Sayers Property Holdings Pty Ltd v AIG Australia Ltd (Costs)
[2024] VSC 419
•4 July 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
INSURANCE LIST
S ECI 2021 00081
| SAYERS PROPERTY HOLDINGS PTY LTD (ACN 137 303 354) | First Plaintiff |
| ORIANO SALVALAGGIO | Second Plaintiff |
| v | |
| AIG AUSTRALIA LTD (ACN 004 727 753) | Defendant |
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JUDGE: | Garde J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 4 July 2024 |
CASE MAY BE CITED AS: | Sayers Property Holdings Pty Ltd v AIG Australia Ltd (Costs) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 419 |
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COSTS – Calderbank offer – First plaintiff unsuccessful – Whether the first plaintiff’s failure to accept Calderbank offer was unreasonable – Relevant factors – Failure to give reasons why first plaintiff should accept the offer other than a statement of position – Extent of the compromise offered – Onus of persuasion not discharged – Costs ordered on standard basis.
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TABLE OF CONTENTS
Introduction
Parties’ position on costs
The settlement offer
The settlement letter
AIG’s position
AIG’s submissions
Sayers’ submissions
Relevant considerations
Stage of the proceeding
Time allowed for Sayers to consider the settlement
The extent of the compromise offered
Sayers’ prospects of success assessed as at the date of the offer
The clarity with which the offer was expressed
Did the settlement offer foreshadow an application for indemnity costs in the event of the offeree rejecting it?
Conclusion
HIS HONOUR:
Introduction
In this proceeding, the first plaintiff, Sayers Property Holdings Pty Ltd (ACN 137 303 354) (‘Sayers’) claimed an amount of $1,971,604 from the defendant AIG Australia Limited (ACN 004 727 753) (‘AIG’) under a Hospitality Edge Management Liability policy (‘policy’) held by Sayers (‘proceeding’). The claimed amount represented the additional purchase price paid by Sayers under terms of settlement (‘terms of settlement’) agreed at the mediation of proceeding S ECI 2017 00024 between Sayers, Di Dio Nominees Pty Ltd (ACN 005 304 914) (‘Di Dio’) and others (‘2017 proceeding’).
In the reasons for decision, I held that the increased purchase price was part of a global or ‘all-in’ commercial agreement negotiated between the parties which affected a rearrangement of their legal, financial and property interests, as well as the resolution of the litigation between them.[1] The increased purchase price could not be allocated to a monetary claim giving rise to ‘Loss’ as defined in the policy and was not therefore claimable under the policy.[2]
[1]Sayers Property Holdings Pty Ltd v AIG Australia Ltd [2024] VSC 139, (‘reasons for decision’), [2].
[2]Ibid.
By an order made on 27 March 2024, I dismissed the proceeding and provided a timetable for written submissions and affidavits as to costs to be exchanged between the parties. AIG relied on the affidavit and exhibits of its solicitor, David Chew, filed 3 April 2024. The contents of Mr Chew’s affidavit were not disputed. The parties also relied on written submissions.
Parties’ position on costs
Both Sayers and AIG agree that it is appropriate to order at least that Sayers pay AIG's costs of the proceeding on the standard basis to be taxed in default of agreement.
However, AIG seeks an order that Sayers pay its costs on an indemnity basis, from and including 21 November 2023 until the date of judgment on 27 March 2024, including a two day trial. This submission arises from a Calderbank offer[3] made by AIG on 21 November 2023 seeking to compromise the proceeding (‘settlement offer’) which was not accepted by Sayers.
[3]Referring to Calderbank v Calderbank [1976] Fam 93.
The settlement offer
The settlement offer consisted of:
(a)a letter from Hall & Wilcox dated 21 November 2023 (‘settlement letter’);
(b)an unsigned deed of settlement and release (‘settlement deed’); and
(c)an accompanying email dated 21 November 2023.
The settlement letter sets out the terms of the offer which were in substance that:
(a)AIG would pay $800,000 to Sayers in settlement of the disputes remaining in the proceeding;
(b)AIG and Sayers would execute terms in accordance with the settlement deed; and
(c)the offer would remain open until 4:00pm on 5 December 2023.
Mr Chew deposed that Sayers’ solicitor responded on 22 November 2023, advising that he would seek instructions and revert to AIG's solicitors.
AIG did not receive any further response to the settlement offer from Sayers' solicitors or Sayers.
The settlement letter
The settlement letter consisted of four main paragraphs. They were headed:
(a)purpose of letter;
(b)relevant background;
(c)AIG’s position; and
(d)AIG’s offer.
The settlement letter described the central issues in the proceeding in substance as:
(a)whether Sayers’ claim is ‘Loss’ within the meaning of the policy, given that AIG did not consent to it;
(b)whether Sayers’ claim ‘resulted from’ Di Dio’s counterclaim against Sayers; and
(c)whether Sayers’ claim was a reasonable settlement of Di Dio’s counterclaim, as that concept is understood in accordance with established principles regarding settlements in the context of liability insurance.
AIG’s position
The settlement letter did not contain a paragraph articulating the reasons why Sayers should accept the offer other than what can be perceived from the paragraph entitled AIG’s position.[4] The settlement letter set out AIG’s position in these terms:[5]
AIG’s position is as set out in its Outline of Opening Submissions dated 31 August 2023. In summary, AIG considers that Sayers’ case fails on each and all of the issues articulated in paragraph 2.4 above. We briefly discuss each in turn.
The correspondence confirms that AIG did not consent to the settlement of the Di Dio Claim – whether before or after the settlement occurred, or whether for the amount of Sayers’ Settlement Claim or any other amount. For that reason, the settlement is not “Loss” within the terms of the Policy.
Sayers’ case relies on a mischaracterisation of Di Dio’s Counterclaim against it, in a way that is fatal to its prospects. Sayers claims that Di Dio's Counterclaim was for equitable compensation from Sayers in an amount representing the difference between the contracted purchase price of the land and the actual value of the land, as assessed on one of a number of alternative dates, on one of two possible assumptions. Sayers pleads as much and particularises as much, invoking some particulars filed in the Di Dio Action and an expert valuation report from which those particulars derived.
However, it is plain on the face of those particulars filed in the Di Dio Action that they particularise an allegation in Di Dio's Counterclaim not against Sayers, but against Best Hooper. In contrast, the prayer for relief seeking equitable compensation from Sayers is entirely unparticularised and expressed to be in the alternative to relief setting aside the Transaction Documents
In other words, the Di Dio Counterclaim did not claim any particular amount of equitable compensation against Sayers. Nor did it give rise to a possible outcome whereby the Transaction Documents would remain on foot and Sayers would be ordered to pay equitable compensation, as Sayers now claims was the basis of its settlement. Indeed, that outcome was not logically available on the Di Dio Counterclaim, because if the Transaction Documents remained on foot, it follows that Di Dio would have failed to establish vitiating conduct on the part of Sayers that could possibly support a claim for equitable compensation.
That being so, it is AIG’s position that the Sayers' Settlement Claim, said to represent a settlement of Di Dio’s Counterclaim against Sayers characterised as the difference between the purchase price of the land and its value, did not “result from” a Claim, because no such Claim existed.
Finally, Sayers’ evidence fails to establish, as it must, that Sayers' Settlement Claim was reasonable, as that concept is well understood in liability insurance cases. The so-called legal advice about settlement that Sayers has put in evidence concerns the risks of the Transaction Documents being set aside, not the risks of Sayers being ordered to pay equitable compensation. Further, the evidence actually supports the inference that the global settlement figure of $11 million to purchase the land – of which Sayers’ Settlement Claim was not apparently identified as a separate portion at the time – was a sensible commercial decision based on the risk that the Transaction Documents could be set aside.
That it may have been commercially reasonable to settle the proceeding does not answer the fundamental question of whether Sayers’ Settlement Claim, as a portion of the total settlement figure, was a reasonable and bona fide measure of Sayers' potential liability.
