Camellia Properties Pty Ltd v Wesfarmers General Insurance Limited
[2014] NSWSC 946
•27 June 2014
Supreme Court
New South Wales
Medium Neutral Citation: Camellia Properties Pty Ltd v Wesfarmers General Insurance Limited [2014] NSWSC 946 Hearing dates: 27 June 2014 Decision date: 27 June 2014 Jurisdiction: Equity Division Before: Sackar J Decision: See paras [68], [78], [93] and [97]-[98]
Catchwords: EQUITY - appropriate date for interest under Insurance Contracts Act 1984 - whether costs should be apportioned - whether indemnity costs should be ordered - where validity of offer of compromise not challenged - whether reasonable for defendant not to accept plaintiff's offer - whether interest on costs should be awarded Legislation Cited: Civil Procedure Act 2005
Insurance Contracts Act 1984 (Cth)
Uniform Civil Procedure Rules 2005Cases Cited: Barakat v Bazdarova [2012] NSWCA 140
Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109
Camellia Properties Pty Ltd and Ors v Wesfarmers General Insurance Ltd [2013] NSWSC 1975
Drummond v Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331
Elite Protective Personnel Pty Ltd and Anor v Salmon (No 2) [2007] NSWCA 373
Fitzpatrick v Cheal [2012] NSWSC 932
Folan v United Super Pty Ltd [2014] NSWSC 635
Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145
Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435
Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23
James and Ors v Surf Road Nominees Pty Ltd and Ors (No 2) [2005] NSWCA 296
Lahoud v Lahoud [2006] NSWSC 126
Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171
McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 306
Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344
Nino v MLC Ltd [2009] NSWSC 400
Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306
Sayseng v Kellogg Superannuation Pty Ltd and Anor (2007) 213 FLR 174; [2007] NSWSC 857
Thompson v NSW Land and Housing Corporation (No 3) [2013] NSWSC 1658
Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 288 ALR 385
Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328Texts Cited: Masel, Australian Insurance Law (LexisNexis Butterworths looseleaf service) Category: Costs Parties: Camellia Properties Pty Ltd (First Plaintiff)
SA Matthews Holdings Pty Ltd (Second Plaintiff)
Lithgow Properties Pty Ltd (Third Plaintiff)
David Ferdynand Libling (Fourth Plaintiff)
Sandra Anne Libling (Fifth Plaintiff)
Wesfarmers General Insurance Ltd (Defendant)Representation: Counsel:
M A Jones SC, C Gleeson - plaintiffs
R Cavanagh, S Walsh - defendant
Solicitors:
Corrs Westgarth Chambers - plaintiffs
Turks Legal - defendant
File Number(s): 2010/302314
Judgment - (18 July 2014)
Proceedings
In these proceedings, there are three remaining issues that need to be determined in relation to the orders that should be made in accordance with my judgment of 24 December 2013: Camellia Properties Pty Ltd and Ors v Wesfarmers General Insurance Ltd [2013] NSWSC 1975 (the principal judgment). Any terms used in this judgment have the same definition as they have in the principal judgment.
I note that I delivered an ex tempore judgment on 19 May 2014 in relation to the appropriate judgment sum, to the effect that the insurer could not re-open their case at this late stage. The appropriate judgment sum that should be entered for the plaintiffs is now agreed as being $2,015,841.48.
The first issue that arises for determination is the appropriate date from which interest should be calculated under section 57 of the Insurance Contracts Act 1984 (Cth).
The second issue is the appropriate order for costs, including whether costs should be apportioned and the impact of a purported offer of compromise.
The third issue is whether I should exercise my discretion to award interest on costs under section 101 of the Civil Procedure Act 2005.
I heard oral argument on these issues on 27 June 2014 and had the benefit of detailed written submissions in advance. At the end of argument, I announced my conclusions in relation to each of the issues and I indicated that I would subsequently publish my reasons.
Legal principles
The Appropriate Date for Interest
Section 57 of the Insurance Contracts Act 1984 relevantly provides:
Interest on claims
(1) Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section.
(2) The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days:
(a) the day on which the payment is made;
(b) the day on which the payment is sent by post to the person to whom it is payable.
(3) The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations.
(4) This section applies to the exclusion of any other law that would otherwise apply.
(5) In subsection (4):
"law" means:
(a) a statutory law of the Commonwealth, a State or a Territory; or
(b) a rule of common law or equity.
In Australian Insurance Law at [11,200A] the following observations are made:
Interest under s 57 runs from the date from which it was "unreasonable for the insurer to have withheld payment".
That investigation requires the court to exercise its discretion, having regard to all the circumstances: see GRE Insurance Ltd v Allinghams Removals Pty Ltd (t/as Allinghams Removals and Mac Hodges Removals) (1996) 9 ANZ Ins Cas 61-354; Hams v CGU Insurance Ltd (2002) 12 ANZ Ins Cas 61-525; [2002] NSWSC
273; Nino v MLC Ltd [2009] NSWSC 400; De Smeth v NSW Fire Brigades Superannuation Pty Ltd [2013]NSWSC 19.;
The date upon which it becomes unreasonable for an insurer to withhold payment of a claim does not involve consideration of any concept of a bona fide dispute. The Act does not require the court to evaluate or make a declaration in respect of the insurer's decision-making procedure, nor is there any requirement that the court consider whether the insurer acted bona fide in rejecting the claim.
It is at the court's discretion to evaluate the notion of reasonableness in terms of the true position and nature of the claim, and in light of the particular circumstances of the case -- encompassing the probable issues for the enquiry and incorporating concession for the period of time in which claims require appropriate investigation. Thus, it is necessary to make a determination as to the reasonable time for completion of the investigation into the claim in forming an opinion on the date from which it was unreasonable to withhold payment of the claim.
The plaintiffs submit that the date from which it was unreasonable for the insurer to have withheld payment from the plaintiffs was the date of the insurer's first offer of settlement on 10 August 2009. The plaintiffs submit that as at that date, the insurer had undertaken its investigations and had in its possession a number of estimates within the range of the reasonable costs of reinstatement.
The defendant submits that a reasonable period to consider the Rhodes-White tender and make payment is three months from 15 December 2009 (the date of that tender), and therefore interest in respect of the reinstatement costs (not including mould remediation) should run from 15 March 2010.
In Sayseng v Kellogg Superannuation Pty Ltd and Anor (2007) 213 FLR 174; [2007] NSWSC 857, Nicholas J observed:
[4] The plaintiff submitted that the court should adopt the approach taken by Cole, J in Bankstown Football Club v CIC Insurance Limited (Unreported, NSWSC, 17 December 1993) in which he said:
"In my view s 57 is directed to a determination of the point of time at which empirically it can be stated that it was unreasonable to decline to make a payment. The decision is not to be determined simply by a determination of whether or not there was a bona fide dispute regarding the entitlement to payment. It is rather to be determined by a finding as to whether or not there was liability.
If there was liability found and the insurer to pay, then the presumption must be that the insurer ought be deemed to know of that obligation as ultimately determined, even though it may bona fide have held a different view at all times prior to determination, at least at the first instance level, in relation to the question of liability.
A reasonable period is to be given to the insurer to investigate and determine its position. But if it adopts an incorrect position in relation to its obligation to pay under the policy, that, in my view, does not mean that simply because that incorrect position is adopted on a bona fide basis, it becomes reasonable for the insurer to decline to pay the sums otherwise due. That seems to be the correct interpretation of s 57(2), particularly in circumstances of s 57(1) of the Act, where an insurer is liable to pay a person an amount under a contract of insurance."
...
[7] In my opinion it should now be accepted that the correct approach to be taken by the court on this question is that taken by Cole, J in Bankstown Football Club. In my assessment, the cases to which I have referred establish that the question of reasonableness is to be judged by reference to the true position in respect of the claim with allowance to be made for the insurer to have a reasonable period of time within which to investigate the claim and to consider its position. The discretionary determination is to be made having regard to the particular circumstances of the case, including the probable issues which require investigation. Under the Act the court is not required to evaluate and pronounce upon the opinion or decision-making process of the insurer. It is not relevant that the insurer acted bona fide in denying the claim, or when the judgment of the court established the insurer's liability to pay it. In short, the award will be calculated on the basis of what the court finds is a reasonable time for completion of the insurer's investigation of the claim. Put another way, in my opinion, the insurer is not automatically liable to pay interest from the day on which it became liable to pay to a person an amount under a contract of insurance. Under s 57(2) liability to pay interest is to be calculated with regard to the day on which it was unreasonable for the insurer to withhold payment of the amount after it had become liable to pay it in response to a claim.
[emphasis added]
His Honour accepted the submission of the plaintiff that interest should run from a date three months after the insurer had received certain medical reports and other documents: see [9], [22]-[23].
As Hislop J in Thompson v NSW Land and Housing Corporation (No 3) [2013] NSWSC 1658 at [19] and McDougall J in Folan v United Super Pty Ltd [2014] NSWSC 635 at [5]-[8] observed, Nicholas J's decision has been followed on numerous occasions without dissent and it is appropriate for this Court to follow it.
In Nino v MLC Ltd [2009] NSWSC 400, White J also considered the date from which it was unreasonable for the insurer to withhold payment. His Honour also cited the passages above from Sayseng with approval, and observed that "in the circumstances, I accept that a period of three months from the making of the claim is a reasonable period for it to have conducted such an investigation": at [30].
It must be emphasised however that the period of three months carries no particular weight. In the cases referred to by the insurer, it is clear that it merely serves as a convenient timeframe in the particular circumstances of each case, and should not be taken as placing a burden on insurers to complete all investigations within three months or run the risk of being seen as unreasonable.
The Appropriate Order for Costs
There are two issues in relation to the appropriate order for costs, namely whether there should be an apportionment and the impact of a purported offer of compromise. I will consider the legal principles in relation to each issue in turn.
The defendants seek the apportionment of costs on the basis of separate and clearly discrete issues.
It would ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between the particular issues on which it was successful and those on which it failed (Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328). This is "the commencing position" (Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24] per Beazley, Ipp and Tobias JJA).
However, where the matters upon which a party is unsuccessful took up a significant part of the trial, either by way of evidence or argument (Sabah Yazgi v Permanent Custodians Limited (No 2) at [24]) or where a particular issue or group of issues on which a party is unsuccessful is clearly dominant or separable from those on which it was successful (Elite Protective Personnel Pty Ltd and Anor v Salmon (No 2) [2007] NSWCA 373 at [6] per Beazley, McColl and Basten JJA) the costs of the proceedings may be apportioned among the parties.
It appears that this qualification to the general rule may apply more readily to a plaintiff who has raised additional issues on which they failed, than to a successful defendant who reasonably raised additional, but unsuccessful, defences (Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [19]-[20] per Hodgson JA with whom McClellan CJ at CL agreed, and at [38]-[39] per Basten JA; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [9]-[10] per Hodgson JA with whom Allsop P and Macfarlan JA agreed).
Where the court decides to apportion costs, the apportionment itself involves the exercise of discretion, and mathematical precision is said to be illusory (James and Ors v Surf Road Nominees Pty Ltd and Ors (No 2) [2005] NSWCA 296 at [36] per Beazley, Tobias and McColl JJA; Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 288 ALR 385 at [84] per Campbell JA with whom Macfarlan and Young JJA agreed).
The exercise of the court's discretion as to costs ultimately requires an assessment of what is fair in all the circumstances (McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 306 at [22] and [24] per Ward J).
The second issue is the claim by the plaintiff for their costs on the indemnity basis.
The plaintiffs make application for their costs to be paid on the ordinary basis to 26 November 2010, and then on the indemnity basis thereafter on the basis of a purported offer of compromise. The plaintiffs assert that an offer of compromise was made pursuant to UCPR rule 20.26 on 26 November 2010 in the amount of $1,665,000 (exclusive of costs). The agreed judgment sum clearly exceeds this offer and the application for indemnity costs is made under UCPR rule 42.14, and under rule 42.2 to order costs on a basis other than the ordinary basis.
Rule 42.14 provides:
42.14 Where offer not accepted and judgment no less favourable to plaintiff
(1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer.
(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim:
(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and
(b) assessed on an indemnity basis:
(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and
(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
The defendant makes no submissions as to the validity of offer of compromise in terms of its compliance with the rules (for example it is made exclusive of costs and therefore avoids any associated difficulties, nor is any challenge made as to the time it was open for acceptance or whether it formed a genuine compromise), and therefore it is unnecessary to canvass the many decisions touching upon those issues.
As was said in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] per Basten JA (McColl and Campbell JJA agreeing):
...The expansion of formal rules providing for offers of compromise has not diminished the willingness of the courts to act upon informal offers, rather the contrary. However, there is no presumption that an offeree who does not accept an offer and does not obtain a judgment more favourable than the offer will necessarily pay indemnity costs from the date of the offer: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] (Santow JA, Stein AJA agreeing); Jones v Bradley (No 2) [2003] NSWCA 258 at [6]- [9]; Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; 67 NSWLR 719 at [18]. The approach frequently adopted in this jurisdiction has been to ask two questions, namely whether -
(a) there was a genuine offer of compromise, and
(b) it was unreasonable for the offeree not to accept it.
The defendant does submit that it was not unreasonable for it not to accept the plaintiff's offer at the time it was made on 26 November 2010.
In determining the reasonableness of an offeree's non-acceptance of an offer is to be assessed at the time it was made and not with the benefit of hindsight: Miwa. The stage of the proceeding at which the offer was received is a relevant matter to be considered: Miwa at [12] citing Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435, Fitzpatrick v Cheal [2012] NSWSC 932 at [120].
The plaintiff submits that the "otherwise order" criteria in UCPR rule 42.14 requires the defendant to carry the onus of pointing out the circumstances that deny the entitlement provided for by the rules: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 at [34]-[35]; Barakat v Bazdarova [2012] NSWCA 140.
Interest on Costs
The plaintiff claims interest on their costs pursuant to section 101(4) of the Civil Procedure Act 2005, which is in the following terms:
101 Interest after judgment
(1) Unless the court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid.
(2) Interest under subsection (1) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from:
(a) the date on which the judgment takes effect, or
(b) such later date as the court may order.
(3) Despite subsection (1), interest is not payable on the amount of a judgment if the amount is paid in full within 28 days after the date on which the judgment takes effect, unless the court orders to the contrary.
(4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs.
(5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from:
(a) the date or dates on which the costs concerned were paid, or
(b) such later date as the court may order.
(6) This section does not authorise the giving of interest on any interest payable under this section.
(7) In this section, a reference to the
"prescribed rate" of interest is a reference to the rate of interest prescribed by the uniform rules for the purposes of this section.
The purpose of the power to order interest on costs "is to compensate the party entitled to costs for having been out of pocket as a result of paying legal costs over a period of time before being able to recover those costs from the other party": Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23 at [176].
In Idoport, Einstein J observed that the factors relevant to the exercise of discretion included (a) the amount of costs paid by the party entitled to costs; (b) the length of time for which the claimant is out of pocket before recovering its costs; (c) whether, during that time, the respondent has had the use of the money in a commercial enterprise; and (d) how the parties have conducted themselves during the litigation: at [177].
In Lahoud v Lahoud [2006] NSWSC 126 at [82], Campbell J observed that "there is no requirement, before an order for payment of interest on costs is made, for the Court to be satisfied that the circumstances of the case are out of the ordinary".
It is also useful to bear in mind the comments of Campbell J at [81] in regards to a lack of evidence regarding whether the plaintiff had actually paid certain costs and disbursements:
[81] Mr Gyles [counsel for the defendant] submits that this lack of evidence means that there is an insufficient evidentiary foundation for the making of the order. I do not agree. The various proceedings which were determined by Palmer J are ones which, now, were commenced over five years ago. The plaintiffs have been represented by various firms of solicitors, and various counsel, in that time. There has been extensive preparation, including by making interlocutory applications to the Court. The litigation is commercial litigation, a species of litigation concerning which there is no regular practice of lawyers accepting work on a speculative basis. In my view it is more likely than not that the plaintiffs have had to pay some amounts of costs and disbursements as the litigation has progressed. Further, even if I were wrong in drawing this inference, the form of order which the plaintiffs seek is one which makes interest on a particular amount of costs run only from the date when an actual payment of that amount is made. If an order in that form were to be made, it would contain its own safeguard against the plaintiffs being able to recover interest concerning amounts of costs and disbursements which they had not actually paid.
