Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited

[2008] NSWSC 929

CITATION:	Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors [2008] NSWSC 929
HEARING DATE(S):	5/09/08
JUDGMENT DATE :	9 September 2008
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Orders made with respect to costs
CATCHWORDS:	Costs - Indemnity costs - Principles
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW)
CATEGORY:	Procedural and other rulings
CASES CITED:	Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liq) [2002] NSWSC 280 Australian Guarantee Corporation Ltd v De Jager [1984] VR 483 Australian Transport Insurance v Graeme Phillips Road Transport Insurance (1986) 10 FCR 177 Re Smith; Ex parte Rundle (No 2) (1991) 6 WAR 299 Degmam Pty Ltd (in liq) v Wright No 2 [1983] 2 NSWLR 354 Green v CGU Insurance Limited [2008] NSWCA 148 Green v CGU Insurance Limited [2008] NSWSC 449 Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101 Harrison & Anor v Schipp, Cameron& Anor v Schipp [2001] NSWCA 13 Hexiva Pty Ltd v Lederer (Costs) [2006] NSWSC 1259 Jones v Bradley (No 2) [2003] NSWCA 258 Lahoud v Lahoud [2006] NSWSC 126 MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 Oshlack v Richmond River Council (1998) 193 CLR 72 Packer v Meagher [1984] 3 NSWLR 486 Puntoriero v Water Administration Ministerial Corporation [2002] NSWSC 217
PARTIES:	Martin John Green in his capacity as liquidtor of Arimco Mining Pty Limited (in liquidation) (Plaintiff) CGU Insurance Limited (First Defendant)
FILE NUMBER(S):	SC 50177/04
COUNSEL:	Mr D Davies SC, Mr MS White (Plaintiff) Ms C Needham SC, Ms V Heath (First Defendant)
SOLICITORS:	Henry Davis York (Plaintiff) Kennedys (First Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Tuesday 9 September 2008

50177/04 Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors

JUDGMENT

Costs

1 The reserved judgment was delivered in these proceedings on 18 August 2008 [2008] NSWSC 825.

2 The parties have been given an opportunity to furnish submissions as to costs.

3 The first defendant succeeded in the litigation. It seeks:

i. indemnity costs on a number of bases including its making of a Calderbank offer;

ii. an order for interest on the amount of costs paid, from the dates of payment: Civil Procedure Act 2005, section 101(4).

Indemnity costs

4 Section 98 (1)(c) of the Civil Procedure Act 2005 grants power to order costs on an indemnity basis. This power is also an inherent aspect of the Court’s discretion to make an order to more fully compensate the successful party on a solicitor-client or indemnity basis where the unsuccessful party has conducted the proceedings with some relevant delinquency (Oshlack v Richmond River Council (1998) 193 CLR 72 at 89 per Gaudron and Gummow JJ).

5 In Harrison & Anor v Schipp, Cameron & Anor v Schipp [2001] NSWCA 13 Giles JA, with whose judgment Handley JA agreed, made the point (at [132]-[133]) that notwithstanding the general width of the discretion to order indemnity costs, the cases generally required some form of delinquency in the conduct of the proceedings. That form of delinquency can be by reason of making false allegations in a defence or by prolixity and prevarication or other inappropriate conduct grossly prolonging the litigation. Naturally the types of inappropriate conduct which may be visited by an indemnity costs order will be varied, and each circumstance requires to be very carefully weighed.

6 Examples seen in the authorities include:

i. deliberately making false allegations ( Degmam Pty Ltd (in liq) v Wright No 2 [1983] 2 NSWLR 354 and Australian Transport Insurance v Graeme Phillips Road Transport Insurance (1986) 10 FCR 177);

ii. proceedings brought for ulterior purposes ( Packer v Meaghe r [1984] 3 NSWLR 486);

iii. maintaining a proceeding with knowledge that it was based on a fraud ( Australian Guarantee Corporation Ltd v De Jager [1984] VR 483);

iv. conduct deserving of criticism such as the taking of unnecessary points with a view to delaying or enlarging the time occupied by the proceedings ( Re Smith; Ex parte Rundle (No 2) (1991) 6 WAR 299).

