claim, but in each case, only with the insurer’s consent.

Clause 20 governed the settlement of a claim by the insurer, who may only settle a claim with the insured’s consent. However, if consent is not forthcoming, the insurer’s obligations to indemnify the insured are qualified: it will no longer be responsible for the insured’s defence costs and will only indemnify the insured up to the recommended amount of the settlement and in respect of defence costs up to 14 days after the recommendation as to settlement was made. As already discussed, cls 21-23, 33(e) and 34 governed the position in relation to an appeal.

Notwithstanding that pursuant to cl 15(c), the appellants agreed not to incur any costs in connection with a claim against them without Lawcover’s consent, the appellants have each incurred filing fees in respect of the summons seeking leave to appeal from Young v King (No. 11). Further, the appellants have agreed pursuant to cl 16 for Lawcover to have the conduct of a claim including in relation to any appeal. Clause 16 is expressly stated to be subject, relevantly, to cls 21-23, which relate to a decision to appeal or not to appeal.

The operation of cl 16 therefore, insofar as it relates to appeals, is that in the conduct of a claim, the decision whether to appeal or not to appeal resides in the insurer subject to the operation of cls 21-23. In this case, the insurer, Lawcover, made a decision not to appeal, in respect of which the appellants are deemed to have consented pursuant to cl 23.

The decision not to appeal was a decision made in the conduct of the claim which at all times resided in Lawcover pursuant to cl 16 and in respect of which the appellants, having deemed to have consented, were bound. The fact that the decision made was not to appeal did not release the appellants from their contractual agreement that Lawcover had the conduct of the claim. The appellants, in having filed summonses for leave to appeal, were also in breach of that clause of the policy.

Clauses 17(b), 20 and 21-23 support this as the proper operation of the policy. The policy is structured so as to provide for how claims are to be dealt with, including by way of settlement or appeal. In brief, the insurer has the right and the obligation to deal with and conduct all aspects of claims to which the policy answers, subject only to a claim that falls within cl 17, or subject to the consent requirement in cl 20 in respect of settlement of a claim; or the contractual regime in respect of appeals for which cls 21-23 provide. Subject to those matters, the insured has no contractual rights in respect of the conduct of a claim.

The appellants did not contend that there was no power in the court to grant an injunction to restrain the breach of a negative contractual stipulation: see Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552; [1979] HCA 41; Maggbury Pty Ltd v Hafele Aust Pty Ltd (2001) 210 CLR 181; [2001] HCA 70; and the discussion in Orleans Investments Pty Ltd v MindShare Communications Ltd (2009) 254 ALR 81; [2009] NSWCA 40 per Giles JA at [93]ff.

In the opinion of the Court, there was no error in his Honour granting the injunction. The appellants have not only breached their contract with Lawcover by commencing the proceedings, they have done so where the contractual position between the parties is that they have consented to Lawcover not appealing.

We have indicated above that there is a question as to whether Lawcover would nonetheless have an exposure in respect of any costs ordered against the appellants should they bring an appeal themselves pursuant to the Civil Liability (Third Party Claims Against Insurers) Act, s 4. That section provides that if an insured has an insured liability to a person, that person may, subject to the Act, recover the amount of the insured liability from the insurer in proceedings before a court. It is not necessary and would be inappropriate to determine that question, here. It is sufficient to record that there is a risk that Lawcover would remain liable for any costs ordered against the appellants pursuant to the Civil Liability (Third Party Claims Against Insurers) Act, s 4.

Appeal grounds 2 and 3 are rejected.

The appellants contended that whatever be the correct construction of cl 21, that was secondary to the requirement that the cl 22 “consequences” only followed if the ‘decision’ to which cl 22 refers is made in the utmost good faith, or, as they also put the matter, cls 21-23 should be construed by reference to the Insurance Contracts Act, ss 13 and 14. The appellants contended that Lawcover was not entitled to rely on the operation of cls 22-23 because it had acted in bad faith. Lawcover did not dispute that if bad faith was established, it could not rely upon the processes specified in those clauses, including where, if the independent lawyer clause had been triggered, the decision of the independent lawyer was infected by bad faith. It disputed, however, that it had acted in bad faith.

The primary judge, at [177], identified the appellants’ allegations of bad faith as involving: (a) a concern about corruption of the independent lawyer process; (b) the conduct of Lawcover, during and in the lead up to the personal costs application; (c) the failure of the solicitors for Lawcover, YPOL, to give reasons advising Lawcover not to appeal; and (d) the merits of the appeal. After considering each of the appellants’ allegations, his Honour concluded, at [205], that he was not satisfied that Lawcover had engaged in bad faith on any level.

The appellants accepted that the primary judge had accurately identified the specific bases upon which they had advanced their claim of bad faith (Tr 12). The appellants’ overarching contention, however, in respect of their bad faith claim, was that the insurers deceived them in respect of the way in which the proceedings in Young v King (No 11) were conducted, with the consequence that a personal costs order was made against them. They further asserted that, in collusion with YPOL, Lawcover sought to maintain that deception by refusing to appeal.

The allegations of bad faith were made at a high level of generality and, in effect, required that bad faith be assumed. We seek to explain this below, first by reference to the appellants’ submissions relating to the correspondence between YPOL and Mr Muriniti and, secondly, by reference to their submissions relating to the independent lawyer process under cls 22 and 33.

Before doing so, it is convenient to deal with an issue that occupied some primacy in the appellants’ submissions which relates to the nature of the proceedings in the Land and Environment Court.

Mrs Young’s original proceeding was determined by the making of the consent orders. That was thus a final determination of that dispute. Notwithstanding that that was so, Mrs Young sought to challenge the consent orders, relevantly, by way of notice of motion brought pursuant to UCPR, r 36.15. She was unsuccessful on her notice of motion and a costs order was made against her in favour of the Kings.

In Young v King (No 9), Mr Newell sought to adduce further evidence in relation to the conspiracy which had been the basis upon which Mrs Young had sought to set aside the consent orders and which had been rejected in Young v King (No 6). Sheahan J rejected the tender of the evidence on the basis that it was not ‘fresh evidence’ and if it was relevant to the conspiracy argument it was “plainly unreasonable” for it not to have been tendered on the notice of motion the subject of Young v King (No 6).

The appellants pointed out that the personal costs orders made against them in Young v King (No 11) were clearly made on the basis that that Mrs Young’s costs application against the Kings and the 16 non-parties was an abuse of process.

They submitted however, that the basis of this decision was unsustainable as the judgments in Young v King (No 8) and Young v King (No 9) were interlocutory such that no preclusion doctrine operated, by way of res judicata, issue estoppel or the principle in Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198; [2001] NSWCA 142 to prevent them from re-litigating the conspiracy allegations. Insofar as this “doctrine” was said to apply in this matter, the appellants submitted that Sheahan J had dismissed Young v King (No 8) and Young v King (No 9) as an abuse of process on the basis that this “preclusion doctrine” operated to prevent them from re-litigating matters already determined in Young v King (No 6).

The appellants’ contended however, that there was no issue estoppel or res judicata to found a “preclusion doctrine” against them as there had been no final judgment on the merits in Young v King (No 6) in respect of the conspiracy allegation. They contended therefore that Sheahan J erred in Young v King (No 8) and Young v King (No 9), in finding that Mrs Young was precluded from re-litigating the allegation of conspiracy because the orders made in Young v King (No 6) were interlocutory. It followed, so it was submitted, that the costs application brought by Mrs Young against the Kings and the 16 non-parties should not have been dismissed as an abuse of process.

As we understand this argument, it was that the findings in Young v King (No 8) and Young v King (No 9) were interlocutory and therefore could be challenged in Young v King (No 11). It followed on their argument that the decision in Young v King (No 11) was eminently appealable.

The appellants did not dispute that an application to set aside a judgment for fraud “should be invoked by a new action brought for that purpose and not by a motion in the original proceedings”: Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 at 697. As the appellants acknowledged, an order in any such new proceedings would be a final order.

The appellants contended, however, that a separate proceeding was not essential and was but one option whereby such an application could be made. They submitted that it was permissible to seek to impugn a principal judgment for fraud by filing a notice of motion: Logwon Pty Ltd v Warringah Shire Council (1993) 33 NSWLR 13; Romeo v Papalia [2012] NSWCA 221, and that in the absence of any objection by the opposing party, such a process was not impeachable and was interlocutory. It followed on their argument that any order made on the notice of motion was an interlocutory order. This had the consequence that any finding made in the interlocutory proceeding could be challenged or re-litigated in later proceedings.

The appellants asserted that Sheahan J erred in refusing to permit the tender of additional evidence in Young v King (No 8) and Young v King (No 9) in reliance on this “non-existent preclusion doctrine”, which they submitted prevented further litigation of the matter on the basis of any additional evidence.

The result was, they contended, that none of the new body of evidence assembled in support of the conspiracy allegation was before the court in Young v King (No 8) and Young v King (No 9). It should be stated immediately that Sheahan J in Young v King (No 9), at [77], admitted the evidence admitted in Young v King (No 6) on a provisional basis, subject to relevance and the Evidence Act 1995 (NSW), s 136. His Honour rejected the tender of further evidence said to have come into existence after Young v King (No 6) for the reasons given above.

As this argument was also developed, the appellants further contended that the parties seeking to have Mrs Young’s costs applications dismissed were unable to discharge the onus they had of demonstrating that there was no evidence of a conspiracy and that the motion was therefore an abuse of process. We will return to the question of onus, but merely record at this stage that this is untenable.

The appellants’ reliance on Logwon Pty Ltd v Warringah Shire Council and Romeo v Papalia is misplaced. Neither of those cases assist in resolving the question whether the court in Young v King (No 6) made final orders. But in any event, this entire question, raised by the appellants, is a red herring. Even if a judgment is interlocutory, a party may be constrained from again adducing evidence already adduced in a prior proceeding, or from re-arguing a point determined in an earlier proceeding: see Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44.

