Strategic Settlement or Tactical Trap? The Limits of Indemnity Costs

The Supreme Court of New South Wales recently delivered a significant judgment in Seymour Whyte Construction Pty Ltd v Liberty Mutual Insurance Company t/as Liberty Specialty Markets (No 2) NSWSC 281. This decision provides a critical exploration of the boundaries of Calderbank offers and the high threshold required to displace the ordinary rule that costs follow the event in favour of indemnity costs.

Background

The dispute centred on an insurance policy issued by Liberty Mutual Insurance Company t/as Liberty Specialty Markets (Liberty) to Seymour Whyte Constructions Pty Limited (Seymour) in 2016. Seymour sought indemnity for costs associated with managing a large volume of asbestos-contaminated soil during a construction project for VicRoads.

The centrepiece of the litigation was the Alphington claim, which involved $252,502.16 in costs Seymour incurred for the removal of asbestos-contaminated soil it had stockpiled at a developer's site in Alphington. Seymour argued that this payment was a covered "Loss" under its insurance policy because it was legally liable to the developer under common law principles of nuisance or trespass to land.

However, the Court ultimately rejected this claim. McHugh JA found that the policy narrowly defined "Clean-up Costs" as those required by "Environmental Laws"—specifically legislated or administrative rules. Since common law tort liabilities (like nuisance) fell outside this specific definition, the substantial soil removal costs were not recoverable.

In the principal judgment delivered in December 2025 (Seymour Whyte Construction Pty Ltd v Liberty Mutual Insurance Company NSWSC 1597), the Court found that Seymour’s claim failed, save for the recovery of its $50,000 deductible with the final outcome resulting in the dismissal of Seymour's summons.

In order to seek indemnity costs, Liberty relied on the principles of Calderbank v Calderbank. As reaffirmed in Chalik v Chalik NSWCA 136, a party seeking indemnity costs must demonstrate:

1. there was a genuine offer of compromise; and
2. it was unreasonable for the offeree not to accept it.

The 2022 Offer

Liberty first relied on a letter dated 24 February 2022, sent before proceedings commenced. Liberty offered to pay $247,952.55 (the Alphington claim minus the deductible) but offered nothing for legal costs.

McHugh JA rejected this as a basis for indemnity costs, noting that the offer effectively conceded liability for the Alphington claim. The Court observed:

"Liberty was in effect offering to pay that which it effectively conceded it was liable to pay... it is thus doubtful whether the letter on its face contained any real element of compromise."

Further, the Court noted that the offer was made before proceedings began and the policy language involved "difficult questions of interpretation and degree". Citing Lodestar Anstalt v Campari America LLC (No 2), the Court emphasized that the offeree’s ability to make an informed assessment of a complex legal point is vital to determining reasonableness.

The 2025 Offer

A second offer was made by Liberty on 31 July 2025, two years into the proceedings. This offer was non-indemnity and targeted only the Alphington claim, requiring Seymour to waive its rights to recover costs for that portion of the proceedings.

The Court identified several fatal flaws in Liberty's reasoning for this offer:

1. Liberty argued that Seymour would be unlikely to recover costs anyway. The Court found this circular, stating that the ordinary rule provides costs to a successful Plaintiff, and Liberty was attempting to use its own offer to bypass that very rule.
2. The Court criticised the segmentation of the claim, noting that accepting the offer “would complicate and potentially frustrate any application Seymour might make to recover its costs” for the proceedings as a whole.
3. The offer did not acknowledge liability for the “Improvement Notices Advice Loss”. This involved $9,214 in legal fees paid for advice regarding notices issued to Seymour by WorkSafe Victoria. While the Court validated this as a legitimate “Loss” under the policy it was a pyrrhic victory because the policy featured a $50,000 deductible, and the $9,214 win was entirely absorbed by the self-insured retention leading to the unconditional dismissal of the entire proceedings.

Judgment

The Court was not persuaded that Seymour’s rejection of either offer was unreasonable. His Honour concluded that the appropriate order was that Seymour pay Liberty’s costs of the proceedings on the ordinary basis. The summons was dismissed and no indemnity costs were granted.

Impact and Implications

This decision underscores the strategic risk of accepting segmented offers. The Court's recognition that such offers can frustrate overall costs recovery provides a shield for Plaintiffs who wish to see a complex matter through to judgment, especially where different parts of a claim share mutual issues.

In addition, the ruling serves as a warning that an offer to pay what is already effectively conceded as owing does not constitute a genuine compromise. To trigger indemnity costs protections of a Calderbank offer, Defendants must ensure there is a clear give and take rather than a mere tactical manoeuvre to avoid future costs.