Gerling Australia Insurance Company Pty Ltd (ACN 069 085 196)

There is no order as to costs in this proceeding as between the Second Respondent and the Joined Party

Gerling Australia Insurance Company Pty Ltd (ACN 069 085 196)

There is no order as to costs in this proceeding as between the First Respondent and the Joined Party

1. These three matters came before me on 7 October 2004 to determine claims for costs as between Hansen Yuncken Pty Ltd ("Hansen") and Gerling Insurance Ltd, the Joined Party ("Gerling"). The three sets of proceedings, together with a fourth proceeding, were heard by me in July and August last year. All four proceedings concerned the construction of an apartment block in Port Melbourne by Hansen.

2. Gerling was the underwriter of a contract works policy which indemnified Hansen from, amongst other things, liability for consequential damage arising from its defective workmanship on the project. The claim by Hansen against Gerling originally included a claim for a declaration as to Hansen's entitlement to be indemnified by Gerling. However, at the commencement of the hearing I pointed out to the parties that, by reason of s.124(2) of the Victorian Civil and Administrative Tribunal Act 1998, the Tribunal's power to grant a declaration could only be exercised by a Presidential Member. The prayer for relief was then amended to seek instead a determination to the same effect.

3. Early in the original hearing, Mr Alstergren applied to have Hansen's action against Gerling in each proceeding struck out or alternatively, for the Tribunal to be reconstituted to include a Presidential Member. The basis of this application was that, because the liability of an insurer under an indemnity policy is derivative, a claim under the policy cannot be made until such time as the insured's liability to the third party is established and the amount of the loss is ascertained. Since the purpose of these three sets of proceeding was to determine the claims made against Hansen and quantify its liability (if any) to the various Applicants, all that could be sought in the meantime was a declaration as to Hansen's entitlements under the policy. Since that was no longer sought and since the claim for indemnity was premature, there was no claim that could be brought against Gerling at the time each proceeding against it was commenced.

4. No Presidential Member was available to hear the matter and, although I upheld the correctness of Mr Alstergren's argument, I declined to strike out any of the proceedings or remove Gerling as a party because, regardless of whether a mere determination against Gerling in Hansen's favour would be of any immediate practicable value, it was nonetheless desirable that Gerling should be bound by or have the benefit of the findings of fact that would be made in each case. In my final reasons for decision, I articulated the basis for leaving Gerling in the proceedings as follows:

"The purpose of leaving Gerling in as a party...to these proceedings was so that it would be bound by, or have the benefit of, any orders made. This is particularly important in regard to the determination of the liability of Hansen to other parties and the establishment of the extent of the Builder's liability with respect to the rectification works."

At the conclusion of the order that I made in each proceeding, I reserved liberty to both Hansen and Gerling to apply as to the form of any order between them consequent upon the findings made in the Reasons for Decision. Pursuant to that leave, an order was made in the three proceedings by consent on 26 August 2004, as follows:

(a)

In proceeding D2777, that Gerliing to pay Hansen $55,615.09;

(b)

In proceeding D45, that Gerling to pay Hansen $ 8,743.00;

(c)

In proceeding D79, that Gerling to pay Hansen $9,750.00.

Although these orders were ultimately by consent, I was first asked to determine a dispute as to whether there was only one excess of $10,000 payable by Hansen under the policy or two. After hearing argument, that point was decided in favour of Hansen and the above orders were then made.

Hansen now seeks an order for the costs of the proceeding against Gerling on the County Court Scale appropriate to each amount recovered. The application is opposed by Gerling which seeks an order for costs against Hansen.

Orders for costs in this Tribunal are made pursuant to Division 8 of Part 4 of the Victorian Civil and Administrative Tribunal Act 1998 ("the Act"). The starting point is subsection (1), which provides that, subject to that Division, parties pay their own costs. Subsection (2) provides that the Tribunal may make an order for costs and subsection (3) sets out a number of relevant matters to be considered in dealing with any application for costs.

The bases upon which Mr Whitten argues that Hansen ought to be awarded costs are as follows:

(a)

In each case, it was a commercial inter partes dispute;

(b)

Hansen was substantially successful;

(c)

The issues were both factually and legally complex;

(d)

In each proceeding, Gerling initially conducted the defence in the name of Hansen and then denied liability under the policy, leaving Hansen to defend each action itself.

(e)

If costs are not ordered, the amounts recovered may be less than the costs incurred in recovering them.

9. Save for what follows, I think that this would an appropriate case where costs should be ordered in favour of the successful party. In particular, the first and last of the considerations urged by Mr Whitten set out in the last preceding paragraph are of considerable force. On a scale of complexity and difficulty, this case would rate very highly indeed. It is also a commercial matter between two trading entities and one where a considerable amount must have been spent in costs by both sides.

10. Mr Whitten did not urge that legal costs were covered by the policy. Indeed, as Mr Alstergren pointed out, I found that Hansen was entitled to indemnity only pursuant to Section D of the policy and that section does not appear to include indemnity for costs incurred in enforcing a claim.