[4]As to the need to articulate reasons in a Calderbank offer explaining why the offeree should accept the offer, see Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1, 3 [8]-[10] (Sundberg and Emmett JJ); Nutrient Water Pty Ltd v BACO Pty Ltd [2010] FCA 304, 10 [33]–[34] (Kenny J); Mediterranean Olives Financial Pty Ltd v Lederberger [2011] VSC 333, [10] (Pagone J); Keays v JP Morgan Administrative Services Australia Ltd (No 2) [2011] FCA 547, 7-8 [19]-[22] (Buchanan J); Strategic Property Reservoir Pty Ltd v Condec Pty Ltd (No 2) [2013] VSC 29, 5-6 [15] (Almond J); ROJ Property Group Pty Ltd v Eventpower Property Pty Ltd (Costs) [2023] VSC 268, 5-6 [12]; 23 [51] (Derham AsJ);]; LexisNexis, Civil Procedure Victoria (online at 16 July 2024) Chapter I: Supreme Court (General Civil Procedure) Rules 2015, [I 26.01.65].
[5]The definitions used in this extract of the settlement letter differ in some respects from the definitions used within this ruling.
AIG’s submissions
AIG submitted in brief that:
(a)indemnity costs should be awarded on the basis that it was unreasonable for Sayers to refuse the settlement offer;
(b)AIG had offered Sayers about 50% of its claim, with each party bearing its own costs of the proceeding; and
(c)all formalities associated with a Calderbank offer had been observed.
Sayers’ submissions
Sayers submitted in brief that:
(a)AIG bore the onus of persuading the court that Sayers’ failure to accept the settlement offer was unreasonable;[6]
(b)unreasonableness is not determined with hindsight, but the strength of the claim should be considered prospectively as at the time of the offer in the circumstances known, or reasonably anticipated, by the parties at the time the offer was made;[7]
(c)unreasonableness is a matter of judgment and impression;[8] and
(d)it was not unreasonable for Sayers to allow the settlement offer to lapse and costs should be awarded on the standard basis only.
[6]See Secretary to the Department of Transport v Provan’s Timber Pty Ltd (No 2) [2020] VSCA 258, 8 [25] (Tate, Kyrou and McLeish JJA); Foster v Galea (No 2) [2008] VSC 331, 3-4 [9].
[7]Citing Assets China Pty Ltd v Eastern Blue Pty Ltd (Costs) [2020] VSC 786, 8 [30] (Ierodiaconou AsJ); Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 407, 441 [23] (Warren CJ, Maxwell P, Harper AJA) (‘Hazeldene’s Chicken Farm’).
[8]Citing Hazeldene’s Chicken Farm, 441 [24].
Relevant considerations
In Hazeldene’s Chicken Farm, the Court of Appeal held that 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 as at the date of the offer;
(e)the clarity with which the offer was expressed; and
(f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.[9]
[9]Hazeldene’s Chicken Farm, 442 [25].
The decision of the Court of Appeal in Hazeldene’s Chicken Farm has been followed and applied in numerous subsequent decisions.
I will now turn to the relevant factors to be taken into account as set out in Hazeldene’s Chicken Farm. The list of factors is not exclusive. However, neither party submitted that there were additional relevant factors that should be taken into account.
Stage of the proceeding
The proceeding commenced on 18 January 2021, and had been on foot for around two years and ten months by the time that AIG made the settlement offer on 21 November 2023. About four months earlier on 5 July 2023, the proceeding was set down for trial commencing on 19 February 2024 on an estimate of three days. At the time of the settlement offer, both parties were aware that the trial was pending in February 2024.
Prior to the settlement offer, the parties exchanged pleadings and undertook discovery.
On 27 September 2023, AIG issued a summons seeking to amend its defence. The summons was opposed by Sayers and determined by me at a hearing conducted on 10 November 2023. I gave leave to AIG to file and serve its amended defence. I also gave Sayers leave to file and serve an amended reply. The amended defence was filed and served on 14 November 2023. The amended reply was filed and served on 5 December 2023.