A similar approach was adopted in Drummond v Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331 (per Macfarlan JA, Tobias JA agreeing)
In Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283, the Court of Appeal adopted the approach of Campbell J in Lahoud v Lahoud [2006] NSWSC 126 as to the form of the appropriate orders in relation to interest on costs and made the following orders at [9]:
[9] For those reasons, we make the following additional orders:
3. Costs of the appeal to be assessed on an indemnity basis.
4. In this order:
X equals the total amount of costs and disbursements paid or liable to be paid to the respondent's legal advisers in connection with these proceedings;
Y equals the total amount of costs and disbursements allowed on assessment to the respondent in connection with these proceedings; and
The Allowed Percentage equals ((Y/X) x 100)%
Appellant to pay to the respondent interest on costs and disbursements, at the rates set out in Schedule 5 to the Uniform Civil Procedure Rules, on the Allowed Percentage of each amount for or on account of costs and disbursements actually paid to his legal advisers by or on behalf of the respondent, from the date of payment of each such amount until the first to occur of:
(a) such time as the appellant has paid the costs due to the respondent under order 3 above, or
(b) any further order relating to interest on costs in these proceedings.
5. Reserve liberty to apply on 7 days' notice for any further order pursuant to paragraph 4(b).
The defendant merely submits that the Court should not exercise the discretion in awarding such interest, without any further explanation. In the alternative, it contends that interest should run from 22 December 2012, again without further explanation.
Discussion
Interest under Section 57
As was pointed out by Nicholas J in Sayseng v Kellogg Superannuation Pty Ltd & Anor one has to judge the question of reasonableness for the purposes of the section by reference to the true position in respect of the claim but importantly due allowance must be made for an insurer to be given a reasonable period of time for the insurer to complete its investigation of the claim.
It is necessary to briefly reiterate some salient events. They are extracted from the principal judgment at paragraphs [11] to [75].
The fire which seriously damaged the house occurred on 30 September 2008: at [11]. At a meeting on 2 October, although the insurer made it clear that a forensic investigation of the fire would need to be undertaken, it advanced some $100,000 to Mr and Mrs Libling to cover urgent out of pocket expenses: at [13].
Further discussions ensued during October. On 21 October the insurer informed the plaintiffs that liability was accepted under the policy: at [22].
In the meantime Mr and Mrs Libling were not only organising which architect they were going to use but had commenced the process of obtaining quotes for the reinstatement of the house: at [24] and [31].
On 4 November Mr Libling sent an email to Mr Lloyd indicating that he wanted approval to appoint a Mr Luigi Rosselli as architect: at [26]. Mr Lloyd informed Mr Libling that he would like him to consider appointing Mr Knox for the purposes of engineering input: at [27]. That however was not to Mr Libling's liking.
However on 5 November Mr Lloyd confirmed that it was in order for Mr Libling to instruct Mr Rosselli and that by 10 November Mr Hugh Rhodes-White of Sydcon Building Services provided an indicative quote for the reconstruction of the house: at [29] and [32]-[33].
On 10 November Mr Lloyd confirmed with Mr Libling that it was in order for Mr Rosselli to retain his preferred consultant KCJ Constructions (a building firm) and O'Hearn Consulting (an engineering firm). Mr Lloyd however advised Mr Libling that he still would keep Mr Knox involved as an advisor: at [34].
By 21 November Mr Libling had received a draft report from O'Hearn Consulting which identified extensive areas of damage to the house: at [37]. Mr Rosselli provided a report by 3 December in which he identified again which in his opinion needed to be done by way of demolition and replacement: at [38].
KCJ had already provided a fire damage report on 25 November. For that purpose Mr Martin, the principal of KCJ, had undertaken a detailed inspection of the property. The further report was prepared by KCJ on 2 December: at [38]-[41].
By 4 December Mr Lloyd had received reports from Mr Rosselli, Mr O'Hearn and Mr Martin of KCJ. Mr Knox was asked to review the various reports on 11 December. Mr Knox provided comments by 15 December: at [43]-[44].
