Supreme Court New South Wales Medium Neutral Citation: nib Holdings Ltd v Raffy Nominees Pty Ltd as trustee of the Whitecoat Holding Trust (No 2) [2023] NSWSC 1036 Hearing dates: 17 August 2023 Decision date: 31 August 2023 Jurisdiction: Equity - Commercial List Before: Ball J Decision: The defendant pay the plaintiff's costs of these proceedings fixed in the amount of $550,000 Catchwords: COSTS — Party/Party — Bases of quantification — Indemnity basis — Where offers contemplated settlement of multiple proceedings — Reasonable to reject offers COSTS — Party/Party — Bases of quantification — Civil Procedure Act 2005, s 98(4)(c) — Gross sum costs order — Where multiple proceedings — Costs presented logical, fair and reasonable Legislation Cited: Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Cases Cited: Calderbank v Calderbank [1975] 3 All ER 333 Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 Hamod v New South Wales [2011] NSWCA 375 Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 nib Holdings Ltd v Raffy Nominees Pty Ltd as trustee of the Whitecoat Holding Trust [2023] NSWSC 715 Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 Category: Costs Parties: nib Holdings Ltd (Plaintiff | Cross Defendant) Raffy Nominees Pty Ltd as trustee of the Whitecoat Holding Trust (Administrators Appointed) (Defendant | Cross Claimant) Representation: Counsel: J Arnott SC (Plaintiff | Cross Defendant) Solicitors: King & Wood Mallesons (Plaintiff | Cross Defendant) File Number(s): 2021/256915 Publication restriction: None JUDGMENT Introduction 1. I delivered judgment in this matter on 28 June 2023: see nib Holdings Ltd v Raffy Nominees Pty Ltd as trustee of the Whitecoat Holding Trust [2023] NSWSC 715. The one remaining question is costs. This judgment is concerned with that question. It assumes familiarity with my earlier judgment and uses the same abbreviations as used in that judgment. Leave to proceed 1. On 28 June 2023, I gave judgment for nib in the sum of $1,601,640.69, dismissed Raffy's cross‑claim and stood the matter over to deal with the question of costs. Ultimately, the question of costs was fixed for hearing on 17 August 2023. Prior to that hearing, Raffy was placed into voluntary administration. 2. At the hearing on 17 August 2023, nib applied for leave under s 440D(1)(b) of the Corporations Act 2001 (Cth) to proceed against Raffy and, if leave was given, for a gross sum costs order: Civil Procedure Act 2005 (NSW), s 98(1)(c). 3. There was no appearance for the Administrators at the hearing. However, in a letter dated 16 August 2023 to King & Wood Mallesons (the solicitors for nib), the solicitors for the Administrators indicated that the Administrators neither opposed nor consented to the application for leave, although they indicated that the proof of debt procedure "is the usual and appropriate process for your clients' claim for costs to be determined" and that it would be "much more expeditious and less expensive" than having the question of costs determined by the Court. 4. In my opinion, this is an appropriate matter in which to grant leave. The only outstanding question is costs. I accept that it is appropriate that costs be fixed on a gross sum basis in this case in view of the appointment of the Administrators. I do not accept that it will be any quicker or cheaper for the Administrators to fix an appropriate amount for costs and ultimately the Administrators did not oppose leave being granted. Indemnity costs 1. The question of costs raises two issues. One is whether part of the costs should be assessed on an indemnity basis. The other is the amount that should be allowed. 2. So far as indemnity costs are concerned, nib seeks indemnity costs either from 25 October 2022 or from 8 May 2023. In each case, it relies on offers of compromise made in accordance with the principles stated in Calderbank v Calderbank [1975] 3 All ER 333. 3. In the first offer, which was dated 4 October 2022, nib made the following offer: 1. the proceedings are dismissed with no orders as to costs, with each party to bear its own costs; 2. nib and Raffy agree mutual releases in respect of the claims made in 2021/256915 [that is, these proceedings]; and 3. TTB and DHV agree mutual releases that extend to all current and former officers of DHV and nib in respect of the claims made in 2022/00262175 [the winding-up proceedings], with the parties to negotiate and enter a mutually satisfactory deed of release. Raffy rejected that offer on 24 October 2022. 1. In the second offer, which was made on 7 May 2023, nib made the following offer: a. Judgment be entered for nib Holdings Ltd (nib) in the First Proceedings in the amount of $1,449,172. b. The Second Proceedings be dismissed. c. All previous costs orders in the Proceedings be vacated. d. There be no order as to costs. e. The parties to the Proceedings execute a deed of settlement and release reflecting the above terms and including: i. mutual releases of all liability in respect of all claims known or unknown, and regardless of whether those claims are the subject of the Proceedings. Such releases must benefit the nib parties as well as the current and former employees, officers, agents and auditors of the nib parties and Digital Health Ventures Pty Ltd (DHV), and the current and former subsidiaries and related entities of nib. Such releases must bind Mr Donnellan and his controlled entities, including but without limitation TouchtoBuy Pty Ltd (TTB), as well as Raffy. ii. terms requiring Raffy, Mr Donnellan, TTB and the nib parties to cooperate in the orderly winding up of DHV and in obtaining releases of the nib parties and the current and former employees, officers, agents and auditors of the nib parties and DHV, and the subsidiaries of nib, from DHV. iii. mutual non-disparagement clauses. 