11. Mr Alstergren submitted that no order should be made for Hansen's costs for a number of reasons. First, he said that the proceeding between Hansen and Gerling was only a very small part of a very large overall whole. That is true, but insofar as costs have been incurred in regard to the prosecution of that proceeding, they ought to be dealt with.

12. Mr Alstergren then drew my attention to two offers of settlement that Gerling made. They were as follows:

(a) In proceeding D79/2001, Gerling offered to pay Hansen $11,906 plus its reasonable costs in respect of the proceeding against Gerling. The offer was open for only one day and stated that if it were not accepted and Hansen did not do better at trial, Gerling would seek an order for costs on an indemnity basis;

(b) In proceeding D277/2001, Gerling offered to pay Hansen $70,000 plus reasonable party/party costs on County Court Scale D. Again it was open for only one day and again it stated that if Hansen did not do better at trial Gerling would seek costs on an indemnity basis.

Since each offer was only open for one day, neither qualifies as an offer to which s.112 of the Act applies, Mr Whitten submitted that there was doubt as to whether a Calderbank offer can be made in proceedings before this Tribunal and cited the Tribunal's decision in Fasham Johnson v Ware [2004] VCAT 1708. I think it is well established that Calderbank offers can be made in proceedings before this Tribunal. Although in the decision relied upon by Mr Whitten the learned Senior Member expressed the view that, in the light of the regime fixed by the Act it may be doubted whether there is any room for a Calderbank offer to be made, he said that such letters are such a useful and flexible weapon for litigants that he should not rule that the provisions of the Act preclude such an offer being made. I respectfully agree.

Mr Alstergren referred to the well known passage in the judgment of Gillard J. in M T Associates Pty Ltd v Aqua-max Pty Ltd & another (No. 3) [2000] VSC 163 where His Honour said (at paragraph 74 of the decision):

"In my opinion any form of offer assuming it can be adduced into evidence should be considered by the Court on the question of costs and overly technical reasons given by the other party in not seriously considering an offer should be rejected.

The fact is that in litigation experienced Counsel and litigation solicitors have a very good idea during the course of a trial as to what their clients should receive or be expected to pay. It is not difficult in most cases to make an assessment of the risks involved and what is a fair compromise to the client. A Court will always give reasonable time to the parties to consider settlement. If a proposal is put forward the litigant and his advisor receiving the proposal ignores that proposal at his peril. Some proposals will involve discussions and negotiations between the parties. But any litigant and his advisor who takes the view that the proposal or offer can be ignored on some technical ground does so at their own risk."

15. I agree with Mr Whitten's submission that the mere fact that a Calderbank offer is not exempt it does not automatically follow that the party making the offer is entitled to an award of costs. All of the circumstances must be looked at, including the reasonableness or otherwise of the party to whom the offer was addressed. The case between these parties was one of extraordinary complexity, not only as to its subject matter but also its very nature. It is difficult to say that a party has acted unreasonably in not accepting the offer when it had only one day to evaluate it and notify its acceptance.

16. In each case the offer exceeded the amount that was ultimately awarded by consent. However it is important to bear in mind that there was no subsequent proceeding between the parties to enforce the claim. They reached agreement as to what was due on the basis of the facts found in these proceedings and sought a consent order in these proceedings. That was a sensible course and would have saved considerable costs.

17. At the conclusion of the original hearing there was no substantive order that I could make between these two parties. For the reasons expressed earlier, the only relief that Hansen could have obtained against Gerling was a declaration and I was not able to grant one. All I could do was make findings of fact in the proceedings involving the other parties. This would then facilitate the resolution of the claim by Hansen against Gerling since, as parties to the three sets of proceedings, they would both have been bound by the findings of fact made. That is what happened.

18. I think Mr Alstergren is correct in his submission that, had the parties not agreed upon the orders that I pronounced on 26 August 2004, those orders could not have been made. Although by that date I had determined the liability of Hansen to the other parties, each of the three proceedings would still, insofar as Gerling was concerned, have been premature. I could make no substantive orders in favour of Hansen. I could only make findings of fact that would assist it in its claim. Of course, Hansen could have immediately commenced fresh proceedings based upon those findings of fact and pleaded an issue estoppel, but the sensible resolution of the matter and the orders sought by consent avoided the need for that.

19. Accordingly, no comparison can be made between the terms of any offer with the outcome of the case because, apart from findings of fact which bound both parties, there was no outcome in the sense of a substantive order.

Both parties benefited from Gerling's participation in each of the principal proceedings. Gerling had the benefit of being heard in regard to the ascertainment and quantification of any loss for which it might ultimately have to indemnify Hansen. It need not have availed itself of that right. It could have adopted the position that it would be bound by any determination made and sought to be excused. However by staying and participating in the proceedings, Mr Alstergren was able to independently test the evidence and made a very useful contribution. On the other side, Hansen had the benefit of having Gerling bound by the findings made and so avoided the danger of having to litigate matters all over again.

In all the circumstances, I think that it is appropriate that there be no order as to costs.