Global Risk Alliance Group Services Pty Ltd & Anor v Harmer & Ors (No 2)

1. [1]

   On 9 February 2024, I handed down my reasons for judgment in this matter: Global Risk Alliance Group Services Pty Ltd & Anor v Harmer & Ors [2024] NSWSC 79 (principal judgment). At that time, I indicated that the parties should confer about the form of final orders having regard to those reasons, including (if such matters could be agreed) in respect of interest and costs.

2. [2]

   On 1 March 2024, the parties informed the Court that they were unable to agree on the form of final orders. The parties exchanged submissions and their proposed orders, together with supporting evidence.

Form of Orders disposing of claims in proceedings

1. [3]

   The parties agree that there should be judgment entered in favour of the Second Plaintiff (Aerosafe) against the First to Third Defendants for the sum of $119,120 plus interest of $49,260.37 pursuant to Civil Procedure Act 2005 (NSW), s 100 (see principal judgment [810]).

2. [4]

   The First Defendant (Mr Harmer) and the Plaintiffs agree that there should be judgment in favour of Mr Harmer on his cross-claim for the sum of $42,030.27, plus interest in the sum of $16,773.24 pursuant to Civil Procedure Act 2005 (NSW), s 100. While those parties agreed that judgment should be entered “against the Plaintiffs/Cross-Defendants” in this sum, Mr Harmer’s cross-claim has been established only against the First Plaintiff/First Cross-Defendant (GRAGS), and not against Aerosafe (see principal judgment, [782], [813]). Accordingly, judgment in the agreed sum will be entered only against GRAGS.

3. [5]

   The Plaintiffs and Fifth Defendant (SME Gateway) agree that there should be an order that the claims against SME Gateway be dismissed (see principal judgment, [812]).

4. [6]

   The Plaintiffs and the First to Third Defendants agree that the orders should note the undertakings which were given, without admission, by the First to Third Defendants, and which led to the resolution of the Plaintiffs’ claims against each of them regarding alleged misuse of confidential documents (see principal judgment, [754], [814]).

5. [7]

   Leaving aside costs, which are addressed below, there were only two aspects of the form of final orders on which the parties disagreed.

6. [8]

   First, although it was agreed that judgment should be awarded in favour of GRAGS against the First to Third Defendants in the sum of $100 (see principal judgment at [806]), there was a dispute about whether or not interest was payable on that sum. GRAGS sought pre-judgment interest on that sum in the amount of $41.35 against each of the First to Third Defendants, but did not advance any submissions in support of that position.

7. [9]

   The Court has a discretion as to whether or not to award interest under s 100 of the Civil Procedure Act. In Thompson v Faraonio (1979) 54 ALJR 231 at 233, the Privy Council stated that “[t]he reason for awarding interest is to compensate the plaintiff for having been kept out of the money which theoretically was due to the plaintiff at the date of his accident”. This statement was quoted with approval by Mason CJ, Dawson, Toohey and Gaudron JJ in Haines v Bendall (1991) 172 CLR 60 at 66; [1991] HCA 15. Their Honours observed that:

8. [10]

   Having regard to that compensatory principle, the Court has refused to award interest on exemplary damages, since such damages are not paid as compensation for the damage that the plaintiff has suffered: Murray v Commonwealth of Australia (1986) 5 NSWLR 83 at 87; Spedding v New South Wales [2023] NSWSC 34 at [3]; Romani v New South Wales [2023] NSWSC 49 at [98].

9. [11]

   Nominal damages are not awards of compensation in a small amount. As Lord Halsbury LC explained in Owners of Steamship “Mediana” v Owners, Master and Crew of Lightship “Comet”; The Mediana [1900] AC 113 at 116:

10. [12]

    That is, nominal damages are “vindicatory, not compensatory”: State of New South Wales v Stevens [2012] NSWCA 415 at [26] per McColl JA. In the principal judgment, I determined that nominal damages should be awarded in respect of the breaches of contract established by GRAGS, because it was conceded by GRAGS that it had not suffered any loss as a result of any such breach (see principal judgment at [385], [662], [806]). I fixed the amount of those nominal damages at $100, not by reference to any loss on the part of GRAGS, but by reason that this is the quantum in which nominal damages are customarily awarded: State of New South Wales v Stevens at [36]-[37] per McColl JA, at [79] per Sackville AJA (Ward JA agreeing with both).

11. [13]

    The purpose of an award of pre-judgment interest is to compensate a plaintiff for its loss. An award of nominal damages does not represent compensation for loss. It is ordered because no loss has been established. Accordingly, it is inappropriate to make any order for pre-judgment interest in respect of an award of nominal damages.

12. [14]

    Secondly, the Plaintiffs sought a declaration against the Third Defendant (Mr Dillon), in the following terms:

13. [15]

    The Plaintiffs contended that the Court has an inherent power to make declarations of this kind, referring to in the Supreme Court Act 1970 (NSW), s 75. In this regard, the Plaintiffs relied on Macks v Viscariello [2017] SASCFC 172; 130 SASR 1 at [74] and [632]. The Plaintiffs submitted that there was utility in “the making of a declaration as proposed to give effect to the Reasons and because it is in the public interest to do so”. In particular, such a declaration was in the public interest “because Mr Dillon has a history of undertaking senior roles in corporations, including having been a director of several companies over the years, not the least of which was the fourth defendant, which he placed into liquidation after the proceedings commenced”.

14. [16]

    I decline to make the declaration sought for the following reasons:

Costs

1. [17]

   There was a dispute between all parties regarding the appropriate costs order. The issues fell into three main groups:

2. [18]

   All parties agreed that SME Gateway is entitled to its costs of the proceedings on an ordinary basis up to 11 September 2019 and thereafter on an indemnity basis, by reason of a valid offer of compromise made by SME Gateway on that date under UCPR r 20.26.

3. [19]

   The Plaintiffs sought orders to the effect that SME Gateway’s costs be paid by Mr Harmer and Mr Dillon, namely:

4. [20]

   Mr Harmer and Mr Dillon opposed any such order. SME Gateway submitted that the Plaintiffs should be ordered to pay its costs and that, if the Court is persuaded that Mr Harmer or Mr Dillon should pay some or all of those costs, then the Court should not make a Sanderson order (in the form of (a) above) because to do so would expose SME Gateway to the risk that Mr Harmer and Mr Dillon may be unable to pay those costs.

5. [21]

   The Court has a broad discretion in respect of costs. Underlying both the general rule that costs follow the event, and the qualifications to that rule, “is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs”: Commonwealth of Australia v Gretton [2008] NSWCA 117 at [85] per Beazley JA and at [121] per Hodgson JA (Mason P agreeing with both). The overriding consideration for the exercise of the discretion to make either a Sanderson or Bullock order is whether it is proper and fair to order an unsuccessful defendant to pay the plaintiff’s costs of a claim against a successful defendant: Tonna v Mendonca (No 2) [2022] NSWSC 306 at [84].

6. [22]

   Without fettering the broad discretion in respect of costs, two matters are ordinarily considered when determining whether a Sanderson or Bullock order is fair in the circumstances: first, it must have been reasonable for the plaintiff to have brought the proceedings against the successful defendant; and secondly, there must be some conduct on the part of the unsuccessful defendant which would make it fair to impose liability on it for the costs of the successful defendant: Gould v Vaggelas (1985) 157 CLR 215 at 230 per Gibbs CJ and 260 per Brennan J; [1985] HCA 75.

7. [23]

   In Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179 at [128], Mason P (with whom Stein and Heydon JJA agreed) adopted the following statement of the considerations relevant to the Court’s discretion to make such an order from the judgment of Asche CJ in Lackerstein v Jones (No 2) (1988) 93 FLR 442 at 449; [1988] NTSC 72:

8. [24]

   In Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176 at [47], the Court (Beazley, Hodgson and McColl JJA) observed that:

9. [25]

   When considering whether to make a Sanderson order, the solvency of the unsuccessful parties is also an important factor. In Quintano v B W Rose Pty Ltd (Costs) [2009] NSWSC 626 at [7], Brereton J observed that:

10. [26]

    I accept that the Plaintiffs had a reasonable basis to join SME Gateway to the proceedings, even though the Plaintiffs’ claims were not ultimately established. Further, it was appropriate for the Plaintiffs to pursue their claim against SME Gateway in the same proceeding as their claims against Mr Dillon and Mr Harmer, given that those claims were substantially connected or dependent the one on the other. However, as the above authorities make clear, while it is essential to find that the Plaintiffs acted reasonably and properly in joining SME Gateway to these proceedings, that is not sufficient to lead to a Sanderson or Bullock order being made. The Court must find something in the conduct of Mr Harmer and Mr Dillon which makes it a proper exercise of discretion to order that they are liable for the costs of the Plaintiffs’ claim against SME Gateway.

11. [27]

    In this regard, the Plaintiffs argued that the evidence served by Mr Harmer and Mr Dillon caused the Plaintiffs to keep SME Gateway in the proceedings, as each of them claimed that he attended the 11 March 2016 meeting with SME Gateway on behalf of Aerosafe, and Mr Harmer deposed that Mr Dillon had expressly stated to Mr Madden and Mr Ashman of SME Gateway that they were representatives of Aerosafe. The Plaintiffs submitted that:

12. [28]

    I do not accept the Plaintiffs’ submission that Mr Harmer and Mr Dillon were responsible for “drawing in SME Gateway”. The proceeding was commenced against all five defendants on 19 December 2018. The Plaintiffs provided particulars to SME Gateway on 11 February 2019, which referred to the meeting of 11 March 2016 and stated as follows (emphasis added): “At the time of that meeting the first and third defendants were employees of the plaintiffs and remained so for another three to four months. Your client knew that the first and third defendants were employed by the plaintiffs at that time.” That critical allegation of knowledge could not have been made as a result of anything stated in the affidavits of Mr Harmer or Mr Dillon. Mr Harmer’s affidavit, in which he deposed that Mr Dillon referred to “ARM” (that is, Aerosafe) at the meeting with SME Gateway was only served in June 2020. Mr Dillon’s affidavit was served in September 2020, and did not contain any statement to the effect that he or Mr Harmer expressly referred to Aerosafe at this meeting.

13. [29]

    Accordingly, their evidence could not have had any impact on the Plaintiffs’ decision to commence proceedings against SME Gateway, or to run a case that SME Gateway had actual knowledge of Mr Dillon’s and Mr Harmer’s connection with Aerosafe, or to reject the offer of compromise served by SME Gateway on 11 September 2019.

14. [30]

    Nor do I accept that their evidence caused the Plaintiffs to keep SME Gateway in the proceedings. The Plaintiffs must have known that there was a prospect that Mr Dillon and Mr Harmer would not read their respective affidavits at trial, and that the question of SME Gateway’s knowledge would fall to be determined by reference to the contemporaneous documentary evidence and the affidavits served on behalf of SME Gateway (in particular, the affidavit of Mr Madden which contradicted Mr Harmer’s affidavit). The Plaintiffs were able to form their own assessment of the strength of their claims against SME Gateway on the basis of that material.

15. [31]

    Having regard to those matters, I do not consider that there is any sufficient basis for either a Bullock or Sanderson order. Instead, the appropriate order is that the Plaintiffs pay SME Gateway’s costs.

16. [32]

    The Plaintiffs sought an order that the First to Third Defendants pay the costs of the Plaintiffs on the ordinary basis.

17. [33]

    The First to Third Defendants contended that there should be no order as to the costs of the Plaintiffs’ claims against them. Mr Dillon, whose submissions on this issue were supported by Mr Harmer and the Second Defendant (Mr Binks), advanced a number of alternative bases for this position.

18. [34]

    First, it was submitted that the Plaintiffs had mixed success on their claims against the First to Third Defendants, succeeding in respect of their claim regarding the loss of the PBGRP engagement, but losing in respect of their claim regarding the loss of the MSB engagement. Mr Dillon submitted that the latter claim took up the “bulk” of the 12 hearing days, with the Plaintiffs relying “on an extensive range of conduct and circumstances occurring over a 6-month period, much of which involved and depended upon voluminous documents obtained on subpoena from the Department of Defence”. Mr Dillon submitted that this mixed success provided a basis for apportioning costs between issues, but that an appropriate resolution in all the circumstances would be that there be no order as to costs as between the Plaintiffs and the First to Third Defendants.

19. [35]

    The general principle is that a successful party should be entitled to the whole of its costs, including on matters where it has been unsuccessful: Tonna v Mendonca (No 2) at [169] per Ward CJ in Eq. Nonetheless, there are cases where it has been considered appropriate to apportion costs as between particular issues in proceedings, where a party has succeeded on some, but not others, of multiple issues: ibid.

20. [36]

    In Tonna v Mendonca (No 2), Ward CJ in Eq made the following observations regarding the rationales underlying, respectively, the general principle and the departures from it (at [170]-[172]):

21. [37]

    Her Honour said (at [176]) that:

22. [38]

    The principles concerning the circumstances in which the costs of a successful party might be apportioned were not in dispute. They are conveniently stated in the following passage of the decision in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA), upon which the Plaintiffs relied:

23. [39]

    I do not accept the submission that the issue regarding the loss of the MSB engagement (as opposed to the loss of the PBGRP engagement) was a clearly dominant or separable issue, which took up a significant part of the trial. It is true that the claim for the MSB engagement was for a much larger sum than the claim for the PBGRP engagement, and no doubt loomed much larger in the Defendants’ focus at trial for that reason. However, the evidence for both claims was largely the same. Each claim relied on evidence regarding the roles and responsibilities of Mr Dillon, Mr Harmer and Mr Binks at Aerosafe; their dealings and communications with the MSB and PBGRP; the steps taken by each to establish WIBIH as a competitor to Aerosafe, including their dealings with SME Gateway; their role in the development of business cases for the MSB engagement and the PBGRP engagement; the reliance and value placed by the MSB on their services, particularly as expressed by MSB officers in communications with the PBGRP; the work that they performed for WIBIH while still employed by the Plaintiffs; and the circumstances of their resignation (see Section A of the principal judgment). Likewise, the legal issues presented by each claim were largely the same, including the identity of the employer of Mr Dillon, Mr Harmer and Mr Binks; whether Aerosafe could sue on their respective employment contracts; whether each was a fiduciary of Aerosafe; whether Mr Dillon and Mr Harmer were officers of Aerosafe; and whether the steps which they took on behalf of WIBIH in the period up to July 2016 amounted to a breach of their contractual, fiduciary and statutory duties (see Sections C to F of the Principal Judgment). Where the fate of the two claims diverged was on the issue of causation, which was established in respect of the loss of the PBGRP engagement, but not in respect of the loss of the MSB engagement. However, as is apparent from Section H of the principal judgment, the issue of causation in respect of each claim was determined principally by reference to a relatively confined number of internal Defence documents.

24. [40]

    For those reasons, I do not consider that the difference in outcome between the claims in respect of the MSB engagement and the PBGRP engagement warrants any departure from the general rule that costs follow the event.

25. [41]

    Secondly, Mr Dillon relied on offer of compromise which he made on 23 August 2023. It is unusual for a party to rely on an offer of compromise to contend that there should be no order as to costs (as opposed to seeking their own costs on an indemnity basis from the date of the offer). Mr Dillon’s decision not to seek any costs order in his own favour on the basis of his offer likely reflects the fact that the amount offered ($100,000, paid by instalments, with no order as to costs) was not as favourable as the judgment that the Plaintiffs have obtained against him.

26. [42]

    Mr Dillon sought to address this issue by arguing that his offer should be assessed in conjunction with offers made by Mr Harmer in July 2023 and September 2023, on the basis that the total amount offered by them represented a more favourable outcome than was achieved by the Plaintiffs. Counsel for Mr Dillon acknowledged that they had not been able to find any authority on whether the cumulative effect of offers by multiple defendants can be taken into account in this way, but submitted that there is no reason in principle why this could not be done. Assuming that to be so, there remains a fundamental problem with the submission, namely, that the offers were not on foot at the same time. Mr Harmer’s July offer expired before Mr Dillon’s offer was made; and Mr Dillon’s offer expired before Mr Harmer’s September offer was made. I do not consider there is any basis on which the Court could take into account the “cumulative effect” of offers from different defendants which were not extant at the same time. (I consider below Mr Harmer’s application for indemnity costs on the basis of his offers.)

27. [43]

    Thirdly, the First to Third Defendants placed reliance on UCPR r 42.34, which provides as follows:

28. [44]

    The Plaintiffs have obtained a judgment against all the defendants in an amount less than $500,000: r 42.34(1)(a). Further, for the reasons set out above, I am of the view that the Plaintiffs are entitled to an order for costs against Mr Dillon, Mr Harmer and Mr Binks: r 42.34(1)(b). Accordingly, the conditions for the application of r 42.34 are satisfied.

29. [45]

    However, these proceedings could not have been commenced in the District Court: r 42.34(2)(a). That is because, as Mr Dillon acknowledged in his submissions, the Plaintiffs sought (and succeeded in obtaining) an award of compensation against Mr Dillon under s 1317H of the Corporations Act 2001. That section provides that a compensation order may be made by a “Court”, which is defined in s 58AA as including this Court, but not the District Court.

