Khatchmanian v Mutual Community General Insurance

[2012] VCC 1123

Not restricted
IN THE COUNTY COURT OF VICTORIA	Revised from transcript of oral reasons

AT MELBOURNE

CIVIL DIVISION

COMMERCIAL LIST
GENERAL DIVISION

Case No. CI-11-01971

SARGIS KHATCHMANIAN	Plaintiff
v
MUTUAL COMMUNITY GENERAL INSURANCE PTY LTD (ACN 007 895 543)	Defendant

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JUDGE:	HER HONOUR JUDGE KENNEDY
WHERE HELD:	Melbourne
DATE OF HEARING:	14 August 2012
DATE OF JUDGMENT	14 August 2012
CASE MAY BE CITED AS:	Khatchmanian v Mutual Community General Insurance
MEDIUM NEUTRAL CITATION:	[2012] VCC 1123

REASONS FOR COSTS RULING

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr John Searle	Belleli King & Associates
For the Defendant	Mr Andrew Donald	Mason Black Lawyers

HER HONOUR:

1       In reasons delivered on 31 July 2012, I determined that there should be judgment for the plaintiff in an amount of $525,162.00. I stood over the orders to be made in respect of both costs and interest. 

2       I have subsequently received submissions in relation to both these issues, and heard further argument this afternoon.

Interest

3 Pursuant to s.57(1) of the Insurance Contracts Act 1984 where an insurer is liable to pay to a person an amount under a contract of insurance, the insurer is also liable to pay interest on that amount pursuant to the section.

4       Section 57(2) further provides:

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…”

5       A question arose as to whether the plaintiff would also be entitled to interest under s.58 and/or s.59 of the Supreme Court Act 1986.  However, pursuant to s.57(4), the section applies “to the exclusion of any other law that would otherwise apply”.

6       In the light of this provision, I consider that s.57 provides an exhaustive remedy for interest in the present circumstances, and both Counsel generally accepted this proposition. 

7       The issue therefore becomes the identification of the days as from which it was “unreasonable” to withhold the payment.  

8       Mr Searle provided cases to the court to assist in the resolution of this issue. However, those cases appear to be distinguishable on their facts and are of limited assistance.

9       Overall, having regard to all of the complexities involved in this case, I consider that the defendant was entitled to have six months from the date of fire to complete its investigations. 

10      In such circumstances, both Counsel accepted that the appropriate amount of interest is $74,688.00.

Indemnity costs

11      In considering the question of costs, the plaintiff submitted it was appropriate for an order for costs to be made on an indemnity basis on two grounds.  Firstly that there was "high handed behaviour" in the conduct of the defence, and secondly on the basis of a Calderbank letter dated 25 November 2011.

12      In relation to the first issue, as a general rule the court will order costs to be taxed on a party/party basis: Order 63A Rule 31.  The discretion to make a special costs order is an unlimited one, though it must be exercised judicially and not unreasonably, and the circumstances should be "special".[1]

[1]OCBC v Aljade [2004] VSC 351

13      The decision of Colgate-Palmolive v. Cussons Pty Ltd[2] is generally accepted to be the authority on the question of the award of indemnity costs.  Many categories of circumstance which will warrant the making of a special costs order are referred to by Sheppard J. 

[2] (1993) 46 FCR 225 at 233-4

14      In the recent matter of IMC Aviation Solutions Pty Ltd v. Altain Khuder LLC[3] , the Court of Appeal also stated the following:

Special circumstances may be found where, for instance, the unsuccessful party has made serious unfounded allegations, pursued the proceeding for an ulterior purpose, wasted the court's time, committed a contempt of court, or engaged in some other improper conduct.  But in each case it is a question to be determined in the light of the particular facts and circumstances.

[3] (2011) 282 ALR 717 at [325]

15      Although the defendant has been unsuccessful in this case, the defence of the proceeding does not come within any of the categories cited in the cases above.  It is also significant that the plaintiff was unsuccessful in his no case submission in relation to the main arson defence.  

16      I do not consider that the defendant’s conduct justifies a special costs order.

17      I next come to consider the question of the Calderbank letter. 

18      A question initially arose as to whether the defendant in fact received a less favourable result.  It appears that it did, however.  Thus on the basis of the six months interest figure, the amount the plaintiff will be entitled to receive on judgment is an amount of $599,850.00, which exceeds the amount of the offer of $575,000.00.

19      In considering then whether or not a party should have their indemnity costs, the principles that guide the court are set out in the decision of the Court of Appeal in Hazeldenes Chicken Farms Pty Ltd v. Victorian WorkCover Authority No. 2[4] as follows:

[4] (2005) 13 VR 435 at [23] and [25]

The critical question is whether the rejection of the offer was unreasonable in the circumstances…
 a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:  (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success assessed at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it.

20      Applying these principles to the present case, the offer was made at an appropriately advanced stage (November 2011) with a trial soon to follow at the beginning of the following year (in January 2012); the time allowed was reasonable (25 November- 9 December); the offer was clear; and foreshadowed an indemnity costs application. 

21      However, against this, the extent of the compromise was extremely small.   Indeed if one considers the relevant amounts as at the date of the offer, the value of the plaintiff’s claim, including interest was $575,135.00, which  was only slightly in excess of the offer.

22      The offer also gave little consideration to the defendant’s prospects of success notwithstanding that the court has found that there was a case to answer on the main arson defence.

23      Taking all these factors into account, I do not consider it was unreasonable for the defendant to reject the offer. 

24      In the exercise of my discretion, I consider that costs should follow the event on the usual party/party basis.