Mark Andrew Johnson v MNG Investments Pty Ltd T/As; Australian Temporary Fencing

MARK ANDREW JOHNSON v MNG INVESTMENTS PTY LTD T/AS
AUSTRALIAN TEMPORARY FENCING & ORS
[2011] ACTSC 150 (9 September 2011)

COSTS – Calderbank offer – whether costs orders on more favourable basis justified

Albion Insurance Co Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342.
Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358.
Quirk v Bawden (1992) 112 ACTR 1.
Bakarich v Commonwealth Bank of Australia (Supreme Court of NSW, Equity Division, Nicholas J, 29 July 2004, unreported).

REASONS FOR DECISION

No. SC 849 of 2005

Judge: Master Harper
Supreme Court of the ACT

Date: 9 September 2011

IN THE SUPREME COURT OF THE     )
  )          No. SC 849 of 2005
AUSTRALIAN CAPITAL TERRITORY           )

BETWEEN:MARK ANDREW JOHNSON
Plaintiff

AND:MNG INVESTMENTS PTY LTD T/AS AUSTRALIAN TEMPORARY FENCING
ACN 105 211 630

First Defendant

CONTRACTING INNOVATIONS PTY LTD
ACN 102 584 967

Second Defendant
THE WORKERS COMPENSATION DEFAULT INSURANCE FUND MANAGER
Third Defendant
ZURICH AUSTRALIA INSURANCE LIMITED
ACN 000 296 640
First Third Party

ORDER

Judge:  Master Harper
Date:  9 September 2011
Place:  Canberra

THE COURT ORDERS THAT:

judgment be entered for the first defendant against the first third party in the sum of $463,967.17;

the first defendant pay the plaintiff’s costs agreed in the sum of $130,000.00, it being noted that that sum has already been paid;

the first defendant pay the third defendant’s costs;

the first third party pay the first defendant’s costs of the third party proceedings against it.