7 In Harrison even although the evidence of the particular parties was not accepted and they were found to have given false evidence and to have propounded false documents, the Court of Appeal holding was that the type of delinquency demonstrated did not approach that considered to justify a special order as to costs in Degmam Pty Ltd, but was rather a suggested form of delinquency in terms of the defendant's legal wrongdoing anterior to the litigation [albeit becoming the subject of the litigation].

Dealing with the issue

8 In my view the first defendant's claims to indemnity costs are without substance.

9 The claim was based upon a number of contentions including the following:

i. The inherent improbability of the plaintiff’s case;

ii. Relevant delinquency that caused the litigation to be brought and continued, by failing to give proper consideration to the issues raised;

iii. Relevant delinquency that caused the witnesses called by the plaintiff to be inadequately prepared before making affidavits;

iv. Delinquency in failing to brief the plaintiff’s underwriting expert with true and complete assumptions of fact;

v. The late service of a report from the plaintiff’s underwriting expert who was then not called;

vi. The late service of the evidence of Mr Roberts, Mr Swan, and Mr Ryan;

vii. The late service of evidence on quantum from Mr Cook and the prior refusal to provide particulars of incurring of debts;

viii. The unaccepted Calderbank offer said to have been unreasonably rejected by the plaintiff in all the circumstances.

10 None of the alleged relevant acts of delinquency are made out. The litigation on close examination throws up the type of complaints often made, now by one party, and now by another, in major commercial litigation. There is no substance in the proposition that the plaintiff should have known that he had no reasonable chance of success. There was no delinquency shown in bringing and continuing the claim. There is no substance in the proposition that an indemnity costs order is called for by reason of the state of preparation of the witnesses called by the plaintiff.

11 Whilst it is true that the late service of the Strain report was an issue which required to be treated with, the conduct of the plaintiff does not justify an indemnity costs order, and as at the end of the day, CGU is to have the costs of its nondisclosure case, the costs incurred in dealing with that report will be recovered.

12 In relation to Mr Ryan's affidavit, Mr Harris swore an affidavit detailing the difficulties about getting Mr Ryan's evidence on. Until March 2008 the defendant's evidence was not complete, so that the plaintiff was not in a position to file any evidence. The directors were not in the plaintiff’s camp in the sense that the plaintiff had control over them.

13 Mr Harris's affidavit detailed the extreme difficulties which the plaintiff encountered in getting Mr Ryan to swear an affidavit or even to talk to the plaintiff in 2008. Ultimately when Mr Ryan's affidavit was served, objection to its use was withdrawn by CGU.

14 Nor was there any delinquency shown by the plaintiff's approach to the service of Mr Cook's last affidavit. As Mr Davies contended:

“[W]e had served an affidavit of Mr Cook fairly early on which listed a schedule of all of the invoices. Our case was that the debts were incurred on the dates of the invoices. Mr Dorfan ultimately at the beginning of 2008 prepared a subsequent report. He identified some mistakes in that. Thereafter there were ongoing discussions between Mr Dorfan and Mr Cook in relation to that and Mr Cook accepted that some of the errors Mr Dorfan had pointed out were validly made. CGU still took the view, despite our approach to incurring of debts, that the invoices did not identify in a legal sense when the debts were incurred. We ultimately managed to find certain contracts which we put in Mr Cook's later affidavit so that we were in a position to argue at least in relation to a lot of the invoices when those debts might have been incurred referable to those contracts.”

15 Ultimately the Court acceded to an application for a separate question order in relation to these matters.

16 In relation to Mr Strain, Mr Harris had sworn an affidavit in May detailing the difficulties in finding an underwriter in the D & O area.

17 Ultimately an affidavit was obtained from Mr Strain and served. The plaintiff did not rely on Mr Strain but this again was simply part and parcel of a party's rights to make forensic decisions during the hearing.

18 The claims based upon late service of evidence and late service of evidence on quantum do not justify as acts of delinquency of the type which should visit upon a party an indemnity costs order.

