FEDERAL COURT OF AUSTRALIA Aquagenics Pty Limited (in liquidation) v Certain Underwriters at Lloyd's Subscribing to Contract Number NCP106108663 (No 2) [2017] FCA 724 File number: TAD 57 of 2015 Judge: DAVIES J Date of judgment: 23 June 2017 Catchwords: PRACTICE AND PROCEDURE – form of final orders – whether the applicant should have its costs paid on an indemnity basis – whether the respondents were acting unreasonably in rejecting the Calderbank offer Legislation: Insurance Contracts Act 1984 (Cth) Cases cited: Calderbank v Calderbank [1975] 3 All ER 333 Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Plan Pty Ltd [2008] FCAFC 173; (2009) 15 ANZ Insurance Cases 61-785 Date of hearing: Determined on the papers Date of last submissions: 20 June 2017 Registry: Tasmania Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 7 Counsel for the Applicant: S B McElwaine SC Solicitor for the Applicant: Shaun McElwaine & Associates Counsel for the Respondents: P A Horvath Solicitor for the Respondents: Norton Rose Fulbright Australia ORDERS TAD 57 of 2015 BETWEEN: AQUAGENICS PTY LIMITED (ACN 002 398 969) (IN LIQUIDATION) Applicant AND: CERTAIN UNDERWRITERS AT LLOYD'S SUBSCRIBING TO CONTRACT NUMBER NCP106108663 Respondents JUDGE: DAVIES J DATE OF ORDER: 23 June 2017 THE COURT ORDERS THAT: 1. Judgment for the Applicant inclusive of interest in the sum of $1,786,028.00. 2. The Respondents to pay the Applicant's costs on a party/party basis. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DAVIES J: 1 On 5 June 2017 the Court delivered judgment in Aquagenics Pty Limited (in liquidation) v Certain Underwriters at Lloyd's Subscribing to Contract Number NCP106108663 [2017] FCA 634. The Court found that the applicant ("Aquagenics") is entitled to be indemnified by the respondents ("the insurers") under a policy of insurance in the amount of $1,695,082 plus interest pursuant to s 57 of the Insurance Contracts Act 1984 (Cth). The parties are in dispute over whether Aquagenics should have its costs paid on an indemnity basis as from 9 September 2016 by reason of a Calderbank offer (see Calderbank v Calderbank [1975] 3 All ER 333). 2 The offer was that Aquagenics would settle with the insurers on the following terms: (1) A payment of compensation in the sum of $600,000 (six hundred thousand dollars); (2) Plus costs in the sum of $64,000; (3) The terms of settlement be recorded in a standard form deed of release which contains a confidentiality clause; (4) The action be dismissed, upon payment, on the basis that each party will pay their own costs. 3 The offer was open for acceptance for a period of 28 days. The offer was rejected. 4 It is well established that a failure to accept a Calderbank offer may justify the exercise of the Court's discretion to award costs on an indemnity basis. As the Full Court explained in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 at [19]: …The purpose of the principles governing Calderbank offers and offers of compromise in accordance with court rules is to ensure that, when one party makes another an offer that contains a genuine element of compromise, the recipient of the offer is compelled to give real consideration to the costs and benefits of prosecuting its claim by reason of the prospect of suffering an indemnity costs order should its failure to accept the offer prove unreasonable A key question for consideration by the Court in determining whether the Court should order indemnity costs is whether, having regard to the circumstances at the time, the insurers were acting unreasonably in rejecting the offer. Whilst it is relevant to take into account the outcome of the case, there is no presumption that ultimate success in the proceeding for the offeror necessarily makes the rejection of the offer unreasonable: CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Plan Pty Ltd [2008] FCAFC 173; (2009) 15 ANZ Insurance Cases 61-785, at [77,134]. 5 Aquagenics relies on the fact that it has succeeded in obtaining a judgment in its favour for an amount significantly more than the amount that it offered. 6 The insurers contended that it was neither imprudent nor unreasonable for them to reject the offer. Five reasons were advanced but it is only necessary to mention one of them. 7 It was submitted that, as at 9 September 2016, Aquagenics had not pleaded an entitlement to indemnity in respect of its liability to the Council for its failure to complete the pre-commissioning, commissioning and process proving requirements of the contract. These items were only added in an amended fast track statement filed on 13 April 2017. As at 9 September 2016 the fast track statement identified that indemnity was sought only in respect of the amounts awarded by the Arbitrator for the design defects (totalling $668,729) plus a portion of the ancillary awards in respect of other expenses, costs, Arbitrator's fees and interest. The offer, on the other hand, was premised on a claim for $1,127,082 (being the sum of the items awarded by the Arbitrator for non-completion of the pre-commissioning, commissioning and process proving requirements as well as for the design defects). Relative to such an amount, Aquagenics' offer was reasonable and did propose a genuine compromise of that amount but, in making an assessment of whether the insurers were acting unreasonably in rejecting the offer, it is relevant to take into account that Aquagenics, at the time of the offer, was claiming a significantly lesser amount than the amount upon which the offer was based. The offer was a minimal compromise measured against the actual amount then sought by way of indemnity as then quantified in the fast track statement (before amendment). In the circumstances, whilst the offer was very favourable compared to the judgment, it was not unreasonable for the insurers to reject the offer. Accordingly, I do not think it is appropriate to award indemnity costs on the basis of the Calderbank offer. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate: Dated: 23 June 2017