Kerr v Motor Vehicles Insurance (PNG) Trust [1978] PGLawRp 558; [1978] PNGLR 438 (9 November 1978)

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COSTS - Costs of action - Damages for personal injuries - Compulsory third party motor vehicle insurance - Action against statutory Trust - Insured right to be represented on hearing - Statutory limit on damages to be awarded against Trust - Balance of claim against Insured - Statutory indemnity for costs - Scope and extent of indemnity - Liability of insured for costs - Extent of liability of insured for costs - Motor Vehicles (Third Party Insurance) Act 1974, s. 49(2)(a), s. 54(1), s. 55, s. 58(1)(b)[dcxlii]¹.

Section 49(2)(a) of the Motor Vehicles (Third Party Insurance) Act 1974, (the Act) provides for third party insurance cover to the owner of a motor vehicle:

�... against all liability incurred by that owner ... in respect of the ... bodily injury to a person caused by or arising out of the use of the motor vehicle to an amount not exceeding:

(i)�� K100,000 in respect of the ... bodily injury to any person in any one case; and

(ii)�� K500,000 in the case of any one accident or series of accidents arising out of the one event ...�

Under s. 54(1) of the Act all claims for damages for bodily injury to any person caused by or arising out of the use of a motor vehicle insured under the Art must be made directly against the Motor Vehicles Insurance (P.N.G.) Trust (the Trust), a body corporate constituted by the Act, and cannot (nor can proceedings to enforce the claim) be made against the owner of the motor vehicle.

�Where a claim for damages under Section 54(1) is made against the Trust, a copy of the claim shall, where possible be served on the owner ... and the owner and driver may be represented on the hearing of the claim as though they were a party to the action.�

On an application for costs in an action where the plaintiff had recovered damages in excess of K100,000, and the first K100,000 was awarded against the Trust and the balance was awarded pursuant to s. 54(5) of the Act against the owner of the motor vehicle (the insured);

N1>(1)�� The scope of the �liability� insured against by s. 49(2)(a) of the Motor Vehicles (Third Party Insurance) Act 1974 is such as to include liability for litigation costs of the plaintiff awarded against the insured (i.e. party and party costs), but the practical effect of s. 54(1) of the Act is to prevent such liability arising, except when the insured exercises rights under s. 55 of the Act.

N1>(2)�� The liability of the insurer (the Trust) for costs in the action arises from its position as a party to the action in its own capacity, the legal basis of which derives from the law of costs, not the Act, and accordingly the indemnity limitations under the Act do not apply.

N1>(3)�� An insured exercising rights under s. 55 of the Act may incur liability for costs in much the same manner as would a third party to an action, and he will be indemnified by virtue of s. 58(1)(b) of the Act for all proper solicitor/client costs; but only to the extent that combined damages and costs do not exceed the limits prescribed by s. 49(2)(a) of the Act.

N1>(4)�� Accordingly, the plaintiff being successful in the action was entitled to his costs; the order for costs should be made against both the Trust and the insured (both being liable for the whole).

N1>(5)�� Damages recovered being in excess of K100,000 no question of the insured being indemnified under the Act by the Trust arose.

A plaintiff in an action for damages for personal injuries arising out of a motor vehicle accident having recovered damages against the defendant and the insured, sought an order for costs in the action.

G. Lay, for the insured appearing under s. 55 of the Motor Vehicles (Third Party Insurance) Act 1974.

KEARNEY J: In this action the plaintiff sued the defendant (the Trust) for damages for bodily injury received when a motor vehicle in which he was a passenger, driven by a fellow employee, overturned. The vehicle was insured under the Motor Vehicles (Third Party Insurance) Act 1974 (the Act).

Exercising its right under s. 55 of the Act the owner of the vehicle and employer of the plaintiff, Plantation Supply and Service Co. Pty. Ltd. (the Company), was represented at the hearing by counsel who also appeared for the Trust.

The plaintiff recovered a verdict for damages in excess of K100,000; the first K100,000 was awarded against the Trust; pursuant to s. 54(5) of the Act, the balance was awarded against the Company. By consent, the question of costs was reserved; it has now been argued and it is solely with the question of costs that this judgment deals.

The plaintiff contends that the defendant Trust should be ordered to pay his costs as well as the first K100,000 of his damages. The Company supports that contention. The Trust contends that its total liability in respect of the plaintiff�s claim, inclusive of costs, is limited by statute to K100,000.

Before dealing with the arguments in support of those contentions, it is convenient first to mention briefly the relevant provisions of the Act, which contains some features novel to compulsory third-party insurance legislation.