But more fundamentally, the consent order made in 2004 was a final order. Once a challenge, however made, to a final order is unsuccessful, the order remains what it always was, a final order. The dismissal of Mrs Young’s application in Young v King (No 6) challenging the consent order left the consent order intact as a final order of the Court. It was reasonable in the circumstances for YPOL to consider that the principles in Rippon v Chilcotin Pty Ltd applied to the attempt by Mrs Young to relitigate the issue decided against her in Young v King (No 6) in the motion that she brought that was disposed of in Young v King (No 8) and Young v King (No 9).

It is now necessary to turn to the appellant’s allegations of bad faith.

In logical sequence, it is convenient to consider the second of the bad faith issues identified by the primary judge, referred to at [79] above, relating to the conduct of Lawcover, in the lead up to and during the personal costs application. The appellants made two allegations of bad faith in this regard: first, that Lawcover had kept the appellants “in the dark”; and secondly, that Lawcover had not adequately defended them during the personal costs application. His Honour dealt with this issue at [181]–[186].

In rejecting the first of these allegations, his Honour, at [182]–[183], observed that the appellants were consulted and their position was considered in the lead up to the hearing of the personal costs application. In particular, the draft written submissions proposed to be relied upon at the hearing were forwarded to Mr Muriniti on 7 July 2016. Mr Newell agreed that he had also been provided with these submissions. There was a conference with YPOL and counsel and both appellants on 8 July 2016. Mr Muriniti sent a response to the draft submissions. YPOL responded on 11 July 2016, following which Mr Muriniti expressed his agreement to the matters contained in the letter of 11 July 2016.

The primary judge, at [185], rejected the second of the allegations, that the appellants were not properly defended in the hearing of the personal costs proceedings. As his Honour observed, it was plain from the judgment and orders in Young v King (No 11) that the personal costs application was properly brought and Lawcover was correct not to advise the appellants that the application against them was baseless. In addition, his Honour observed that counsel for the appellants was constrained, in defending the appellants in the personal costs application, by the earlier findings of abuse of process and the strength of the case brought against them.

His Honour considered that there was no evidence suggesting that the appellant’s legal representation was other than “professional, competent and proper”, noting that no adverse comment had been made about them in the judgment. His Honour also observed that Mr Newell, who represented Mrs Young, was at all times at the bar table during the application and made no objection to the manner in which counsel was conducting the defence on behalf of the appellants.

It is sufficient to note that the respondents denied all allegations of bad faith and supported his Honour’s reasons in this regard.

The appellants relied principally upon the letter of 11 April 2017, from YPOL to Lawcover, reporting on Young v King (No 11) and advising on the prospects of an appeal from that decision. At para 11 of the letter, YPOL identified a number of errors in the judgment. In para 12 they dealt with the prospects of a successful appeal. At para 12.1, YPOL expressed the view that Mrs Young’s costs application against the Kings and 16 non-parties, “was without any realistic prospects of success”.

At para 12.2, being that part of the letter about which the appellants particularly complained, YPOL stated:

The appellants submitted that “glibly insinuated into this advice is a proposition as though it followed as day followed night that the case was hopeless”. The appellants contended that Mrs Young’s application for costs against Mr and Mrs King and the 16 non-parties was dismissed “on the basis of a preclusion doctrine” that was incorrectly applied.

Mrs Young’s cost application was brought against the Kings in respect of an application that had been determined in the Kings’ favour. She also sought costs orders against non-parties, being all or nearly all of those who were involved in the case: lawyers, experts and the Council. The basis of the application was the same alleged conspiracy which had been rejected in Young v King (No 6).

It is worth noting that in that decision, Sheahan J held, at [230], that he was not satisfied on the balance of probabilities that any fraudulent misrepresentations had been made to the court at the time that the consent orders were made. In reaching this conclusion, his Honour applied the principle in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 and the Evidence Act, s 140. An appeal against his Honour’s decision was dismissed: see Young v King [2016] NSWCA 282.

The appellants, in a letter to Lawcover in response to YPOL’s letter of 11 April 2017, contended that if the points in paras 12.1-12.4 were “indicative of the case [YPOL] conducted then [the appellants] were seriously misled and deceived”. The appellants wrote that the matters raised in those paragraphs were “fake issues in that they have been selected for their capacity to convey a critically false insinuation”, namely, that the appellants:

However, any competent lawyer would have appreciated that the summary dismissal of Mrs Young’s application for costs against the Kings and the 16 non-parties was, at the least, highly likely, if not inevitable. The criticism of para 12 of the letter of 11 April 2017 is unfounded.

Before leaving para 12 of the letter of 11 April 2017, reference should be made to subpara 12.4. This related to whether the appellants had been precluded, hindered or hampered in their defence of the personal costs application by reason of legal professional privilege claimed by Mrs Young. YPOL noted that this could be a strong argument in some cases, but that it might well be rejected in the Court of Appeal, because the appellants had continued acting for Mrs Young and she had not obtained independent advice on the question as to whether she should waive privilege.