1. In order to understand both offers, it is necessary to say something more about the disputes between the parties to which the offers relate. 2. The disputes arise out of a joint venture initially established by TTB, a company controlled by Mr Donnellan, and nib. For that purpose, TTB and nib established DHV, which was 50 percent owned by each of them. 3. In conjunction with the raising of additional capital for the joint venture business, the parties established two new entities, Whitecoat OpCo and Whitecoat HoldCo. Whitecoat OpCo bought the business of the joint venture. It was funded by capital contributions from Raffy, a company established by Mr Donnellan for that purpose, nib and two other shareholders. nib lent Raffy the money to fund its capital contribution. 4. In these proceedings (referred to in the second offer as the "First Proceedings"), nib sued Raffy to recover the amount of the loan then owed to nib. Raffy filed a cross‑claim in which it sought recission of the loan agreement and an order that nib repay to Raffy an amount of $500,000 which Raffy had paid to nib under the loan agreement. 5. On 2 September 2022, TTB commenced proceedings against DHV seeking orders that DHV be wound up on the just and equitable and related grounds. On 27 February 2023 it was ordered that DHV be wound up and that Mr Geoffrey Hancock be appointed its liquidator. 6. On 31 March 2023, Raffy commenced proceedings (referred to in the second offer as the "Second Proceedings") against nib, nib Health and Ms McPherson, an employee of nib Health and former director of DHV. In those proceedings, Raffy, relying on rights assigned to it by the liquidator of DHV, sought to recover amounts that nib had allegedly overcharged DHV for services it provided to DHV and for money DHV had repaid to nib following the sale of DHV's business. On 14 April 2023, the Court ordered that the First Proceedings and the Second Proceedings be heard together and that evidence in one be treated as evidence in the other. 7. On the first day of the hearing, Raffy sought and was granted leave to discontinue the Second Proceedings. 8. In considering whether to make an order for indemnity costs in favour of a plaintiff that has done better than an informal offer of compromise it made, the Court must be satisfied (1) that the offer was a genuine offer of compromise and (2) that it was unreasonable for the offeree not to accept the offer: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] per Basten JA, with whom McColl and Campbell JJA agreed; Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 at [10] per Bathurst CJ with whom Allsop P and Beazley JA agreed. 9. A genuine offer of compromise is one which involves a party giving something away: Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368 per Giles J; Miwa at [9]. 10. The reasonableness of the response of the offeree must be assessed at the time the offer was made, not with the benefit of hindsight: Miwa at [11]. The following factors are relevant in determining whether the rejection of an offer was unreasonable: 1. the stage of the proceeding at which the offer was received; 2. the time allowed to the offeree to consider the offer; 3. the extent of the compromise offered; 4. the offeree's prospects of success, assessed as at the date of the offer; 5. the clarity with which the terms of the offer were expressed; and 6. whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it. See Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435, cited with approval in Miwa at [12]. 1. I accept that both offers were genuine offers of compromise. The first offer meant that nib would abandon its claim to recover the debt owed to it. The second offer meant that nib would abandon its claim for costs, which by that stage were likely to be substantial. However, in my opinion, it was reasonable for Raffy to reject both offers. There are two difficulties with the first offer. First, it ties the settlement of these proceedings to the settlement of other proceedings to which different entities were a party. It was reasonable of Raffy to reject the offer made to it if the offer depended on the settlement of proceedings to which it was not a party. The fact that Mr Donnellan controlled both Raffy and TTB does not alter the position. The question is whether it was reasonable of Raffy to reject the offer, not whether it was reasonable for Mr Donnellan to do so. Second, the offer was not capable of acceptance. It required the parties "to negotiate and enter a mutually satisfactory deed of release". It plainly contemplated a release of more than the claims asserted in these proceedings. Consequently, there was nothing for Raffy to accept. The principles in Calderbank v Calderbank do not visit cost consequences on a party merely because it refuses to negotiate. 