The Trust is set up as a corporate body (s. 3) to issue third-party insurance cover, in respect of motor vehicles (s. 49(1)). I am informed by counsel that no policy of insurance actually issues; it is a wholly statutory regime. The owner of a motor vehicle must take out third-party cover with the Trust, when registering his vehicle (s. 48). The Trust administers the Motor Vehicles Insurance Fund, a pool of money to which contributions flow from insurers licensed to carry on general insurance business (ss. 32(2), s. 33(1)) and from which the financial obligations incurred by the Trust are met (s. 35).

�... against all liability incurred by that owner ... in respect of the ... bodily injury to a person caused by or arising out of the use of the motor vehicle to an amount not exceeding:

(i)�� K100000.00 in respect of the ... bodily injury to any one person in any one case; and

(ii)�� K500000.00 in the case of any one accident or series of accidents arising out of the one event ...� (s. 49(2)(a)).

These amounts of K100,000 and K500,000 were increased by amendment in 1975 to their present level, from amounts of K30,000 and K200,000 respectively in the original Act.

Every claim for damages for bodily injury to any person caused by or arising out of the use of a motor vehicle insured under the Act must be made directly against the Trust and cannot be made against the owner of the vehicle; and similarly with proceedings to enforce the claim (s. 54(1)). By laying down as a general rule that claims are to be made against the insurer/Trust, the Act cuts new ground in common law jurisdictions though the procedure is common in European countries and possibly obtains in some states of the U.S.A.

It will be noted from s. 49(2)(a) that the Trust does not fully insure the owner against �liability� incurred; since the owner has an indemnity limited in amount, he is exposed to risk of personal liability, if damages are awarded in excess of the statutory limit. This is spelled out by s. 54(5), under which judgment may be awarded against the owner for the excess.

In s. 54 Parliament adopts the principle that the plaintiff�s entitlements are to be determined in a single action, brought directly against the Trust, in which the plaintiff may secure judgment against the Trust to the extent of K100,000, and against the owner and driver (or others) for any damages awarded in excess of K100,000. It follows as a practical corollary that provision had to be made to enable the owner and driver to take part in the action, if they wished to protect their interests. Thus s. 55:

Clearly enough, if the owner exercises this right, expense will inevitably be incurred; the better view would appear to be that s. 53(1)(g) has no application to the exercise of s. 55 rights.

Bearing in mind s. 54(1), which appears to comprehend all claims for damages for bodily injury arising out of the use of motor vehicles, and requires all such claims to be brought solely against the Trust, it is somewhat puzzling to come to s. 58:

(a)�� may undertake the settlement of a claim against it or any other person under this Act; and

(b)�� shall indemnify a person insured under this Act against all costs and expenses incidental to proceedings under this Act to the amount specified in Section 49(2)(a).

N2>(2)�� The person referred to in Sub-section (1) shall sign all such warrants and authorities as the Trust requires for the purpose of enabling it to have the defence or conduct of any proceedings referred to in that sub-section and, in default of his so doing, the Court in which such proceedings are taken or had may order that they be signed by the Trust on behalf of that person.� (underlining mine.)

This is the kind of provision commonly and necessarily found in compulsory third-party insurance legislation where proceedings are in general brought against the insured, the insurer having the right to take over the conduct of those proceedings, and defend them in the name of the insured. Section 54(1) sets up a radically different system for the resolution of claims. I note in passing that the cost and expenses indemnified under s. 58(1)(b), may be linked with the litigation expense referred to in s. 53(1)(g), prior consent to the incurring of which is required.

Mr. Roddenby for the Trust argued as follows. The Act does not affect the common law liability of an owner for the consequences of his own negligence. Section 54(1) deals only with procedural law: the owner remains liable for the wrongdoing; but the person injured cannot sue him and has to sue the Trust. The owner is indemnified, not against his liability, but against certain sums. These sums represent the totality, the upper limits, of the Trust�s indemnity to the owner for all liability he incurs as a result of his negligence. The indemnity is limited, because the premium is small. The liability of the owner includes a liability to the person injured both in damages and costs. If, for example, in the present case, the total of both damages and costs had been less than K100,000, the Company would have been fully indemnified; and that would in practice be the norm. But if, for example, the damages awarded amount to K100,001, there would be nothing unfair in the excess of K1 damages being awarded against the owner, under s. 54(5), and in his also being required to pay the whole of the successful plaintiff�s costs; for it was the owner�s negligence which led to the action. The 1978 retrospective amendment to s. 54(5) indicates that the total liability of the Trust is not intended to exceed the sums specified in s. 49(2)(a). The reason for s. 58 is difficult to understand; it appears to contemplate that a claim can be made other than against the Trust, but that is prohibited by s. 54. Section 58(1)(b) is probably derived from s. 13(1)(d) of the former legislation upon this subject, the Motor Vehicles (Third Party Insurance) Act 1952, which reads as follows:

�The licensed insurer who issues a third-party policy ... shall indemnify that person against all costs and expenses of or incidental to any such proceedings while the licensed insurer retains the defence or conduct thereof.�

The inclusion of the concluding words in s. 58(1)(b) ��... to the amount specified in Section 49(2)(a),�� was intended to, and does, overcome the effect of the decision on s. 13(1)(d), in Brown v. Lahui Egi[dcxliii]². If the �liability� referred to in s. 49(2)(a) does not include a liability to meet the plaintiff�s costs, then the effect of s. 58(1)(b) is to extend (so as to include those costs) the nature of the indemnity given by the Trust under s. 49(2)(a) but not the financial limit of that indemnity.

N1>Mr. Kendell for the plaintiff argued as follows. Section 49(2)(a) upon its proper construction is concerned only to impose limits upon the Trust�s liability to pay damages when bodily injury is caused; it is not directed to the question of the costs of any litigation, and accordingly the limits therein do not include a successful plaintiff�s litigation costs, which fall to be dealt with, as normally in litigation, by the Rules of Court � see O. 91. There is, upon this view, nothing in the Act to prevent the Court making an order for costs against the Trust. As to s. 58(1)(b), it may relate only to costs and expenses involved in the settlements referred to in s. 58(1)(a); but, if not, it should be read literally, and constitutes a quite separate indemnity by the Trust as regards costs and expenses, to a limit of K100,000. Section 54(5) is expressly concerned only with �damages� and the liability of the Trust and others as regards an award of �damages�; in so far as s. 54(5) authorizes an award of the �damages� in excess of K100,000 against the Company the expressio unius rule indicates that no award of costs may be made against the Company.

N1>Mr. Lay for the Company argued along similar lines to Mr. Kendell. He further submitted that s. 58 was not otiose as certain duties were cast upon an owner under s. 53, which could involve him in expense, as also could the exercise of his rights under s. 55. The Act substantially affected the common law, by rendering it impossible to sue the tortfeasor.

N1>Those were the major arguments. I am indebted to counsel for their assistance.

N1>There are considerable difficulties in construing the Act as a coherent whole; I think that a fairly broad brush is required when dealing with particular provisions, and they should be construed ex visceribus actus. The concept of indemnity for liability incurred by the insured does not sit too easily with the prohibition of action against the insured to determine and enforce that liability.

N1>The first question is as to the scope of the �liability� insured against by s. 49(2)(a). The reference there is to �... all liability incurred ...�. It appears to me that as a matter of construction those words are apt to include a liability for litigation costs of the injured third party/successful plaintiff, awarded against the insured; that is, for party-and-party costs. Moreover, as a matter of general principle, it seems reasonably clear that a liability for the costs incurred by the injured third party in successfully prosecuting his claim, is part of the liability incurred by the insured by his wrongdoing; see e.g. Pictorial Machinery Ltd. v. Nicolls[dcxliv]³. Section 58(1)(b) is best construed, I think, as an explicit recognition of this principle, though it makes it clear that the indemnity extends beyond the payment of party-and-party costs so as to include solicitor-client costs payable by the insured. I do not think s. 58(1)(b) extends the total financial liability of the Trust beyond the limits laid down in s. 49(2)(a); rather it makes it clear that �cost and expenses incidental to proceedings� is within the scope of �all liability� indemnified under s. 49(2)(a).

N1>If therefore, the matter rested with s. 49(2)(a) and the Act did not affect the common law rule, which underpins the concept of indemnity insurance, that an injured third party brings his claim against the alleged tortfeasor, the insurer not being a party to the plaintiff�s action (apart from limited statutory exceptions), there would be much to be said for the Trust�s contention. It is true that the Act assumes the existence of a body of substantive law by which the �liability� of the insured owner is determined; in this jurisdiction, that body of law is basically the common law of negligence. But s. 54(1) reverses the common law rule as to who may be sued, when considering wrongdoers and their insurers vis-a-vis injured persons, and, in my opinion, by doing so, has profound practical effect upon the question of liability to pay party-and-party costs.

N1>Setting aside s. 55 for the moment, the effect of s. 54(1) is that the only parties to litigation under the Act are the injured person and the defendant Trust. The course of the litigation is wholly under their control, and wholly outside the control of the insured; although that position could also obtain under the former legislation, the insured was then a party to the litigation, which determined his rights and liabilities, and upon which his indemnity insurance then operated. The principle of an indemnity was maintained. It is clear under the new system that damages are to be awarded directly against the Trust, when all necessary ingredients are proved against the insured in the action, to a limited amount; the principle of indemnity, which requires that the insured first sustain liability to pay damages, has disappeared.

N1>The insured is not a party to the action under s. 54(1); while he takes no part in it, has no control over its course, I fail to see how he can be held liable in any way to the plaintiff for party-and-party costs. It appears to me that while the indemnity in s. 49(2)(a) embraces within its overall financial limits any such costs for which the insured may become liable, the practical effect of s. 54(1) is to prevent such liability arising.

N1>As is usual in litigation in this jurisdiction, the Trust, when unsuccessful as defendant, may expect to have costs awarded against it; see e.g. Cooper v. Whittingham[dcxlv]⁴, and O. 91 r. 1 of the Rules of the National Court. It incurs that liability in its own capacity, as an unsuccessful party to the action. The legal basis of that liability is the law as to costs, not the Act; it has nothing to do with the insured or the indemnity under the Act to the insured.

This approach has its parallels in cases under legislation where the action is brought against the insured. In Allen v. London Guarantee & Accident Co. Ltd.,[dcxlvi]⁵�the total financial liability of the insurer under its contract of indemnity was limited to �300, for all claims for compensation, costs, charges and expenses. The insurer unsuccessfully defended certain actions in the name of the insured; verdicts were recovered totalling �375, with �218 costs. The insured sought to recover the costs from the insurer. It was held that the �300 limit applied, but as the insurer had defended the actions without the insured�s consent, it had incurred a common law liability for the costs, and had to pay them.

N1>In Brown v. Lahui Egi[dcxlvii]⁶�the indemnity was limited by the policy to �4,000. The insurer had the conduct of the insured�s defence to the action, under statutory power. The question was whether the total indemnity, for both damages and costs, was circumscribed by the �4,000 limit. Smithers J held that the indemnity as regards costs was separate and distinct from the indemnity under the policy, and arose directly under the statute; and accordingly the insured was entitled to be indemnified against these costs, even though the total of damages plus costs exceeded �4,000. His Honour set forth the reasons why his conclusion accorded with �the reality of the situation�[dcxlviii]⁷; and I adopt, with respect, these reasons as equally applicable to the �reality� of proceedings under the Act.

N1>The insured may, however, as in the present case, exercise his right under s. 55. Does this expose him to liability as regards the costs of the action? It appears to me that the insured�s position then becomes akin to that of a third party, appearing to dispute a claim. He is then taking part in the litigation, to protect his own interests. It appears to me to follow as a matter of course that he puts himself at risk as regards the costs of the action, as would a third party; see Edison & Swan United Electric Light Co. v. Holland[dcxlix]⁸.

N1>The final question is, assuming an award for party-and-party costs is made against an insured who has exercised his right under s. 55, whether he is indemnified in respect thereof by the Trust? I consider that he is, under the terms and subject to the limitations of ss. 49(2)(a) and 58(1)(b); and that by virtue of s. 58(1)(b), that indemnity extends within its financial limits to all proper solicitor/client costs which he thereby incurs.

N1>I turn now to the circumstances of the present case. The plaintiff has been successful in his action; he must have his costs; that is the normal rule, and it should apply here. So far as the plaintiff is concerned, the order for costs is made against both the Trust and the Company. He may enforce it against either or both of them, as he chooses; they are both liable for the whole of his proper costs. Since the damages recovered are in excess of K100,000, there is no question of the Company being indemnified under the Act by the Trust as regards the payment of any part of the plaintiff�s costs, or its own costs.

N1>The remaining question is as to the sharing of the burden of party-and-party costs as between the Trust and the Company, under normal principles. There is no material before me to enable me to decide that question; in the absence of agreement between the Trust and the Company, it is a fit matter for inquiry and decision by the Registrar.

Solicitor for the Company, appearing under s. 55 of the Act: L. Keith Young & Associates.

[dcxlii]span>Infra p. 441.

[dcxliii][1964] P. & N.G.L.R. 41.

[dcxliv](1940) 67 L1. L.R. 524 at p. 527.

[dcxlv][1880] UKLawRpCh 159; (1880) 15 Ch. D. 501, per Sir George Jessel, M.R. at p. 504.

[dcxlvi](1912) 28 T.L.R. 254.

[dcxlvii][1964] P. & N.G.L.R. 41.

[dcxlviii][1964] P. & N.G.L.R. 41 at p. 44.

[dcxlix][1889] UKLawRpCh 30; (1889) 41 Ch. D. 28.

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Papua New Guinea Law Reports

Kerr v Motor Vehicles Insurance (PNG) Trust [1978] PGLawRp 558; [1978] PNGLR 438 (9 November 1978)

Papua New Guinea Law Reports - 1978