The next complaint related to para 14 of the letter, where YPOL stated:

It is apparent from his reasons that Sheahan J in Young v King (No 8) and Young v King (No 9) summarily dismissed Mrs Young’s application for costs as an abuse of process, as she sought to re-litigate points already determined in earlier proceedings. Paragraph 14 responded to Mr Muriniti’s letter to YPOL dated 5 April 2017, in which Mr Muriniti stated that he was enclosing “a copy of the pleadings that led to the decision in Young v King No. 6” and that there was “no reference in the pleadings to conspiracy”. The letter continued:

Before dealing with YPOL’s response in its letter of 11 April 2017, it should be noted that the assertion in Mr Muriniti’s letter was inaccurate and, indeed, was mischievous. On the appeal from Young v King (No 6) and Young v King (No 9), Emmett AJA observed, at [46]:

The “executive summary” referred to in this paragraph was filed in the Young v King (No 4) proceedings at the direction of the trial judge and was set out again in Young v King (No 6) at [23]. Emmett AJA set out the executive summary at [38] of the appeal judgment. That summary contained many allegations of collusion and contrivance between the Kings and the Council; contrivance by the Kings’ solicitors; collusion between the Council and Mrs Young’s lawyers; the destruction of and fabrication of evidence; and the granting of an improper and invalid consent.

Further, Emmett AJA recorded at [88], that Mrs Young, in her notice of appeal from Young v King (No 6), pleaded that the primary judge had not given adequate reasons for rejecting Mrs Young’s fraud allegations; asserted that the original consent orders were obtained by reason of fraudulent representations on the part of various persons including the expert witnesses; and contended that Sheahan J’s finding in respect of fraud “was unsafe and the occasion of a miscarriage of justice.”

YPOL’s statement in para 14 demonstrated that it clearly and correctly understood what could or could not be argued on the personal costs application. This is also apparent from its concluding paragraph of the letter, in which YPOL set out its summary as to why it was advising that prosecuting an appeal from the personal costs order would involve an unacceptable risk as follows:

As further supposed proof of bad faith, the appellants also relied upon an earlier email from YPOL to Mr Muriniti dated 11 July 2016, relating to the written submissions that were proposed to be made on their behalf at the hearing of the personal costs application brought against them. The YPOL email was in response to Mr Muriniti’s email of the same date in which he had stated that “there is something conspicuously unfair” about the findings, at [226]-[230], in Young v King (No 6).

Mr Muriniti’s email continued that it would be “plainly unfair” for those findings to be relied on as a basis to contend that the costs applications against the Kings and the other non-parties were an abuse of process. The findings to which he referred were Sheahan J’s findings that neither the Kings nor any of their representatives had made any fraudulent representations to the Court. In reaching that conclusion, Sheahan J stated, at [227], that he had not been taken to anything in the “plethora of the material [that] was tendered … of any real, probative value” which would warrant such a finding.

Mr Muriniti also argued in his email of 11 July 2016 that the court should be made aware that “use of judicial findings in the principal proceedings will only be permitted where the legal practitioner will not suffer an injustice”: see Flinn v Flinn (1999) 3 VR 712; [1999] VSCA 109 at [4]-[9]; Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153 at [147]. He then raised the question as to what procedural steps should be taken “to agitate in the interests of justice the fairness points”.

YPOL’s email response on the same day was as follows:

Mr Muriniti responded shortly after receiving YPOL’s email, stating that he accepted that would suffice and that he was otherwise happy with the submissions. The appellants complained that notwithstanding the assurance in YPOL’s email of 11 July 2016, no point was taken by counsel at the hearing that the parties seeking the personal costs order were not entitled to rely on Sheahan J’s findings in Young v King (No 6).

The appellants complained that the comments made in YPOL’s email of 11 July 2016, particularly the statement that the applicants for the personal costs orders were not relying on Sheahan J’s findings, was therefore “preposterous” and only served to confuse Mr Muriniti, as there was no other way that the parties seeking personal costs orders could succeed in their application for costs other than by relying upon those findings. Mr Newell also submitted that he personally did not know that the costs application would be prosecuted on the basis that the findings of Sheahan J could not be challenged.

It followed, according to this submission, that the point made by YPOL in the email of 11 July 2016 was “so obviously wrong it can’t have a good faith purpose”. They contended that the effect of that email was to put Mr Muriniti off from making any further enquiry as to what steps he should take to protect himself in the personal costs application.

It is also convenient at this point to return to the appellants’ submission in relation to the onus they contended the parties seeking the personal costs orders bore. The contended that on that onus, the parties applying for personal costs orders were required to establish that there was “an entire lack of evidence to support the conspiracy allegation”. However, they pointed out that the parties seeking the personal costs orders did not adduce evidence to “demonstrate that the so called evidence was entirely lacking as a means of supporting the conspiracy allegation”. Rather, those parties had been permitted, wrongly, to rely upon the findings made in the earlier decisions so as to take the benefit of a “preclusion doctrine”. As indicated earlier, the appellants submitted that no such doctrine could be applied in these circumstances as there had been no final judgment on the merits.