On 12 August 2011 I ordered that judgment be entered for the second defendant. I published my reasons, and invited submissions from the parties as to what other orders should be made, including orders as to costs.
The plaintiff commenced the action in 2005, claiming damages for personal injury from the first defendant as his employer. During 2006 the first defendant joined five third parties. Four of these were insurance companies. The other third party was subsequently joined by the plaintiff as second defendant. During 2008 the third defendant was joined, after it emerged that the second defendant had gone into liquidation and was uninsured. By the time the action went to trial, the claim by the first defendant against three of the insurance companies had been withdrawn, and the only parties were the plaintiff, the three defendants and the first third party. The second defendant was unrepresented and did not participate in the hearing.
At the hearing the first defendant was represented by counsel and solicitors instructed by the third party insurer of a truck, out of the use of which the plaintiff’s injuries had arisen. On the first day of the hearing, the plaintiff reached agreement with the other parties as to quantum of damages in the sum of $650,000.00. The first defendant did not contest its liability to the plaintiff, and the eventual task of the court was to determine who should bear the plaintiff’s damages and in what proportion.
My decision was that the first defendant was wholly to blame for the plaintiff’s injuries, and that it was entitled to indemnity by the third party insurer and also by the first third party as workers’ compensation insurer. By application of the principles of dual insurance the two insurers were liable to bear the losses equally.
At the conclusion of the hearing I entered judgment for the plaintiff against the first defendant for the agreed amount of damages.
The parties have since reached agreement as to some matters. The first defendant has already paid the plaintiff’s costs of the action, agreed at $130,000.00.
There is agreement that the first defendant should pay the third defendant’s costs, but there is an issue between those parties as to the basis upon which those costs should be assessed. The third defendant seeks indemnity costs from 18 September 2009, the date of expiry of an offer which was not accepted by the first defendant. The first defendant says that it should be liable for the third defendant’s costs on the usual party-and- party basis only. Following agreement between them, judgment is to be entered for the first defendant against the first third party in the sum of $463,967.17, which can be broadly described as the contribution of the workers’ compensation insurer to the plaintiff’s damages, adjusted to take account of previous payments of compensation, interest and costs.
The first third party acknowledges that it must pay the first defendant’s costs of the third party claim against it, but only on a party-and- party basis, whereas the first defendant seeks that that portion of its costs incurred after 18 September 2009 should be recoverable on an indemnity basis. Additionally, the first defendant seeks from the first third party half of the costs payable by the first defendant to the third defendant. The first third party argues that it should not be required to contribute to the third defendant’s costs at all.
The second defendant, at that time the third third party, was joined as a defendant by a consent order made on 16 November 2007. The third defendant was joined by operation of the same order. The consent orders included the following;
1.On the condition that it be at the risk of the defendant as to the plaintiff’s costs (including any costs that the plaintiff may be ordered to pay) Contracting Innovations Pty Ltd (in liquidation) be joined as a defendant.
.   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .
4.On the condition that it be at the risk of the defendant as to the plaintiff’s costs (including any costs that the plaintiff may be ordered to pay), the Workers Compensation Default Insurer [sic] Fund Manager be joined as a defendant.
