Towry Law v Chubb Insurance [2009] NSWSC 434 | Case summary

50183/05 TOWRY LAW PLC & ORS v CHUBB INSURANCE COMPANY OF EUROPE SA & ORS JUDGMENT (ON COSTS) 1 HIS HONOUR: On 19 October 2007, the Court ordered that certain issues (the separate questions) be decided separately and in advance of all other issues in the proceedings. The hearing of the separate questions was fixed initially for 8 and then for 15 September 2008. I heard the separate questions and gave judgment on 19 December 2008. In substance, I decided the separate questions in favour of the defendants/cross-claimants (the underwriters) and against the plaintiffs/cross-defendant (Towry Law and AMP). 2 The parties agree as to the answers to the separate questions that should be formally recorded and as to the form of certain declarations of right that should be made. They agree also that in substance Towry Law and AMP should pay the underwriters' costs. There is disagreement as to the precise form of the order for costs. In addition, the underwriters (relying upon a Calderbank offer made on 3 September 2008) seek indemnity costs from the date that offer was made. 3 The issue as to the form of the costs order can be dealt with briefly. The underwriters seek their costs of the proceedings to date. Towry Law and AMP accept that, having regard to my conclusions on the separate questions, they must pay costs but say that it should be the costs of the separate questions. 4 In my view, the position for which Towry Law and AMP contend is correct. The general principle - recognised by both parties - is that costs follow the event. The "event" in this case is the determination of the separate questions substantially in favour of the underwriters. 5 Mr G K J Rich of counsel, for the underwriters, submits that an order for the costs of the separate questions may cause some difficulties in assessment, because it may be unclear what costs are comprised under it. He submits that the Court should do what it could to avoid that confusion and the consequent expense. In addition, Mr Rich submits, a consideration of the history of the proceedings (which I will not essay in these reasons, but which is appropriately covered in the affidavit of Ms Mikkelsen sworn 12 February 2009 and Exhibit LJM 1 to that affidavit) suggests that the costs to date and the costs of the separate questions are not in any real way different. 6 Jumping ahead for the moment to the terms of the Calderbank offer: by paragraph 9 the underwriters offered, among other things, to pay their individual percentage proportion of Towry Law's and AMP's "costs of the Proceedings, insofar as they relate to the Separate Questions...". The difficulties to which Mr Rich now points do not seem to have troubled the framers of the Calderbank offer. 7 In addition, if Mr Rich is correct in his submission that the costs of the separate questions are substantially the same as the cost of the proceedings to date, the prospective difficulties to which he points should be minimal. 8 Having said that, I accept that there may be problems in relation to particular items of cost. I accept that the Court should be slow to set parties upon a path that will involve them in further time and cost. However, it has not been put that a costs assessor could not deal with the questions. Further, I note, the parties and their legal advisers cognisant of their obligations under s 56 of the Civil Procedure Act 2005, would no doubt reduce to an absolute bare minimum the real disputes as to costs that would be caught under an order for the costs of the separate questions to be paid. 9 As I have said, on this aspect I agree with the form of order propounded by Towry Law and AMP. 10 I turn to the claim for indemnity costs. As I have noted, that claim is founded on a Calderbank offer dated 3 September 2008. In dealing with the terms of that offer, one must understand that the claims made by Towry Law for indemnity included over a thousand third-party claims against Towry Law made before the agreed retroactive date, 3 August 2001. The resolution of the separate questions that were propounded has had the effect (assuming, I hope not immodestly, that my conclusions are not reversed on appeal) of determining all claims for indemnity arising out of events that occurred before 3 August 2001. However, there remains for decision a number of claims made for indemnity arising out of events after that date. 11 The claims that have been, as it were, disposed of total approximately $55 million to $60 million. The underwriters between them offered to pay a total of some $5.37 million - a little under ten percent of the total of the claim. However, no doubt reflecting their several liabilities under the SIP (and the legal characterisation of the SIP as comprising a large number of separate contracts of insurance) each underwriter offered to pay only its several proportion of the total amount offered. It may be more accurate to say that each underwriter made a separate offer, the total of which offers was about $5.37 million; and that a comparison in percentage terms of each offer to the total reflects the proportions of liability overall under the SIP. 12 In addition, each underwriter offered to pay its particular percentage proportion of the costs of Towry Law and AMP insofar as they relate to the separate questions. Again, that appears to reflect the nature of the SIP and the legal characterisation of it as comprising a large number of different contracts of insurance. 13 Although it might be said that the offers, considered cumulatively, were "modest" (to use the words of Mr T M Mehigan of counsel who appeared for Towry Law and AMP) in comparison to the total of the relevant amounts, it has not been suggested that the offer was not a genuine offer of compromise because it was illusory or ridiculous in amount. 