MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2)

In the Federal Court of Australia, MGICA (1992) Limited, formerly known as MGICA Limited, brought an action against Kenny & Good Pty Limited and Lance Kenny, seeking damages for breach of contract and negligence. The court found in favour of MGICA and awarded damages, but the dispute centred on the costs incurred during the proceedings. MGICA argued that the respondents should pay its costs on an indemnity basis, rather than the usual party and party basis, due to the offer of settlement made via a Calderbank letter. The respondents contested this, maintaining that the usual cost order should apply.

The legal issues before the court were whether the mere making of a Calderbank letter, without more, generates a presumptive entitlement to indemnity costs and whether the conduct of the respondents was such that it warranted a departure from the usual party and party cost order. The court examined various precedents and concluded that while a Calderbank letter may be a relevant factor, it does not automatically entitle the offeror to indemnity costs. The court had to determine if the respondents' conduct was unreasonable or constituted an abuse of process, which would justify an order for indemnity costs.

The court found that while MGICA's offer of $2,200,000 plus costs represented a significant concession, the circumstances as of 3-7 August 1995 did not take the case out of the ordinary category. The respondents had legitimate grounds to reject the offer, and the complexity of the case and the arguable limitation of damages made the offer seem unreasonable. Therefore, the court ruled that the usual order for costs on a party and party basis should apply, with no order for indemnity costs on the argument concerning indemnity costs.