Federal Court of Australia

AEI Insurance Group Pty Ltd v Martin (No 5) [2024] FCA 1231

ORDERS

THE COURT ORDERS THAT:

1.    Order 2 of the orders made on 24 September 2024 be varied pursuant to rules 39.05 and 40.02 of the Federal Court Rules 2011 (Cth), as follows:

(a)    the respondent pay the applicant’s costs of the proceedings on the ordinary basis as agreed or assessed until 28 August 2024;

(b)    the respondent pay the applicant’s costs of the proceedings on an indemnity basis from 29 August 2024, including the costs of the interlocutory application the subject of the reasons for these orders.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THAWLEY J:

1    On 24 September 2024, the Court ordered that Mr Martin pay AEI $500,000 plus costs as agreed or assessed: AEI Insurance Pty Ltd v Martin (No 4) [2024] FCA 1110 (“J”).

2    The applicant, AEI Insurance Pty Ltd, applies for an order for indemnity costs against the respondent, Mr Craig Martin.

3    The parties filed submissions and consented to this application being determined on the papers. The applicant relied on an affidavit of Ms Nina Vasiljevic dated 8 October 2024. The respondent relied on an affidavit of Mr James Archer dated 18 October 2024.

4    On 13 August 2024, AEI offered to resolve the proceedings on the basis that Mr Martin pay to AEI: (a) the sum of $250,000 (inclusive of interest); and (b) AEI’s costs of the proceedings up until the date of the offer on a party/party basis. The offer was expressed to be “without prejudice, save as to costs” and to be made pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333. It was stated to expire on 28 August 2024. The letter stated that it would be relied upon in support of a claim for indemnity costs if judgment was obtained in better terms than the offer made.

5    The offer was not accepted by Mr Martin.

6    The relevant principles are well established and do not require lengthy repetition. The Court’s discretion in relation to costs, conferred by s 43 of the Federal Court of Australia Act 1976 (Cth), is unfettered and must be exercised judicially. Where an application for indemnity costs is founded upon the rejection of, or failure to accept, a Calderbank offer, the main questions typically asked are whether: (a) the offer was a genuine offer of compromise; and (b) the offeror has established that it was unreasonable for the offeree not to have accepted the offer in light of the circumstances existing at the time the offer was rejected or not accepted. The Court will consider all relevant matters. Matters often considered include: the stage of the proceedings; the extent of the compromise (including the difference between the offer and judgment amount); the offeree’s prospects of success as at the date of the offer; the clarity of the offer; any explanation provided by the offeror in relation to the offer; whether the offer foreshadowed an application for indemnity costs; and the time allowed to consider the offer – see: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] to [16].

7    For the reasons which follow, the offer was a genuine offer of compromise and Mr Martin’s failure to accept the offer was unreasonable. He should pay AEI’s costs on an indemnity basis from 29 August 2024.

8    The offer was made late in the proceedings, approximately one month before the commencement of the final hearing. Significant further expense on the part of both parties was likely in the event the matter proceeded to hearing. At the time the offer was made, the parties had filed and served their lay and expert evidence (except for the report of Mr Tony Samuel), participated in two mediations and exchanged opening submissions. The offer was open for a period of 15 days. The offer was clear, stating that it had been made in the context of the evidence that had been served and having regard to the submissions exchanged by the parties. It was tolerably clear from the submissions which had been made during the course of the proceedings, the evidence which had been filed, and the questions which Mr Samuel had been asked to opine upon (contained in an Annexure to orders made on 27 May 2024), that AEI was claiming damages for amounts of commission that it was not paid as a result of clients of AEI moving to a new broker. The questions to Mr Samuel included ones asking him his opinion about losses for various periods (3, 6, 9 and 12 months) and ongoing losses. In her affidavit, Ms Tierney gave evidence that AEI’s income with respect to the departed clients for the 2020-21 and 2021-22 financial years was $579,974.00 and $742,719.00 respectively. This evidence was the subject of an objection and, ultimately, it was admitted with a limitation, but the point of relevance for present purposes is that Mr Martin was able to inform himself in relation to the damages which might be awarded.

9    On 19 August 2024, nine days before the offer expired, the parties were provided with Mr Tony Samuel’s economic loss report. Mr Samuel identified the loss of income for 12 months to be $611,727.00. He also calculated future losses, although no future losses were awarded.

10    The offer amount of $250,000 was half the amount ultimately awarded in favour of AEI. The offer was a genuine offer of compromise. It was unreasonable not to have accepted it. It was made at a stage in the proceedings when Mr Martin and his legal representatives were capable of assessing the likelihood of success and the potential quantum of AEI’s claim. Apart from Mr Samuel’s report, Mr Martin had available to him, throughout the offer period, the evidence in the proceedings and AEI’s submissions. As mentioned he had Mr Samuel’s report for nine days before the offer expired.

11    It was submitted for Mr Martin that he did not have Mr Samuel’s report for sufficient time to give it proper consideration. It was also submitted that Mr Martin, as “a lay person with no mathematic or economic education or background”, was not in a position to assess the likely losses claimed by reference to the evidence in the case apart from Mr Samuel’s report.

12    I reject these submissions. First, nine days was ample time, even in the context that Mr Martin and his representatives were likely also to have been preparing for the hearing, to consider Mr Samuel’s report. Secondly, at the time the offer was made, Mr Martin already had evidence and submissions available from which the reasonableness of the offer of $250,000 could readily be assessed. No special mathematical or economic knowledge was required. It was not suggested that an assessment of the reasonableness of the amount of the offer was beyond Mr Martin’s legal representatives’ capabilities, whether mathematical or otherwise. Thirdly, Mr Martin, in his eleven years of employment with AEI, had an understanding of the Brisbane branch income for AEI – see: J[29]. Mr Martin was paid commission by reference to the business he obtained for AEI and he was paid on an equivalent basis by MA Brokers to whom 45 clients transferred their business from AEI.

13    AEI submitted that the order for indemnity costs should include the costs of this application. Mr Martin contended that it would be unreasonable to award indemnity costs for this application where no real attempt at settlement of the costs issue was attempted by AEI. AEI wrote to Mr Martin at 11:05am on Friday, 4 October 2024 seeking consent to the orders proposed in the application. At 12:00pm on Tuesday, 8 October 2024 (after a public holiday), AEI approached the Court seeking confirmation of its proposed approach to dealing with its application. AEI had no real option other than to approach the Court expeditiously in order to seek a variation of the costs order which had been made. In accordance with the Court’s proposal, AEI filed submissions and evidence on 11 October 2024, and Mr Martin filed submissions and evidence on 18 October 2024. Mr Martin did not respond to AEI’s letter of 4 October 2024. There was ample opportunity for Mr Martin to seek to resolve AEI’s application for indemnity costs. At no stage did Mr Martin attempt to agree anything with respect to AEI’s application.

14    Mr Martin should pay indemnity costs from the commencement of the day after expiry of the offer, namely from 29 August 2024, including in relation to AEI’s application for indemnity costs.

Associate:

Dated:    22 October 2024