Indemnity …. costs – consider your offer terms
By Georgina King, Senior Associate, Insolvency, Restructuring & Debt Recovery Group
Normally, a successful litigant will recover only part of their costs. In exceptional cases, a court will award costs on an indemnity basis. Despite the name this is not a complete indemnity, but is a significantly higher proportion of the costs than is normally recoverable. The usual basis for seeking indemnity costs is to show that at an earlier stage of the matter the party offered to settle the proceedings on terms which would have been more favourable to the unsuccessful party than the final result ordered by the Court.
A recent decision of the NSW Supreme Court provides useful insight and clarity regarding the requirements an offer must meet in order for costs to be awarded on an indemnity basis.
In Rinfort Pty Ltd v Arianna Holdings Pty Ltd  NSWSC 648 Justice Black held that the successful party in the proceedings was not entitled to indemnity costs, because of the particular types of settlement offers the successful party had made.
The case concerned a successful application by the plaintiff for leave under ss236-237 of the Corporations Act 2001 (Cth) to bring proceedings in the name of a company to set aside a creditor’s statutory demand. The plaintiff was successful in obtaining leave, and also in setting aside the statutory demand. The plaintiff sought an order that the defendant pay its costs of the proceedings on an indemnity basis.
Black J held that none of the plaintiff’s offers warranted an indemnity costs order:
- The first offer was a letter issued by the plaintiff’s solicitors to the defendant’s solicitors several days after the statutory demand had been served, contending that the statutory demand was liable to be set aside and inviting the defendant to withdraw the demand. Black, J held that although the letter identified various issues with the demand, those issues were properly open to dispute and the defendant did not act unreasonably in seeking to have the basis for setting aside the demand determined on its merits at a hearing.
- The second offer was a letter expressed as a Calderbank offer proposing that the statutory demand be set aside and each party bear its own costs. However, significantly, the offer included proposed terms for resolution of other matters in dispute between the parties. The inclusion of those others matters meant that the offer was held to be not properly comparable with the outcome of the proceedings which only concerned the statutory demand.
- The third offer, made shortly before the final hearing in the proceedings, was that the statutory demand be set aside and the defendant pay the plaintiff’s costs. Black, J held that this offer amounted to an invitation to the defendant to surrender rather than a compromise of the proceedings and therefore the defendant did not act unreasonably in proceeding to a hearing on the merits.
Black, J went on to also find that:
-in determining whether to award indemnity costs on the basis of any improper conduct by an unsuccessful party, it is appropriate to give primary weight to the conduct of the unsuccessful party in the proceedings, rather than events which occurred prior to the proceedings – such as in this case, the issuing of statutory demand that was liable to be set aside;
-the fact that the plaintiff, rather than the company in whose name the proceedings had been brought, was personally liable for the costs of the proceedings and had been required to indemnify the company for those costs, did not provide a basis for him to be entitled to costs on an indemnity basis and in circumstances where the company would not have been awarded indemnity costs the plaintiff should not be placed in a more favourable position.
The case provides a reminder regarding the importance of considering the offers made in proceedings and whether having regard to the potential impact on costs and other relevant matters, an offer which represents a level of compromise of a party’s position and relates specifically to the issues to be determined should be made at an appropriate time.
Read the decision here(link is external)
If you would like more information regarding the issue of recovering costs in litigation or any other aspect of insolvency or debt related litigation, contact Georgina King or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Team:
Jeffrey Brown on (02) 9806 7446 or firstname.lastname@example.org
Stephen Mullette on (02) 9806 7459 or email@example.com.