Murphy McCarthy & Associates Pty Limited (Administrator Appointed) v Zurich Australia Limited (No 2)

The Court delivered its principal judgment in these proceedings on 25 September 2024: Murphy McCarthy & Associates Pty Limited (Administrator Appointed) v Zurich Australia Limited [2024] NSWSC 1203. These reasons should be read, and assume familiarity, with the principal judgment. Defined terms in the principal judgment have the same meaning in these reasons.

The outcome of the principal judgment was that MMA’s claim against Zurich was dismissed with costs. MMA was ordered to pay Zurich’s costs of the proceedings on the ordinary basis.

Zurich sought a special costs order based on MMA’s non-acceptance of an offer of compromise under UCPR Part 20 r 20.26 made on 31 July 2023.

The parties agreed that Zurich’s application could be dealt with on the papers. Written submissions in chief and reply prepared by Mr D Lloyd of Senior Counsel with Mr J Harrison of Counsel were filed on behalf of Zurich. Written submissions prepared by Mr M Gollan of Counsel were filed on behalf of MMA opposing Zurich’s application.

For the reasons which follow, the Court will refuse Zurich’s application by ordering otherwise under UCPR Part 42 r 42.15A(2). The reasons for this may be summarised as:

The proceedings were commenced by statement of claim filed on 20 October 2022.

The offer was made on 31 July 2023 in the Supreme Court form for an offer of compromise specifying these terms:

I immediately observe that the offer contained an error insofar as it referred to OnePath as second defendant. This may not have been noticed by anyone in circumstances when it was OnePath that had issued the policy (see principal judgment [3]). Zurich’s solicitor swore an affidavit in support of the present application in which he explained that this error likely resulted from “copying and pasting” from another matter. Nothing turns on this error because the offer makes clear that it was Zurich that was to pay the settlement sum. To the extent that MMA’s submissions complained about the error, the complaint was oblique. It was certainly not express.

The offer was open for acceptance until 28 August 2023. MMA never responded to the offer. I will refer to this as the non-acceptance of the offer.

On or around 16 October 2023, Mr Heron commenced employment with Jonishan. That employment had forensically significant consequences for the conduct of the litigation, including giving rise to surveillance videos and medical reports that assumed considerable importance in the resolution of the case. This observation may be made good by these extracts from the principal judgment (emphases added):

UCPR Part 42 r 42.15A provides (emphasis added):

There was no dispute that the most recent, authoritative exposition of the applicable principles in relation to that provision is the judgment of Ward P (with whom Kirk JA agreed) in Langdon v Carnival PLC [2024] NSWCA 168, in which her Honour said:

Relying on the offer, Zurich sought an order that MMA pay Zurich’s costs of the proceedings:

Zurich’s submissions may be summarised as:

MMA’s submissions may be summarised as:

Zurich’s submission in reply may be summarised as:

The Court immediately accepts two submissions made on behalf of Zurich.

First, the Court does not accept that the offer was deficient as to form in either of the respects contended for by MMA (and assuming that within the general complaint about the identification of the proceedings is an implicit reference to the inadvertent inclusion of OnePath as second defendant). The Court accepts Zurich’s submissions set out in [16(1)] above.

Second, looking at the evidence and what might be called the forensic landscape at and during the time the offer was open, the Court accepts that MMA has not shown that its non-acceptance of the offer was reasonable. However, as I will next consider, that is not the end of the matter.

As I understand MMA‘s submissions, their essential point is that an important part of the Court’s reasoning in the principal judgment was that by reason of his return to work, Mr Heron was demonstrating that he was capable of working in his “Own Occupation”. That return to work occurred after the offer had expired and represented a fundamental change of circumstances.

In that regard, I do not accept Zurich’s submission that MMA should have made enquiries about Mr Heron’s health status as dispositive in the facts of this case. That is because had MMA done so, I am satisfied Mr Heron would have given the answer he gave in the witness box: that he was not able to do the work he had done for MMA. It might be thought that a more pertinent inquiry, if one was called for, was whether Mr Heron had returned to work. However, the answer would have been “no”. He did not return to work until around 16 October 2023, some six weeks after the offer had expired.