30. [46]

    It is not to the point to argue, as Mr Dillon does, that the claim under s 1317H “added nothing to the contractual, common law and equitable claims”. The issue for r 42.34 is whether the proceedings (in the form that they took) could have been brought in the District Court, and not whether the proceedings could have been formulated in a different way in order to allow them to be brought in the District Court. Further, the proceedings could not have been brought in the District Court because they involved a claim for loss of the MSB engagement, on the basis of which the Plaintiffs sought several million dollars in damages (including pursuant to s 1317H). Although this claim was ultimately not successful, the fact remains that the amount “claimed” in the proceeding exceeded the District Court’s jurisdictional limit: District Court Act 1973 (NSW), s 44.

31. [47]

    Accordingly, I am not satisfied that the matters raised by Mr Dillon provide a sufficient basis, either individually or cumulatively, to depart from the general rule that costs should follow the event.

32. [48]

    Ordinarily, an order for costs made against two or more defendants is joint and several as between them: Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660 at 663 per Bowen CJ in Eq. The general principle that multiple defendants are to be made jointly and severally liable for the costs of the successful party flows from the rationale that, because the successful party is prima facie entitled to its costs of the action, that party should not lose its entitlement if one of the parties against whom costs orders are made cannot, or will not, meet its share of the costs burden: Perigo v Workers Compensation Nominal Insurer (No 3) [2013] NSWSC 6 at [4]–[5], citing Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213; Rushcutters Bay Smash Repairs Pty Ltd v H McKenna Netmakers Pty Ltd [2003] NSWSC 670 at [16]; Scripture Union v Prime Industrial Pty Ltd [2006] NSWSC 38 at [28]. The position may be otherwise where, and to the extent that, one defendant conducts a separate and distinct defence which leads to the incurring of costs which cannot be attributed to the joint conduct of the defendants in the defence of the action: Thiess Watkins White Constructions Ltd (in liq) v Witan Nominees (1985) Pty Ltd [1992] 2 Qd R 452 at 454; Rushcutters Bay Smash Repairs v H McKenna Netmakers at [14]; Scripture Union v Prime Industrial at [29].

33. [49]

    Although there were discrete issues of breach in relation to each of the First to Third Defendants, the claims against them arose from substantially the same factual foundation and gave rise to common legal and factual issues. Having regard to the degree of interconnectedness between the Plaintiffs’ claims against each of the First to Third Defendants and between the defences raised by each of those defendants, there is no reason to depart from the usual position that a costs order in favour of the Plaintiffs will operate against the unsuccessful defendants jointly and severally. The Plaintiffs sought an order that “the First, Second and Third Defendants to pay the costs of the Plaintiffs on the ordinary basis”. Although each of the First to Third Defendants disputed the Plaintiffs’ entitlement to a costs order in their favour, none advanced a proposition, in the alternative, that if costs were awarded in the Plaintiffs’ favour, discrete costs orders should be made against each of the First to Third Defendants confined to the individual claims advanced against each of them.

34. [50]

    Accordingly, I will make an order that the Plaintiffs are entitled to their costs against Mr Dillon, Mr Harmer and Mr Binks. However, this is subject to two matters.

35. [51]

    First, on 11 February 2022, Lindsay J made the following order in these proceedings:

36. [52]

    The Plaintiffs confirmed in their submissions on costs that they did not seek any variation to that order. For the avoidance of any doubt about the matter, I will make clear that this earlier costs order is not affected by the costs orders made by me.

37. [53]

    Secondly, it is necessary to consider whether the position as to costs is altered, so far as Mr Harmer is concerned, by reason of any one of a series of offers made by him. I turn to address this issue below.

38. [54]

    The Plaintiffs accepted that Mr Harmer was entitled to the costs of his cross claim, on the ordinary basis.

39. [55]

    However, Mr Harmer sought his costs of the cross claim on an indemnity basis from 15 October 2021, based on an offer of compromise of that date.

40. [56]

    Further, he sought his costs of the proceedings (that is, his costs of both the claims against him, as well as the costs of his cross claim) on an indemnity basis from 15 July 2023, or alternatively from 21 September 2023, based on Calderbank offers made by him on each of those dates.

41. [57]

    The key elements of Mr Harmer’s offer of compromise dated 15 October 2021 were as follows:

42. [58]

    It is true that Mr Harmer has received an outcome on his Cross Claim (being judgment against GRAGS for $42,030.27, plus interest of $16,773.24, plus costs) which is much more favourable that the ‘walk away’ offer that he made in October 2021 in respect of his Cross Claim. However, one element of his offer cannot be considered in isolation from the rest. In effect, in order to accept Mr Harmer’s offer of compromise in respect of the Cross Claim, the Plaintiffs had to accept his offer of compromise in respect of their own claim. The substance of Mr Harmer’s offer, considered as a whole, was to pay a net amount of $40,000 to the Plaintiffs to resolve both their claims against him and his cross-claim against them, together with an order for the plaintiffs’ costs of their claims against him. Aerosafe has achieved a judgment against Mr Harmer for $119,120 plus interest of $49,260.37 (plus costs). It does not matter that the judgment in favour of Aerosafe is a judgment against Mr Harmer, Mr Dillon and Mr Binks. The judgment sum is not apportioned between them, and therefore Mr Harmer is jointly liable for the whole of that amount: Barclays Australia (Finance) v Mike Gaffikin Marine (1996) 21 ACSR 235 at 238 per McClelland CJ in Eq.

43. [59]

    From the perspective of the Global Alliance Group, once the judgment against GRAGS is taken into account, the net position which has in fact been achieved is an entitlement to recover $109,576.86 from Mr Harmer (before costs). Accordingly, the Plaintiffs have achieved an outcome in the proceedings, as against Mr Harmer, more favourable than they would have achieved under Mr Harmer’s offer of 15 October 2021. In those circumstances, there is no basis for an award of indemnity costs in respect of his cross claim from the date of that offer.

44. [60]

    I turn next to the Calderbank offer made on 13 July 2023, which was open for acceptance for 14 days. The terms of that offer were as follows:

45. [61]

    The letter further stated as follows:

46. [62]

    The net position for the Plaintiffs, as reflected in the “gross sum” offered in paragraph (a) of the offer, was that Mr Harmer was offering $100,000 for resolution of their claims against him, and his claim against them (before costs). As set out in paragraph 59 above, the Plaintiffs have (between them) achieved an outcome in the proceedings as against Mr Harmer which is more favourable than they would have achieved under his offer of 13 July 2023.

47. [63]

    The next (and last) Calderbank offer was made by Mr Harmer on 21 September 2023. The terms of this offer, which remained open for acceptance until 6 October 2023, were as follows:

48. [64]

    In terms of a comparison between the judgment sums that have been achieved that I have determined should be order, and the net position offered in his letter, the Plaintiffs (considered together) have achieved an outcome, as against Mr Harmer, less favourable than the terms of this offer. However, as explained below, the position is complicated by the way in which the offer as to costs was structured.

49. [65]

    The rejection of an informal offer of compromise does not give rise to a presumption that the offeree should pay the offeror’s costs on an indemnity basis: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]-[9]. Instead, the question is whether the rejection of the offer, in all the circumstances, justifies departure from the usual rule that party-party costs follow the event: SMEC Testing Services v Campbelltown City Council at [37] per Giles JA; Insurance Australia Ltd trading as CGU Insurance v MOS Beverages Pty Ltd (No 2) [2021] FCAFC 192 at [17] per Besanko and McKerracher JJ. The party seeking indemnity costs on the basis of such an offer must show that it was a genuine offer, which was capable of acceptance, and that it was unreasonable for the offeree not to accept it: E Group Security Pty Ltd v Chief Commissioner of State Revenue (No 2) [2021] NSWSC 1296 at [61] per Ward CJ in Eq.

50. [66]

    The Plaintiffs made three main submissions in resisting an order for indemnity costs from the date of this offer.

51. [67]

    First, the Plaintiffs said that the September 2023 offer came “at a late stage of the proceedings”, shortly before trial, when the Plaintiffs had already expended significant time and cost in preparing the matter for hearing, including engaging experts and preparing the court book. The Plaintiffs suggested that the decision of the Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [11] stood for the proposition that a relevant matter is whether the offer is made so late that it does not avoid “the expense and use of resources which settlement is intended to avoid”.

52. [68]

    The cited passage does not stand for any such proposition. Basten JA (with whom McColl and Campbell JJA agreed) made the following comments at the paragraph in question:

53. [69]

    It is clear from his Honour’s comments that the “expense and use of resources which settlement is intended to avoid” are not those which predate the offer (which have already been expended), but those which postdate the offer, including the costs of preparing for trial.

54. [70]

    In the present case, the offer was made at a point in time when the Plaintiffs had a detailed understanding of the issues, the evidence and the contentions to be advanced by the parties. It was therefore made at a point in time when the Plaintiffs were well placed to assess its reasonableness.

55. [71]

    Secondly, the Plaintiffs submitted that acceptance of the September 2023 would “neither [have] resolve[d] the proceedings nor materially reduce[d] the complexity or extent of the hearing or preparation for it”. However, acceptance would have completely resolved the claims against Mr Harmer. It would also have resolved his cross claim. Further, there was no issue of apportionment between the Defendants and therefore the particular difficulty with determining the implications of a settlement offer which arose in SMEC Testing Services v Campbelltown City Council at [24]-[26] (upon which the Plaintiffs relied) does not arise here.

56. [72]

    Thirdly, the Plaintiffs contended that the reasonableness of the September 2023 offer “could not be properly assessed because of the unclear way in which the payment of costs was offered and was, in any event, inadequate”. This complaint is not directed at Mr Harmer’s offer in respect of the costs of the cross-claim, which was, simply enough, that the Plaintiffs’ pay those costs on a party-party basis. Instead, it is a complaint directed at Mr Harmer’s offer in respect of the Plaintiffs’ costs of their own claim. This proposal involved separating the costs into three distinct elements: (a) those costs solely referable to the claim against Mr Harmer (which were said to exclude any costs common to claims against any other defendant), in respect of which Mr Harmer offered to pay 100% of party-party costs; (b) those costs common to the claim against Mr Harmer and claims against other defendants, in respect of which Mr Harmer offered to pay 25% of the plaintiffs’ party-party costs “on the basis that there are four active defendants”; and (c) those costs referable to claims against other defendants, and not referable to the claim against Mr Harmer, in respect of which nothing would be paid.

57. [73]

    I have determined that Mr Harmer is, along with Mr Dillon and Mr Binks, jointly and severally liable for the Plaintiffs’ costs. However, if the Plaintiffs had accepted Mr Harmer’s September 2023 offer, they would have been entitled to recover only one-quarter of any “common” costs from him. Depending on the quantum of the Plaintiffs’ costs and the individual financial position of each of the First to Third Defendants, the net result for the Plaintiffs, if they had accepted Mr Harmer’s offer, may well have been substantially worse than they have achieved in the proceedings.

58. [74]

    Focussing on the position of the Plaintiffs at the time when the offer was made, the Plaintiffs did not have any means to assess, in the absence of having detailed and up-to-date information about the financial position of each of the defendants, whether accepting Mr Harmer’s offer to pay 25% of their “common” costs on a party-party basis would present a more favourable outcome than continuing proceedings against him and achieving a judgment whereby he was jointly and severally liable for the whole amount of such costs.

59. [75]

    Having regard to those matters, I do not consider it was unreasonable for the Plaintiffs to refuse the September 2023, and accordingly there is no basis to depart from the principle that costs follow the event.

60. [76]

    For those reasons, I make the following orders.

    1. (1)

       Judgment for the First Plaintiff against the First Defendant in the sum of $100.

    2. (2)

       Judgment for the First Plaintiff against the Second Defendant in the sum of $100.

    3. (3)

       Judgment for the First Plaintiff against the Third Defendant in the sum of $100.

    4. (4)

       Judgment for the Second Plaintiff against the First, Second and Third Defendants in the sum of $119,120 plus interest of $49,260.27 pursuant to Civil Procedure Act 2005 (NSW), s 100.

    5. (5)

       Dismiss the claims against the Fifth Defendant.

    6. (6)

       Subject to the orders of the Court made on 11 February 2022:

    7. (7)

       The Court notes the undertakings to the Court made by each of the First, Second and Third Defendants which are, respectively, Annexures A, B and C to these orders.

    8. (1)

       Judgment for the First Defendant / Cross-Claimant against the First Plaintiff / First Cross-Defendant in the sum of $42,030.27 plus interest in the sum of $16,773.24 pursuant to Civil Procedure Act 2005 (NSW), s 100.

    9. (2)

       Order the Plaintiffs / Cross-Defendants pay the costs of the First Defendant / Cross-Claimant arising from the Cross-Claim as agreed or assessed on the ordinary basis.