The Calderbank offer

19 As to the Calderbank offer the following submissions put by the plaintiff are accepted as of substance:

i. CGU’s Calderbank offer was served on the Wednesday before the trial and made open for acceptance only by 4 pm on the Friday before the trial. The fairness and reasonableness of the making of a Calderbank offer must be assessed in light of all relevant circumstances.

ii. The making of a Calderbank offer which is not accepted and which in the result is bettered by the maker does not automatically result in an indemnity costs order in favour of the maker. The applicant for indemnity costs bears the onus of showing that non-acceptance of the offer was unreasonable: Jones v Bradley (No 2) [2003] NSWCA 258 at [13], MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236.

iii. The offer was served at a time when the parties were engaged in the substantial tasks of preparation required by the court’s directions. It was also served very late in the proceedings after the Plaintiff had been required to expend over $1 million in costs.

iv. The circumstances of an offer being made 4 days before a hearing, with acceptance required on the first day of the hearing, has been taken into account in refusing an order for indemnity costs: MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 242.

v. It also should be borne in mind that an order for indemnity costs would prima facie entitle CGU to its costs of two senior counsel and one junior counsel and a partner and solicitor from its solicitors, all of whom attended the trial for almost every day of the hearing.

vi. Acceptance of the offer made by CGU required creditor approval as the offer itself recognised. Despite CGU’s awareness of this important factor affecting timing, the offer was not made until 9 July.

vii. The suggestion that the liquidator accept the offer himself but “subject to creditor approval” left the liquidator in an impossible position vis a vis the creditors. If the creditors refused to ratify the liquidator’s decision to accept the offer, the proceedings would have been adjourned in the meantime and much time and costs wasted and thrown away by the need to have the complex proceedings re-listed and re-prepared for hearing.

viii. In the circumstances the offer was not a reasonable offer, and the non-acceptance of it was not unreasonable.

ix. The circumstances do not take the matter outside the usual category of case in which an unsuccessfully party is ordered to pay costs on the ordinary basis.

Interest on the amount of costs paid, from the dates of payment: Civil Procedure Act 2005, section 101(4).

Interest on costs paid

20 In Hexiva Pty Ltd v Lederer (Costs) [2006] NSWSC 1259 Brereton J observed at [21]:

[A]n order under s 101 for interest on costs recognises and compensates the costs creditor for having been out of pocket as a result of having to pay their lawyers’ costs and disbursements, and there is no requirement before such an order is made that the circumstances of the case be out of the ordinary [ Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101, [10], [12]; Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liq) [2002] NSWSC 280, [17], [23]–[25]; Puntoriero v Water Administration Ministerial Corporation [2002] NSWSC 217, [10]; Lahoud v Lahoud [2006] NSWSC 126, [82]–[83]]. Not much if any evidence is required in support of such an application: it can be inferred from the nature of commercial litigation that parties are likely to have had to pay some amounts of costs and disbursements as the litigation progresses and in any event an order can be framed in such a way that interest will run only from the date on which there has been a payment [ Lahoud v Lahoud , [80]–[81]].

21 CGU is entitled to an order for interest on the amount of costs paid by it, from the dates of payment: Civil Procedure Act 2005, section 101(4).

The plaintiffs claim to be entitled to an order that the first defendant pay the plaintiff's costs of proving its claim against the directors under section 588G and 588M of the Corporations Law on a party/party basis

22 The plaintiff has not made good its proposition that it is entitled to such an order.

23 The following submissions by CGU are accepted as of substance:

i. CGU made appropriate admissions;

ii. At the hearing it was common ground that insolvency commenced on about 31 January 1999;

iii. This was always CGU’s position. It was acknowledged in the letter of 3 December 2007 from the plaintiff’s solicitors That position was reflected at all times in the pleading;

iv. The Defence to Second Further Amended Summons filed on 17 11 06 contains the admission: “ In answer to paragraph C4, CGU admits that Arimco was insolvent on 1 January 1999 and on 1 February 1999”;

v. Similarly the Amended Defence to the Second Further Amended Summons served 21 December 2007 [later filed in court on 15 February 2008], made a full admission of the date of insolvency. Paragraph 10 stated “ CGU says that Arimco was insolvent by 31 January 1999”. Paragraph 15 contains the admission that “ CGU admits the insolvency alleged in paragraph C14”;

vi. the plaintiff’s position until 5 September 2006 was that insolvency commenced on 1 January 1999, the day after the commencement of the insurance policy;

