Esined No. 9 Pty Limited v Moylan Retirement Solutions Pty Ltd; P&S Kauter Investments Pty Ltd ATF the Kauter Superannuation Fund v Moylan Retirement Solutions Pty Ltd; Graeme Manning v Arch Underwriting At Lloyds Limited on Behalf of Syndicate 2012

(2013/314260) P&S Kauter Investments Pty Ltd ATF the Kauter Superannuation Fund (first plaintiff) Moylan Retirement Solutions Pty Limited (first defendant) Matrix Planning Solutions Limited (non-enforceable) (second defendant) Hunter Financial Planning Pty Ltd (non-enforceable) (third defendant) Arch Underwriting at Lloyd's Ltd on behalf of Syndicate 2012 (fourth defendant) Hiscox Dedicated Corporate Member Limited (fifth defendant) Liberty Mutual Insurance Europe Limited (sixth defendant) Barbican Managing Agency Limited (seventh defendant)

(2015/252310) Graeme Manning (first plaintiff) Nancy Manning (second plaintiff) Jalin Holdings Pty Ltd (third plaintiff) Arch Underwriting at Lloyds Limited on behalf of Syndicate 2012 (first defendant) Hiscox Dedicated Corporate Member Limited (second defendant) Barbican Managing Agency Limited (third defendant) Liberty Mutual Insurance Europe Limited (fourth defendant) Representation: (2012/374893) Counsel: J. S. Drummond (first and second plaintiffs) J. Sexton SC with S. Kanagaratnam (second, third and fourth defendants) M. Jones SC with E. Anderson (fifth defendant)

Solicitors: Michael Nolan, Nolan Commercial Law Practice (first and second plaintiffs) Veronica Chapman, Kennedys (Australasia) Pty Ltd (second, third and fourth defendants) Tricia Hobson, Norton Rose Fulbright Australia (fifth defendant)

(2013/314260) Counsel: J. S. Drummond (first plaintiff) J. Sexton SC with S. Kanagaratnam (fourth, fifth and seventh defendants) M. Jones SC with E. Anderson (sixth defendant)

Solicitors: Michael Nolan, Nolan Commercial Law Practice (first plaintiff) Peter Mackenzie, Mackenzie Thomas Law (second defendant) Lisa-Marie McKechnie, Mills Oakley (third defendant) Veronica Chapman, Kennedys (Australasia) Pty Ltd (fourth, fifth and seventh defendants) Tricia Hobson, Norton Rose Fulbright Australia (sixth defendant)

(2015/252310) Counsel: J. S. Drummond (first, second and third plaintiffs) J. Sexton SC with S. Kanagaratnam (first, second and third defendants) M. Jones SC with E. Anderson (fourth defendant)

Solicitors: Michael Nolan, Nolan Commercial Law Practice (first, second and third plaintiffs) Veronica Chapman, Kennedys (Australasia) Pty Ltd (first, second and third defendants) Tricia Hobson, Norton Rose Fulbright Australia (fourth defendant) File Number(s): (2012/374893); (2013/314260); (2015/252310) Publication restriction: No

Judgment

1. This is the Court's third judgment in these three related sets of proceedings. In the Court's second judgment on 8 May 2020 the Court dismissed the plaintiffs' claims against the underwriter defendants which were brought under the Corporations Act 2001 (Cth), s 601AG: Esined No. 9 Pty Limited v Moylan Retirement Solutions Pty Ltd; P&S Kauter Investments Pty Ltd ATF the Kauter Superannuation Fund v Moylan Retirement Solutions Pty Ltd; Graeme Manning v Arch Underwriting At Lloyds Limited on Behalf of Syndicate 2012 (No. 2) [2020] NSWSC 359. This judgment should be read with the Court's second judgment. Events, matters and persons are referred to in both judgments in the same way.
2. In the Court's second judgment, the Court ordered that, subject to any application being made for a special costs order, that the plaintiffs would pay the defendants' costs in each action. But the Court gave liberty to any party to apply for a special costs order by 5 June 2020. Motions were filed on behalf of the Arch defendants and the Liberty defendants in each of the Esined proceedings, Kauter proceedings and the Manning proceedings. The defendants seek orders that the plaintiffs be jointly and severally liable for the underwriters' costs, because the plaintiffs were in substance pursuing the same interest in proceedings that were all heard together. The underwriter defendants also seek an order for indemnity costs after 2 November 2018 on the basis of a Calderbank letter.
3. The positions of the Arch defendants and the Liberty defendants on costs are identical, both in pursuing their motions for a special costs order and in resisting the plaintiffs' application for each party to bear its own costs.
4. The Arch defendants rely upon an affidavit of Veronica Chapman sworn 28 May 2020. The Liberty defendants rely upon the affidavit of Tricia Marguerite Hobson of 9 June 2020. The Court has indicated to the parties that it will deal with these various applications in chambers and each of those affidavits is noted as read on the applications.
5. It is convenient to deal first with the plaintiffs' contention that there be no order as to costs to the intent that each party will bear its own costs.

The Plaintiffs' Application for Each Party to Bear Its Own Costs

1. The plaintiffs argue that because they have been successful in the claim under the first limb of Corporations Act, s 601AG and acknowledging that the Arch and Liberty defendants have been successful on the second limb, the Court should in the exercise of its costs discretion order that each party pay its own costs of the proceedings. In the alternative, the plaintiffs seek an order for costs that takes into account the success that the plaintiffs have had on the first limb of s 601AG. They submit that an appropriate costs order to reflect their success is one that the plaintiffs severally pay only 25% of the costs of the Arch and Liberty defendants on the ordinary basis, as agreed or assessed.
2. The plaintiffs' argument on this issue is not persuasive. Their argument characterises the plaintiffs' claims as warranting a costs order in their favour, because of their success on the first limb of s 601AG. They then concede that the defendants' success on the second limb would neutralise the costs order on the first limb so the result will bear no order as to costs.
3. But this approach is to treat the two limbs of s 601AG as if they were separate causes of action. But that is not a correct characterisation of these actions. As the Court's analysis in its second judgment makes clear, Corporations Act, s 601AG is a sui generis statutory cause of action upon which the plaintiffs can only succeed by proving both limbs. Failure on either limb of the cause of action leads to a failure on the cause of action.
4. Ordinarily a court does not seek to differentiate between the issues on which a party succeeded and those in which the party did not succeed, unless the two are clearly severable: Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328 at 330-331 per Mahoney JA; [1994] NSWCA 338; and Sabah Yazgi v Permanent Custodians Ltd (No. 2) [2007] NSWCA 306 at [24]. But here the two limbs of s 601AG are not severable. They are two cumulative elements that have to be made out before the plaintiffs were successful in the proceedings. Neither limb is strictly severable from the other. Neither limb could have resulted in an independent enforceable outcome by judgment.
5. A loss occasioned by a plaintiff's failure to prove all of the cumulative elements of a cause of action is not uncommon in litigation. Ordinarily, a failure to prove one element does not alter the conclusion that costs will follow the event in favour of the successful defendant. For example, in an action for breach of contract, if a plaintiff proves the contract after a contest but fails to prove the breach, both of which are essential elements to the cause of action, the plaintiff has failed on the cause of action and will ordinarily suffer an order for costs undiminished by the plaintiff's success in proving the existence of the contract. This case is no different.
6. Moreover, the factual substratum of the two limbs of s 601AG are not entirely severable in this case. For example, cross-examination of the plaintiffs' witnesses on conflict-of-interest issues was important to the defendants' successful reliance upon the conflict-of-interest exclusion. But this cross-examination also assisted the plaintiffs to succeed in their case against Mr Moylan and MRS.
7. Viewing these proceedings as a whole, the defendants should not have been put to the expense of defending the plaintiffs' claim. Once that assessment can be made, a successful defendant should have the entirety of its costs, provided it has not acted unreasonably in raising defences upon which it did not succeed: Griffith v Australian Broadcasting Corporation (No. 2) [2011] NSWCA 145 [18] - [20] per Hodgson JA and [39] - [40] per Basten JA. In the Court's view, the defendants did not occupy these proceedings with unmeritorious or irrelevant defences.
8. The Court will not decline to make an order for costs such that each party will bear its own costs or any variant on that order to allow for the plaintiffs' success on the first limb of this s 601AG action.

