CIMIC Group Limited v AIG Australia Limited

CIMIC Group Limited v AIG Australia Limited - [2023] NSWSC 640 - NSWSC 2023 case summary — Zoe

[3]

Background

The judgment resolving the substantive dispute was delivered on 27 July 2022: CIMIC Group Limited v AIG Group Limited [2022] NSWSC 999. On 12 October 2022, following further submissions, orders were made giving effect to the judgment and setting out the quantum payable to the plaintiff by some defendants in relation to various claims for indemnity. This judgment assumes a familiarity with the substantive reasons.
The parties were directed to confer and agree on appropriate costs orders, or if agreement could not be reached, then submissions were to be filed. The earliest common available hearing date was 9 May 2023.
The parties have filed voluminous submissions in chief and in reply. No issue has been agreed, save for AIG and Swiss Re agreeing to bear their own costs of AIG's cross-claim against Swiss Re.
Therefore, it is necessary to decide which parties ought to bear the costs of the proceedings, having regard to the manner in which the hearing progressed, Calderbank offers that were made and not accepted, and the proper characterisation of which parties were "successful" in the proceedings, and the extent of any success.
The following is by way of brief summary of the substantive dispute.
On 9 June 2020, CIMIC commenced proceedings seeking different relief from the first to fifth Defendants (2011 Insurers) and the sixth to tenth defendants (2010 Insurers). From the 2011 Insurers, CIMIC sought an indemnity in relation to various losses totalling $43,670,400. In the alternative, CIMIC sought a declaration against the 2010 Insurers. CIMIC's explanation for why it structured the case in this fashion was summarised in the substantive judgment. [1]
Heard together with CIMIC's claim were two cross-claims: the first by AIG against two of the 2010 Insurers (Berkley and Swiss Re) for equitable contribution (AIG Cross Claim); and the second by the Catlin defendants against CIMIC seeking declarations and rectification (Catlin Cross Claim).
By 9 December 2020, all commercial list responses had been filed and served. CIMIC later filed a further amended commercial list statement and further amended summons on 4 February 2022. Evidence was filed and served by 25 May 2021. The hearing was set down for 16 May 2022 until 3 June 2022. On 5 April 2022, the eve of the hearing, all parties attended a mediation. There was no resolution.
Consistent with the Court's orders on 12 October 2022, the table below shows the different categories of CIMIC's claims and whether an order was made in CIMIC's favour. The table also quantifies the amount of each loss sought and/or ordered. AIG Chubb Catlin Liberty Berkley SwissRe Zurich Arch/ Liability for the relief sought by CIMC ordered? D1 D2 D3/4 D5 D6 D7 D8 Dual D9/10 AFP Investigation Costs ($112,500 and $35,000 interest) Yes Yes No Yes [2] N/A N/A N/A N/A ASIC Iraq Investigation Costs ($506,800 and $174,000 interest) Yes Yes No Yes N/A N/A N/A N/A ASIC Non-Iraq Investigation Costs ($63,350 and $21,750 interest) No Yes (in Chubb's capacity as a 2013/14 insurer) No No N/A N/A N/A N/A Gregg Investigation Costs ($2,512,000 and $422,000 interest) No Yes (in Chubb's capacity as a 2013/14 insurer) No No N/A N/A N/A N/A MCI Class Action Defence costs ($1,190,000) No No No No N/A N/A N/A N/A Inabu Class Action Defence Costs ($7,233,000) No No No No N/A N/A N/A N/A Inabu Settlement Amount ($32,400,000) No No No No N/A N/A N/A N/A CIMIC's original declaration or alternative declaration N/A N/A N/A N/A No No No No Declaration as per Reasons N/A N/A N/A N/A Yes Yes Yes Yes

[4]

The largest claims related to the Inabu Settlement Amount, Inabu Class Action Defence Costs and MCI Class Action Defence Costs (together, the "Company Securities Claims").
In determining whether the 2011 Insurers were liable for each claim, it was necessary to determine the issues set out below.
First, the proper construction of various clauses of the 2011 Primary Policy, including whether a prior claims exclusion applied, the effect of a continuity clause (cl 5.3) and whether the 2011 Insurers contracted out of their rights under s 28(3) of the Insurance Contracts Act 1984 (Cth). This involved predominantly a legal argument and did not require the determination of factual matters in dispute.
Secondly, in relation to the Company Securities Claims, the defences raised by AIG, Catlin parties and Liberty required a determination of whether CIMIC had failed to comply with its disclosure requirements under s 21 of the Insurance Contracts Act. This issue involved a determination of the knowledge of various CIMIC senior officers regarding certain contracts. Related to this was the determination of whether the 2011 Insurers would have insured, had they been aware of the matters that were found not to have been disclosed by CIMIC. Most of the hearing days were taken by these factual matters involving the calling and cross-examination of a number of CIMIC's former officers and the 2011 Insurers' underwriters. The 2011 Insurers were successful in relation to the Company Securities Claims.
Thirdly, whether the ASIC Non-Iraq Investigation Costs and Gregg Prosecution Costs: 1. arose out of the facts described in CIMIC's claim made against the 2011 Insurers (in which Chubb's interests as a 2013/14 insurer were broadly aligned with those of CIMIC); or 2. ought instead be paid to CIMIC by Chubb under the 2013/14 Policy.
Chubb was unsuccessful and ordered to pay those categories of losses; the other 2011 Insurers were successful.
Fourthly, in relation to the Catlin parties, there was a discrete issue to be determined, namely, what the agreed "continuity date" was between Catlin and CIMIC. Catlin succeeded in its cross-claim and obtained a declaration that the continuity date was 30 June 2011, and not the same date as that provided in the 2011 Primary Policy that bound the other 2011 Insurers, being 30 June 2005. Accordingly, CIMIC's proceedings against Catlin were dismissed. As noted above, Catlin also joined with the other 2011 Insurers and defended liability on the basis of CIMIC's non-disclosure. In that argument, Catlin was successful with the other 2011 Insurers.
All of the 2011 Insurers seek orders that CIMIC pay their costs.
In relation to CIMIC's case against the 2010 Insurers, it was necessary to determine whether a declaration ought to be ordered, and if so, the form of such a declaration. No witnesses were called by any party in relation to this issue. Berkley opposed the declaration on the basis that CIMIC's pleadings were "unequivocally bad". [3] Berkley and Zurich also relied upon doctrines of election, estoppel and waiver. [4] All the 2010 Insurers resisted the making of the pleaded declaration sought. Towards the end of the hearing, CIMIC proposed an alternative declaration, which was also resisted by the 2010 Insurers. Neither form of declaration sought by CIMIC was made; the Court exercised its discretion to make a different declaration, in a form similar to the alternative declaration. CIMIC seeks Sanderson or Bullock orders, such that the some of the 2010 Insurers are liable to pay the 2011 Insurers' costs. The 2010 Insurers seek orders that CIMIC pay their costs in various ways.
An added issue in determining the appropriate costs orders is that various insurers made Calderbank offers prior to the hearing. None were accepted by CIMIC. Nevertheless, CIMIC resists the Court making any order for indemnity costs by reason of the offers, as outlined below.

[5]

Costs principles

There was no dispute about the principles applicable to costs.
In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425, Macfarlan JA (Meagher and Barrett JJA agreeing) said: [26] The effect of UCPR r 42.1 is that the court must exercise the discretion as to costs conferred on it by s 98 of the Civil Procedure Act by ordering that costs "follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs". [27] Consistent with this rule, it has long been accepted that a plaintiff who obtains judgment at trial for a monetary sum will ordinarily be entitled to an order that the defendant pay his or her costs, notwithstanding that the plaintiff might not have recovered the whole of the amount he or she claimed. The circumstances of particular cases may warrant departure from this approach. In particular, where the defendant succeeded on a clearly dominant or separable issue, some variation may be warranted. In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38], this Court provided the following summary of presently relevant principles: • Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). • In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal. … • A separable issue can relate to 'any disputed question of fact or law' before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34]. • Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272.
The dispute between CIMIC and all the insurers is whether CIMIC was "successful", such that it should obtain a costs order in its favour, or whether this is an appropriate case to consider the various issues and make orders in respect of each issue or categories of issues. Various insurers also rely on offers CIMIC did not accept to seek indemnity costs orders.
The principles which apply to Calderbank offers are also uncontroversial. In Re Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) (No 2) [2021] NSWSC 1161 (appeal dismissed), Ward CJ in Eq (as the President then was) at [93]-[99] summarised principles relevant to whether indemnity costs ought to be awarded following the failure to accept a Calderbank offer (citations omitted): [93] … while the rejection or non-acceptance of a Calderbank offer (in circumstances where it later transpires that the final result in the proceeding is less favourable to the offeree) enlivens the discretion to award indemnity costs, it does not create a prima facie right to such an order … Where the offer is a Calderbank offer, the onus to demonstrate that it was unreasonable to reject it is on the party seeking to rely on the making of the offer … [94] In order to warrant the making of a special costs order, the offer must constitute a genuine offer of compromise that was unreasonably rejected … [95] As to what may constitute a genuine compromise … In some cases a plaintiff's offer which allows only a small discount from 100% success on the claim can be genuine and realistic always depending upon the circumstances. The same is true of defendant's offers: in some cases it will not be necessary to offer any monetary proportion (however slight) of the plaintiff's claim. [96] In the same case … The respondent's case did not succeed, but it was not a case which could not reasonably be argued and it succeeded at first instance. The only element of compromise in the offer was as to costs: otherwise it was a call on the respondent to capitulate and give up: the element of compromise was slight, and the respondent's ultimate lack of success does not to my mind demonstrate that the reasonable course for the respondent was to capitulate, nor does anything show that the respondent was delinquent in going on with the trial or in resisting the appeal. … [98] The factors relevant to take into consideration when considering whether the rejection or non-acceptance of the offer was unreasonable … include: (i) the stage of the proceeding at which the offer was received; (ii) the time allowed to the offeree to consider the offer; (iii) the extent of the compromise offered; (iv) the offeree's prospects of success assessed as at the date of the offer; (v) the clarity with which the terms of the offer were expressed; and (vi) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it … [99] Where a Calderbank offer is unreasonably rejected, and the offeror succeeds in litigation, costs may be made on an indemnity basis at least from the date of the offer or thereabouts. Whether such an order will be made will be determined in the exercise of the Court's discretion ….
The process of determining whether the failure to accept a Calderbank offer was unreasonable is an evaluative judgment to be made by reference to the terms of the offer and all the relevant surrounding circumstances: King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [11] (Young JA, Campbell and Hodgson JJA agreeing). A finding of unreasonableness should not be made other than on clear grounds (Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113] (Basten JA, Giles JA and Young CJ in Eq agreeing).
Finally, the principles concerning Sanderson or Bullock orders were not in dispute. In ACQ v Cook (No 2) [2008] NSWCA 306 at [36], Campbell JA quoted the summary of the law set out in Lackersteen v Jones (No 2) (1988) 93 FLR 442 at 449 (Asche CJ): 1. It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant. 2. The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other. 3. While it is essential to find that the plaintiff has acted reasonably and properly that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion. 4. Finally, in considering whether to make such an order, the court should, in the exercise of its discretion balance overall two considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; secondly, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful."
By way of summary and without descending into the detail, which is provided further below, the parties seek the following competing costs orders.
Save for some costs orders made previously by Ball J in relation to a notice of motion (see [2022] NSWSC 93), CIMIC's primary position is that it seeks orders that AIG, Chubb, and the 2010 Insurers jointly and severally pay its costs on the ordinary basis. Further, CIMIC seeks orders that Berkley and Swiss Re pay 20% of AIG's costs, and the 2010 Insurers pay the Catlin parties' and Liberty's costs. Finally, CIMIC seeks an order that there be no order as to the costs of Chubb and the 2010 Insurers.
AIG seeks an order that CIMIC pay 90% of its costs prior to 14 May 2022 and then pay 100% of its costs after that date by reason of an offer made and not accepted. AIG also seeks an order that Berkley pay its costs and interest of AIG's cross-claim against Berkley. AIG and Swiss Re agreed that they will bear their own costs of AIG's cross-claim against Swiss Re.
Chubb seeks an order that CIMIC pay 90% of Chubb's costs and Chubb pay 10% of CIMIC's costs.
The Catlin parties submit that CIMIC should pay their costs on an ordinary basis until 7 October 2021, and on an indemnity basis thereafter, relying on an offer that was not accepted.
Liberty seeks an order that CIMIC pay its costs on an ordinary basis until 9 October 2020 and on an indemnity basis thereafter, relying on an offer that was not accepted.
Berkley seeks orders that CIMIC pay its costs on an ordinary basis in relation to CIMIC's proceedings and also its costs and AIG's costs of AIG's Cross Claim.
Swiss Re seeks orders that CIMIC pay its costs of the proceedings.
Zurich seeks orders that CIMIC pay its costs on an ordinary basis until 26 May 2022 when CIMIC proffered an alternative declaration, and each party bear their own costs from 27 May 2022.
Arch/Dual submit that CIMIC pay their costs of the proceedings.

[6]

CIMIC's general position

While CIMIC made submissions specific to each defendant, it also made some global submissions relevant to the question of costs in the matter generally, as follows.
First, all the parties accepted that the issue of non-disclosure, which was relevant to the Company Securities Claims, was the "key" issue in the proceedings, in terms of quantum, evidence and time involved in the presentation of the case. However, the parties diverged as to whether: 1. CIMIC ought to be considered the "successful" party by defining the relevant "event" globally by reference to the fact that CIMIC succeeded on some claims and a declaration was made concerning the 2010 Insurers; or 2. The case ought to be considered as a combination of various separate claims that were heard together, such that each of those claims amounted to a separate "event" for the purposes of costs awards; or 3. The case can be considered as a combination of separate claims heard together, but there was clearly a dominant issue in the Company Securities Claims.
I consider this is an appropriate case to consider CIMIC's success in relation to each of the separate claims, so that the "Company Security claims" are not factored into the other claims, in circumstances where they were "key" in every sense. They were pleaded and argued as separate claims. I do not accept CIMIC's submission that AIG and Chubb were not relevantly successful in relation to those claims because some of the allegations they made in the context of non-disclosure were not made out, for example, by seeking findings of actual illegal conduct or by reference to material which was not dispositive of the case. I do not consider it appropriate to descend into that level of detail in determining costs. To require any of the 2011 Insurers to pay all of CIMIC's costs would not be "fair in all the circumstances": Australian Receivables Ltd v Tekitu Pty Ltd (Subject to Deed of Company Arrangement) (Deed Administrators Appointed) [2011] NSWSC 1425 at [60] (Ward J, as the President then was).
Secondly, CIMIC characterised the whole litigation as a dispute between two towers of insurance, the 2011 and 2010 towers. This was to justify proposed orders that: 1. the 2010 Insurers were liable to pay Catlin and Liberty's costs pursuant to a Bullock or Sanderson order, and 2. CIMIC was entitled to its costs from the 2010 Insurers.
At the costs hearing, CIMIC abandoned its claim for a Sanderson order against Chubb in its capacity as a 2010 insurer. Therefore, references to the 2010 Insurers in addressing the issue of Sanderson orders do not include Chubb.
CIMIC submitted that it had no option but to sue both towers in the circumstances, and that such a course was reasonable because it faced a risk of inconsistent judgments in a later proceeding against the other tower. Further, if it had notified the 2010 Insurers first, it would have triggered a "prior notice" exclusion in the 2011 policies and foreclosed a claim against the 2011 Insurers. Therefore, CIMIC contended that the declaratory relief against both towers was connected, and that the conduct of the 2010 Insurers in failing to make admissions justifies their liability for a Sanderson order, citing Coombes v Roads and Traffic Authority (No 2) [2007] NSWCA 70 at [27]-[28] (Beazley JA, Ipp JA agreeing).
In support of its characterisation, CIMIC pointed to various correspondence with the 2010 Insurers before and after commencement of the litigation, in which it asked each of the 2010 Insurers to "confirm their position in relation to such late notification [of a claim to them] (if it were made)". CIMIC submitted that none of the 2010 Insurers provided any confirmation of their position.
At the heart of CIMIC's submissions is the presupposition that if the 2011 Insurers succeeded on the factual awareness question, CIMIC would then be entitled to notify the 2010 Insurers, and the 2010 Insurers ought to have conceded that point.
At the hearing of a motion on 4 May 2022 and attended by all the parties, Mr Jones SC for CIMIC stated: It's at that point because of the success of the 2011 insurers we are then directing our attention to 2010. They will not be bound by those findings on those other issues. They will be bound on the question of the state of mind, because that will subject matter of the declaration. But they won't be bound on the other matters. So, we submit that the most sensible course to take is to stop where everyone is bound by the state of mind. Then, in so far as we proceed against any insurers for quantification going forward from there, including the ones that are there, to the extent we move forward then, the Court will have the proper contradictor for all those other matters dealing with them.
CIMIC submits that because none of the 2010 Insurers provided the confirmation sought, CIMIC needed to join the 2010 Insurers and seek declaratory relief as to its rights and interests against them. That explanation was communicated by CIMIC in some of its correspondence with the 2010 Insurers, along with the foreshadowing of a Sanderson order.
Finally, CIMIC refers to the policy consideration that its claim against both towers benefited all insurers by resolving any uncertainty as to which insurance tower would be engaged, and reducing the scope of any subsequent proceedings.
This characterisation was resisted by all of the insurers. Some examples of the submissions made are as follows. AIG submitted that there was no contest between the two towers, as no insurer from one tower sued the other; instead, it was only CIMIC who sued both towers as the "principal protagonist". Further, CIMIC's primary case seeking indemnity was pleaded against the 2011 Insurers, but not the 2010 Insurers, as a matter of "CIMIC's deliberate forensic choices". [5]
Chubb expressly adopted AIG's submissions, and also submitted that the relief sought by CIMIC against the two towers was different, namely an indemnity from the 2011 Insurers and a declaration concerning facts against the 2010 Insurers. CIMIC did not seek an indemnity from both towers, so the two towers were not in dispute as to which tower was liable. Similarly, Swiss Re submitted that it cannot be assumed that the 2010 Insurers would be liable to indemnify CIMIC in relation to any claim, and therefore it cannot be seen as a case where CIMIC was bound to succeed against one tower and the only question was which one would be liable.
Zurich submitted that the election by CIMIC to sue both towers "was not encouraged by the 2010 insurers". [6] Arch/Dual submitted that CIMIC's case against the 2010 Insurers was "in the alternative". [7]
I do not accept that merely because CIMIC sought alternative relief against the 2010 Insurers, the litigation can correctly be characterised as a fight between the two insurance towers. The practical outcome of the proceedings is that CIMIC may never seek, nor obtain, an indemnity from the 2010 Insurers. Instead, CIMIC obtained limited indemnity relief in relation to some claims made against the 2011 Insurers. In my view, the way that CIMIC chose to run its case points against there being a requisite connection or dependence between the claims against the two insurance towers. It has already been determined that the claims against the two insurance towers were not "alternative, mutually exclusive and inconsistent with each other". [8]
So far as the 2010 Insurers' conduct is concerned, I accept that the particular conduct need not rise to the level of "misconduct" and the question is whether it is fair to impose an order having regard to the identified conduct: Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [29] (Beazley, Ipp and Basten JJA). Here, CIMIC has pointed to the conduct of the 2010 Insurers in failing to confirm their positions if a possible future scenario eventuated, namely where the 2011 Insurers succeeded on factual awareness.
I am not satisfied that a Sanderson order should be imposed in these circumstances. CIMIC sought confirmation of the positions of the 2010 Insurers at various stages of the dispute. Insofar as it sought confirmation prior to its commencement of proceedings, such as by its correspondence in July 2019, it cannot be assumed that the 2010 Insurers would have been be sufficiently informed to commit to a position based on a hypothetical scenario that may never have eventuated (namely, if CIMIC succeeded on factual awareness against the 2011 Insurers).
Further, it is difficult to see how the 2010 Insurers could have been sufficiently apprised of the case against them to make the concessions sought by CIMIC, particularly where, as occurred, the precise terms of the declaratory relief sought against the 2010 Insurers changed. CIMIC was not only seeking concessions if a particular hypothetical scenario eventuated, which itself turned on factual matters entirely within CIMIC's knowledge, but CIMIC was also seeking concessions predicated on the operation of statutory provisions, which were not pleaded against the 2010 Insurers in the proceedings, and the interaction of those provisions with the terms of the 2010 policies.
I was not asked to determine whether s 54 of the Insurance Contracts Act operated in the context of any late notification of a claim to the 2010 Insurers, [9] and, in fact, the uncertainty around whether s 54 grounds a right to "late notify" was why CIMIC proposed an alternative declaration. In my view, the 2010 Insurers were entitled to reserve their positions, and meet CIMIC's pleaded case. I do not accept CIMIC's submission that the 2010 Insurers have now had a "free hit" against CIMIC; the practical reality is that the 2010 Insurers had a very limited role in respect of CIMIC's case against the 2011 Insurers, with the possible exception of Berkley, which is considered further below.
Below I consider each of the Defendants' positions in turn.

[8]

AIG's Calderbank offer

On 6 May 2022, shortly before the trial, AIG made an offer to settle the proceedings with CIMIC on the basis that AIG would pay $3,000,000, inclusive of interest and costs, and CIMIC would discontinue the proceedings against AIG. This was framed on the basis that if AIG was ordered to pay all of the claims, except for the Company Security claims, and interest, then AIG would be liable for $2,547,239.50. The offer was open for 7 days, expiring on the Friday before the hearing commenced on Tuesday, 16 May 2022.
CIMIC submits it was not unreasonable not to accept the offer for two reasons.
First, CIMIC submits that had it accepted the offer, the litigation would not have wholly been resolved because of the multiplicity of defendants in the proceedings, and there would remain uncertainty, relying on SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 and Nemeth v Prynew Pty Ltd [2009] NSWSC 511. CIMIC submits that the claims against all the defendants were "interdependent" and therefore it was not unreasonable to reject one defendant's offer.
CIMIC relies on the fact that AIG and Chubb were co-insurers of the primary layer to submit that, had CIMIC accepted AIG's offer, Chubb would have simply agitated the same issues and there would only have been negligible time and costs savings.
It may be accepted there is no general rule that a party, which fails to accept an offer from one or multiple opposing parties, is behaving unreasonably.
In SMEC, the plaintiff sued the council, from whom it had purchased land. It claimed that by the council engaging third parties, including SMEC, to fill the land, the nature of the land had changed and was not disclosed to the plaintiff, causing the plaintiff loss when it came to develop the land. In substance, the third parties became defendants to the council's cross-claim. Before a referee, the plaintiff was successful against the council and the council was successful against the third parties. In proceedings before the NSW Court of Appeal, SMEC sought an order that the council pay its costs on an indemnity basis, because it had made an offer to the council to pay a sum larger than the amount determined by the referee and costs. The council had rejected that offer on the basis that whatever sum it was found to be liable to pay the plaintiff, would result in an order that the third party defendants pay that same sum to the council, because any liability would be as a result of the third parties' negligence. The apportionment of liability between the third parties was an issue also to be determined, should the plaintiff and council succeed.
Priestley and Giles JJA (Rolfe AJA dissenting) did not consider that the council had unreasonably failed to accept SMEC's offer in the circumstances, where the true substance of the dispute was between the plaintiff and the third parties. At [50], Giles JA stated: Cases may be envisaged in which an offer made by one of a number of co-defendants alleged to be jointly or jointly and severally liable will be so attractive that refusal should affect the exercise of the discretion as to costs.
However, the facts in SMEC were very different to the present facts; here, there was no similar cross-claim and no issue of variable apportionment between layers in the insurance towers.
In Nemeth, a homeowner sued a neighbouring property owner and a builder, when the home sustained considerable damage during excavation work on the neighbouring property. There was no dispute that the homeowner's claim was apportionable between the defendants. In considering whether it was unreasonable for a plaintiff not to accept a Calderbank offer made by two of the three defendants, Macready AsJ stated at [62]: By far the greatest uncertainty arose from the difficulty the plaintiffs faced as a result of the offer being from only two of three defendants. They faced a hearing where the defendants would not be debating between themselves the appropriate sharing of responsibility. Instead they would be faced with a hearing which would present the best gloss on the remaining defendant's apportioned liability.
Again, the facts in this case are very different. The claim by CIMIC against the 2011 Insurers for indemnity was not one that was similarly "interdependent".
I do not accept that there would have been no cost and time saving, had CIMIC accepted AIG's offer. For example, AIG ran a defence of non-disclosure, which required the calling of its underwriters, who were cross-examined. Therefore, while the other 2011 Insurers may have run arguments based on the proper construction of the relevant policy clauses, there would have been a real saving of time and costs. Further, the purpose of an offer is for a party to consider whether it is likely to do better in the proceedings, rather than accepting the offer. CIMIC did not do better than the offer and would have been better off, had it accepted the offer.
CIMIC's second basis to justify the reasonableness of not accepting AIG's offer was that AIG was a primary excess layer insurer, such that if CIMIC had accepted AIG's offer "that may have prejudiced CIMIC's ability to recover from other insurers", because AIG's liability limit was $15,000,000 and Chubb was a co-insurer for that amount, and other insurers may have argued that the compromise did not exhaust AIG's layer. It followed, on CIMIC's submissions, that a compromise with AIG would amount to a compromise (to some extent) with the whole 2011 insurance tower. In effect, CIMIC rejected AIG's Calderbank offer because it was unsure of the impact on its proceedings against the other 2011 Insurers and because the offer did not exhaust the entirety of AIG's insurance layer. Mr Jones SC put it: The offer by a single insurer where there is competing positions between insurance towers could never crystallise Cimic's insurance position in relation to the losses it had incurred. Not one issue could have been taken off the table in respect of the overall insurance response. The same key issue that dictated which tower would respond is still live. A single insurer offer considered from Cimic's perspective is quite an unattractive one. Accepted by Cimic in the position of on the one hand, foregoing the comfort of proceedings on the basis that coverage could come from one or other tower, irrespective of the how the awareness issued played out. If accepting that modest sum offered, in exchange they would be doing so in exchange for a substantial gamble on insurance response depending on how that awareness issue otherwise played out. It couldn't be said that it was clearly unreasonable to not accept an offer that had that consequence. The offer was a long way short of representing an overall insurance response from the 2011 insurers.
AIG submits that this submission is misconceived because Chubb was a co-primary layer insurer and therefore settlement with AIG would not have impacted on Chubb's several liability to pay any award up to the $15,000,000 liability layer. CIMIC did not provide any response to that submission, and I accept AIG's submission.
CIMIC also submits that AIG's offer was a costs-inclusive offer, which made it difficult for CIMIC to evaluate the offer in advance of the trial's outcome. There is no general principle that a costs inclusive offer cannot form the basis of a Calderbank offer, and the Court's task is simply to exercise the broad discretion as to costs according to the terms of the offer: Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [5], [7] (Beazley JA) and [115] (McColl JA). There is nothing in the circumstances here to suggest that CIMIC was not apprised of its own costs already incurred or that such costs could not have been quantified. As Basten JA observed in Elite Protective Personnel at [143]: In an age where lawyers are required to provide advance estimates of their fees and in circumstances where commercial services are billed on a monthly basis, it is unrealistic to suggest that the recipient of an inclusive offer will be confused or otherwise unable to assess the financial risk of proceeding with litigation. In any event, the offeree is likely to be liable for legal fees exceeding the costs recoverable from the other party. Most litigants, in considering offers, will want to know from their own lawyers, how much they will receive in the hand. Of course, if the offer is not left open for a reasonable time, that might itself make non-acceptance a reasonable course.
I consider that CIMIC unreasonably refused AIG's offer because: 1. The claims were not so interdependent that there was no benefit in settling with AIG; 2. The offer was made very close to the hearing, after a mediation, where the parties' positions were known to CIMIC and the strength and weaknesses of the various claims could have been assessed; 3. The offer was a genuine compromise on the part of AIG, as the outcome for AIG from the judgment has proven to be better than the offer. The terms of the offer were that all claims other than Company Security claims, plus some interest and costs, would be paid. AIG's offer also forwent any entitlement to any costs order. The offer in fact amounted to much more than the award made against AIG and Chubb for CIMIC's successful claims. 4. The offer was open for acceptance for 7 days, which in the context of the three-week hearing commencing 10 days later, was a reasonable time to consider the offer.
Therefore, it is appropriate to order that CIMIC pay 90% of AIG's costs on an ordinary basis until 14 May 2022 and 100% on an indemnity basis thereafter.

[10]

AIG's cross-claim

As noted above, AIG and Swiss Re have agreed that they will each pay their own costs of AIG's cross-claim for equitable contribution.
As its primary position, AIG seeks its costs of the cross-claim from Berkley, and Berkley submits CIMIC should pay both AIG and its costs. AIG does not oppose CIMIC being required to pay its costs of its cross-claim.
AIG was wholly successful in obtaining an order that Berkley is liable for equitable contribution in the amount of 50% of the amount which AIG was ordered to pay CIMIC. Such an order was resisted by Berkley. In the first instance therefore, Berkley ought to pay AIG's costs.
Berkley submitted that CIMIC should pay the costs of the cross-claim: Berkley's defence of these proceedings (including its defence of the cross-claim) was induced by CIMIC's failure to comply with its obligations to notify under cl 5.1, and, but its consistent assertions up to the conclusion of the trial, that it never had the requisite knowledge and awareness that would have enabled it to activate cl 5.1 and cause the 2010 Policy to respond. … … had CIMIC complied with its obligations pursuant to cl 5.1 in the 2010 Period, the Policy would manifestly have responded and Berkley would have complied with its obligations - and this litigation would not have occurred.
I do not accept that submission. It was open to Berkley not to resist AIG's cross-claim for contribution, and nevertheless oppose CIMIC's claim for a declaration against it. Instead, Berkley resisted AIG's cross-claim with various arguments, which failed.
The submission by Berkley that the costs of the cross-claim are de minimis in the circumstances of the proceedings as a whole is irrelevant. What is being determined is liability for costs, not quantum.
Berkley must pay AIG's costs of the cross-claim. AIG also sought interest on costs. Berkley did not make any submissions, in writing or at the hearing, opposing interest. I order that Berkley also pay AIG's costs of the AIG Cross Claim from the date the costs were paid by AIG.

[11]

Chubb

Chubb was found liable with AIG for the same two claims for investigation costs in the sum of $778,300 or what Chubb quantifies as 5% of CIMIC's total claim against Chubb. Further, Chubb was also found liable as the primary insurer under the 2013/14 policy for the Gregg Prosecution Costs and the ASIC Non-Iraq investigation costs and interest with a total of $2,019,100. However, Chubb's defence to those latter claims, for which it was found liable, was on the basis of the proper construction of the policy wording. No party led any evidence, and therefore little hearing time was involved in determining those matters.
Chubb accepts it should be liable for some of CIMIC's costs. However, it submits that liability is 10% of CIMIC's costs. It further submits that CIMIC ought to pay 90% of its costs of the proceedings, because CIMIC "enjoyed only limited success as against Chubb, on some of its least valuable claims", and, in particular, CIMIC failed in its Company Security Claims.
CIMIC submits that Chubb unnecessarily prolonged the hearing because it introduced evidence concerning other transactions between CIMIC and Lye Singapore, as well as with Ocean King, in an attempt to link them to the Iraq transactions in dispute, and that material was ultimately ruled inadmissible and had no bearing on the disposition of the issues concerning CIMIC's state of mind. While that is so, if the "event" is characterised as the failure to disclose matters relevant to the Company Securities Claims, then that is an event on which Chubb succeeded.
I do not consider it appropriate to subdivide all the evidence and time that was deployed in Chubb's defence, which overall was successful. It follows that the costs orders proposed by Chubb are appropriate.
Chubb also adopts AIG's submissions concerning interest on costs, and I make the same order in relation to those costs Chubb is to pay CIMIC and those costs CIMIC is to pay Chubb. Such interest is to be paid from the date the costs were actually paid by each party.

[13]

Catlin's offer

Catlin submits CIMIC ought to pay its costs on an ordinary basis until 7 October 2021 and on an indemnity basis thereafter, by reason of an offer that was not accepted by CIMIC. That offer included the following: Our respective clients execute a deed of settlement … containing: … b. an indemnity from your client in our clients' favour for any future Cross-claims brought against our clients by existing parties.
CIMIC submits that it was not unreasonable not to accept Catlin's offer for reasons already identified in relation to AIG's offer, namely, the litigation was multi-party and there was uncertainty as to the effect of settling the litigation with one defendant and not the others.
In addition, CIMIC submits there are three additional reasons as to why it was not unreasonable not to accept Catlin's offer. First, Catlin required CIMIC to indemnify it from any future cross-claims brought by any existing parties to the litigation, meaning that the offer was uncertain at the time of its making. Secondly, CIMIC submits the offer was not a genuine compromise, as it required CIMIC to indemnify it, and all Catlin was forgoing was an unidentified sum of costs. Thirdly, CIMIC submits that the offer was made at a stage of the proceedings where there was some uncertainty as to what documents, if any, may be produced by the Australian Federal Police pursuant to a subpoena issued by CIMIC, and how any documents produced might impact on the trial. It was later on 2 December 2021 that Ball J dismissed a notice of motion seeking to set aside that subpoena.
For the reasons detailed above in relation to AIG's offer, I also accept Catlin's submission that merely because there are multiple defendants, a plaintiff will not always be justified in rejecting an offer from one defendant to settle the proceedings.
However, it was not unreasonable of CIMIC to refuse Catlin's offer in circumstances where Catlin was asking for an indemnity in relation to potential future cross-claims. If Catlin was not in a position to identify potential cross-claims, then neither could CIMIC be expected to do so. Catlin's submission as to why the inclusion of the indemnity was no impediment was as follows: And in the circumstances of the present case it's an entirely orthodox and usual release to add in at a time when no cross claims had been put on, a release of the kind that we had sought. There is nothing unusual or as it were onerous in including such a term and as events turned out no cross claims were brought against my client, so there was no need for an indemnity to operate. So it's not a question, as my friend says, of did we do better at the final hearing in relation to the offer, and he says no, because we never got such an indemnity. That really in effect is setting up the straw man because no one actually brought the cross claim so as to enliven the court considering whether we were entitled to such an indemnity.
While I accept that where parties compromise disputes they may include releases, however, there was no evidence that the particular indemnity sought by Catlin was "orthodox or usual". For example, Liberty's offer did not require an "indemnity" from CIMIC, but instead only contained a "release".
Whether it is unreasonable for an offeree not to accept an offer is to be judged in all the circumstances. However, the question has been framed as whether the offer is made in terms enabling the offeree to give proper consideration to it: Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [13] (Beazley JA). Where there is uncertainty underlying an offer, that provides at least one reason why an offeree may reject the offer, not unreasonably: Roberts v Rodier [2006] NSWSC 1084 at [8] (Campbell J, as his Honour then was); Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2018] VSCA 201 at [76] (Kyrou, McLeish and Niall JJA).
I consider that the inclusion of an indemnity for any future cross-claim made the offer uncertain, and impacts on whether CIMIC unreasonably did not accept the offer. CIMIC could not necessarily have known the complete universe of possible cross-claims that could be brought by other insurers against Catlin. CIMIC would be liable for any negative costs consequences whatsoever.
I also do not accept the submission that it is relevant that no party in fact brought a cross-claim against Catlin in determining whether it was unreasonable for CIMIC not to accept the offer. To accept that submission would be to find that Catlin included the term in the offer, despite there being no utility, because no cross-claim was envisaged. Instead, where a sophisticated commercial party includes a term a Court is entitled to assume it was inserted for a reason and ought to be given work to do.
Further, there was nothing to suggest that the offer, if accepted, would have been more favourable to CIMIC. Catlin obtained no indemnity at trial and accordingly, Catlin did not better the terms of the offer at trial.
Therefore, the appropriate order is that CIMIC pay Catlin's costs on the ordinary basis as agreed or assessed, together with any interest from the dates on which costs were actually paid by Catlin.

[15]

Liberty's offer

On 6 June 2020, CIMIC commenced the proceedings. Liberty filed its Amended Commercial List Response making its defences known on 17 August 2020. On 9 October 2020, it served a Calderbank offer on CIMIC that the proceedings against Liberty be dismissed with each party to pay their own costs. The offer was open for 14 days.
The letter also set out Liberty's various defences, including: 1. the non-disclosure defence to the Company Security claims, which succeeded; 2. the proper allocation of the Gregg Investigation Costs and Non-Iraq Investigation costs to the 2013/2014 insurance policy, which succeeded; 3. that it was unlikely that Liberty's insurance layer would be reached, which was correct in the result; and 4. that CIMIC's claim to certain invoices was statute-barred, which was also successful.
On 28 October 2020, after the time for acceptance of the offer had expired, CIMIC responded, seeking a joint offer from all defendants.
CIMIC submits that it had not been unreasonable not to accept the offer for various reasons.
First, it was said that the offer was served very early in the proceedings and before pleadings were completely closed. On the same day as the offer, CIMIC served an amended commercial list statement. CIMIC submits it was not in a position to fully assess the strength and weakness of the parties' cases at the time of the offer.
Secondly, it was said that Liberty's offer was not a genuine compromise, because it was only forgoing costs, without specifying what those costs were. Reliance was placed on a decision of Ward P in Abdi v Abdi (No 2) [2022] NSWSC 582, where on the particular facts it was not unreasonable to reject the plaintiff's offer that the defendant accept the plaintiff's claim and there be no order as to costs. However, in that decision her Honour notes at [9] (citations omitted): …a "walk away" offer may in some circumstances constitute a genuine offer of compromise …
Liberty's "walk away" offer should be examined on its own terms, having regard to matters such as the degree of costs which the offeror is forgoing, and the prospects of the offeror's case: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [36]-[37] (Santow JA, Stein JA agreeing).
Thirdly, CIMIC submits that the offer sought a "full release in respect of any claims arising out of the issues raised in the Proceedings", and that could not be obtained and was not obtained in the judgment. I accept Liberty's submission that it effectively did obtain an equivalent release through res judicata and issue estoppel, and further the release sought could only sensibly be construed as a release in relation to CIMIC's claim. CIMIC did not identify any potential claim that could arise now to demonstrate that the effect of the release was not the same as the effect of a judgment in Liberty's favour.
Fourthly, in answer to Liberty's submission that CIMIC ought to have known that Liberty would never be liable because it was at the highest 2011 policy layer and would not be reached, CIMIC says that is factually incorrect, because CIMIC's claim, if completely successful, was over $40 million at the time of Liberty's offer. [10] Such an outcome was predicated on CIMIC's success in relation to the Company Securities Claims, and such an outcome did not eventuate.
In the judgment, Liberty's submission that it would not have offered CIMIC cover pursuant to the 2011 Policy had CIMIC complied with its disclosure obligations was accepted. In response to that submission CIMIC submitted that in 2011 it was unlikely Liberty would have had any concern, had there been full disclosure, that its excess layer would be reached if cover was offered. [11] However, CIMIC's submission appears to be that by 2020 that position had dramatically changed.
I am persuaded by Liberty's submissions that CIMIC unreasonably failed to accept the 9 October 2020 offer. While the offer was served early in the proceedings and before any evidence had been served, CIMIC bore the onus of proving, in particular, its senior officers had a particular state of knowledge, and it failed. That was not a matter for Liberty or the other insurers to prove. Liberty's offer provided an outline of its defence and, in my view, CIMIC could have assessed the prospects of its case at that early stage of the proceedings.
Therefore, CIMIC ought to pay Liberty's costs on the ordinary basis as agreed or assessed up to and including 9 October 2020, and on an indemnity basis thereafter.
At the hearing, Liberty also adopted AIG's submissions and sought interest on its costs. I will make the same orders concerning interest for Liberty as AIG and Chubb.

