In October 2024 I gave judgment giving Marahra leave to file an amended statement of claim: Marahra Holdings Pty Limited v Insurance Australia Limited [2024] NSWSC 1368.
Both parties now seek a departure from the usual costs order under the Uniform Civil Procedure Rules 2005 (NSW), that costs follow the event. In Marahra's case because Insurance Australia did not accept an offer of compromise which it made in August 2024. That was on the basis that its motion be resolved by it having leave to file the amended statement of claim, with no order as to costs. That offer, said to be made under r 20.26, was open for 14 days. A "fallback" Calderbank offer was also then made. Insurance Australia did not respond to Marahra's offers.
Insurance Australia contended that the appropriate order was that costs be costs in the cause.
This dispute has to be understood in light of the proceedings concerning a claim for damages which Marahra pursues against Insurance Australia, which was the public liability insurer of the former lessee of its premises, which in 2018 were damaged in a fire. The lessee has since been deregistered.
[2]
The parties' cases
The indemnity costs order was opposed by Insurance Australia which contended that the appropriate order was that costs be costs in the cause, because what Marahra had sought having involved a "significant indulgence". Such an order compensating Marahra for the costs of its successful motion, in the event that it finally succeeds.
It was also contended that Marahra should bear the costs of the motion, it not having been unreasonable for Insurance Australia not to have accepted the offer, Marahra's primary case on the motion, that r 12.6(2) did not apply to this application not having been accepted. That was also disputed.
Further, if an indemnity costs order was made, it should be from the day after it was made, 28 August 2024. That was not put in issue.
[3]
An indemnity costs order should be made
Reliance was placed on Anchorage Capital Master Offshore Pty Ltd v Sparkes (No 2) [2019] NSWSC 550. There Ball J explained the indulgence principle "that a party seeking an indulgence from the Court must normally pay the costs of doing so, except where the party opposing the application has done so unreasonably": at [4].
His Honour considered that this is not a substitute for the costs discretion conferred by s 98 of the Civil Procedure Act 2005 (NSW): Salvation Army (South Australia Property Trust) v Rundle [2008] NSWCA 347 at [109]-[111]. But at best "a rule of thumb the application of which will depend, among other things, on the nature of the indulgence sought and the circumstances which have given rise to it": at [6].
Further, that the principle is of less relevance to amendment applications having regard to the development of modern approaches to case management and the principles now set out in ss 56-60 of the Civil Procedure Act. The focus of which is not so much on whether an application should be characterised as an indulgence, but what orders should be made "to facilitate the just, quick and cheap resolution of the real issues in the proceedings": s 56(1). An important issue in relation to the exercise of the costs discretion being the extent to which the parties' conduct in relation to the relevant application was consistent with that overriding purpose: at [7].
In Salvation Army (South Australia Property Trust) reference was made to Holt v Wynter (2000) 49 NSWLR 128; [2000] NSWCA 143. There consideration was given to what impact unreasonable conduct by a party should have on a costs order. It being observed that "an applicant for an extension of time should not get his costs unless the defendant had acted "in a manifestly unreasonable fashion"": at [221].
Even then an appropriate order would be to grant the plaintiff his costs if ultimately successful in the substantive proceedings. Further, absent unreasonable conduct on the part of the defendant, "it may nevertheless seem inappropriate, generally speaking, that the [defendant] should obtain its costs of its unsuccessful opposition, unless the [plaintiff] has acted unreasonably.": at [110].
Here what was in dispute was whether leave to amend the statement of claim should be granted, given unchallenged evidence that earlier pleaded matters which Insurance Australia had admitted, had no evidentiary basis, with the result the plaintiff being advised that the statement of claim needed to be amended.
Leave to amend was resisted, because the result would then be that if it wished to rely on those matters, Insurance Australia would have to prove them.
What I concluded included:
1. Marahra had provided good reason for withdrawing what was previously common ground, given the unchallenged evidence of its solicitor: at [62]-[64];
2. when a party identifies that the available evidence known to the parties actually does not support pleaded facts, in this case about the cause of the fire, steps should be taken to amend the pleading, that according with the obligations imposed by s 56 of the Civil Procedure Act: at [92];
3. Forcing a party to pursue a case which has no factual foundation in the available evidence, because of an earlier pleading error, does not accord with what the dictates of justice require: at [93];
4. maintaining an objection to an amendment because pleaded facts for which there is no evidentiary foundation have been admitted, also does not accord with the obligations imposed by s 56: at [94];
5. pleaded facts which have no basis in the available evidence ought to be corrected and the Court ought not to be asked to make orders for which it is known there is no evidentiary basis: at [97]; and
6. an application to withdraw a pleading for which there is no evidence cannot justly be refused, merely because a defendant earlier admitted what had been pleaded: at [97].
I am satisfied that the 'indulgence principle" cannot dictate the Court's exercise of its discretion to make a just costs order in respect of this motion.
That is because I do not consider that correction of a pleading which has no basis in available evidence to involve an indulgence and that opposition to such an amendment does not adhere to the requirements of s 56. Had they been adhered to, the costs of the motion would not have been incurred.
I thus cannot accept that it was reasonable for Insurance Australia to have resisted the motion. I consider that the leave sought ought not to have been opposed. Had it been consented to, the motion would have been unnecessary.
It follows that the only departure from the usual costs order under the rules, that costs follow the event, warranted in all the circumstances is an order that Insurance Australia pay Marahra's costs on an indemnity basis following its failure to accept what was a reasonable offer in the circumstances, its opposition to the leave sought having been unreasonable.
This reflects that the Rules encourage the making of offers of compromise. It having long been recognised that the practice of Calderbank letters was allowed "in order to facilitate the public policy objective of providing an incentive for disputants to end their litigation as soon as possible and the related public policy of discouraging wasteful and unreasonable behaviour by litigants": Leichhardt Municipal Council v Green [2004] NSWCA 341 at [14].
Such policies are refined in the Rules, consistently with the requirements of s56 of the Act and its emphasis on the just, quick and cheap resolution of the real issues in the proceedings.
It was not suggested that the offer Marahra made Insurance Australia did not comply with the Rules. Rule 20.26 does not in its terms expressly concern itself with the settlement of a motion, but r 20.26(5) contemplates that an offer made more than two months or more before the date set down for commencement of a trial, must be open for 28 days.
Marahra's offer was made on 27 August and was open for 14 days. But that was not more than two months before the hearing of the motion on 17 October. Even if the Rules did not apply to this offer, the Calderbank principles do.
The terms of the offer and Insurance Australia's failure even to respond to it, I am satisfied, leave available the exercise the Court's discretion to make the indemnity costs order sought. Insurance Australia having acted unreasonably not only in not consenting to the leave sought and resisting the motion, but also in not accepting Marahra's offer. Had it been accepted there would have been no order as to the costs of the motion. That involving a real and sensible compromise in all the circumstances.
In the result, I am persuaded that justice does require the making of the orders sought by Marahra, albeit from 28 August 2024, the day after the offer was made.
[4]
Orders
For these reasons I order that Insurance Australia pay Marahra's costs of its motion on the ordinary basis to 27 August 2024 and from 28 August 2024, on an indemnity basis.
[5]
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Decision last updated: 15 November 2024