14 In addition, the offer included the offer to pay costs: undoubtedly an offer of very substantial value. Finally, by the offer, the underwriters offered to forego their own costs. Those costs have been estimated, on a solicitor and client basis, at approximately $2.3 million. Even if one discounts them substantially, to reduce them to an ordinary basis, it is clear that the offer comprised the abandonment of a substantial costs entitlement that would crystallise (and has crystallised) if the separate questions were answered as they have been. 15 The offer was expressed to be open for acceptance up until 9.00 am on 15 September 2008, and to lapse thereafter. As I have noted, that was the revised date on which the hearing of the separate questions was to (and did) commence. 16 On 8 September 2008, the offer was clarified in relation to deductibles under the SIP. It has not been suggested in submissions that anything of significance flows from their clarification. 17 On 11 September 2008, the offer was varied. For reasons set out in a letter of that date, the time for acceptance of the offer was shortened: until 10.00 pm on 12 September 2008. That was said to reflect the need for the underwriters to procure witnesses to travel to Australia for the hearing. 18 Finally, on 12 September 2008, the 17th defendant withdrew its offer. The separate offer of the 17th defendant was for an amount just under $55,000 (or a little more than one percent of the total offer) and for a little more than one percent of the costs. 19 The focus of debate has been on whether it was reasonable, or unreasonable, for Towry Law and AMP not to accept the offer as varied. The background to that debate includes that a mediation took place (in London) on 30 and 31 July 2008. Although of course the Court has not had the benefit of knowing anything about that mediation, other than it occurred and did not lead to a settlement, the Court would be entitled to assume that commercially sophisticated and well-advised litigants, as undoubtedly the parties in this case are, would have prepared for it thoroughly, would have given detailed consideration to the strengths and weaknesses of their cases and the cases against them, and would have exchanged position papers, that dealt with those matters among other things. 20 Further, having regard to the fact that the offer of compromise was made at a time when the parties were preparing for hearing, it cannot be suggested that Towry Law and AMP were not then able to consider the offer on its merits. (Compare the observations of McColl JA, with whom Spigelman CJ and Beazley JA agreed, in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No. 2) [2008] NSWCA 273 at [35].) 21 It has not been suggested - or if it had been suggested I would not accept - that the time limited for consideration and acceptance of the offer, at least in relation to the legal and commercial merits of acceptance, was unreasonable. My reasons for not accepting it would be those considerations to which I have referred: the commercial sophistication of the parties, the excellence of legal advice available to them, the fact that a mediation had occurred, and the fact that they were engaged in the process of preparing for hearing. 22 Mr Mehigan adverted to a number of reasons why, he submitted, it was either reasonable, or at least not unreasonable, for Towry Law and AMP to let the offer go unaccepted. He submitted, and I agree, that this was a complex case involving difficult contested issues of fact and law. Although I have found against Towry Law and AMP, I would not for a minute embrace the proposition that it was totally unreasonable for them to have run the case. The issues of construction in particular were complex, and finely balanced. The conclusion to which I came on the issue of construction involved, as I recognised at [88] of my reasons, dereliction from the general principle that an expression used in a commercial agreement should be given a consistent construction wherever it appears. 23 However, insofar as the case involved not merely issues of construction but also issues of rectification and estoppel, the position is somewhat different. The case advanced by Towry Law and AMP on those matters depended upon a particular view of the facts, said to have been in the minds of AMP by its relevant officers at all material times. However, as I found, the understanding and intention of AMP by its relevant officers at all material times was substantially different to that which they professed in their statements. In truth, I found, the real picture emerged in their cross-examination. That real picture was entirely consistent with the factual matters on which the underwriters relied; it was supported by an internal memorandum of Ms Zolezzi of AMP on which the underwriters placed great weight; and it was consistent with the attitude of AMP's broker AON insofar as that attitude appeared from AON's documents. 24 It was not put that the factual case advanced by Towry Law and AMP was advanced in bad faith. However, it is undoubtedly the fact, that, on my conclusions, on the factual case on rectification and estoppel the true position well understood by AMP and its relevant officers was substantially different to the position advanced in the witness statements of such of those officers as were called. 25 Mr Mehigan referred to other matters. He noted that the offer made by each underwriter was subject to execution of a Deed of Release, and that payment was conditional on execution of that Deed (see paragraph 8 of the Calderbank offer). 26 He submitted that it was not unreasonable for Towry Law and AMP not to accept the offer when there was some uncertainty as to whether acceptance would create an immediately binding contract or only an agreement to agree. He noted that the terms of the Deed of Release had not been specified in the Calderbank offer, and that no draft Deed of Release had been submitted for consideration. 27 The background to the offer includes not only the matters to which I have referred but also the fact that, as is recorded in an agreement that was Schedule 2 to the Short Minutes of Order provided to the Court by consent on 19 October 2007 (propounding the order for separate determination that was made) the parties had agreed on the consequences of a determination of the substance of the separate questions in favour of the underwriters. Indeed, the Calderbank offer noted that it was made on the basis of that agreement (see paragraph 7 (2)). 28 It is hard to understand how the Deed of Release could have been more than a mere formality, bearing in mind that no one could possibly have thought that claims for indemnity in relation to events after 3 August 2001 would be released, and having regard to paragraph 14 of the Calderbank offer. By paragraph 14, the underwriters stipulated that acceptance of the offer would release them from any claim, whether made or contingent or foreshadowed, arising from matters that occurred prior to 3 August 2001. 29 Thus, I think, it is appropriate to conclude that the Deed of Release would have done no more than formalise the structure that was set out in the Calderbank offer amplified by reference to the agreement of 19 October 2007. But in any event, had it been this consideration that troubled Towry Law and AMP, it would have been open to them to seek clarification. There is no evidence that in fact this consideration troubled Towry Law and AMP (I accept of course that the persuasive onus in relation to reasonableness/unreasonableness lies in the first instance with the underwriters). There is no evidence that they sought clarification, or a draft of the Deed of Release. 30 In addition, Mr Mehigan pointed to the circumstances that each underwriter was offering to pay only its proportionate share of costs. He contrasted this with the position under an offer of compromise made by several defendants, where normally each defendant would have a joint and several liability for all costs if the offer were accepted. 31 The point of the comparison is correct. That simply means that, in this respect at least, the Calderbank offer was not as favourable as an offer of compromise might have been. It does not follow that this translates into a circumstance making it reasonable for Towry Law and AMP not to accept the offer, or negating unreasonableness if otherwise that should be inferred. 32 In addition, as Mr Rich pointed out, there is powerful evidence to suggest that Towry Law and AMP had a strong and fixed view of their prospects of success, which view they had held for some time prior to 3 September 2008 (or 12 September 2008) and which view they continued to hold well after the hearing of the separate questions had been concluded (with my reservation of judgment). That is apparent from a letter of 29 October 2008 written by the solicitors for Towry Law and AMP to the solicitors for the underwriters. That letter stated, among other things, that the hearing of the separate questions did not give Towry Law and AMP any reason to change their evaluation of the case and that their clients' view of the case remained as it had been at mediation. By that letter, Towry Law and AMP also offer to settle for $55 million (in relation to all claims regardless of the date of the events giving rise to them) on certain terms, with each party bearing its own costs. 33 It is I think a legitimate inference from that letter that Towry Law and AMP had had a fixed view of their prospects of success (if my conclusions are correct, unfounded) from well before 3 September 2008. 34 On that basis, I think, it is open to infer that the real motivation for the non-acceptance of the offer was not any concern as to the matters to which Mr Mehigan has today brought attention but, rather, that view. 35 I should note that the Calderbank offer did not articulate, as is often done, the reasons why it was a reasonable offer. That is to say, it did not canvas the issues of fact and law, or the underwriters' view of the likely resolution of those issues. 36 In a number of cases, where such argumentative discourse is undertaken, it has been said that it is appropriate to look to the arguments advanced to see whether they should have persuaded the party to whom they were directed to change its view. In this case Mr Mehigan did not rely upon the absence of such argumentative discourse as a separate reason for supporting his contention that it was either reasonable or not unreasonable, for his clients not to accept the offer. Had that proposition been advanced, I would not have accepted it, bearing in mind the matters to which I have referred above as to the mediation, the commercial sophistication of the parties and the quality of the advice available to them. 37 In all the circumstances, I conclude that the underwriters have discharged the burden of showing that the non-acceptance of the offer was relevantly unreasonable, so as to found an order for indemnity costs. However, in my view, where the offer was open for acceptance until (ultimately) 12 September 2008, so that the question of unreasonableness cannot be said to arise until the offer lapsed according to its amended terms, I think that the appropriate order is that the costs of the separate questions be paid up until and including that date on the ordinary basis and thereafter on the indemnity basis. 38 I note also that the underwriters seek indemnity costs to the date of making of these orders. In circumstances where there were two aspects to the debate today, I do not think that that is appropriate, because to give the underwriters their costs of an issue on which they have failed on an indemnity basis would not be just to Towry Law and AMP. 39 My tentative view is that the indemnity costs should run until some antecedent date - perhaps 19 December 2008 when I delivered judgment - and that there should be no order as to costs thereafter up until and including today having regard to what has happened today. I will however hear counsel on the precise form of the orders. (Discussion ensued re orders.)

Towry Law v Chubb Insurance

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Parties

Cases Cited (1)