As to evidence, Sayers filed its witness statements and submissions in June 2023. Supplementary witness statements were filed in February 2024. AIG did not file any witness statements or call evidence.
I conclude that the proceeding was well advanced and listed for imminent trial when the settlement offer was made. The amendments to the reply were finalised on the day that the settlement offer expired.
Time allowed for Sayers to consider the settlement
The time allowed for Sayers to consider the settlement offer was a period of two weeks. I consider that this is a reasonable period in the circumstances. The proceeding was well advanced. Sayers had access to senior and junior counsel who had recently appeared in a contested pleading application on 10 November 2023.
The extent of the compromise offered
The amount offered by AIG was $800,000 on an all-in basis. Each party was to bear its own costs and expenses of the proceeding. The amount claimed by Sayers was $1,971,604. The interest accruing under s 57 of the Insurance Contracts Act1984 (Cth), and reg 38 of the Insurance Contracts Regulations 2017 (Cth) in the event of success by Sayers exceeded $400,000.
The total amount claimed by Sayers inclusive of interest was almost $2.4 million. I am informed in written submission that by the time of the settlement offer, Sayers’ costs amounted to about $400,000. While this figure was not known to AIG at the time, its advisers would have been aware that Sayers’ costs of the proceeding which commenced in January 2021 were substantial, and that they were most probably of this order of magnitude.
Sayers first submitted that the amount of the offer was less than 30% of Sayers' claim, including interest and costs. By contrast, AIG submitted that it was about 50% of the claim with each party bearing its own costs of the proceeding. The percentages advanced by each party were those most favourable to their respective positions.
Secondly, Sayers submitted that AIG’s offer, in substance, was an offer seeking a capitulation rather than a genuine offer of compromise, referring to the decision of the Court of Appeal in Commissioner of State Revenue v Challenger Listed Investments Limited (No 2).[10]
[10][2011] VSCA 398, 4 [17] (Buchanan;Tate JJA; Sifris AJA).
Finally, Sayers submitted in substance that given the amount of the claim and interest, the fact that significant costs had been incurred in the proceeding since 2021, and that all that remained to be done was to prepare for a listed trial not exceeding three days in February 2024, AIG’s offer could not be viewed as at such a level that it would be unreasonable if Sayers were to refuse the offer.
AIG resisted all of these submissions.
While AIG’s all-in offer of $800,000 covered Sayers’ legal costs, I am not persuaded that the settlement offer sufficiently contained a real and genuine element of compromise, having regard to the likely damages that would be awarded if Sayers were to be wholly successful on its claim, including interest. It amounted to more than a capitulation, but not a great deal more. It was hardly generous having regard to the magnitude of Sayers’ claim and the incurrence of interest if Sayers’ claim were successful.
Sayers’ prospects of success assessed as at the date of the offer
There was no evidentiary dispute and AIG called no evidence at trial. Sayers’ evidence was, and was likely to be, the only evidence before the Court. Apart from the largely uncontested witness statements, the evidence was documentary. The outcome of the proceeding revolved around the construction of the policy, whether Sayers could show on the facts of the case that the agreement to pay the increased purchase price ‘resulted from’ Di Dio’s counterclaim against it for equitable compensation in the 2017 proceeding, and whether the claimed amount was a reasonable settlement of the equitable compensation claim.
Sayers claimed on its interpretation of the policy that it was entitled to be paid the full amount of its claim against AIG. It did not make an alternative case that it was entitled to a lesser amount or seek to justify a reduced amount as a fallback position. Its claim was an all-or-nothing claim.
For its part, AIG said that Sayers would not succeed on any of the central issues in the dispute listed in the settlement letter. Both parties maintained their respective positions. AIG did not press its consent defence at trial.
Whilst Sayers had some prospects of success, it cannot be said that its claim was ever particularly strong where what it claimed was an increased purchase price for commercial property consisting of a gaming venue, following negotiation and agreement on revised terms and conditions of sale between vendor and purchaser.[11]
[11]Reasons for decision [2], [127], [129], [130], [137].
The clarity with which the offer was expressed
The basis on which AIG was successful at trial is briefly set out in paragraphs [3.7] and [3.8] at the end of AIG’s statement of position but there is no further elucidation in the settlement letter.[12] There is no attempt made to identify the commercial and financial benefits received by Sayers in consideration for the increased purchase price paid by Sayers to Di Dio.
[12]For a case where the analysis of the legal position set out in the Calderbank offer differed from the analysis giving rise to success, see Morris Finance Ltd v Commonwealth Bank of Australia [2017] VSC 348, 8 [25] (Derham AsJ).
It is curious that the consent defence is addressed first in the statement of AIG’s position. The presentation of a weaker defence abandoned at trial first up in AIG’s statement of position does not assist in identifying the basis on which AIG subsequently won the case.
In its written submissions, Sayers engages in a detailed review of the legal propositions and factual statements made by AIG in the settlement letter. It criticises a number of the statements made in the settlement offer as to AIG's position as a mischaracterisation of the position or wrong in law.
Sayers’ submissions deal with:
(a)the consent defence pleaded by AIG (settlement letter [3.2]);
(b)Di Dio’s unparticularised claim for equitable compensation against Sayers (settlement letter [3.3] – [3.6]);
(c)whether equitable compensation was a possible outcome of Di Dio’s claim against Sayers (settlement letter [3.5]);
(d)AIG’s contentions as to the meaning of ‘resulting from’ as found in the policy (settlement letter [3.6]);
(e)the nature and extent of the legal risks faced by Sayers in the Di Dio proceeding (settlement letter [3.7]); and
(f)whether the additional purchase price paid by Sayers was a reasonable and bona fide measure of Sayers’ potential liability (settlement letter [3.8]).
There is no need for me to address these submissions in reaching a decision as to the costs order that I should make. It is also undesirable for me to do so. It would be inappropriate to revisit or redetermine the legal issues debated at the trial in a costs ruling after judgment.
Overall, I am of the view that the statements made by AIG in the settlement letter as to its position are in some respects difficult to follow and confusing. It would have been better if the reasons why Sayers should accept the offer had been directly stated. It would also have been better if the basis on which AIG was successful at trial had been dealt with before other defences and addressed more expansively in the settlement letter. I doubt if the statement of AIG’s position given in the settlement letter was of much assistance to Sayers in evaluating its own position and prospects of success.
Did the settlement offer foreshadow an application for indemnity costs in the event of the offeree rejecting it?
The settlement offer was appropriately marked as a Calderbank offer. The letter set out the consequences of rejection of the offer and is clearly marked ‘Without prejudice save as to costs’. It unambiguously stated that in the event that the offer was rejected, AIG would rely on the letter on the question of costs and seek an order that indemnity costs or solicitor-client costs be awarded against Sayers.
The letter also stated that in seeking that relief, AIG would rely on the principles expressed in Calderbank v Calderbank[13], as applied in Victoria.
[13][1976] Fam 93.
Conclusion
For the reasons given, I am on balance not persuaded that AIG has discharged the onus of persuasion and shown that Sayers acted unreasonably in failing to accept the settlement offer.
The two main factors in arriving at this conclusion are:
(i)the amount of the offer which could not be said to be of such magnitude as to render it unreasonable for Sayers to refuse the offer, particularly having regard to the late stage of the proceeding when the offer was made, the accrual of interest by that time if the claim was successful, and the incurrence of costs and pendency of a trial which ultimately did not exceed two days; and
(ii)the statement of AIG’s position in the settlement letter which did not clearly state reasons why Sayers should accept the offer. The statements made were in some respects confusing, and did not articulate in any detail the basis on which AIG was ultimately successful.
I will make orders for AIG to have the costs of the proceeding on the standard basis. I will not award indemnity costs.
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