Joint and Several Costs Liability

1. The defendants submit the Court should exercise its costs discretion to order that each of the plaintiffs in the Esined, Kauter and Manning proceedings be jointly and severally liable for the underwriters' costs. The basis of this submission is that despite the existence of separate proceedings, the plaintiffs in each of the proceedings were effectively pursuing the same interests. The defendants submit that this case is akin to the orthodox position where an order for costs against two or more parties renders each of them jointly and severally liable to pay the costs concerned: Rushcutters Bay Smash Repairs Pty Ltd v H McKenna Netmakers Pty Ltd [2003] NSWSC 670 and Shang v Zhang (No. 2) [2007] NSWSC 1355 at [13] and [18].
2. But most of these cases relate to the position of multiple defendants or multiple plaintiffs in the one set of proceedings. Here we have three separate proceedings which raises the question of what is the formal procedural relationship between them. The Court's orders before trial deal with that question twice. After all three proceedings were commenced, when the three matters were in the Registrar's list on 16 December 2015 an order was made that the proceedings would "travel together and be heard together". In addition orders were made on 5 July 2016 that evidence of the defendants in one of the proceedings would be evidence in the other two related proceedings. Although this seems to imply that evidence of the plaintiffs might be separate in each proceedings, in practice the matter was conducted very much on the basis that evidence of the plaintiffs in one proceeding could be used to assist the plaintiffs in other proceedings. Indeed that is how the judgment was reasoned.
3. Notwithstanding that these were separate proceedings they were run in all practical aspects as one proceeding. The plaintiffs' submissions emphasised correctly that the plaintiffs' respective claims were all for separate investments made at different times and there were separate losses claimed on different pleadings in each action. But the plaintiffs relied upon many common witnesses, both expert and non-experts, such as Mr Spicer, Mr Redfern and Mr Kelly who were called in all the proceedings and were answered by joint evidence of the defendants which was the same in all proceedings.
4. The Court's power to award costs under Civil Procedure Act 2005, s 98 is discretionary. The primary issue for the Court's determination here is that of fairness between the parties having regard to the manner in which the trial (or appeal) was conducted: Chen v Chan (No. 2) [2009] VSCA 233. Here in the Court's view, fairness indicates that the plaintiffs should have joint and several liability for the defendants' costs in all three proceedings.
5. Although the pleadings in each of the Esined, Kauter and Manning proceedings are not identical, they raise closely related issues of fact and law. But apart from the similarity in the issues, the proceedings were interdependent with one another in a number of other ways. For example, the plaintiffs' success on the first limb in each action was enabled by the fact that each plaintiff could rely upon the evidence and the Court's findings about the conduct of Mr Moylan in relation to the plaintiffs in the other two actions.
6. More broadly, the plaintiffs in each action relied upon the common patterns of conduct and common investment recommendations of Mr Moylan. It was convenient therefore for the plaintiffs, for the defendants and for the administration of justice for the cases to be presented together combining the evidence of both lay and expert evidence on both sides.
7. In addition, many common issues bridged across all the proceedings. Some of these issues were the following: whether or not the claims had been validly notified against each group of underwriters; the proper construction of the relevant policies; whether non-disclosure had occurred under the policies; whether the exclusion clauses in the policies operated and at what time, or times; and whether Mr Moylan was in a position of conflict-of-interest at particular times by reason of his own investments in failing property investments. These are just some of the examples of common issues. There are many more.
8. Many of the procedural events within the litigation were common to all three actions. It would be difficult upon a costs assessment to separate out the costs of each action, other than artificially. These common procedural steps were evident at every stage of the proceedings: in documentary production, in the course of interlocutory applications, in the conduct of the hearing, in the leading of both lay and expert evidence other than the evidence of the family members who stood behind each of the corporate plaintiffs. Attempting to unscramble the costs attributable to each set of proceedings would be a daunting process. It would be time consuming and costly, liable to error and necessarily artificial, because of the way the proceedings were actually conducted.
9. And Ms Chapman's evidence, on behalf of the Arch underwriters, is that she maintained one file for the proceedings and advised the Arch underwriters on a global basis. This is not surprising, given the overlap in so many other issues that the Court has identified. It was presumably done this way because it was more efficient and cost-effective.
10. The defendants did not have to duplicate the same work on three files. Simply because legal work was done in one file does not justify it being separately accrued as an expense in two other files. The plaintiffs would have been justly entitled to complain had that occurred. The efficient solution is what happened, according to Ms Chapman's evidence. All three files were treated as one from the defendants' perspective. This does not itself determine how the Court should treat the plaintiffs' costs liability in all three actions. But it does give a useful perspective on how the parties actually conducted the proceedings.
11. For these reasons, the Court will order that the plaintiffs in each of the three proceedings be jointly and severally liable for the defendants' costs of the three sets of proceedings.

Indemnity Costs Based On the Calderbank Letter

1. The defendants made an offer of compromise in the form of a Calderbank letter on the eve of the trial. The letter was dated Friday, 2 November 2018. The trial commenced on Monday, 5 November 2018.
2. The principles that apply to making awards of indemnity costs based upon the non-acceptance of Calderbank letters are well established. Two fundamental principles must be satisfied. First, the Calderbank letter must be shown to have been a genuine offer of compromise: Leichhardt Municipal Council v Green [2004] NSWCA 341, (at [21] - [24]). Secondly, it must be demonstrated that rejection of the offer was unreasonable: Ofria v Cameron (No. 2) [2008] NSWCA 242, (at [20]). Offerors bear the persuasive burden of satisfying the Court to exercise its discretion in their favour: Evans Shire Council v Richardson (No. 2) [2006] NSWCA 61.
3. The considerations relevant to determining whether a refusal of a Calderbank offer is unreasonable were comprehensively stated in Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344 ("Miwa"), (at [12]), based on Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435; [2005] VSC 298 ("Hazeldene's"), (at [25]). The Victorian Court of Appeal (Warren CJ, Maxwell P and Harper AJA) in Hazeldene's stated the following factors were relevant considerations in determining whether the rejection of a Calderbank offer was unreasonable: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree's prospects of success, assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it. Ward J (as her Honour then was) also discussed the principles in A v N [2012] NSWSC 549 ("A v N"), (at [14]-[19]).
4. The determination of whether rejection of an offer was unreasonable is an evaluative judgment to be made by reference to the terms of the offer and all their relevant surrounding circumstances: King Network Group Pty Limited v Club of the Clubs Pty Limited (No. 2) [2009] NSWCA 204 (at [11]). The test of unreasonableness should not be upheld other than on clear grounds: Chaina v Alvaro Homes Pty Limited [2008] NSWCA 353, (at [113]). The discretion to award indemnity costs may be refused where the litigation changes, for example: where all the relevant evidence has not been served before the offer, Vale v Eggins (No. 2) [2007] NSWCA 12, (at [22]); where the full parameters of the dispute were still uncertain at the time of the offer: Equity 8 Pty Limited v Shaw Stockbroking Limited [2007] NSWSC 503, (at [42]); or, where the offeror's case changes after the offer: South Eastern Sydney Area Health Service v King [2006] NSWCA 2, (at [85]). And the filing of other pleadings such as a Cross-Claim after the offer may make it more difficult to show that rejection was unreasonable: Rolls Royce Industrial Power (Pacific) Limited v James Hardie & Co Pty Limited (2001) 53 NSWLR 626; [2001] NSWCA 461.
5. Although a Calderbank offer may be made on an inclusive-of-costs basis, the failure to clearly separate out the costs component risks a finding that the evaluation of the reasonableness of the offer is impossible: Rockcote Enterprises Pty Limited v FS Architects Pty Limited (No. 2); Carelli v FS Architects Pty Ltd (No. 2) [2008] NSWCA 205, (at [51]).
6. More complex issues may render it difficult to show that rejection of the offer was unreasonable: Nationwide News Pty Limited v Naidu; ISS Security Pty Ltd v Naidu (2007) 71 NSWLR 471; [2007] NSWCA 377.
7. To assess the reasonableness of non-acceptance of an offer, the Court must evaluate what was disclosed in the material in the proceedings at the time of service of the offer: Castro v Hillery [2003] 1 Qd R 651 ("Castro"), (at [72]); [2002] QCA 359. This assessment of reasonableness must be made without the benefit of hindsight: Miwa, (at [11]).
8. The Calderbank letter from Kennedy's was sent on behalf of all defendants with the consent of the Liberty underwriters on Friday 2 November 2018. The proceedings were due to commence, as they did, on Monday, 5 November 2018. The offer declared it was made in accordance with the principles of Calderbank v Calderbank (1975) 3 All ER 333; [1975] 3 WLR 586; [1976] Fam Law 93 and warned that should the plaintiffs choose not to accept the offer, and if they receive a less favourable result of the hearing, the defendants would tender the letter in support of an application that the plaintiffs pay the defendants' costs on an indemnity basis from the expiry of the offer.
9. The offer was made and was indicated to be open for acceptance until 10am on Monday, 5 November 2018. The offer was conditional upon acceptance by all of the plaintiffs in each of the proceedings. The offer said it was based upon the arguments set out in the defendants' written submissions filed with the Court on 31 October 2018 that recorded the legal arguments in support of their defences. These submissions recorded most of the legal arguments that were later deployed by the defendants in their oral submissions and the conduct of their case. The offer was in the following terms: "We are instructed to make a joint offer to your clients, on behalf of all Defendants, to settle the Proceedings on the following basis: 1. Without any admission of liability, the Defendants to pay to your clients the sum of $1.5 million inclusive of costs and interest (Settlement Sum); 2. Judgment be entered in favour of the Defendants in each of the Proceedings; 3. The parties otherwise agree to bear their own costs of the Proceedings; and 4. The parties formalise the above settlement by entry into a Deed of Release, including appropriate releases and confidentiality undertakings."
10. Except in one important respect, the defendants' offer complies with the requirements for a Calderbank offer. It contains a genuine element of compromise. The offer to settle the proceedings for $1.5 million, inclusive of costs and interest, was likely to exceed the plaintiffs' total costs of the proceedings and would have given them each a positive financial outcome from having commenced the proceedings, although their total claim was approximately $4.6 million. But against an outcome of the defendants being successful, it represented a genuine compromise and was not a nominal figure.
11. The closeness of the offer to the hearing, and its proximity to the filing of the defendants' final submissions on 31 October 2018, meant that the plaintiffs were fully apprised of the defendants' case at the time the offer was made. The defendants' submissions well explained the nature of the case that the plaintiffs would be meeting the following week. The offer otherwise complied with the requirement to foreshadow the requirements of a Calderbank letter that it forewarn the offeree that if it were not accepted it would be tendered in evidence upon a claim for indemnity costs.
12. But in one major respect the offer is deficient. It is too late. This was substantial litigation by any measure. The offer gives less than a full working day to the plaintiffs to consider and accept it by 10am on the following Monday. Of course it can be countered that the plaintiffs had two days over the weekend to consider the offer. But that does not recognise the real circumstances that the plaintiffs faced over that weekend. They were all from the Hunter Valley area. They and their solicitor were no doubt organising to come to Sydney, having last minute conferences with their counsel, co-ordinating their documents and many other loose ends that commonly appear just before a large trial such as this.
13. In the Court's view, requiring them to consider within that same weekend an offer of this magnitude does not give them sufficient time to properly consider the offer. The Court appreciates the difficulties that can arise in multi-party litigation in organising a co-ordinated offer such as this. But in the end the offer gave insufficient time to the plaintiffs to properly consider it among all their other pressing concerns. The Court is not satisfied that in all the circumstances it was unreasonable for the plaintiffs not to accept the offer. Indemnity costs will not be awarded.

Conclusion and Orders

1. In the result therefore the Court will make the order foreshadowed in the second judgment but clarifying the issue of joint and several liability.
2. For these reasons the Court orders: 1. Order that the plaintiffs to pay the defendants' costs of these proceedings on the basis that the plaintiffs in all three proceedings, 2012/374893, 2013/314260, and 2015/252310, are jointly and severally liable for the defendants' costs in all three proceedings.

Amendments 22 July 2020 - [39], Orders identify proceeding numbers. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 July 2020