Giabal Pty Ltd v Gunns Plantations Ltd (in liquidation)

By a Notice of Motion dated 27 February 2023, the first and second defendants, Gunns Plantations Limited (in liquidation) and Gunns Limited (in liquidation), seek an order that the plaintiffs pay their costs of the proceedings from 22 February 2019 on an indemnity basis or alternatively on the ordinary basis. The significance of 22 February 2019 is that it is the date of expiry of a Calderbank offer of settlement made by the first and second defendants and others to the plaintiff. In the alternative, the first and second defendants seek payment of their costs from either 1 March 2019, 10 June 2019 or 28 August 2019; such dates also being the expiry dates of Calderbank offers made to the plaintiffs.

None of the offers were accepted by the plaintiffs. The proceedings thus continued against the first and second defendants until 4 December 2019 when Ball J revoked the leave that had been granted to the plaintiffs under s 500(2) of the Corporations Act 2001 (Cth) to proceed against the first and second defendants.

In brief, each of the offers was to the effect that the remaining amount of a $2.5 million limit of indemnity under an Investment Management policy would be paid to the plaintiffs in full settlement of their claims against the first and second defendants and certain directors of the first defendant. At the time of the making of the first offer, an amount of approximately $1.6 million of the limit of indemnity remained. By that time, the insurer under a first excess layer of insurance, Catlin Australia Pty Ltd, had denied any liability to give indemnity in respect of the plaintiffs' claims.

The insurance cover provided by the primary policy (issued by Chartis Australia Insurance Limited) was progressively eroded throughout 2019 as costs were incurred to the point where the application was made to revoke the leave to proceed against the first and second defendants on the basis that there were no longer any funds available to them. In that regard, reference should be made to the ex tempore reasons given by Ball J on 4 December 2019, particularly at paragraphs 3 and 18.

Since the revocation of the leave, the first and second defendants have not taken any active role in the proceedings. However, the first and second defendants were recently informed of certain settlements, although not the details of the settlements, that have been agreed between the plaintiffs and the other parties to the proceedings. Those settlements are the subject of an approval application under s 173 of the Civil Procedure Act 2005 (NSW) that is also listed for hearing before me today. The first and second defendants' application for costs ultimately proceeded on the basis that the terms of the settlement were not relevant to a determination of the question of costs as between the plaintiffs and the first and second defendants.

An order was made by the Court on 14 February 2023 directing the first and second defendants to file any application relating to costs by 26 February 2023. There was some difficulty with the filing of the motion, but the motion dated 27 February 2023 and affidavit in support of Paul Buitendag, solicitor, sworn on 27 February 2023, together with the exhibit to that affidavit and written submissions of counsel, were promptly served upon the plaintiffs.

In opposition to the motion the plaintiffs rely upon the affidavit of their solicitor, Gordon Grieve, sworn on 1 March 2023, the exhibit to that affidavit, and written submissions of counsel. The plaintiffs also rely upon what occurred in Court when the s 500(2) leave to proceed was granted by Hammerschlag J and when the leave to proceed was revoked by Ball J. The parties to the motion made further oral submissions in Court today.

In essence, the first and second defendants contend that an order for costs against the plaintiffs is warranted because:

The first and second defendants submitted that the plaintiffs acted unreasonably in circumstances where they were aware that the Chartis policy was the only available insurance cover, and that the first and second defendants and the directors did not have the capacity to meet defence costs or any judgment from their own funds. The first and second defendants submitted that the plaintiffs, by failing to accept the offers, failed to take the only realistically available money and then ended up with a “nil outcome”.

The plaintiffs dispute that at the times the offers were made they were aware that the Chartis policy was the only available insurance. On the contrary, the plaintiffs contend that they were aware of a "tower of insurance policies" that might respond to the claims made, and this was the case even after some of the excess layer insurers had indicated that they were denying indemnity.

The plaintiffs, through the affidavit of Mr Grieve, advanced various reasons why it was not unreasonable for the plaintiffs to not accept the offers. These reasons included:

The plaintiffs also take issue with the contention that the revocation of the leave to proceed is a relevant “event” for the purposes of the general rule as to costs. In my opinion, the plaintiff’s objection in this regard should be accepted.

It is true that, in practical terms, the order made by Ball J revoking the leave to proceed against the first and second defendants effectively brought the proceedings against those parties to an end. I say “effectively” because the order did not formally bring those proceedings to an end. There was no dismissal or discontinuance of the proceedings against the first and second defendants and it remained open as a theoretical possibility that a fresh grant of leave might be given. The claims brought by the plaintiffs against the first and second defendants remained undetermined. Counsel for the first and second defendants submitted that an “event” in this context does not necessarily have to involve a determination on the merits. That may be accepted. For example, a consent order may, in certain circumstances, be regarded as the event for the purposes of the general rule as to costs. However, I do not think that the order of Ball J ought be regarded as the “event” for the purposes of the general rule as to the costs of proceedings contained in Uniform Civil Procedure Rules 2005 (NSW) r 42.1. The mere revocation of the leave (based upon the lack of funds then available to the first and second defendants) did not, in my view, make the first and second defendants the successful party, or the plaintiffs the unsuccessful party. The revocation did not effectively make the first and second defendants the winner and the plaintiffs the loser in relation to the issues in contention between them. I am therefore unable to see this as a case where there has been an event decided in favour of one party and against another (see Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [2]; see also Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624).

Neither is it a case where it could be said that the first and second defendants would almost certainly have succeeded had there been a contested hearing. It was not suggested by the first and second defendants that the plaintiffs acted unreasonably in bringing the claims against them. In these circumstances, and in the absence of a determination on the merits, it is usually appropriate to order that each party bear its own costs (see Nicolls v NFS Agribusiness Pty Ltd (supra) at [30]).

Moreover, the absence of a determination on the merits renders it difficult to conclude that the failures of the plaintiffs to accept any of the Calderbank offers was unreasonable. The usual yardstick that is applied in this context, namely, the amount of the judgment obtained by the offeree against the offeror, is absent. I note that the Calderbank offers themselves are framed by reference to the result obtained by the plaintiffs “at trial”. I do not accept the submission of the first and second defendants that the relevant comparison is between what the plaintiffs would have received had they accepted an offer and the “nil outcome” received as a result of the revocation of leave. It is of course not the revocation itself, but the underlying financial position of the first and second defendants, that effectively brought about that “nil outcome”.

Finally, it seems to me that, viewed overall, the various reasons advanced by Mr Grieve, as to why it was not unreasonable of the plaintiffs to not accept the offers, are cogent. The question of whether the failure to accept a Calderbank offer is unreasonable must of course be considered objectively, but the various features of the litigation Mr Grieve describes suggest, objectively, that the plaintiffs did not act unreasonably in respect of the Calderbank offers. I should add that when the offers were made, the proceedings were still in a relatively early stage, and a great volume of discovery of documents had not yet occurred. I am not satisfied that the failures of the plaintiffs to accept any of the offers was unreasonable.

For the above reasons, and in circumstances where there has been no determination on the merits of the plaintiffs’ claims against the first and second defendants, I consider that the appropriate exercise of the discretion under s 98 of the Civil Procedure Act 2005 (NSW) is to make no order as to costs as between the plaintiffs and the first and second defendants to the intent that, as between them, those parties bear their own costs.