Cunningham v Guardian Royal Financial Services Pty Ltd;; Miller v Guardian Royal Financial Services Pty Ltd;; Smallwood v Guardian Royal Financial Services Pty Ltd;; Smallwood v Guardian Royal Financial Services Pty Ltd;; Visini v Guardian Royal Financial Services Pty Ltd

Was it unreasonable for the plaintiffs not to accept the offer?

As to whether it was unreasonable for the plaintiffs not to accept the offer, the fifth defendant submits that: the plaintiffs were provided with an appropriate opportunity to consider and deal with the offer (see Elite Protective Personnel v Salmon [2007] NSWCA 322 at [99]), the offer being open for 28 days and being confirmed in the letter of 15 February 2017; the plaintiffs had adequate information to enable them to consider the offer (having been served at the time of the offer with written submissions making clear why it was said that the plaintiffs' claim was bound to fail); and, noting that the prospects of success have been said to be relevant in the context of considering a "walk-away" offer (see Sagacious Legal Pty Ltd v Wesfarmers General Insurance Limited (No 5) [2010] FCA 630 at [21]; affirmed in Sagacious Legal Pty Ltd v Wesfarmers General Insurance Limited (No 5) [2011] FCAFC 53), that the plaintiffs' claims were hopeless from the outset.
As to the prospects of success of the plaintiffs' claims, the fifth defendant points to the following matters identified in its January 2017 submissions and in the evidence served in support of the summary dismissal motions (an affidavit from Mr Korff affirmed 13 January 2017).
First, that each of the proceedings involved attempts to make claims on a claims made and notified insurance policy that ceased on 21 March 2009, in circumstances where the evidence was that no claim had ever been made on the policy by the insured (that is, the first defendant) in respect of the plaintiffs and no notification of facts or circumstances relating to such a claim had been made to the insurer (that is, the fifth defendant) by the first defendant in respect of the plaintiffs. Second, the fifth defendant points out that no claim was made by any of the plaintiffs on the fifth defendant until the commencement of proceedings on 22 April 2015 and that the first notification to the fifth defendant of a potential claim against the first defendant by any of the plaintiffs was by letter dated 21 November 2014 (limited to the plaintiffs in the Miller proceedings).
Further, the fifth defendant says that no facts were notified to it prior to 21 March 2009, the last day of the policy, that could support an argument under s 40(3) of the Insurance Contracts Act - that being the cut-off date under that section. Section 40 provides, relevantly, as follows: (1) This section applies in relation to a contract of liability insurance the effect of which is that the insurer's liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss suffered by some other person is not given to the insurer before the expiration of the period of the insurance cover provided by the contract. … (3) Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract.
The fifth defendant argues that the plaintiffs' case against it was therefore doomed to failure and points out that the strength of a party's case is a relevant consideration to whether it was unreasonable to refuse an offer (referring to Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (No 2) [2009] NSWCA 12 at [22]; Miwa Pty Ltd v Siantan Properties at [19]).
It is submitted that the plaintiffs' own evidence disclosed that there had been no claim and no notification of facts prior to 21 March 2009; and that the plaintiffs should have made whatever enquiries they deemed relevant far earlier than they did (before filing the statements of claim or, at the latest, shortly after filing the statements of claim, in 2015). The fifth defendant points to the fact that the plaintiffs only made the relevant enquiries after the hearing of the summary dismissal motion was adjourned, with costs, on 7 June 2017.
Insofar as the plaintiffs submit that the Calderbank offer was not capable of acceptance by any individual plaintiff (having regard to the condition that all plaintiffs in the respective proceedings must accept the offer) and that, for that reason as well, it was not unreasonable of them not to accept it, the fifth defendant argues that the weakness of the plaintiffs' position was common to all the claims, so that the merits of the separate claims is not a reason for not accepting the offer.
The plaintiffs submit that the non-acceptance of the offer of compromise was not unreasonable.
First, it is submitted that the plaintiffs are "unsophisticated investors who claim to have received poor and self-interested advice from the first defendant which resulted in them signing up to investment schemes which have proved disastrous for them" (see the plaintiffs' written submissions at [3]). It is said that they are being pursued by the liquidators and administrators of the disastrous schemes. The plaintiffs say that, in circumstances where: the second defendant is overseas and cannot be located; they have not been able to locate a business address for the first defendant; and neither the first nor the second defendant has defended the proceedings, their only hope of recovery was pursuant to insurance policies taken out by the first defendant with the fifth defendant, hence the commencement of the proceedings against it.
Second, the plaintiffs point to correspondence from their solicitors to the fifth defendant in November and December 2016, prior to the filing of the summary dismissal motion, seeking information in relation to the various insurance policies and the basis for any denial of indemnity/liability, to which there was no response. They maintain that they were not in a position, absent evidence either produced under a notice to produce or subpoena or otherwise served, to know what defences the fifth defendant might raise or to assess the strength of any such defences; and say that it was not unreasonable for them to conduct enquiries in relation to the specific matters raised in the fifth defendant's submissions in order to test the veracity of the fifth defendant's written submissions and evidence before conceding as against the fifth defendant.
The plaintiffs say that the first time that the information they had sought from the fifth defendant, including policy schedules and wording, was provided to them was by way of the summary dismissal motion and affidavit served on 1 February 2017. They maintain that the nature of the enquiries to be made by them would have differed depending on the basis on which indemnity was being denied (whether for fraud or breach of policy conditions or on the basis that the policy did not cover the claims) (see the affidavit of their solicitor, Christopher Clancy, sworn 20 July 2017).
It is submitted that it was "especially unreasonable" for the fifth defendant not to reply to the 21 November 2016 and 15 December 2016 requests for information while at the same time relying upon its Calderbank offer dated 3 February 2017 allowing 28 days for acceptance.
The plaintiffs' solicitor (Mr Clancy) has deposed that, as at February 2017, he "recognised" that on the evidence then currently available to the plaintiffs the fifth defendants' notice of motion had "some prospects of succeeding" but that in his view the fifth defendant's evidence did not establish that the plaintiffs had no reasonable prospects (of success) (affidavit of Mr Clancy affirmed 20 July 2017 at [16]). In his letter of 23 February 2017 to the fifth defendant's solicitors he advised that "it would be inappropriate and negligent to finally dispose of any claim against the insurer whilst the Plaintiffs were awaiting results of further searches and investigations" (affidavit of Mr Clancy affirmed 20 July 2017 at [25]).
Third, as adverted to earlier, the plaintiffs submit (at [6] of their written submissions) that the Calderbank offer was not an offer capable of acceptance by any individual plaintiff and that it was plainly unreasonable for the offer to contain a condition where no single plaintiff could accept it unless all of the plaintiffs in the various actions (whose factual circumstances were necessarily different from each other and where one or more of the plaintiffs "may have been entitled" to continue their claim) also accepted the offer. They point out that the Calderbank letter did not set out any reasoning as to why a settlement where judgment should be entered in favour of the fifth defendant was reasonable and/or why all the plaintiffs should accept the offer.
Fourth, it is submitted that, in terms of timing, it was necessary for the complicated insurance policies referred to in the affidavit of Mr Korff which accompanied the notices of motion "to be digested" (plaintiff's written submissions at [8]). The plaintiffs note that the policy wording varied between 2006 and 2009. It is noted that the rejection by the fifth defendant of their offer of a discontinuance left only a little over 14 days for acceptance of the Calderbank offer (and still only if all plaintiffs accepted) which it is said was an unreasonably short period. It is submitted that any offer, in order to have been reasonable, should have allowed time for each plaintiff to obtain and assess all of the relevant evidence. (Pausing there, the fact that the plaintiffs sought agreement for a discontinuance does not mean that there was only 14 days in which to consider or respond to the offer. The plaintiffs' solicitors letter of 15 February 2017 simply confirmed that the offer remained open for acceptance - as logically must have been the case it not having expressly been rejected by the request to consider a discontinuance.)
The plaintiffs argue that the main issue taken up in correspondence in late February 2017 (after the Calderbank letter had been issued and before it expired) was as to whether or not the insured (the first defendant) could be located. The plaintiffs maintain that they were "on reasonable ground" concerning that issue, disagreeing with the fifth defendant's position that the fact that there was a registered office on ASIC's records was determinative, and say that their willingness to argue that point cannot be said to have been unreasonable. The plaintiffs also point to the offer of a discontinuance of the proceedings against the fifth defendant with the right to reactivate them in appropriate circumstances, which it is said was not an unreasonable position to take in light of the predicament in which the plaintiffs all found themselves.
The plaintiffs maintain that what ultimately became the "main issue" in the motion was the applicability of and the facts concerning s 40(3) of the Insurance Contracts Act. They say that this was dealt with "only obliquely" (at [37] of the fifth defendant's original submissions) and was the issue which ultimately would have needed to be agitated if the plaintiffs were to succeed in the proceedings. They say that there was no evidence from the fifth defendant concerning that issue by the expiration of the Calderbank offer and that, until the fifth defendant's motion and affidavit attaching relevant policy wording and schedules had been provided to the plaintiffs and the fifth defendant had outlined its position as to why the three policies each did not respond to the various plaintiffs' claims, the need for enquiry at all (and specifically what enquiries), was unknown to the plaintiffs.
It is thus submitted that the service of the Calderbank offer two days after service of the fifth defendant's summary dismissal motion allowed insufficient time to the plaintiffs to digest the complicated factual and legal issues involved on the motion. It is said that the s 40(3) "issue" only attained "prominence" in June 2017, after which the process of actually obtaining the documents was undertaken and that this process was "somewhat convoluted and was affected by delay in production of documents by the subpoena recipients and delay by the fifth defendant in compliance with the notice to produce" (plaintiffs' written submissions at [14]).
In particular, the plaintiffs maintain that, having regard to the time for compliance by the Financial Ombudsman's Service in Victoria with a subpoena (10 business days pursuant to s 30 of the Service and Execution of Process Act 1992 (Cth)), even if the relevant enquiries had been undertaken by the plaintiffs after 15 February 2017 and before 1 March 2017, the outcome of the enquiries would be unlikely to have been known before expiry of the Calderbank offer. (Pausing there, that offers no explanation as to why a subpoena could not have been issued any time between 1 February 2017 and 15 February 2017 for relevant documents).
Complaint is also made as to delay in access to the subpoenaed documents. It is said that the documents "never could have materialised overnight" and that, once those documents had been obtained, and it became apparent that the plaintiffs would not succeed in their substantive claim proper, the plaintiffs immediately took a responsible position, made various offers to settle, and advised both the fifth defendant and the Court that the motion would no longer be contested and that the plaintiffs would consent to judgment. It is submitted that once all of the information was available to the plaintiffs (which information it is said should have been part of the fifth defendant's own evidence in support of the motions) the plaintiffs acted responsibly but that all of that necessarily occurred well after the expiration of the Calderbank offer.
In this regard I note that it appears that the enquiries that were made on behalf of the plaintiffs were: to issue, in March 2017, a subpoena to the Department of Immigration and Border Protection (presumably relevant to the whereabouts of the second defendant) and a subpoena to Capital Australia Finance Limited; to make an urgent FOI request to ASIC in May 2017 (well after the expiry of the Calderbank offer) for professional indemnity insurance documents for the first defendant for the period from 1 January 2009 through to March 2015 and for documents relating to the return of the security bond to the first defendant; to issue a subpoena or request to AON (presumably also seeking insurance documents); and to issue notices to produce on the fifth defendant in relation to prior notifications by the first defendant.
As to the ASIC request, ASIC responded that it had previously provided copies of the requested documents (from which it must be assumed that there were no insurance documents for the period after 2009, since documents up to that period had been made available in or about October 2013).
The fifth defendant, in answer to the notice to produce served by letter of 16 June 2017 (again well after expiry of the Calderbank offer), notified the plaintiffs that it had no documents to produce in answer to a request for professional indemnity policies issued to the first defendant for the period March 2009 to March 2014. It responded to a request as to prior notifications by referring to circumstances notified by the first defendant in relation to a limited number of persons (not including the present plaintiffs) and by confirming that further claims or circumstances had been notified in relation to some other persons (copies of which were still being located). The plaintiffs in correspondence with the fifth defendant's solicitors on 7 July 2017 asserted that these were "the same or similar complaints … all of which were settled" and said that the fifth defendant had investigated those claims and was aware that the first defendant had breached its duty of care to each claimant in the same or similar manner. The fifth defendant did not accept the assertions there made but in any event it appears that there was no evidence of any notification of circumstances or a claim, prior to March 2009, in relation to any of the present plaintiffs.
In summary, the plaintiffs maintain that in circumstances where: the Calderbank letter required judgment in favour of the fifth defendant and could not be accepted by any individual plaintiff unless all other plaintiffs also accepted the offer; the Calderbank letter did not set out the basis on which the offer was reasonable and why it should be accepted by all plaintiffs; the time allowed for acceptance of the offer was unreasonable (where the offer was made without any defence having been filed indicating the basis of denial and only two days after service of the fifth defendant's motion and before the plaintiffs could investigate the various defences indicated in the motion); the offer was an offer to capitulate and/or did not involve a true element of compromise; and the plaintiffs offered twice to seek instructions to discontinue and to bear their own costs, the plaintiffs have not been shown to have acted unreasonably prior to expiry of the offer on 1 March 2017 and the application for indemnity costs should be dismissed with costs.

Determination

In the circumstances, the fifth defendant's offer to forego a claim for cost did in my view offer a genuine element of compromise. The proceedings had been commenced in 2015. It would be reasonable to have assumed that, even though no defence had been filed, a responsible insurer would have taken steps to investigate the claim and would have incurred costs in so doing (as the fifth defendant clearly did, having regard to the evidence as to costs incurred from April 2016 onwards). The fact that costs were incurred in preparing the summary dismissal application before providing a response to the requests for information is hardly to the point, since it would presumably have been necessary for the enquiries that produced the fifth defendant's evidence/submissions on the summary dismissal application to have been conducted in order to respond to the November/December 2016 enquiries in any event. Moreover, the provision of that information to the plaintiffs (albeit by way of the material served on the summary dismissal application) does not even then appear to have led to any prompt enquiries by the plaintiffs.
The offer of 3 February 2017 being a genuine offer of compromise, the question is whether the plaintiffs' non-acceptance of that offer was unreasonable. I consider that it was. The assumption that more than 28 days was needed "to digest" the information in the notice of motion cannot be accepted. The fact is that, however unsophisticated the plaintiffs and however poorly advised their investment decisions were or were proved to be, they were represented by legal practitioners who, as at 3 February 2017, were on notice that the fifth defendant contended not only that the plaintiffs had not satisfied the reasonable enquiries condition for the purposes of a s 51 application but also (and perhaps more significantly in the present context) that the insurance policy in question did not respond to the claimed liability. Whatever the merits of the dispute as to whether a registered office address for the first defendant precluded an argument that the first defendant could not, after reasonable enquiry, be found (for the purposes of satisfying s 51(1)(c) of the Insurance Contracts Act), it should have been apparent by then that there would be real problems establishing a claim against the fifth defendant under a claims made policy that had expired many years earlier, in the absence of any evidence of notification of circumstances of a claim by the plaintiffs (or even of facts that might give rise to a claim) prior to the expiry of the policy.
The fact that an insurer might have been the plaintiffs' only real hope for recovery of their losses does not mean that it was not unreasonable for them not to accept the Calderbank offer that was made in February 2017. Nor is their impecuniosity, or the disastrous outcome of their investments, relevant to that issue.
The plaintiffs' conduct in not accepting the offer was not rendered not unreasonable because the fifth defendant did not give a more reasoned explanation as to why entry of judgment, rather than discontinuance of proceedings, was sought in the fifth defendant's offer. The reason for that, it seems to me, was made perfectly clear. The fifth defendant was seeking finality of the litigation. A discontinuance did not offer that (as the plaintiffs' solicitors well understood - since they considered it 'inevitable' that the fifth defendant would be sued if the claim against the first two defendants were to be successful). A similar point may be made as to why a condition that all plaintiffs accept was considered necessary.
The time allowed for consideration of the offer gave the plaintiffs in my opinion a reasonable opportunity (with the benefit of legal advice) to assess their options. They had in effect a month to make whatever enquiries they wished in order to satisfy themselves of the prospects of success of the fifth defendant's contention that the policy did not respond to a claim in damages of the kind they were making against the first defendant (which, by 1 February 2017, they knew was the basis on which the fifth defendant would be denying indemnity). They chose, with the benefit of legal advice, not to accept the offer in the apparent hope that evidence would emerge (from whatever enquiries might thereafter be made) that would bring the claim within the policy; and in the meantime sought to negotiate for a discontinuance of the proceedings rather than their dismissal.
As to the condition attached to the offer (namely, that all plaintiffs accept the offer) that does not of itself provide a basis to conclude that the offer was plainly unreasonable nor does it alter my view that it was unreasonable for the plaintiffs not to accept the offer made to them in early February 2017 (and confirmed in mid February 2017). Had there been a basis for considering that the defect or weakness in the plaintiffs' claims was not common to all the proceedings, my conclusion might have been otherwise. As it is, the condition for acceptance by all plaintiffs does not lead me to depart from my conclusion that their non-acceptance of the offer was unreasonable. Whether only "obliquely", or not prominently, raised in the fifth defendant's written submissions, those submissions did alert the plaintiffs to the difficulty that this was a claims made policy which had expired without (on the fifth defendant's evidence) a claim being made and without circumstances that might give rise to a claim having been notified.
The plaintiffs did not accept that position and chose to test the "veracity" of the submissions. So be it. But the fact that they delayed in so doing and chose not to accept the Calderbank offer made to them makes their conduct in not accepting the offer unreasonable in my view.
The fifth defendant's costs involved up to the point of the making of the Calderbank offer are not substantial. Nevertheless, the rationale for the making of offers of this kind includes the public policy objective of providing an incentive for disputants to end their litigation as soon as possible and to discourage wasteful and unreasonable behaviour by litigants (Leichhardt Municipal Council v Green at [14] (Santow JA); see also Commonwealth of Australia v Gretton [2008] NSWCA 117 at [41] (Beazley JA, as her Honour then was)).
In the circumstances I am of view that it is appropriate to award indemnity costs.

At a glance

Court

Decision date

Before

Source

Judgment (9 paragraphs)

Legislation Cited (6)

Cases Cited (12)

Cited By (4)