2. Similar problems exist with the second offer. It was a condition of the offer to settle these proceedings that the Second Proceedings settle as well. In addition, the offer did not appear to be capable of acceptance, since it required negotiation of the terms of the extensive releases sought by nib and other terms, such as the non-disparagement clause. 3. Moreover, the proposed terms of settlement required releases that went well beyond both proceedings so that they were for the benefit of parties who were not parties to these proceedings, bound parties who were not parties to these proceedings and covered claims that were not covered by these proceedings. nib was seeking to achieve by a settlement something that it could never have achieved even if it had been wholly successful in both proceedings. It was reasonable for Raffy to reject the offer in those circumstances. In my opinion, an offer will normally only have costs consequences if it is an offer to settle the proceedings in which the costs consequences are said to follow. The offeree should be able to compare the possible outcomes of the proceedings with what is offered so that it can make a rational assessment of whether the offer is one that it reasonable having regard to those possible outcomes. That is not possible where the offer extends to other possible claims, other parties and other terms. Quantification 1. In making a gross sum costs order, the Court is entitled to adopt a broad-brush approach: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [22] per Giles JA. But in doing so it must adopt an approach that is logical, fair and reasonable: Hamod v New South Wales [2011] NSWCA 375 at [819]-[820] per Beazley JA with whom Giles and Whealy JJA agreed. 2. In support of its claim for a gross sum costs order, nib relied on an affidavit from Mr Jeremy Burgess, a partner of King & Wood Mallesons, and the solicitor on the record for nib. Mr Burgess explains that costs in relation to this matter were recorded against a specific matter number and he attaches all the detailed invoices issued to nib in respect of that matter number which include spreadsheets which give a detailed breakdown of the work that was done, who did that work, the time the person spent on each activity and the amount charged for that activity. Mr Burgess also gives details of the charge-out rates of each solicitor who worked on the matter. Mr Burgess caused three adjustments to be made to the costs shown in the relevant spreadsheets. First, some costs were removed where it was apparent on the face of the description of the work that it did not relate to these proceedings – such as costs relating to the winding-up application. Second, some costs were inadvertently recorded against the wrong matter number. The relevant work and costs are identified in Mr Burgess's affidavit. Third, some costs related to both the First Proceedings and Second Proceedings. Those costs were split between the two relevant matter numbers. Again, the relevant work and costs are identified in Mr Burgess's affidavit. Although it is apparent from Mr Burgess's affidavit that he relied on an employee to undertake the work of reviewing the invoices to identify the costs falling into the three categories, the results of that work are described in Mr Burgess's affidavit so that it is possible to form a view on whether what was done was reasonable. 3. After applying those adjustments, nib's total legal costs (including counsel fees and other disbursements) are $871,774.84. Mr Burgess then adds 50 percent of his estimate of the work to be performed in connection with nib's application for a gross sum costs order, which comes to $16,620.25. He then takes 65 percent of the total to arrive at an estimate of nib's recoverable costs on an ordinary basis of $577,456.81. 4. nib did seek to rely on a report prepared by a costs consultant. However, that report was not served separately but simply formed an annexure to Mr Burgess's affidavit. It was not expressed to comply with the Expert Code of Conduct. For those reasons, I rejected it. However, I accept that Mr Burgess was qualified to express an opinion on the likely percentage recovery on assessment and his opinion is consistent with the discounts applied by courts in other cases. 5. I am satisfied that the approach taken by Mr Burgess was logical, fair and reasonable. I would only make two further adjustments. First, Mr Burgess did include the costs of obtaining the report from an expert cost consultant in his estimate of the costs of this application. In circumstances where the report was rejected, in my view those costs should be excluded. Second, I think that a further modest discount is appropriate to take account of the fact that nib has avoided the time and costs of an assessment. 6. Allowing for those matters, I have concluded that an appropriate amount is $550,000. Orders 1. The order of the Court is that the defendant pay the plaintiff's costs of these proceedings fixed in the amount of $550,000. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 August 2023