Plaintiffs v Fifth defendant

2 Akron failed in its claim against CGU. CGU seeks the following orders:

(1) the plaintiff's claim against the fourth defendant (Crewe Sharp Pty Ltd (Crewe Sharp)) is dismissed;

(2) the plaintiff's application for a declaration against the fifth defendant (CGU) is dismissed; and

(a) CGU's costs occasioned by, or referable to, paragraphs 27 to 30 of the fourth further amended points of claim, abandoned on 23 March 2016 to be taxed on an indemnity basis. Those paragraphs contained a further alternative claim relying on the 2012/2013 policy issued by CGU to Crewe Sharp; and

(b) CGU's costs otherwise of and incidental to the proceedings, including all reserved costs, to be paid by Akron on a standard basis up to 3 March 2016 and thereafter on an indemnity basis.

3 Proposed orders (1) and (2) above are not disputed by counsel for Akron.

4 Akron submits that the appropriate order for costs is that Akron pay CGU's costs of the proceeding on a standard basis, to be taxed in default of agreement. Akron submits that the costs should be discounted to the extent that the court deems appropriate in light of the matters set out in paragraph 2(h) of their written submissions and the separate questions raised by CGU in its defence on which it failed and the issues raised by Akron on which it won.

5 Those matters are, in substance; firstly, that CGU disputed many facts which the plaintiff then had to prove; and secondly, that CGU's conduct on the first day of the trial resulted in the trial being adjourned. I will return to these matters shortly.

6 CGU relies on a purported Calderbank offer of 3 March 2016. The terms of the offer were that the proceeding against CGU be dismissed and that there be no order as to costs as between Akron and CGU.

7 Akron submits that the offer did not constitute a genuine compromise. Akron relies on the Court of Appeal decision in Commissioner of State Revenue v Challenger Listed Investments (No 2).[2] In particular, Akron relies on the following passages which discuss the reasonableness of rejecting a Calderbank offer:[3]

There is authority to the effect that where the offer does not involve a genuine compromise, but is in fact either an invitation to capitulate or a derisory or nominal offer, it would not be unreasonable for the losing party to have rejected it.

In Berrigan Shire Council v Ballerini (No 2),[4] Callaway JA observed that the treatment of Calderbank offers comes down to the question of whether the rejection was unreasonable in the circumstances.[5] In that case the offer was an offer to walk away. Callaway JA characterised it as a demand to capitulate that could reasonably be rejected.[6]

In the case of Truenergy Pty Ltd v Dispute Resolution Panel (No 2),[7] Cavanough J considered that a Calderbank offer should be 'attractive in all the circumstances' before it would be taken into account by the Court.[8] It should not merely comprise, in effect, a demand to capitulate.[9]

In the recent case of Pepe v Platypus Asset Management Pty Ltd (No 2),[10] Almond J held that offers of $65,000 and $95,000 inclusive of costs were properly rejected in circumstances where the claim was in excess of $1 million.[11]

In our opinion, and in the circumstances of this case (Challenger Listed Investments), it was not unreasonable for the commission to reject the offer made on 18 March 2011. The offer, in effect an offer to walk away, in our opinion amounts to a demand to capitulate. A reduction of $5000 from a costs order may realistically be regarded as de minimis in the circumstances. The offer does not represent in financial terms a serious endeavour to resolve the proceeding. It was, given the amount involved in the case, no more than a token offer.

8 In my opinion, the Calderbank offer in this case did not constitute a genuine offer of compromise. Akron had a reasonable case on the merits in seeking the declarations concerning CGU's liability to Crewe Sharp and Mr Crewe. Akron was also successful on the standing issue. On the other hand, CGU failed in its reliance on three exclusion clauses but succeeded in arguing that Crewe Sharp was not a shadow director.

9 The claim of Akron on the latter issue was not strong, but neither was it hopeless nor fanciful. The claim relating to Mr Crewe was much stronger. The non-disclosure defence raised by CGU was by no means clear cut. In my opinion, the plaintiff's rejection of the offer of compromise, which was a walk-away offer, was not unreasonable in the circumstances. It amounted to an invitation to capitulate.