Returning to the letter of 11 April, 2017, the appellants submitted that contrary to the position taken by YPOL in that letter, the primary findings of fact made in Young v King (No 8) and Young v King (No 9) could be challenged in the personal costs application. They contended that the personal costs application could have been conducted either by calling evidence, or as a matter of a “preclusion doctrine which forestalls any examination of the evidence”. They submitted that “nobody had put the evidence before the Court and start[ed] to analyse it to persuade the Court there was no evidence of conspiracy”.

Despite this submission, the appellants ultimately conceded in their submissions in this Court that evidence was adduced in support of the conspiracy allegation in Young v King (No 6). However, as discussed earlier, they pointed out that they had sought to tender a different body of evidence in Young v King (No 8) and Young v King (No 9) from that which was tendered in Young v King (No 6), but that that evidence was rejected. Mr Newell also acknowledged that he tendered evidence of the conspiracy on behalf of Mrs Young in Young v King (No 11).

The appellants contended that it was apparent on the evidence that YPOL did not have a genuine belief in the propositions upon which the decision not to appeal was founded. In this regard, they again relied upon what Mr Newell described as the “remarkable propositions” in the letter of 11 April 2017 that it was “a hopeless case and it can’t be challenged”, asserting that YPOL refused to provide any authority for that proposition. Mr Newell contended that whilst the letters written by YPOL to Mr Muriniti appeared on their face to contain comprehensive reasons as to why an appeal ought not be brought, that “comprehensiveness is illusory”.

The appellants also submitted that YPOL’s advice in the letter of 11 April 2017 was wrong and that there was “a refusal to engage about why it’s purportedly right”, such that the inference to be drawn was that YPOL had “no proper belief in the propositions which informed” the letter of 11 April 2017. It followed that the advice was not given in good faith. In oral submissions, the appellants submitted that YPOL themselves acted in bad faith and did not believe what they wrote. They submitted that Lawcover in turn acted in bad faith, in that it adopted the conduct of YPOL in following its advice.

As the matter was eventually put, it was that if Mrs Young’s costs application against the Kings and the non-parties was “a hopeless case”, YPOL should have advised, in their letter, why this was so. The appellants said that there was no such explanation in the letter of 11 April 2017. The appellants described this omission, which they said was a continuing feature of the manner in which YPOL conducted the matter, as “very peculiar” and submitted that the letter was written on the assumption that the case was hopeless.

It has taken some time to grapple with the appellants’ submissions, which at times were nearly impenetrable. The appellants’ argument, in essence, was that although they had been provided with the written submissions and had had a conference with counsel, they had been deceived as to how Lawcover was proposing to run its defence.

The appellants relied on YPOL’s email of 11 July 2016, set out above at [119], as evidence of bad faith, in that no point about the use of findings in earlier proceedings was taken by Mr Lloyd, representing the appellants, at the hearing. They submitted that evidence of bad faith could also be found in YPOL’s letter of 11 April 2017 in which YPOL advised that the findings in Young v King (No 8) and Young v King (No 9) could not be challenged. They relied upon paras 12.1, 12.2 and 14 of that letter. The appellants submitted that they were not told that the defence of the costs application was being conducted on that basis.

However, Sheahan J in Young v King (No 11) observed, at [56], that there had been voluminous written submissions filed and that YPOL, representing the appellants, had assembled a four volume court book. In addition, Mr Newell had tendered three folders of additional material and there were two other volumes of material assembled by other parties and placed before his Honour. This Court is not privy to any of that material, except to the extent that it appears in Sheahan J’s judgment.

In that regard, it may be noted that it is apparent from his Honour’s judgment, at [179], that Mr Lloyd made extensive submissions including on the principles in Lemoto v Able Technical Pty Ltd. That was the very decision to which Mr Muriniti referred in his email of 11 July 2016 and to which YPOL responded. Further, Mr Newell was at the bar table representing Mrs Young and adduced evidence on her behalf. There is no indication in the judgment that he contended that there could not be any reliance on earlier findings by his Honour in the same proceedings or that he objected to any of the evidence that was placed before his Honour.

But in any event, the appellants’ complaint goes nowhere. There is a difference between what is devised by way of tactics or strategy in the presentation of a case and how that strategy develops during the course of both preparation for, and in the running of, the case. That was the very point of YPOL’s letter. YPOL did not state in the email of 11 July 2016 that the appellants would succeed in the defence of the personal costs application, nor did they proffer an opinion in relation to Mrs Young’s costs application. The letter was directed to the defence of the personal costs application after there had been a conference on that very matter.

Further, the passages of YPOL’s letter of 11 April 2017 upon which the appellants rely as proof of bad faith in writing the email of 11 July 2016, namely, paras 12.1, 12.2 and 14, were written by way of an assessment of the prospects of success of an appeal from Young v King (No 11), having regard to the findings that had been made in that case. However, as we have already indicated, any competent lawyer would have realised that the costs application against the Kings and the non-parties was bound to fail, in the face of an existing order that Mrs Young pay the Kings’ costs. But in any event, the position had been clearly explained to Mr Muriniti in YPOL’s letter of 7 April 2017, as follows:

Something more needs to be said, however, as to Lemoto v Able Technical Pty Ltd and Flinn v Flinn, upon which the appellants placed some reliance. The proper approach to proof where a claim is made for personal costs orders was the subject of detailed consideration by White JA in Newell; Muriniti v De Costi [2018] NSWCA 49, delivered on 20 March 2018, before the hearing in this matter.