On 16 December Mr Lloyd provided a fire damage report for Mr Day: at [45].
On 5 January 2009 Mr Libling was told by Mr Lloyd that the various reports that had been obtained were "in order": at [46].
Through January and February there were numerous meetings, the details of which I have set out in the principal judgment at [46]-[52]. On 13 March KCJ was given a letter of instruction as to the tasks he was to undertake in providing his assessment of the costs of reinstatement. On 2 April Mr Lloyd was provided with a package of documents prepared by Mr Rosselli which included amongst other things the letter of instructions sent to Mr Martin: at [54].
On 23 April an estimate was provided by KCJ to Mr Libling and Mr Rosselli which in turn was provided to the defendant: at [55].
On 8 May the defendant received KCJ's costings. The total cost including GST was estimated at $4,183,667: at [56].
On 11 May the KCJ report was sent to Mr Knox and Mr Meredith for review on behalf of the defendant: at [57].
In June and July Mr Meredith provided reports on his view as to costings and scope of work to Mr and Mrs Libling and to the insurer. In the report of 31 July Mr Meredith was critical of the KCJ estimate. He assessed what he thought was the reasonable costs of reinstatement at $2,238,280 including GST. He made it abundantly plain that he regarded the KCJ estimate as unreasonable and an inappropriate basis upon which to assess the actual costs of reinstatement of the house: at [63].
On 10 August the insurer made an offer of settlement to Mr and Mrs Libling for $2.5 million for the entire claim: at [64].
As the result of a meeting between Mr Day and Mr Martin to discuss KCJ's costings and on 19 October the defendant made a second offer of $3.018 million for the settlement of the claim: at [70].
On 29 October Mr Libling made a counter offer of $3,867,000: at [71]. Further on the same day Mr Rhodes-White at Sydcon was provided with two letters requesting a price for a restoration of the house as it was in the alternative the restoration with some minor additions. On 30 November the insurer made its final payment of $2.4 million: at [74]. On 16 December Sydcon provided its tenders: at [75].
It is plain to me that the insurer unsurprisingly commenced a relatively prompt investigation of not only the cause of the fire but the actual costs of what was involved in reinstatement. It is pointed out by the plaintiff that the time which elapsed between the insurer receiving the KCJ costing and the first offer of settlement is about three months.
Not only did the insurer have the KCJ estimate it of course previously had reports from Mr Rosselli and Mr O'Hearn and it had the advantage of discussions and reports from its own experts Mr Knox and Mr Meredith. It obviously placed great trust particularly in Mr Meredith who gave quite a precise assessment of the reasonable cost of reinstatement on 31 July. Having considered that for a number of weeks the insurer felt able to make a substantial offer of $2.5 million on 10 August. There is also no doubt in my mind that the insurer may well have been taken somewhat by surprise with the size of the KCJ estimate. However it galvanised its thinking sufficiently to consult with Mr Meredith and undoubtedly form its own view as to what it wanted to offer and why. It is inconceivable that any party, not the least an insurer, would make an offer of the size of $2.5 million not having investigated the claim to its satisfaction. The plaintiffs submit therefore that the relevant date for the purposes of section 57 should be 10 August 2009.
The defendant submits that the appropriate date is 15 March 2010 which, as is pointed out, is approximately nine months after the receipt of the KCJ costing and another six months after it made its first offer.
The submission of the defendant as to the appropriate date under section 57 relies upon the date of the Sydcon tender and then a three month investigation period. However, that submission suffers from a number of difficulties.
First and foremost, the Sydcon tender of $4,304,067 (with an allowance of $253,000 for remediation) exceeded the KCJ figure of $4,183,667 (with an allowance of $219,439). The Sydcon tender was based on the same scope of work and was less detailed than the KCJ material: see [407] of the principal judgment.
Second, it is a hypothetical scenario as the insurer did not in fact receive the tender until 22 December 2012. The defendant submits that it was not unreasonable for it to have declined to pay a claim that ultimately succeeded on the basis of a document it had not yet seen. However, it certainly appears odd that the defendant now, with the benefit of hindsight, points to the date of that document as the appropriate time from which a three month investigation period should be calculated.