10 I turn now to the costs occasioned by paragraphs 27 to 30 of the fourth amended statement of claim. CGU says that Akron initially raised CGU's alleged liability to Mr Crewe and Crewe Sharp under two different policies. The first was the policy for the financial year 2009/2010 and the second was for the policy for the financial year 2012/2013.

11 The 2009/2010 policy had been renewed in the intervening years. The liquidators alleged that the insured had notified CGU of a potential claim relating to liability for insolvent trading under each of the 2009/2010 and 2012/2013 policies.

12 CGU's argument relied on certain pieces of correspondence. First, it cited the following passage in a letter dated 3 June 2015 from its solicitors (Norton Rose Fulbright) to the solicitors for the liquidators (King & Wood Mallesons):

In order to confine the issues in dispute, CGU instructs us that it accepts that the provision to CGU of Mr Blakeley's letter dated 28 May 2010 during the period of the 2009/10 policy period constituted written notice to CGU of facts that might give rise to a claim against the insured for the purposes of s 40(3) of the Insurance Contracts Act 1984 (Cth) and that the insolvent trading allegations arise from the facts notified.

In the circumstances, please confirm before Friday's directions hearing that the plaintiffs agree to strikeout paragraphs 27 to 30 of the further amended points of claim.

Finally, we hold instructions to seek leave [to] amend CGU's defence to plead material non disclosure on the part of the insureds in relation to the 2009/10 policy and specifically their failure to disclose that Crewe Sharp Pty Ltd provided director services to Akron Roads Pty Ltd. In the event that the plaintiffs press their claims for indemnity in relation to the 2012/13 policy period, the amendments will be more extensive.

13 Norton Rose did not indicate what those amendments would be.

14 The next letter was in fact referred to by Dr Bigos for Akron, and is from Norton Rose to Mallesons, dated 30 March 2016. This enclosed their CGU's Notice of Dispute in response to Akron's Notice to Admit, dated 21 March 2016. In the letter, Norton Rose said:

We also confirm our instructions that if any of the professional indemnity policies that Crewe Sharp had with CGU responds then it is 2009/10 policy pleaded in paragraph 18 of your clients' Third Further Amended Points of Claim, and not the 2012/13 policy pleaded in paragraph 27.

15 On 6 April 2016 email, Norton Rose sent an email to Mallesons which said:

Thank you for your draft index for the proposed court book.

We will formally respond in due course, however we note that item 28 lists all of the CGU policy schedules for years post 2009/2010. We had understood from discussions between counsel before court at the last directions hearing that your clients were no longer persisting with claims under the 2012/13 policy. In our letter responding to your client's notice to admit, we explained our client's position in not admitting what was clearly an incorrect fact, namely that the claims made in the plaintiff's further amended points of claims of claims made in 2009, when plainly enough such claims were not formally made until at least after the writ was filed some years later. We don't think our client can be any clearer about its position beyond what is said in our letter dated 30 March 2016.

If it's your clients' intention to proceed with claims on both policies, please advise the position by close of business tomorrow so that we can arrange our clients' witnesses relevant to the latest policies.

16 On 7 April 2016 Mallesons advised Norton Rose as follows:

Our clients' position is as stated in the outline of opening submissions, that being that based on the statements made by your client, to the effect that the relevant notification was given on 21 June 2010, our clients do not agitate their claim under the 2012/13 policies.

17 In substance, that correspondence shows that CGU had admitted that the relevant notifications of claims were given under 2009/2010 policy. In its response, Akron ultimately said that they would not rely on the 2012/2013 policy as a result of that concession. CGU now argues that Akron's concession was made too late¾by which time, CGU had incurred expenses in proofing witnesses about the alleged 2012/2013 policy notifications which then became irrelevant.