Where an unsuccessful plaintiff can point to circumstances which significantly affected the outcome that were not present at the time of the offer, this can provide the Court with a powerful discretionary reason to make orders otherwise than the usual orders as to costs pursuant to the UCPR. In approaching the exercise of the Court’s discretion, I have borne firmly in mind that there is a strong public policy in favour of encouraging the settlement of litigation and that the conditional entitlement created by UCPR Part 42 r 42.15A is not lightly to be displaced, not least because the offer of compromise scheme depends upon certainty of outcome. This certainty encourages offers to be made and enables parties to be given reliable advice when considering when and on what terms to make an offer.

While recognising that the conditional entitlement created by an offer of compromise is a much weightier consideration than the discretionary calculus engaged by non-acceptance of a Calderbank offer, the approach the Court has taken where there has been a change of circumstances when considering the non-acceptance of a Calderbank offer can provide some instruction by way of analogy. An authoritative example is the decision of Stein JA (with whom Davies AJA agreed) in Rolls Royce Industrial Power (Pacific) Ltd v James Hardie and Coy Pty Ltd (2001) 53 NSWLR 626; [2001] NSWCA 461 (overturned by the High Court on other grounds unrelated to the consideration of the Calderbank offer: Amaca Pty Ltd v NSW (2003) ALJR 1509; [2003] HCA 44).

In Rolls Royce, the Court of Appeal did not disturb the trial judge’s conclusion that a significant change in circumstance after the time for acceptance of a Calderbank offer had expired was a proper basis not to give effect to the Calderbank offer. Stein JA said (emphases added):

In the present case, it is not just the fact that Mr Heron had returned to work which enabled the Court to make the finding it did that was the relevant change of circumstance. The consequence of his return to work was the introduction of a large body of new evidence constituted by the surveillance footage, the doctors’ reports and Mr Heron’s own evidence about his work with Jonishan.

Applying the language of Stein JA in Rolls Royce at [95], Mr Heron’s return to work and the fresh evidence that this generated produced a change of circumstances which, if in existence during the life of the offer, would have been likely to have produced a different complexion to the litigation as far as MMA was concerned. These matters “significantly change[d] the situation” (Rolls Royce at 97).

I have set out in [10] above references to the principal judgment to demonstrate just how significant the matters referred to in the preceding paragraph were to the outcome. Based on its own assessment and experience, the Court has no doubt that if all of that information were available to MMA during the life of the offer, MMA would have been confronted with a quite different, and considerably more disadvantageous, forensic landscape. Even if viewed through MMA’s understandably partisan eyes, that Mr Heron had returned to work which could at least be said to resemble substantially his former employment, the new information would have given MMA’s experienced legal advisors considerable pause for thought. MMA may well have taken a different view of its prospects and chosen to accept the offer.

A very substantial component of what resulted in Zurich’s successful defence of the proceedings (being the fact of Mr Heron’s return to work and the evidence that subsequently generated) was not in existence during the life of the offer. The Court finds that change in the evidence between the time of the offer and the hearing to be exceptional or extra-ordinary, or simply to be the particular circumstances of this case which justify a departure from Zurich’s conditional entitlement to indemnity costs. Because of those particular circumstances it would be unfair to visit on MMA what would otherwise be the consequences of its non-acceptance of the offer (see Langdon at [188]).

For these reasons, Zurich’s application for an indemnity costs order in reliance on the offer is rejected.

While Zurich is entitled to its costs on the ordinary basis of the entire proceedings, it has failed in this discrete application. Zurich will be ordered to pay MMA’s costs of Zurich’s special costs application (subject to affording Zurich a short period of time to be heard against this outcome, if it wishes).

The orders of the Court are: