Australia: General: Indemnity costs and interest on costs

Insurance update

Ryding v Miles & Ors (No 2) [2012] NSWSC 312

Background Facts

The plaintiff, Mr Ryding, engaged in various construction and quarry works. The four defendants were owners of land on which a quarry was operated (the land). In the main proceeding (Ryding v Miles & Ors [2012] NSWSC 153) Mr Ryding claimed that he suffered loss as a result of the defendants' failure to sign a consent form relating to a development application to Kempsey Shire Council for the installation of a weighbridge and associated road works on the land. The proceeding against all four defendants was dismissed.

The defendants subsequently made submissions to the NSW Supreme Court on costs, seeking:

  1. indemnity costs on the basis that (a) the plaintiff had maintained proceedings seeking damages for a loss of opportunity that he must have known was already lost for reasons unrelated to the alleged breaches by the defendants, (b) the plaintiff continued the claim in circumstances where he knew he had suffered no loss, and (c) the plaintiff pursued litigation although he was aware that he had consent from the defendants to lodge the relevant application the subject of the proceeding;
  2. in the alternative, indemnity costs from the day after the expiration of their offer of compromise to the plaintiff; and
  3. an order for interest on their costs pursuant to section 101 of the Civil Procedure Act 2005.

The Court's determination of the above application provides a very helpful overview of some of the circumstances in which indemnity costs and interest on costs may be awarded.


Indemnity Costs

The Court accepted the defendants' alternative submission and ordered the plaintiff to pay their costs on a party/party basis up to 9 July 2009 (the day the offer of compromise expired) and thereafter on an indemnity basis. In making this determination, the Court made the following comments in relation to when it is appropriate to award indemnity costs:

  1. if a valid offer of compromise is made by a defendant and not accepted, then, unless the Court otherwise orders, if the final judgement is not less favourable to the plaintiff, the defendant is entitled to a costs order on an indemnity basis from the day following the day on which the offer was made. This entitlement is a "prima facie" entitlement and there are a number of cases that suggest compelling or exceptional circumstances would be required to justify a departure from those rules;
  2. there were no exceptional circumstances to support deviation from the usual rule in this case. However, if "exceptional circumstances" did justify a departure from the prima facie entitlement to indemnity costs arising from an offer of compromise, then his Honour would have held that the defendants' offer of compromise took effect as a Calderbank offer;
  3. even though the making of a Calderbank offer does not automatically result in a favourable costs order, even if the judgment is more favourable to the party making the offer than the terms of the offer, if the offer of compromise was treated as a Calderbank offer, the circumstances of this case would have justified indemnity costs being awarded;
  4. there was nothing in the facts of this case to suggest that the defendants would not have intended their offer of compromise to operate as a Calderbank offer if it were not effective as a formal offer of compromise and their intent for it act as such was implied in the relevant circumstances; and
  5. in order to be entitled to indemnity costs under a Calderbank offer, the defendants must establish both that the offer represents a genuine element of compromise of the dispute and that it was unreasonable for the plaintiff to reject it.

Interest on costs

The Court ordered the plaintiff to pay the defendants interest on costs and disbursements in connection with the proceeding on the "Allowed Percentage" from the day payment was made until such time as the plaintiff pays the costs due. The Court's reasoning for this decision was:

  1. where proceedings have continued over a long period of time, the defendants will have been out-of-pocket by payment of costs to their lawyers and an order for interest on those costs should be made to compensate them for that unless there are any countervailing discretionary factors;
  2. the power to order interest on costs should not be exercised without evidence of the amounts paid and the dates of payment. An affidavit from the solicitor for the defendants giving evidence that tax invoices were rendered and that they were paid and which annexed a copy of the firm's accounting ledger showing the dates the invoices were rendered and payment made, was sufficient evidence;
  3. in calculating how interest should be paid a formula calculating the "Allowed Percentage" should be adopted to avoid the complex and expensive task of a costs assessor calculating interest on individual payments; and
  4. the Allowed Percentage is calculated as ((Y/X) x 100 per cent) where:
  5. X = the total amount of costs and disbursements which the defendants have paid or are liable to pay their legal advisers in connection with the proceeding;

    Y = the total amount of costs and disbursements allowed on assessment to the defendants in connection with these proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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