18 CGU say the amendments were not made until 23 March 2016. Dr Bigos said that CGU disputed every possible issue in this litigation and the liquidators did not trust them. Dr Bigos said it was reasonable in the circumstances not to accept the assertions of CGU in light of its intransient and obstructive approach to the litigation.

19 The liquidators informed the Court that in order to obtain relevant documents they had to examine CGU's officers.

20 CGU took many points to avoid liability under the policy. Such was its right. In such a bitter fight, however, I can well understand Akron's reluctance to accept CGU's 'concessions'. In my opinion, the conduct of which CGU complains is partly a consequence of the way CGU itself conducted the litigation. It acted within its rights, but with rights come consequences.

21 In my view, in the circumstances, it is not appropriate to award indemnity costs for Akron's failure to withdraw the relevant allegations earlier.

22 Akron's written submissions state that CGU should have none of its costs awarded on an indemnity basis. The submissions then set out what Akron considers to be the appropriate costs order. Akron says that as there are arguments in favour of giving the plaintiffs some of their costs, the appropriate costs order is as follows, the plaintiffs pay CGU's costs of the proceeding on a standard basis, to be taxed in default of agreement, discounted to an extent the Court deems appropriate in light of the matters set out in paragraph 2(h) of their written submissions, mentioned above and discussed further below.

23 Akron says that the order should expressly provide that CGU's costs of the proceeding exclude the costs of or incidental to all questions as to the plaintiffs' joinder of CGU as defendant. This was an application that went all the way to, and was finally determined by, the High Court. The plaintiffs succeeded and obtained a costs order in their favour for every step and there is no occasion to disturb these orders.

24 The matters set out at paragraph 2(h) are that there are discretionary reasons to refuse costs on an indemnity basis for CGU and indeed that the plaintiffs should have some of their costs. These reasons include:

(1) CGU's dispute of many facts which the plaintiffs then had to prove; and

(2) CGU's conduct on the first day of trial which resulted in the trial being adjourned.

On the first day of the trial, 18 April 2016, CGU raised the issue of the liquidator's standing to seek director declarations in relation to CGU's liability to Mr Crewe.

25 CGU argued¾over the plaintiffs objection¾that the standing issue should be determined first. The trial was accordingly adjourned until 2 May 2016. There was a separate hearing for the argument of the standing issue on 28 April 2016 and that issue was ultimately determined against CGU. Thus, instead of an estimated two- three day trial, there were a total of five hearing days; 18th, 19th, 28th April and 2nd, 3rd May 2016. The additional time was attributable to CGU.

26 In Dr Bigos' oral submission he claimed that CGU lost several issues; in particular, the standing issue. Dr Bigos argued that those matters should be taken into account in considering what costs order should be made. I do consider it appropriate to take into account that, of the eight issues I determined, CGU lost three exclusion claims, the standing claim and also the issue concerning whether the policy responded to the deed of settlement.

27 CGU cannot expect to dispute every point, which it is entitled to, yet not suffer the consequences of adopting such a tactic when the question of costs arise. This tactic, which CGU was entitled to adopt, increased the liquidator's costs and CGU's own costs. In my opinion, the appropriate order is to adjust the order for costs in CGU's favour in light of these facts.

28 I refer to my decision in GT Corporation Pty Ltd v Amare Safety Pty Ltd,[12] where after an extensive survey or the relevant authorities I found that the general principles relevant to the application for costs were as follows:[13]

1. The award of costs is in the discretion of the Court or Judge: s 24 Supreme Court Act 1986.

2. The discretion must be exercised judicially: Donald Campbell & Co v Pollak;[14] Cretazzo v Lombardi.[15]

3. The discretion cannot be exercised arbitrarily or capriciously and it cannot be exercised on grounds unconnected with the litigation: Cretazzo v Lombardi;[16] or the circumstances leading up to the litigation: Oshlack v Richmond City Council.[17]

4. Costs are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings. The order is not made to punish the unsuccessful party: Latoudis v Casey.[18]

5. As a general rule, costs should follow the event, and a successful party should obtain all of the costs of the action even though it failed to establish some of the alternative heads of its claim: Ritter v Godfrey;[19] McFadzean v CFMBEU.[20]

