Hamcor Pty Ltd v State of Qld (No 2)

[2015] QSC 69

SUPREME COURT OF QUEENSLAND

CITATION:

Hamcor Pty Ltd & Anor v State of Qld & Ors (No 2) [2015] QSC 69

PARTIES:

HAMCOR PTY LTD (ACN 010 141 429)

(first plaintiff)

and
DONALD CHARLES HAYWARD and JAMES PETER COLLINS, as executors of the Estate of TERRENCE ARTHUR ARMSTRONG (deceased)

(second plaintiff)
v
THE STATE OF QUEENSLAND
(first defendant)
and
MARSH PTY LTD (ABN 86 004 651 512)
(second defendant)
and
OTAGO PTY LTD (ABN 90 010 161 501)
(third defendant)

FILE NO/S:

5764 of 2011

DIVISION:

Trial

PROCEEDING:

Costs application at conclusion of trial

ORIGINATING COURT:

Supreme Court of Queensland

DELIVERED ON:

8 April 2015

DELIVERED AT:

Brisbane

HEARING DATE:

On the papers

JUDGE:

Dalton J

ORDER:

That the first and second plaintiffs pay the costs of the second and third defendants of and incidental to the proceeding up to and including 14 October 2011 on a standard basis and, from that point on, on the indemnity basis, to be assessed or agreed

SOLICITORS:

Everingham Lawyers for the plaintiffs

Thynne & Macartney for the second and third defendant

1. This is a decision on costs arising after my decision handed down on 1 October 2014.[1]  This decision concerns only the plaintiffs and the second and third defendants.  The second and third defendants were the plaintiffs’ erstwhile insurance brokers.  They were wholly successful against the plaintiffs at trial.  The second and third defendants seek their costs of the proceeding and it is uncontroversial that they ought have them.  The dispute as to costs is whether or not part of those costs ought be paid on an indemnity basis.

   [1]     Hamcor Pty Ltd & Anor v State of Qld & Ors [2014] QSC 224.

2. The proceeding was commenced by claim filed on 1 July 2011.  On 23 September 2011 the second and third defendants made a Calderbank offer to the plaintiffs.  This was at a time when the second and third defendants had not yet filed a defence in the proceeding.  The Calderbank offer gave the plaintiffs three weeks to respond before, by its terms, it lapsed.  The offer was essentially to walk away – if the plaintiffs discontinued the proceeding the second and third defendants would not seek costs against them.  The Calderbank letter set out the facts upon which the second and third defendants relied to say that the plaintiffs could never succeed against them.  At the second page of the offer, paragraphs (a), (b), (c) and (d), the second and third defendants made factual points which I found were correct and were reasons why the plaintiffs could not succeed against the second and third defendants – see [274] – [314] of my judgment on the trial.  The points made in the Calderbank letter were in abbreviated form, but the essential facts necessary to my findings were stated and relied upon.  As it turned out, there were other independent reasons why the plaintiffs could not succeed against the second and third defendants.  I do not regard the fact that they were not raised as a reason which diminishes the significance of the Calderbank letter.[2]  The points which were raised in the letter were good and sufficient.  The Calderbank letter plainly stated on the first page that if the letter were not accepted the second and third defendants would rely upon it as the basis for seeking indemnity costs.

   [2]     Some of the plaintiffs’ case against the broker defendants was added after the letter was written.  In fact the plaintiffs amended the statement of claim for the fifth time almost at the end of the trial.

3. The case the plaintiffs ran against the second and third defendants was weak:

   (a)First, it alleged a duty of care owed in novel circumstances.  I rejected the existence of such a duty.

   (b)Even had there been such a duty, I found that there were four factual matters (independent of each other and each sufficient to cause the plaintiffs’ case to fail) which prevented any causation finding in the plaintiffs’ favour.

   (c)Independently of these four matters, there were matters of construction which meant that, even had the second and third defendants owed a duty to obtain the policies pleaded, those policies would not have responded to the plaintiffs’ loss. 

   The plaintiffs pleaded that they ought to have had the benefit of two policies.  The policy which was originally pleaded (before the Calderbank offer) was a liability policy which provided cover against the plaintiffs’ liability to pay compensation for damage.  The plaintiffs made the unlikely contention that their costs of complying with orders of the Planning and Environment Court to remediate their land was a liability to pay compensation for damage.  The point was rejected in February 2013[3] on a separate determination of that issue.  That result was upheld on appeal in September 2013.[4]  Special leave was refused in the High Court.  The plaintiffs’ construction of the policy was in my view plainly wrong. 

   The second policy relied on by the plaintiffs (added after the Calderbank offer) was an ISR policy.  There were several reasons why the ISR policy pleaded would not have responded to the loss claimed.  Independently of this, the policy responded to defined events: removal of debris and extra cost of reinstatement.  The plaintiffs made no effort at trial to prove discrete amounts of loss which fell within those descriptors.

   [3]     Hamcor Pty Ltd & Anor v The State of Qld & Ors [2013] QSC 9, Boddice J.

   [4]     Hamcor Pty Ltd & Anor v Marsh Pty Ltd & Anor [2013] QCA 262.

4. In Mizikovsky v Queensland Television Limited & Ors[5] the Court of Appeal said the following as to the circumstances in which a court will order indemnity costs, where reliance is placed on a Calderbank offer, rather than an offer made under Chapter 9 Part 5 of the UCPR:

   “[50] …The appellant did not contest the respondent’s submission that the primary judge made the order for indemnity costs in the exercise of the discretion under rr 681 and 703 of UCPR. Rule 681 provides that ‘costs are in the discretion of the court but follow the event, unless the court orders otherwise’. Rule 703 empowers the Court to order costs to be assessed on the indemnity basis.

   [51] The appellant argued that the trial judge, having found that it was not unreasonable for the appellant to reject the offer, misdirected herself in ordering the assessment of the respondents’ costs on an indemnity basis on the ground that it would have been reasonable for the appellant to have accepted the offer.  The appellant submitted that Velvet Glove Holdings Pty Ltd v Mount Isa Mines Ltd established that assessment on an indemnity basis should not be ordered on the ground that the plaintiff did not obtain a judgment as favourable as the defendants’ offer in the absence of any element of unreasonableness by the plaintiff in not accepting the offer.  The respondents relied upon Sultana Investments Pty Ltd v Cellcom Pty Ltd (No 2) and Emanuel Management Pty Ltd (in liq) v Foster’s Brewing Group Ltd for their contrary argument that the making of an offer ‘is a very relevant circumstance’ and, if no countervailing circumstances are raised, ‘the order for indemnity costs is likely to be made’.

   [52] Sultana Investments Pty Ltd v Cellcom Pty Ltd (No 2) concerned a Calderbank offer.  White AJA (with whose reasons McMurdo P and Holmes JA agreed) observed in that respect that in the case of a Calderbank offer the Courts are ‘inclined to the award of indemnity costs as an incentive to parties to consider seriously offers to settle which are reasonably made’.  …  Emanuel Management Pty Ltd (in liq v Foster’s Brewing Group Ltd, which was approved in Sultana Investments Pty Ltd v Cellcom Pty Ltd (No 2), also concerned a Calderbank offer.  It is distinguishable on the further ground that Chesterman J found that the plaintiffs prosecuted their case when they should have appreciated that it had no worthwhile prospects of success, and that finding informed his Honour‘s further finding that it was unreasonable for the plaintiffs not to accept the first defendant‘s Calderbank offer.

   …

   [54] In Velvet Glove Holdings Pty Ltd v Mount Isa Mines Ltd, the relevant principle was stated as being that ‘…a party who unreasonably refuses to accept a Calderbank offer, on terms more favourable than the court’s subsequent order, may be ordered to pay indemnity costs’.”

   [5] [2013] QCA 68.

5. The plaintiffs contended that I ought not make a Calderbank offer unless I found that the refusal to accept the offer was unreasonable – see Velvet Glove Holdings Pty Ltd above – or imprudent – St Clair v Timtalla Pty Ltd (No 2).[6]As appears from the authorities cited in the Court of Appeal in Mizikovsky, the discretion is not so limited.  However, in this case I do find that the plaintiffs’ refusal to accept the Calderbank offer was unreasonable.  At the time it was made, the only case pleaded was based on the indemnity policy.  The plaintiffs relied upon a novel assertion that the brokers owed them a duty of care, and the very unlikely contention that the liability policy would have responded to the loss they had suffered.  To adopt the words from [52] of Mizikovsky above, the plaintiffs should have appreciated they had no worthwhile prospects of success in the proceeding.  The plaintiffs did not make any submission on this cost argument which addressed the substance of this point. 

   [6] [2010] QSC 480, [24].

6. The plaintiffs relied upon the fact that the offer was made early in the proceeding before the obtaining of expert evidence and before disclosure.  The factual points made in the Calderbank letter were not facts upon which the plaintiffs needed expert advice or disclosure.  They were facts within the plaintiffs’ own knowledge.  Furthermore, the weakness of the construction point should have been readily apparent on proper legal advice.  The plaintiffs do not say that their case improved at any subsequent stage of the proceeding.  The addition of the ISR limb of the claim could not have changed the plaintiffs’ understanding of their prospects of success.  It again relied on their assertion of a novel duty; it involved numerous hurdles as to the interpretation of the policy, and the plaintiffs simply did not adduce evidence to show that they had suffered loss of the type the policy would have covered.  In fact, until the closing days of the trial, the statement of claim did not even plead the matters the plaintiffs needed to prove.

7. It is true that the Calderbank offer was made before a defence was filed, but the offer itself succinctly stated the factual basis why the duty alleged by the plaintiffs was most unlikely to succeed.  In any event, as explained, the weakness in the plaintiffs’ case would have been apparent on their own documents (including the policy wording they relied upon) and the instructions from Mr Donald Hayward and Terrence Armstrong[7] as to the circumstances of their dealings with the second and third defendants.  That is, the plaintiffs did not present a good arguable case which was shown to be flawed when the defence was filed.  The case as originally pleaded had no worthwhile prospects of success, and that should have been apparent on the documents and instructions the plaintiffs had before commencing the proceeding. 

   [7]     The director of the first plaintiff and, until his death, after trial, the second plaintiff.

8. The plaintiffs relied upon the fact that the Calderbank letter offered them nothing more than the opportunity to capitulate.[8]  No doubt whether or not the terms of a Calderbank offer are such as to show that it is a genuine offer of compromise will depend upon the strength of the case propounded by the party receiving the offer.  In this case I do not accept the submissions that the letter offered something less than a genuine compromise.  The defendants were prepared to forego their costs and see an end to the litigation at an early stage.  In the circumstances of this case I see that as a genuine and reasonable position for them to have taken.

   [8]     cf: Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 [23] per Sackville J, see also Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2002] FCA 283.

9. I think that the defendants ought to have their costs on an indemnity basis from the time the offer in the Calderbank letter expired – 14 October 2011, according to its terms.

10. I make an order that the first and second plaintiffs pay the costs of the second and third defendants of and incidental to the proceeding up to and including 14 October 2011 on a standard basis and, from that point on, on the indemnity basis, to be assessed or agreed.