Thirdly, even if was given the Sydcon tender when it was produced, the defendant cannot it seems to me point to what it would have done differently. The three month period for investigation that would run from the date of the Sydcon tender would suggest the first offer of settlement made earlier on 10 August 2009 was simply made without proper investigation. This is a submission that is contrary to the obvious facts and it cannot be accepted.
The insurer points to the criticisms made by Mr Meredith. I regard that as frankly irrelevant. As is correctly pointed out by the plaintiff, to place any significant weight on those criticisms, even if made in good faith, would give the insurer an unjustified benefit by obtaining and relying on incorrect advice: Folan v United Super Pty Ltd [2014] NSWSC 635 at [7] per McDougall J.
For the reasons I have already advanced I do think the appropriate date is the date of the first offer. Therefore in my view interest in relation to section 57 should run from 10 August 2009.
Apportionment of Costs
It is perfectly correct, as is submitted by the defendant, that there were a number of issues which needed to be dealt with in the course of the trial. There were estoppels pleaded by the plaintiffs and each side accused the other of a breach of section 13 of the Insurance Contracts Act 1984 (Cth). I rejected all of those arguments.
The defendant submits that apportionment is appropriate because the plaintiff failed on the KCJ estoppel, the alternative accommodation estoppel, the November/December reports estoppel and the allegation of bad faith. In order to illustrate such an apportionment, the defendant sets out the number of paragraphs in the Commercial List Statement, the time taken in the hearing and the number of pages concerning those issues in the principal judgment.
It also submits that the plaintiff has unfairly, improperly or unnecessarily increased the costs because Mr Libling sought to keep the estimation process from the insurer. I noted in the principal judgment that it must have occurred to him that what he was doing was 'somewhat inappropriate': see [349].
Therefore the defendant submits that the appropriate order is that the defendant pay the plaintiff's costs of the proceedings, limited to 50%.
The plaintiff put forward a number of submissions as to why apportionment would not be appropriate. The primary submission was that the plaintiff had a commercial objective, which was achieved, and that the vast bulk of evidence was relevant to the number of different causes of action that were relied upon. It submits that the evidence that might be seen to go to one of the ultimately unsuccessful arguments provided important factual context and served a multitude of purposes.
I do not think this is an appropriate case for the apportionment of costs. Indeed such an approach in a case like this I think is rather simplistic. It was not the sort of trial where one could with any real precision or with any degree of accuracy apportion time or effort especially with the issues I have just mentioned.
It was my distinct impression and evaluation over the many days that the hearing took that the extent and cost of the alleged reinstatement was quite all pervasive (see T1143). Along with the other items which were claimed under the policy, almost in every case there was a vigorous contest between the parties as to the claims and the basis for such claims. Such time as was taken up incidentally it seems to me on the estoppel issues and/or issues concerning section 13 somewhat paled into insignificance. By far the greater proportion of the evidence went to the issue of extent and costs of reinstatement. If there was a clearly dominant issue, in my view it was that.
Much time was taken during the hearing by the insurer in which it sought to establish the state of the house that existed prior to the fire, the physical condition of the house after the fire and the real necessity for repair, replacement or reinstatement of if I may say so many aspects of the house. The plaintiff correctly points out that many of these matters necessarily involved almost all of the witnesses called by the plaintiff, and for that matter the defendant.
Even on the issues of estoppel or lack of good faith the question of the reinstatement and extent of it was, as I have already commented, an ever present backdrop.
Apportionment is in my view neither practical nor warranted in this case. In my view therefore there is no basis from departing from the usual order and subject to the submissions on the question of indemnity costs and interest on costs I am of the view that the plaintiff should have their costs paid by the defendant.
Indemnity Costs
The plaintiff makes application for their costs to be paid on an ordinary basis to 26 November 2010 and then on an indemnity basis from that date. The plaintiffs submit that the order should be made pursuant to UCPR 42.14 and pursuant to the court's discretion under UCPR 42.2.
On 26 November the plaintiffs made an offer of compromise pursuant to UCPR 20.26 in the amount of $1,665,000. It is uncontroversial that the agreed judgment sum excluding any interest which would have accrued to 26 November 2010 well exceeds that offer and is somewhere in excess of $2 million.
The defendant does not contend that the offer of compromise does not comply with the rules. The plaintiffs therefore submit there is no countervailing considerations and that I should award costs on an indemnity basis from 26 November 2010.
The defendant submits that it was not unreasonable for it not to accept the plaintiffs offer at the time it was made. Further it submits that in determining the reasonableness of the offer, the response of the offeree is to be assessed at the time it was made and not with the benefit of hindsight. Therefore the defendant submits the appropriate enquiry is not directed towards the subjective intentions of the offeror.
Appropriately it is also pointed out on behalf of the defendant that the stage of the proceedings when the offer was made is a relevant consideration. It asserts that the offer was made approximately two months after the issue of proceedings prior to discovery, expert evidence and prior to the quantification of the plaintiff's claims in the proceedings. The defendant asserts that the plaintiffs did not in fact serve a schedule quantifying their claim until 13 December 2013.
The defendant also submits that the offer was made 13 months prior to the provision by the plaintiffs of the tender by Mr Rhodes-White, which was not provided to the defendant until 22 December 2012.
The defendant submits the appropriate order is that the defendant pays the plaintiff's costs of the proceedings on an ordinary basis.
I am unable to accept these submissions on behalf of the defendant.
The fire occurred in 2008. The defendant in my view having investigated the claim with the benefit of its experts, the details of which I have referred to earlier, felt able to make an offer initially of $2.5 million and then one slightly in excess of $3 million a short time later.
It was well aware from 2009 where the battle lines were drawn and well aware of the quality and extent of much of the evidence which would obviously be available to the plaintiffs in the course of the litigation. This was clearly likely to include Mr Rosselli, Mr Hassall and Mr Martin, to name only three.
The very nature of the claim in this case had already seen multiple professionals on both sides retained to thoroughly inspect and assess the extent of the reinstatement necessary and the likely costs associated therewith.
The litigation only moved the parties from one setting to another. By that I mean that they continued to maintain their respective positions notwithstanding the litigation being commenced in late 2010. In my view the insurer's position was driven in part by the initial concern over the KCJ costing. It never really came to terms in my view with the reality of what was truly involved in the reinstatement process. The insurer steadfastly refused to change its position.
I could see very little difference in the strategy adopted by the insurer at the trial to the attitude displayed as early as July 2009 by Mr Meredith, which the insurer wholeheartedly endorsed. Mr Meredith's view and attitude became the defendant's mantra.
The insurer had, in my view both unrealistically and wholly unreasonably, concluded that the plaintiff's claim was unjustifiably inflated as early as 2009. It simply never in my mind came to terms with the nature and extent of the reinstatement that was clearly and obviously going to be necessary for a house of this quality.
All the litigation did was to provide the defendant with a more formal venue to play out its myopic and its unreasonably abstemious attitude towards the claim. To that extent I do think it behaved unreasonably and in accordance with the authorities I think it is appropriate to award indemnity costs from 26 November 2010.
Interest on Costs
Both parties accept that the court has a discretion to award interest on costs from the date on which those costs were paid pursuant to sections 101(4) and 101(5)(a) of the Civil Procedure Act 2005.
Both parties contend for a very different exercise of discretion. On the one hand the plaintiffs submit that I should infer that over the 4 years in which the proceedings have continued the plaintiffs have had to pay amounts of costs and disbursements as the litigation has progressed. There is simply no basis to draw in my view any contrary inference to that. The plaintiffs retained a commercial firm of solicitors and senior and junior counsel. There is simply no basis to infer that work has been undertaken on a speculative basis, indeed quite to the contrary.
Without descending to any level of detail at all the defendant merely submits that in the present case I should not exercise my discretion in favour of awarding such interest.
It seems to me in accordance with the authorities the plaintiffs are entitled to compensation for being out of pocket in respect of those costs. In the circumstances I propose to make orders in accordance with the decision of the New South Wales Court of Appeal in Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283 at [9].
In light of these reasons, I propose to make orders in accordance with those set out in the plaintiff's submissions of 23 June 2014 (but with the date clarified in respect of which indemnity costs should be awarded). I invite the parties to provide short minutes to that effect to my Associate.
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Decision last updated: 18 July 2014
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