CONSIDERATION
13 Neither offer provides a good basis for departing from the usual costs order. The point argued by CGU in the appeal was important, raising issues which could affect other parties with goods stored in the bonded warehouse, but more importantly, CGU's arguments were certainly not hopeless, as evidenced by the split decision of the Full Court. Thus, the non-acceptance could not be considered to be unreasonable.
14 Difficulties also attend the second offer as it raises implications outside the scope of the appeal.
15 As was noted at the hearing of the appeal, there are other liability issues including other policy interpretation issues which may determine if and how much MOS Beverages can recover. CGU says that the terms in which MOS Beverages framed its offer "bypassed" those important matters.
16 What is relevant is that those issues are the subject of litigation in the Supreme Court of New South Wales. MOS Beverages is, of course, aware of those proceedings (two of its executives having given evidence in them). One of the litigants in the Supreme Court is Admiral International Pty Ltd (the company which operated the bonded warehouse) and another is Brightcity (a customer of Admiral in a similar, but not identical, position to MOS Beverages). Those proceedings raise an issue of fact: whether the fire in the warehouse was deliberately lit by Admiral. Those proceedings also raise issues of policy interpretation, some of which also depend upon whether the fire was deliberately lit by Admiral. The decision in that matter is currently reserved. Another issue which inevitably arises relates to how any proceeds under the policy, which is subject to limits and sub-limits, should be apportioned between potential claimants.
17 As noted in a number of recent cases including J & D Rigging Pty Ltd v Agripower Australia Ltd [2014] QCA 23 per Holmes JA and Applegarth and Boddice JJ (at [5]-[6]); Hadgelias Holdings Pty Ltd v Seirlis [2014] QCA 325 per Holmes JA (at [11]-[12]) with whom Gotterson and Morrison JJA agreed (at [17]-[18]); and Hazeldene's Chicken Farm Pty Ltd v WorkCover Authority (Vic) (No 2) [2005] VSCA 298; (2005) 13 VR 435 per Warren CJ, Maxwell P and Harper AJA (at [23]-[29]), it is wrong to think that an offeree's rejection of a Calderbank offer necessarily gives rise to a presumption that the offeree should pay the offeror's costs on an indemnity basis if the offeree obtains a less favourable result than contained in the offer. Rather, the correct approach is to consider whether the rejection of the Calderbank offer, in all the circumstances, justifies a departure from the usual rule that costs on a party and party basis follow the event. The balance between competing policy considerations of encouraging settlement and of not discouraging potential litigants from bringing their disputes to the courts, is met by applying a test of "reasonableness".
18 Unsurprisingly, the same test of whether a rejection or non-acceptance of a Calderbank offer should lead to an award of indemnity costs requires similar considerations of reasonableness as those spelt out under r 25.14(2) of the FCR.
19 The determination of reasonableness necessarily involves an evaluation of all the circumstances. We consider that in the circumstances of the present offer, it is not possible to conclude that the non-acceptance was unreasonable. The issue resolved by the Court by a majority was far from straightforward. Further, it was but one separate aspect of a considerably broader issue being considered by another court. It is not possible to reach any conclusion in this Court as to the ultimate outcome of the proceedings in the Supreme Court. The offer sought to embrace a global outcome on a matter on which this Court is not in a position to reach a view. As commendable as it is to make an offer, it cannot be said that its non-acceptance in these circumstances is unreasonable so as to attract an award of indemnity costs under Calderbank principles as applied in Australia or under the FCR.