vii. CGU’s defences to the Summons and the Amended Summons contain full admissions that Arimco was insolvent by the then alleged date of 1 January 1999;

viii. In light of those admissions the plaintiff chose to prepare evidence in chief directed to showing that insolvency commenced on 1 February 1999. The evidence was not contested by CGU. CGU’s approach to that evidence did not in any way prolong the hearing. CGU’s accounting expert did not take issue with the plaintiff’s evidence in chief as to the date of insolvency;

ix. Mr Goldner’s affidavit dealing with the events of January 1999, although presented in chief, was essentially in reply. That evidence was directed to explain what was described as the ‘inherent tension’ in the plaintiff’s case or the ‘sword of Damocles’ i.e. to show that the causes of insolvency arose only in January 1999 hence did not include matters calling for disclosure before 31 December 1998 when the insurance policy took effect;

x. The claim took considerable hearing time and involved complex matters of specialist accounting knowledge and a review of the Group’s mining operations;

xi. CGU was entitled to put the plaintiff to proof on this issue;

xii. CGU was entitled to challenge (and did so successfully) the plaintiff’s version of how insolvency came about;

xiii Causation and reasonable grounds presented overlapping issues;

xiv. The plaintiff’s case was that insolvency was caused by the events of January 1999, but for which the Group would have continued to trade profitably for the next 12 months of the insurance period. On the plaintiff’s case, the grounds for a suspicion of insolvency were confined to the events of January. The court did not so find: Judgment at [318], [322];

xv. The court’s findings were based largely on “reasonable grounds” which were largely different to those on which the plaintiff relied;

xvi. The question of admissions was fully ventilated in correspondence between the parties. The plaintiff pressed for an admission “[ h]aving regard to the knowledge which CGU asserts was held, or ought to have been held, by the directors several months prior to 1 February 1999”;

xvii. CGU responded in various ways including the proposition that so long as the plaintiff denied (by not filing a reply) the matters relied on by CGU for its non-disclosure defence, it was not known if those matters would be found to have existed (or continued until the date of insolvency), and could not dictate an admission of reasonable grounds. As stated “ If the court does not accept any of the contested facts pleaded in the Defence, clearly the nexus you assert cannot exist and no admission is appropriate at this time”. Again “ Whilst the plaintiff continues to challenge CGU’s contentions in its defence, the possibility exists that the court may find them not well founded in which case the plaintiff’s contentions as to insolvent trading in the subsequent period (to be dealt with by his evidence in chief) will remain for consideration”;

xviii. Further the plaintiff’s case was that the causes of insolvency did not occur until January 1999 and did not predate January. CGU relied in defence on different matters occurring at an earlier point of time, namely the significant changes at the mines and other matters occurring prior to January;

xix. The causes of insolvency and issue of reasonable grounds are matters of specialist knowledge.

Costs of the ‘security for costs’ proceedings

24 CGU sought security for costs in an amount of $2,592,330.72.

25 It succeeded in obtaining security for only $450,000 for future estimated costs only due to its delay in making the application.

26 The costs of the application for security for costs determined on 9 May 2008 were reserved: Green v CGU Insurance Limited [2008] NSWSC 449 at [49].

27 The Court of Appeal dismissed the Plaintiff’s appeal against the order for security and CGU’s cross-appeal against the refusal to order security for past incurred costs: Green v CGU Insurance Limited [2008] NSWCA 148 at [62]-[63], [89].

28 The Court of Appeal’s costs order was based on the fact that each party failed in that Court and the appeals required consideration of the same questions.

29 In my view the plaintiff should be ordered to pay 15% of the defendants costs of the application for security for costs.

Orders

30 The orders of the court are as follows:

i. Judgment for the first defendant.

ii. The plaintiff to pay the first defendant's costs of the proceedings as agreed or assessed.

iii. The plaintiff is to pay interest on the amount of costs paid by CGU from the dates of payment.

iv. The first defendant is permitted to call on the bank guarantee from Macquarie Bank dated 8 July 2008 in favour of the first defendant upon agreement on the amount of costs to be paid to the first defendant pursuant to order 2, or the issue of a certificate of taxation following assessment of those costs, or as sooner agreed by the plaintiff.

v. The plaintiff is to pay 15% of the first defendant’s costs of the application for security for costs.