6. Rule 63.04(1) permits the court, in its discretion, to make an order not only as to a distinct question or issue in the pleading sense, but also to any part of the proceeding: Woolf v Burmon;[21] Cretazzo v Lombardi.[22]

7. The court may, in its discretion, decline to order costs in favour of a successful party, or may order the successful party to pay the costs of the unsuccessful party, where the plaintiff failed to establish discrete heads of claim or failed to establish issues which it pursued in its claim, although ultimately succeeding on the basis of another discrete head of claim: McFadzean v CFMBEU.[23]

8. It is not necessary that the issue concerned was raised unreasonably by the party: Rosniak v GIO.[24] Although, a relevant consideration may include whether the issue was raised unreasonably: Mickelberg v Western Australia.[25]

9. The court may, in its discretion, make an order that is a single order, fixing what proportion of a party's costs should be paid by another party, thus obviating cross-orders or particular orders as to particular costs: Byrns v Davie;[26] McFadzean v CFMBEU;[27] Nolan v Nolan.[28]

10. The caveat referred to by Jacobs J in Cretazzo v Lombardi[29] may have less weight today than when it was decided: Primcom Pty Ltd v Sqarioto;[30] Mickelberg v Western Australia;[31] and Victoria v Master Builders Association of Victoria.[32]

11. Although the quantum of damages recovered compared to that claimed may be a relevant consideration to the court in exercising its discretion, greater emphasis should be given to the failure or loss on discrete claims or issue and the time occupied in relation to them.

29 Doing the best I can and considering the time that was spent on issues upon which CGU was unsuccessful and Akron was successful, I consider it appropriate to adjust the costs awarded to CGU to take into account the issues lost by CGU and won by Akron by making a single order, rather than make cross-orders. In the circumstances, I consider that Akron should pay 70 per cent of CGU's costs including reserved costs. Such costs are to be taxed on the standard basis in default of agreement.

[1] [2016] VSC 657.

[2] [2011] VSCA 398 ('Challenger Listed Investments').

[3] Challenger Listed Investments, [13]-[17].

[4] [2006] VSCA 65 ('Ballerini').

[6] Ballerini, [17]. It is noted that the judgments of Chernov and Nettle JJA in Ballerini are to the same effect as the observations made by Callaway JA.

[7] [2009] VSC 612 ('Truenergy').

[10] [2011] VSC 21.

[11] See also Ipex ITG Pty Ltd (in liquidation) v State of Victoria (No 2) [2011] VCS 39 (Sifris J).

[12] [2008] VSC 296.

[13] GT Corporation Pty Ltd v Amare Safety Pty Ltd [2008] VSC 296, [59].

[14] [1927] AC 732.

[15] (1975) 13 SASR 4.

[16] [1975] 13 SASR 4.

[17] [1998] HCA 11; (1998) 193 CLR 72, 97 (McHugh J).

[18] [1990] HCA 59; (1990) 170 CLR 534, 543 (Mason CJ), 562-3 (Toohey J), 566-7 (McHugh J).

[19] (1920) 2 KB 47.

[20] [2007] VSCA 289; (2007) 20 VR 250.

[21] (1939) 13 ALJR 431 (HC).

[22] (1975) 13 SASR 4, 12.

[23] [2007] VSCA 289; (2007) 20 VR 250.

[24] (1997) 41 NSWLR 608.

[25] [2007] WASC 140 (S) [43]-[46] (Newnes J).

[26] [1991] VicRp 93; (1991) 2 VR 568, 571 (Gobbo J).

[27] [2007] VSCA 289; (2007) 20 VR 250, 290 [153], 291 [158].

[28] [2004] VSCA 134, [6].

[29] (1975) 13 SASR 4.

[30] (Unreported, SCV, Eames J, 24 April 1995).

[31] [2007] WASC 140 (S), [30]-[35].

[32] (Unreported, SCV CA, 15 December 1994, BC 9408430).