The point for present purposes is that the observations of White JA, especially at [267] ff, made it unlikely that the appellants were correct in their reliance on Lemoto as authority for the proposition that use cannot be made of the findings made in proceedings in which a personal costs is sought. In this regard, it is important that the personal costs application was brought under both the LPULA Act and the Civil Procedure Act. White JA discussed both statutory regimes, although it should be noted that in Newell; Muriniti v De Costi the legislation concerned was the Legal Profession Act 2004 (NSW). However, the provisions of the Legal Profession Act 2004 and the LPULA Act are identical in this respect.

In particular, White JA, at [267], drew attention to the common law rule that a finding by the trial judge in the proceeding in which the lawyer acted was admissible on a summary application for a personal costs order against the lawyer, if, having regard to the lawyer’s connection with proceedings, “it was fair and just to do so”: see Symphony Group plc v Hodgson [1994] QB 179 at 193. That statement of principle was endorsed in Flinn v Flinn at [4]. White JA drew attention to the operation of the Evidence Act, s 91 and observed, at [270]–[271], that subject to the possible operation of that section, the common law rule may apply, but noted that that question had not been authoritatively determined.

In King v Muriniti (2018) 359 ALR 291; [2018] NSWCA 98, also delivered before the hearing of this appeal, Basten JA, with whom Gleeson JA agreed, concluded, at [37]ff, that s 91 of the Evidence Act (that provides that evidence of the decision or of a finding of fact is not admissible to prove the existence of the fact in another proceeding) is not applicable to the exercise of jurisdiction with respect to the liability of a legal practitioner to pay costs or indemnify a party as to costs under the Civil Procedure Act, s 99. In King v Muriniti Basten JA observed, at [44], that:

YPOL could reasonably have thought that the findings of many courts, including the Court of Appeal on appeal from Young v King (No 6), that there was no proper basis for the allegation of conspiracy was a sufficient basis for concluding that the August 2015 motion was hopeless.

The primary judge’s conclusion that Mr Yeldham’s opinion as to the prospects of success on appeal being less than 50 per cent was both considered and reasonable and is not shown to have been in error. We agree with the primary judge’s statement, at [201], that Mr Yeldham “was indeed, to say the least, very kind to Mr Newell and Mr Muriniti”. YPOL’s opinion was at least reasonable.

The submission of Mr Muriniti and Mr Newell that it was dishonest is without foundation. That submission should not have been made.

But in any event, the appellants’ argument is misplaced. In the first place, there was evidence before Sheahan J. Secondly, as the appellants’ own submissions acknowledged, the observation of McColl JA in Lemoto v Able Technical Pty Ltd is qualified. As her Honour observed, at [147]:

No possible injustice could have been suffered by the appellants in this case. The appellants’ short point was that the parties seeking the personal costs orders against them bore an onus to establish that there was no evidence that the consent order had been obtained as a result of a conspiracy or by fraud. That submission is simply wrong.

We reject this aspect of the appellants’ submissions.

The appellants essentially relied upon the same arguments in support of this contention as that which they had advanced to demonstrate that Lawcover acted in bad faith in the lead up to the personal costs application. These are discussed above. Specifically on this issue, they submitted that the letter of 11 April 2017 said “nothing by way of explanation for the issues on which the personal costs applications in reality depend”. They contended that that the letter “begins with the unexplained premise that [Mrs Young’s] Costs Motion was a hopeless case. That premise was what need[ed] to be explained”.

The correspondence relating to the decision to appeal and, principally, the letter of 11 April 2017, has been set out above in some detail and we have dealt with the various submissions the appellants made in respect of it.

Contrary to their submissions that they had been given no explanation as to why Lawcover had decided not to appeal, the appellants were provided with YPOL’s letter of 11 April 2017. That letter provided a comprehensive consideration of the judgment at first instance and the errors that were considered to have been made by Sheahan J. It then clearly set out the countervailing considerations which pointed against bringing an appeal. The matters considered were relevant and important, not only for Lawcover as an insurer, but also for the appellants’ reputations as legal practitioners. The appellants’ complaint that they had been given no explanation for the reasons not to appeal is baseless.

The primary judge was correct in rejecting this allegation of bad faith.

The appellants also asserted that they were confident that, had an appeal been brought from the personal costs orders made against them, those orders would be set aside. Indeed, the submission was put more highly: they said that “there [was] no such risk” in further costs being run up by bringing an appeal. The gravamen of their complaint was that Lawcover, in collusion with YPOL, was continuing the deception in refusing to bring an appeal.

