Allianz Australia Insurance Limited v Rawson Homes Pty Ltd (No 2)

MEAGHER JA: I agree with White JA.

LEEMING JA: I agree with White JA.

WHITE JA: On 20 September 2021 this Court allowed an appeal from orders of the Equity Division and ordered that the respondent (Rawson Homes) pay the appellant’s (Allianz) costs of the appeal. We directed the parties to file and serve written submissions as to the orders that should be made as to the costs of the proceedings below (Allianz Australia Insurance Limited v Rawson Homes Pty Ltd [2021] NSWCA 224).

These reasons deal with remaining issues of costs in the light of Allianz’s having succeeded in its appeal. Allianz’s success on appeal resulted in the judgment entered against it being reduced from $1,400,678 to $266,671. There was no challenge on appeal to a finding by the primary judge that Rawson Homes was entitled to interest pursuant to s 57 of the Insurance Contract Act 1984 (Cth) from 29 March 2018.

Allianz submitted that it should be awarded its costs of the proceedings below on the ordinary basis until 14 August 2020 and thereafter on an indemnity basis. It did so on the basis of an offer of compromise served on 14 August 2020 referred to below. Allianz also sought an order that its costs of the appeal be payable on an indemnity basis.

Rawson Homes submitted that notwithstanding that on appeal it lost the issue as to whether only one deductible of $10,000 was applicable in respect of the damage to all of the houses that were damaged by hail or whether the deductible of $10,000 was applicable to the damage to each house, it nonetheless succeeded on other issues at trial resulting in a substantial judgment in its favour. Rawson Homes submitted that Allianz should be ordered to pay its costs of the proceedings below.

The trial before the primary judge commenced on Monday 17 August 2020. Allianz relied on an offer of compromise dated 14 August 2020. Allianz offered to compromise the proceedings by paying Rawson Homes $400,000 plus costs. Rawson Homes said that the offer of compromise was received at 5.41pm on Friday 14 August 2020. Allianz did not dispute that that was so. The offer was open for acceptance until 9.00am on 17 August 2021.

Rule 20.26(5) of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) provides:

Rawson Homes submitted that as the offer was not served until after office hours on the Friday before the hearing and was open for acceptance only until an hour before the commencement of the hearing, it did not have adequate time to give proper consideration to the offer nor for its solicitors to obtain instructions from Rawson Homes’ board of directors. It is clear from the parties’ opening submissions below and from the pleadings and the index to the Court Book below, that there were a number of complex issues concerning the quantum of Rawson Homes’ claim for indemnity.

The summons had been filed on 8 November 2018. Allianz’s Commercial List Response was filed on 7 January 2019. It appears from the index to the Court Book below that the affidavits and expert reports had all been made by November 2019. Allianz provided no evidence and made no submissions to seek to justify the lateness of the offer. I accept Rawson Homes’ submissions that the time open for acceptance of the offer was not reasonable.

The offer of compromise was not renewed. Allianz is not entitled to rely on the offer of compromise, either for its costs of the proceedings below, or the costs of the appeal.

In relation to the costs of the appeal, Allianz seeks to vary the order made on 20 September 2021 that “the respondent pay the appellant’s costs of the appeal” to provide that those costs be assessed on the indemnity basis. No application to vary that costs order was made within 14 days of the orders of 20 September 2021. So far as the costs of the appeal are concerned, the orders of 20 September 2021 determined Allianz’s claim for the costs of the appeal. The application is incompetent (UCPR r 36.16(3A), (3C)). In any event, it lacks merit.

As to the costs of the proceedings below, the issue raised is a familiar one of a plaintiff’s having obtained part of the relief claimed but having failed on certain issues as a result of which it was not wholly successful.

Subject to rules of court, costs are in the discretion of the Court (Civil Procedure Act 2005, s 98). UCPR r 42.1 relevantly provides that if the Court makes an order as to costs, the Court is to order that the costs “follow the event” unless it appears to the Court that some other order should be made as to the whole or any part of the costs.

In Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor (No 2) [2021] NSWCA 98, I said (with the concurrence of Basten and Macfarlan JJA):

Whether “the event” should be characterised as the result of a particular issue or cause of action, or the overall result of the proceedings, may not be of practical significance once it is recognised that if a particular issue or group of issues is clearly dominant or separable, then it can be appropriate either to deny the successful party its costs in respect of particular issues on which it fails, or to require the otherwise successful party to pay the costs of that issue even though it did not act unreasonably in raising or defending the issues on which it failed. As Finkelstein and Gordon JJ recognised in Bowen Investments v Tabcorp Holdings (No 2) [2008] FCAFC 107 at [5], if an issue by issue approach produces a fairer result, then that approach should be adopted. Mathematical precision is illusory (James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36]).

Once it is decided that an otherwise successful plaintiff has failed on a separable or dominant issue such that it is not appropriate that the plaintiff receive all of its costs, in deciding how the discretion as to costs should be exercised to achieve fairness, the perspective of both parties should be considered (Oikos Constructions at [28]).

In its written opening submissions at trial, Rawson Homes contended that there were two real issues in dispute, namely the quantum of its entitlement to indemnity for undertaking retiling following the hailstorm, and whether there was a single $10,000 deductible or instead a deductible per damaged house.

In relation to the first issue, there was a number of sub-issues including whether Rawson Homes was entitled to the cost of retiling all of the upper roofs and some lower roofs or whether, as Allianz contended, in respect of many of the houses, Rawson Homes was entitled only to the cost of repair and not replacement of the damaged roofs. There was also an issue whether Rawson Homes was entitled to a profit margin over the costs it paid to its subcontractors. If so, there was an issue whether that profit margin covered its own staff costs for site supervisors and head office staff, and if not, whether it was otherwise entitled to recover those costs under the policy.

The roofing issue (that is, whether it was necessary to replace the roofs rather than repair the roofs by replacing individual tiles) was the subject of considerable expert and lay evidence. The Court Book included affidavits relied on by Rawson Homes from four roofing contractors, a senior site supervisor from Rawson Homes, and a construction supervisor and a technical construction manager from CSR Monier (the roofing contractor). There were three expert reports namely from a meteorologist, a materials scientist and a quantity surveyor. Allianz served an affidavit from a loss adjustor and relied on film taken from a drone. Six of these witnesses were cross-examined on the first day of the hearing. On the second day of the hearing Allianz conceded the issue concerning repair and replacement.

Rawson Homes contended that the total sum to be paid by Allianz before the application of any deductible was $4,701,508.19. This was said to comprise three elements, namely the invoiced direct cost of repairs ($3,013,665.19), Rawson Homes’ increased staff costs ($705,000) and Rawson Homes’ builder’s margin of 26.43% ($982,843). The third item, builder’s margin, was agreed upon shortly before trial. In its opening outline of submissions, Allianz contended that the claim for staff costs ought not to be allowed, either because there was no evidence that any additional costs were incurred or, in any event, that the plaintiff’s claim to a profit margin on amounts it paid its subcontractors (which had been conceded) covered Rawson Homes’ own staff costs. At the commencement of the trial Rawson Homes did not press its claim for staff costs.

The remaining issue at trial was the date from which interest under s 57 of the Insurance Contracts Act should run. Rawson Homes succeeded on that issue.

There is no question that the “deductible issue” was a separable issue from the other issues fought at trial. It was also a dominant issue in terms of quantum. But it was a confined issue that turned only on the construction of the policy. Apart from the issue of staff costs, Rawson Homes succeeded on all the factual issues through Allianz’s concession or the primary judge’s findings on the date from which interest ran. The costs of the issues on which Rawson Homes succeeded would vastly have exceeded the costs on the issues on which it failed.

There was no evidence, and Allianz did not submit, that had Rawson Homes conceded the “deductible issue” at the outset, Allianz would not have contested the other issues.

The “staff costs” issue appears to have been a separable (although not dominant) issue. But it does not appear from the parties’ opening submissions that the quantification of the claimed costs should have been productive of any great expense.

I conclude that Rawson Homes is entitled to most, but not all, of its costs of the proceedings below to reflect its substantial success on the factual issues that were raised and its failure on the “deductible issue” and “staff cost issue”. Precision is impossible, short of a costs assessment that considers line by line to which issue particular items of costs are referable. Neither party proposed an order that Rawson Homes should pay Allianz’s costs of the deductible issue and the staff costs issue and that Allianz should pay Rawson Homes’ costs of the other issues with the costs payable by Rawson Homes to be set off against the costs payable by Allianz. Bearing in mind that if such an approach were taken there should be such a setoff, I consider that the appropriate order is that Allianz pay 85% of Rawson Homes’ costs of the proceedings below.

Rawson Homes is entitled to its costs of the submissions provided after the determination of the appeal. Allianz’s costs of those submissions should not form part of the costs of the appeal payable by Rawson Homes pursuant to order 4 made on 20 September 2021. To that extent order 4 made on 20 September 2021 should be varied. The 14 day time limit in UCPR r 36.16(3A) or (3B) does not apply to that variation as the submissions relate to a claim for relief which had not been determined, namely how the costs of the proceedings below should be borne. The variation is permitted under r 36.16(3).

For these reasons I propose the following orders: