Kerembla Pty Ltd v XL Insurance Company SE, trading as Brooklyn Underwriting

1. The second respondent pay the costs of the applicant relating to the applicant's claim against the second respondent on the basis as between party and party, as agreed or assessed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JACKMAN J: 1 In my judgment on 7 July 2023 in Kerembla Pty Ltd v XL Insurance Co SE, trading as Brooklyn Underwriting [2023] FCA 769, I made a declaration to the effect that XL is liable to indemnify Kerembla in respect of losses arising from or relating to the incident on 19 May 2021. I have used the same abbreviations in this judgment as in that initial judgment. The basis of that declaration of liability was the write back in cl 3.22(d) of the Policy, but not the write back in cl 3.22(f). Clause 3.22(d) was the subject of a very late amendment by Kerembla, which was made on the morning of the final hearing. 2 Kerembla has been successful in the proceedings, and thus would ordinarily be entitled to a costs order in its favour. Kerembla seeks a lump-sum costs order pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth) in the amount of $280,507.52. The Costs Practice Note states that the Court's preference, wherever it is practicable and appropriate to do so, is for the making of a lump-sum costs order: para 4.1. However, a lump-sum costs order is not mandated in all instances, and the Court must exercise its discretion: Paciocco v Australia and New Zealand Banking Group Limited (No 2) [2017] FCAFC 146; (2017) 253 FCR 403 at [19] (Allsop CJ, Besanko and Middleton JJ). 3 The affidavit in support by Kerembla's solicitor, Ms English, calculates the actual costs incurred by Kerembla to be $311,675.02. Ms English proposes a 10% reduction on the basis that Kerembla would otherwise seek an order for indemnity costs from 4 July 2022, when the proceedings were commenced, or from 13 June 2023, by reason of a settlement offer made that day. Ms English also draws attention to various write-offs of invoices. 4 I cannot see any basis on which Kerembla could properly claim indemnity costs from the commencement of the proceedings on 4 July 2022. Success in the proceedings is not sufficient in itself to give rise to indemnity costs. As to the offer of 13 June 2023, this was made pursuant to the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333, and was an offer that XL pay to Kerembla $800,000, with each party to bear its own costs to date. It was followed by a further offer of 3 July 2023, the day before the final hearing, in which Kerembla offered to compromise the proceedings on the basis of a payment by XL of $700,000, again with each party to bear its own costs to date. Ms English currently estimates Kerembla's liability to HVO for the incident as $1,724,075.65. 5 The unreasonable failure to accept an offer of compromise is a well-established circumstance justifying an award of indemnity costs, but the question whether rejection of the offer was unreasonable must be assessed in light of the circumstances existing at the time the offer was rejected: Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [6]-[7] (Nicholas, Yates and Beach JJ). In my view, from 13 June 2023 through to 20 June 2023 (being the period for which the first offer was expressed to be open for acceptance) it was reasonable for XL to reject the offer. The amendment to introduce a claim based on cl 3.22(d) of the Policy, which was the basis of Kerembla's ultimate success, had not then been raised. On the case as propounded at the time the offer was open for acceptance, Kerembla would have failed. The second offer of 3 July 2023 was made only the day before the hearing, and the day before leave to amend was granted. XL was reasonably entitled to more than 24 hours to consider that offer, especially in circumstances where the legal representatives would likely have been heavily engaged with final preparation for the hearing, including having to deal with Kerembla's late amendment application. 6 As a separate matter, there is no evidence as to what amount, if any, Kerembla has recovered from the first respondent in relation to the costs of rectifying the damage to the bridge. Accordingly, I am unable to assess whether the offer of 13 June 2023 was more favourable than the ultimate amount of XL's liability. 7 Accordingly, costs should be assessed on the basis as between party and party. There is no evidence before me as to the appropriate discount in the present circumstances which would be applicable to costs awarded on the party-party basis. While this is often expressed in terms of a rule of thumb in the order of a 30%-35% discount to the actual costs incurred, there is no such evidence before me. It is not clear to me whether the present case would call for a discount of that order. On the one hand, Kerembla refers to the write offs which it has already made to its invoices. On the other hand, XL refers to certain claims by Kerembla being higher than it says would ordinarily be allowed on a costs assessment. I do not have sufficient confidence in arriving at an appropriate sum on the materials available to make a lump sum costs order. In those circumstances, the appropriate order is that XL pay Kerembla's costs on the basis as between party and party, as agreed or assessed. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.