YPOL, in their letter of 11 April 2017, identified a number of aspects of Sheahan J’s reasons in respect of which his Honour arguably erred. However, they also considered the prospects of a successful outcome on the appeal. In this regard, it should be observed that the Court’s powers on appeal are prescribed relevantly by the Supreme Court Act 1970 (NSW), s 75A(10) and UCPR, r 51.53(1)(a). As these provisions make clear, the fact of error in a judgment under appeal does not of itself determine that an appeal will be allowed. In particular, even where there is error of law, a new trial must not be ordered “unless it appears to the Court that some substantial wrong or miscarriage has been thereby occasioned”.

Accepting for the purpose of argument only that there were errors in Sheahan J’s orders as identified by YPOL in their letter of 11 April 2017, having regard to the matters referred to in these reasons and having regard to the findings made in the various Young v King judgments, there was a reasonable basis for YPOL’s advice that the overall prospects of success on an appeal were less than 50 per cent and that for that reason there was an unacceptable risk on costs.

It is again appropriate to repeat that Mrs Young’s costs application against the Kings and others in respect of Young v King (No 6) was brought in circumstances where she had been the subject of a costs order made in the Kings’ favour in those proceedings. Further, it must be stated that the likelihood of a conspiracy amongst the Kings and her own experts, the Kings’ legal representatives and her representatives, and the local council, to defeat her claim over the drainage issue she had taken to the Land and Environment Court, is fanciful.

The appellants also argued in respect of this ground of appeal that there was no prospect of establishing that Mrs Young’s costs application was an abuse of process, because the principle in Rippon v Chilcotin Pty Ltd did not apply: see Michael Wilson & Partners v Nicholls (2011) 244 CLR 427; [2011] HCA 48.

In Rippon v Chilcotin Pty Ltd this Court held that the claim against the defendants was precluded by an Anshun estoppel as the circumstances of the claim were so relevant to the subject matter of an earlier proceeding against different defendants that it was unreasonable not to have brought the claim in the one action. In Michael Wilson & Partners the High Court observed, at [94], that Rippon v Chilcotin Pty Ltd was directed principally to the application of doctrines of preclusion and, in particular, an extension of that species of preclusion dealt with in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45.

We have already discussed the appellants’ arguments relating to the operation of the “preclusion doctrine”. Michael Wilson & Partners v Nicholls was very different from this case. It involved an arbitration in London and a civil proceeding in New South Wales against different parties. The plurality noted, at [107], that the principles in Rippon v Chilcotin Pty Ltd could not be applied as the claim against the different parties could not have been brought in the London arbitration. This was not, the plurality held, a situation where a party sought to set up the same case as was to be heard and determined in the arbitration.

Importantly, in Michael Wilson & Partners the proceedings that were alleged to be an abuse of process were not ancillary to the other proceedings. Nor were the proceedings in Rippon v Chilcotin Pty Ltd. That was not the case here. The personal costs application was brought in the proceedings that Mrs Young had initiated. But in any event, for the reasons given above, the application for personal costs orders was governed by the Civil Procedure Act, s 99 and the LPULA Act.

The primary judge was correct in rejecting this allegation.

This leads to the next point, that is, the concern about corruption of the independent lawyer process. The immediate answer to the appellants’ dissatisfaction with YPOL’s advice and disagreement with Lawcover’s decision not to appeal based on that advice is that they could have invoked the procedure under cl 33 of the policy and thereby have obtained independent advice. This, however, led to a further bad faith argument, which was two pronged. Their first submission was that the appellants did not trust the process. As they submitted, if Lawcover did not conduct itself in utmost good faith, “it is obvious why we would not trust the process that Lawcover proposed”. Their second submission was that cls 22 and 33 of the policy offended the Insurance Contracts Act, s 52, by purporting to exclude the duty of good faith: see Akai Pty Ltd v People's Insurance Co Ltd (1996) 188 CLR 418; [1996] HCA 39. This second submission was raised by ground 4 of the appeal and is dealt with separately below.

In respect of the first bad faith submission, the appellants also resisted the suggestion that the independence of the cl 33 procedure was underpinned by the fact that if the parties did not agree as to the independent lawyer, the President of the Law Society was to appoint a lawyer. The problem with that, according to the appellants, was that Lawcover was a wholly owned subsidiary of the Law Society, and the President, if asked to appoint a lawyer pursuant to cl 33, would have a conflict of interest.

They also submitted that any lawyer appointed by the President of the Law Society might understand “that in the environment he’s operating it’s not in his interests to defend Lawcover”.

These submissions do not warrant any substantial consideration. The allegations are lacking in particularity and are unsupported by evidence. In form and substance, they are scandalous.

It follows that the appellants’ appeal based on bad faith fails.

The appellants also submitted that the independent lawyer clauses contravened the Insurance Contracts Act, s 52.

The primary judge first dealt with the proper approach to s 52 at [117]-[118]. His Honour referred, at [117], to the proper approach to the application of the section as explained in Hancock Family Memorial Foundation Ltd v Lowe (2015) 320 ALR 337; [2015] WASCA 38 at [89].

His Honour also referred to Akai Pty Ltd v People’s Insurance Co Ltd, at 426, which was concerned with a choice of law clause in an insurance contract. His Honour referred, at [118], to the observation of the minority that s 52(1) “strikes down contractual provisions which would exclude, restrict or modify the operation of the Act”.

The appellants complained about his Honour’s reliance on this statement being drawn from a dissenting judgment. However, the statement is not only uncontroversial, it is clearly correct. Indeed, it supports that point that the appellants seek to make, albeit that their argument fails on the proper construction of the policy, as we next explain.

The primary judge dealt with the question whether the independent lawyer clauses offended s 52 at [206]–[214].

His Honour considered, at [207], that the purpose of many independent lawyer clauses is to assist the insured in protecting their reputation by not facing proceedings where further adverse findings may be made in a superior court: see West Wake Price & Co v Ching [1957] 1 WLR 45 at 49.

His Honour found, at [209]–[210], that the policy, particularly cls 15, 16 and 20, plainly allowed an insurer to give consideration to their commercial interests: see TAL Life Ltd v Shuetrim; Metlife Insurance Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68 at [187], and that the insurer may consider such pecuniary interests in seeking to invoke the independent lawyer regime under cls 21–23 and 33 of the policy.

His Honour determined that a decision to do so was not inconsistent with the insurer’s obligation to act in utmost good faith towards the insured. It followed that cls 21–23 and 33 did not purport to exclude, restrict or modify the operation of the Insurance Contracts Act.

His Honour also stated, at [211], that cl 21 did not compel the insured to invoke cl 22 and engage the independent lawyer process. Indeed, when faced with a decision whether or not to appeal, the insured had three options available to it: consent to the insurer’s decision, stay silent and be deemed to have consented pursuant to cl 23, or expressly not consent within 14 days.

His Honour found, at [212], that the independent lawyer process in fact enhanced the duty to act in good faith by providing a mechanism for the resolution of any impasse between the parties. His Honour, at [213], rejected the appellants’ argument that cl 33(e) precluded the independent lawyer from having regard to the vital interests of the insured, particularly given that cl 33(b) provided for the making of written submissions concerning the parties’ interests.

His Honour concluded, at [214], that he was not satisfied that cls 21–23 and 33 amounted to an impermissible attempt to contract out of the Insurance Contracts Act and thus did not fall foul of s 52.

In the opinion of the Court, the reasoning of the primary judge is plainly correct. There is nothing in the Insurance Contracts Act that prescribes or proscribes the manner in which decisions may be made as to whether to extend indemnity.

This argument must be rejected.

In appeal ground 12, the appellants contended that the primary judge failed to give adequate reasons for his conclusions that Lawcover had not failed to act with the utmost good faith.

To the extent that the appellants relied on evidence to support their allegations, such as in respect of the allegation in relation to Lawcover’s conduct during and in the lead up to the personal costs applications, his Honour referred to that evidence. Where there was no evidence to support an allegation, his Honour said so. His Honour’s reasons in respect of the allegation concerning the corruption of the independent lawyer process are an example: see at [179]. His Honour referred to the appellants’ submissions and gave reasons why he dismissed each of the allegations.

His Honour clearly satisfied the obligation to give reasons as discussed in Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430. It should also be noted that on the hearing of the appeal, no submissions were directed by the appellants to this ground and it should be dismissed.

We should also add that we are of the opinion that this ground was unarguable and should not have been advanced at all, even though no submissions were directed to it.

The appellants also argued that there was a reasonable apprehension of bias that the primary judge had prejudged the matter. The test for apprehension of bias is well established. The Court must be satisfied that:

The appellants submitted that to the extent that his Honour “relied upon collateral and juridical irrelevant judgments in arriving at his conclusions”, he had “given the appearance of a prejudgment”. This would appear to be a reference to the various judgments in the Land and Environment Court and, in particular, to Young v King (No 11).

In all of the cases to which his Honour referred, the appellants had argued that the consent orders in the Land and Environment Court had been obtained because of fraudulent representations by various persons, in effect amounting to a conspiracy amongst nearly everyone who had had an association with the case.

The appellants contended, as part of their bad faith argument against Lawcover, that they had been entitled to re-litigate the same conspiracy case in the various Land and Environment Court applications brought on behalf of Mrs Young. Accordingly, those decisions and the reasons for their dismissal cases were a central aspect of their case before the primary judge. It was unsurprising, therefore, that his Honour, having heard the appellants’ submissions on essentially the same issue, came to the same conclusion as had been reached in those decisions.

This is apparent, for example, from his Honour’s finding in respect of the appellants’ concern regarding the alleged corruption of the independent lawyer process, where his Honour, at [179], referred to a number of the previous decisions and then concluded, at [180], that the allegation was “baseless”.

In the opinion of the Court, “a fair-minded lay observer”, sitting in a court room, hearing the allegations being made by the appellants, would not have any apprehension that the primary judge had prejudged the matter. The mere fact that parties and witnesses are the subject of criticism in a judgment, even harsh criticism, is without more, insufficient to establish apprehended bias: Royal Guardian Mortgage Management Pty Ltd v Nguyen (2016) 332 ALR 128; [2016] NSWCA 88 at [233]–[234].

This ground of appeal is also rejected.

For the reasons given, the appeal is dismissed with costs.