In the course of the submissions by the parties about costs, I read in evidence an affidavit by Mr K L Owen, the solicitor with the conduct of the matter for the first defendant on instructions from the third-party insurer. Mr Owen came into the matter in August 2009, when the insurer agreed to indemnify the first defendant. The workers’ compensation insurer (the first third party) had refused indemnity on the basis that the first defendant was not the plaintiff‘s employer. That issue was decided against the first defendant and the first third party at trial.
The hearing was listed to commence on Monday 21 September 2009. Mr Owen says that it was not until 15 September that he obtained consent from the solicitors for the plaintiff to interview the plaintiff about his employment by the first defendant. He also interviewed the plaintiff’s sister and brother-in-law, who were the directors of the first defendant company. Mr Owen came to the view following his conferences with the plaintiff and the witnesses that it would readily be established at trial that the plaintiff was employed by the first defendant at the time of his injury, after considering a number of indicia all of which pointed to that conclusion.
As it turned out, the evidence must have been remarkably consistent with what Mr Owen was told in conference. I referred in my reasons for judgment to most if not all of the indicia to which Mr Owen had had regard, and I had no difficulty in concluding that the plaintiff was at the relevant time an employee of the first defendant.
Later on the same day, 16 September 2009 (being the Wednesday before the hearing was due to commence) Mr Owen sent a letter to the solicitors for the first third party (the workers’ compensation insurer) in the following terms;
We refer to the above and confirm we act for the first defendant, MNG Investments Pty Ltd (MNG) in the interest of NRMA CTP Insurance
We advise NRMA has agreed to indemnify MNG in respect of any liability MNG has to the plaintiff for injuries he allegedly suffered on 25 February 2004 while unloading a vehicle owned by MNG and registered in the name of one of its directors Mr Michael Froome.
We note you hold a sealed copy of MNG’s defence to the second further amended statement of claim. You will note this defence admits a breach of duty of care by MNG its capacity as the legal owners of the vehicle insured by NRMA [sic].
We acknowledge receipt of your previous correspondence raising the issue of dual insurance in the event MNG is determined to be the plaintiff’s common law employer.
We advice that on 15 September 2009 we conducted a conference with the plaintiff in the company of his legal representative. We enclose a copy of the notes made as a result of this conference.
On 16 September 2009 we conducted a conference with Mrs Natalie Froome, wife of Michael Froome and a co-director of MNG. The overall affected [sic] of the evidence that Mrs Froome will give is consistent with the information provided to us by the plaintiff on 15 September 2009. Mrs Froome informed us she was meeting with you at 1pm today.
As a result of the above conferences we believe it more likely than not that if this matter runs to a hearing a court will find the plaintiff was an employee of MNG.
In these circumstances, MNG would be liable to the plaintiff and would look to Zurich Workers Compensation Insurance for indemnity under its policy.
Subject to MNG being found to be the plaintiff’s employer having regard to the circumstances of the accident (which on our investigations are consistent with the pleadings) NRMA would concede the existence of dual insurance with Zurich.
We now ask Zurich to:
1.agree to indemnify MNG on the basis that it employed the plaintiff and to the extent of MNG’s liability to the plaintiff as its employee;
2.confirm the existence of dual insurance on an equal basis with NRMA;
3.join with us in negotiating with the DIF seeking a contribution from it on the basis that the DIF faces some risk a court could find the plaintiff was employed by Contracting Innovations Pty Limited. We believe the DIF should contribute no less than 20% to the plaintiff’s global damages on the basis that it operated in a way tantamount to it being a labour hire company;
4.subject to the above, agree to MNG negotiating with the plaintiff (keeping Zurich and the DIF informed of progress) in an attempt to arrive at a global damages figure acceptable to NRMA, Zurich and the DIF.
5.Please allow us your response to the above by 9:00am Friday 18 September 2009 failing which we reserve the right to tender this letter in respect of any costs application we see fit to make at the conclusion of the hearing.

The first defendant argues that this letter should be read as a Calderbank letter of offer. It is common ground that the first third party did not accept it. The first third party does not argue that the time it was given to consider the offer was inadequate, having regard to the proximity of the commencement of the hearing. The first defendant submits that by reason of its failure to accept what was a reasonable offer, the first third party should have to meet the first defendant’s costs incurred after 18 September 2009 on an indemnity basis. The third defendant argues that although it did not make an offer to the first third party, or join in the first defendant’s offer, application of similar principles should result in it obtaining an order for costs on an indemnity basis after 18 September 2009 also.
Senior counsel for the first third party submits that the letter set out above cannot be read as a Calderbank letter. The letter did not contain an offer acceptance of which would have bought the proceedings to an end. There would be no reason to believe that the Default Insurance Fund, the third defendant, would have been prepared to make any contribution to the plaintiff’s damages. Acceptance of what was put by the first defendant would not have avoided the trial and might not have even much shortened it.
For this jurisdiction, it has long been accepted that the principles to be applied in considering whether to order costs on a more favourable basis following a failure to accept a Calderbank offer are those explained in Quirk v Bawden (1992) 112 ACTR 1, in the judgment of Higgins J, with the additional observations of Miles CJ. Quirk v Bawden was an assessment of damages for personal injury, a context in which the Calderbank discretion often falls to be exercised. The principle, however applies much more widely. Its essence is that a reasonable offer was unreasonably not accepted. It is not, of course, a condition precedent to a making of a costs order on a basis more favourable than the usual party-and- party basis that a Calderbank offer have been made. Such an outcome may follow simply from the fact that the court is persuaded that a party unreasonably persisted with the prosecution or defence of an action when it ought not to have done so: see, for example Bakarich v Commonwealth Bank of Australia (Supreme Court of NSW, Equity Division, Nicholas J, 29 July 2004, unreported).
It has not been suggested in the present case that the first third party should be visited with such a costs order simply on the basis of unreasonableness in the absence of a Calderbank offer, and I would not see such a position as arguable. The question is whether the letter of 16 September 2009 should be construed as a letter having a Calderbank effect.
Higgins J in Quirk v Bawden referred with approval to an observation of Giles J in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 in which Giles J had made the point that an offer, to have Calderbank consequences, must represent a compromise, that is an offer in which the offeror gives something away or offers some discount from a position of complete success in the action.
Part of the rationale for the Calderbank principle is that, where there is a failure to accept a reasonable offer, the offeror will have incurred further expense, sometimes representing the costs and disbursements of many days of hearing, and would be only partially indemnified by an order for costs on a party-and- party basis. The offeror can be seen as having taken the only course available to it (or him or her) to avoid that exposure.
To determine the issues as to costs arising in the present circumstances, I need to give consideration to what would or might have been the course of the matter if Zurich had accepted the NRMA’s offer. It should be borne in mind that at the time the offer was made, and when time to accept it expired, there was no agreement between the first defendant and the plaintiff as to liability or damages. The offer should be considered in the context of the information available to the parties when it elapsed, and not with the benefit of hindsight, knowing as we now do that on the following Monday agreement would be reached with the plaintiff about liability and quantum. There is nothing in the letter to suggest the NRMA had decided to admit liability. It remained more than a mere possibility that the action would proceed to trial on all issues.
The letter made it clear that acceptance of the offer would leave the parties in a situation where they would be continuing to try to extract some contribution from the Default Insurance Fund. We now know that the Fund’s position was soundly based, but there is no reason whatever to assume that NRMA had even in contemplation a surrender vis a vis the fund.
The letter placed the attempt to reach agreement with the plaintiff on damages as subject to first reaching agreement on a percentage contribution with the Fund. We now know that this was no longer the NRMA’s position by the following Monday, but again the letter must be looked at in the state of knowledge of the parties at 9:00 am on Friday 18 September.
It follows that if Zurich had decided to accept the offer, the trial might well have had to go on, with all parties other than Zurich participating. There is little reason to conclude that the hearing would have taken significantly less time than it did, if the issues to be determined had not included the insurance indemnity issue between the first defendant and Zurich.
To the extent that it may be relevant, there was nothing in the offer which could be described as NRMA making a compromise, giving a discount or giving anything away.
It is not necessary for me to arrive at a conclusion as to whether a letter in terms of the letter of 16 September 2009 would or would not ever be capable of bringing into play the Calderbank principle. On the facts of the present case I am not persuaded that Zurich acted unreasonably in not accepting the offer.
Zurich must pay the first defendant’s costs of the third party proceedings against it, but on the conventional basis.
The third defendant, the Default Insurance Fund, can hardly find itself in any better position when it was not the author of a Calderbank offer, and there was no issue in the proceedings between it and Zurich. It would at best have been something of a stretch to hold Zurich guilty of unreasonable conduct towards the Default Insurance Fund such that the Fund ought to have recovered its costs on a special basis indirectly from Zurich. The Fund has been successful in the proceedings but cannot point to any unreasonable conduct on the part of any party which might entitle it to any special order. The first defendant must pay the third defendant’s costs of the action, but again, only on the conventional basis.
Counsel for the first defendant, on instructions from NRMA, seeks an order that Zurich pay half of the costs ordered to be paid by the first defendant to the Default Insurance Fund. It seems to me that those costs really had nothing to do with the Fund, which came into the matter only because the second defendant was uninsured and without assets. It would be drawing too long a bow to hold Zurich responsible for any portion of the Fund’s costs on principles applicable to actions such as the present one.
Rather than proceeding against Zurich in the present proceedings, it would have been open to NRMA to bring a subsequent action in equity in its own name against Zurich on dual insurance principles: cf Albion Insurance Co Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342. It does not seem to me that the amount NRMA could have recovered in such an action would have included the costs it had been obliged to pay to the Fund in the present action. The submission by counsel for the first defendant that it is entitled to recover half of the costs it must pay to the Fund from the first third party must be rejected.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.
Associate:
Date: 9 September 2011

Counsel for the first defendant:  Mr R P Clynes
Solicitors for the first defendant:  Sparke Helmore
Counsel for the third defendant:  Mr M F Treffers
Solicitors for the third defendant:   Minter Ellison
Counsel for the first third party:  Mr G A Stretton SC
Solicitors for the first third party:  Mallesons Stephen Jacques
Date of hearing:  26 August 2011
Date of judgment:  9 September 2011

[2011] ACTSC 150

Key Legal Topics

Areas of Law

Civil Litigation & Procedure

Legal Concepts

Costs

Calderbank Offer

Indemnity Costs