[17]

CIMIC caused Berkley to incur costs of its defence

Various of the 2010 Insurers submit that CIMIC ought to pay their costs because in paragraph 187 of its Commercial List Statement, [12] CIMIC pleaded that it denied having the awareness argued for by the 2011 Insurers, but then stated that, if such awareness was found, then the consequence would be that CIMIC would be entitled to notify to the 2010 Insurers, pursuant to s 54 of the Insurance Contracts Act.
Berkley submits that where a successful party "induced the unsuccessful party to believe it had a good cause of action", that successful party may be liable to pay the unsuccessful party's costs, relying on authority including Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129 at 156, and others, to which the Court was not taken in argument. In Verna, a costs order was made against a successful defendant insurer, because it had not disclosed the basis of its (ultimately successful) defence until after the commencement of the hearing. That is not the situation here. Paragraph 187 of CIMIC's Commercial List Statement, read in its terms, is clear that CIMIC accepted that findings of fact may be made, contrary to those for which it contended. It was on the basis that if such findings were made that CIMIC sought a declaration binding the 2010 Insurers. To the extent that Berkley's submissions repeat submissions already made at the hearing, I observe, consistently with CIMIC's correspondence with Berkley in 2022, and with conclusions in the judgment, [13] that CIMIC had properly disclosed the nature of its factual case against the 2010 Insurers.
It therefore cannot be said that CIMIC failed to disclose the basis of its case against the 2010 Insurers or otherwise made any assurance of its prospects against the 2011 Insurers. In any event, CIMIC's prospects against the 2010 Insurers is a different matter and should not be elided with the question of whether such a case was pleaded.
CIMIC accepted that it did not "timeously" notify the 2010 Insurers of its belief that the 2010 Policy responded to its situation. In the future, CIMIC may decide to notify the 2010 Insurers and seek an indemnity. I do not accept that by its conduct CIMIC "induced" Berkley to believe it had a good defence, such that Berkley wasted costs in defending the proceedings. Instead, Berkley's two counsel appeared for the whole hearing and made submissions against any declaration being made in CIMIC's favour and resisted the relief sought by AIG against it on the cross-claim. Berkley's submissions were voluminous and consumed a substantial amount of time, relative to the submissions of the other 2010 Insurers. Berkley also attempted to support CIMIC's position against the 2011 Insurers by cross-examining one of CIMIC's witnesses and seeking unsuccessfully to cross-examine another of CIMIC's witnesses. It follows that Berkley must have considered such an approach was appropriate to support CIMIC's primary factual position, rather than the factual position contemplated in paragraph 187 of CIMIC's Commercial List Statement.

[26]

Arch/Dual

Arch/Dual submit that CIMIC pay their costs of the proceedings, because: 1. no substantive relief was sought against them, other than a form of declaration, which could not practically give rise to any monetary payment, because no quantification of CIMIC's claim could ever reach Arch and Dual's layer; 2. Arch/Dual did not contribute to extra time of the proceedings and senior counsel made only very brief submissions; and 3. the form of declaration made was not that pleaded by CIMIC and an amended form of declaration was only proffered very late in the proceedings.
CIMIC seeks an order that Arch/Dual, together with the other 2010 Insurers pay its costs. For the reasons already outlined, I do not consider it appropriate for the 2010 Insurers to pay CIMIC's costs. The only question is whether CIMIC ought to pay Arch/Dual's costs.
I accept that Arch/Dual's involvement in the hearing did not in any way contribute extra time to the hearing and that CIMIC only proposed an alternative declaration late in the hearing. However, I do not consider those matters are conclusive in determining that CIMIC ought to pay Arch/Dual's costs.
Arch/Dual submit that CIMIC knew the Arch/Dual layer would never be reached for a few reasons. First, because in August 2021 CIMIC did not consider Arch/Dual would be liable to CIMIC on a "worst case scenario". I do not consider the pre-litigation correspondence about estimated "worst case scenarios" determines the matter. CIMIC did amend its claim after that correspondence to include the Gregg Prosecution Costs, which increased the total indemnity sought.
Secondly, Arch/Dual say their layer would only be relevant if the Gregg Prosecution Costs ought to be indemnified by the 2011 Insurers, or the 2010 Insurers if a later claim was made under the 2010 Policy. Arch/Dual then submit that because it was found that the Gregg Prosecution Costs were to be borne by the 2013/14 Policy, those costs could not form part of a claim for indemnity from the 2010 Insurers, and therefore Arch/Dual could never be liable.
While it is correct that future costs flowing from the Iraq File Note, such as potential prosecutions of former executives, were not part of CIMIC's case against the 2011 Insurers, had it been found that the 2011 Insurers were liable to indemnify CIMIC for all the losses claimed, the indemnity would be ongoing and further losses could be sought if, and when, incurred. Any claim made against the 2010 Insurers would need to be considered, if, and when, such a claim is made.
Had Arch/Dual considered there was no practical risk to it in a declaration concerning factual matters being made, a submitting appearance could have been filed, save as to the form of such declaration. I do not accept that CIMIC caused Arch/Dual's costs and ought be liable for them.
I consider it appropriate to order that between Arch/Dual and CIMIC there is no order as to costs.

At a glance

Court

Decision date

Before

Source

Judgment (28 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (26)

Cited By (2)