Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC (No 2) - [2009] SASC 132

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Preliminary Issue)
ABIGROUP CONTRACTORS PTY LTD v HARDESTY & HANOVER INTERNATIONAL LLC & ORS (No 2)
[2009] SASC 132
Judgment of The Honourable Justice Anderson
19 May 2009
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
TOMLIN ORDER - INTENT OF ORDER REGARDING REIMBURSEMENT
Application by plaintiff for costs thrown away on trial of preliminary issue, including the costs of the expert determination - costs sought on an indemnity basis.
Held: Plaintiff entitled to order for costs on a party and party basis only.
Application for reimbursement of amount paid by plaintiff pursuant to Tomlin Order - whether outcome contemplated by terms of order or agreement between the parties.
Held: Intent of order was to provide for reimbursement of monies in the event that defendant's counterclaim dismissed.
Supreme Court Civil Rules 2006 s 264(4), referred to.
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, applied.
Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC [2008] SASC 244; Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC & Ors [2009] SASC 95, discussed.

ABIGROUP CONTRACTORS PTY LTD v HARDESTY & HANOVER INTERNATIONAL LLC & ORS (No 2)
[2009] SASC 132
Civil
ANDERSON J.
Introduction

On 8 April 2009 I delivered judgment in this matter on a preliminary issue: see Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC & Ors [2009] SASC 95. In that decision I held that the dispute resolution procedure provided for in the contract between the parties (the CSA) had not been followed. I held that an expert who made a determination had no jurisdiction and that his determination was not enforceable. A second determination was made by the same expert, but on a different dispute, and it was agreed that the decision in the first matter would apply equally to the second.
As a result of my decision, Abigroup claims an entitlement to its legal costs incurred in defending the expert determinations commenced by Hardesty & Hanover International LLC (“HHI”). It claims costs on an indemnity basis. In addition Abigroup claims the repayment to it by HHI of the sum of $516,631.72 and $3,583 paid to Mr Fullerton (the expert) pursuant to a Tomlin Order, which was made by Gray J in earlier hearings between the parties.
My decision in this matter followed a hearing by the Full Court resulting in an order for a separate trial on the issue of whether the expert determination was binding upon both parties.
Background
The first document filed in the dispute between the parties was a summons issued by Abigroup (FDN 1) in which it sought various orders, including “a declaration that clause SC12 of the contract between the plaintiff and the first defendant is void and that expert determination of the dispute should be conducted in accordance with clause GC8 of the contract”. From the outset, those two clauses, which relate to dispute resolution procedures, have been at the forefront of the argument between the parties.
HHI then issued a cross-action (counterclaim) (FDN 9) which set out all the background facts relating to the CSA between the parties and the circumstances which led to an unsuccessful mediation. The whole basis of the cross-action was to obtain a declaration that the determination by the expert was final and binding upon Abigroup.
After I delivered judgment in this matter I made orders on the cross-action in Abigroup’s favour. Subject to any successful appeal, that is a final decision on those matters.
In broad terms the matters argued before me on the preliminary issue related to the contractual obligations of the parties, and in particular whether the referral for expert determination by HHI was in breach of the terms of the CSA. I found that it was.
Abigroup’s entitlement to legal costs
Abigroup now seeks the costs incurred in successfully challenging the expert determination. It has been successful in its argument and has judgment in its favour on the counterclaim. On the face of it there seems to be no valid reason why it is not entitled to its costs. The costs are related to a separate issue isolated from any other issues which remain to be determined in the trial. Costs normally follow the event. The event in this instance is Abigroup’s success in arguing that the expert determinations were invalid.
Abigroup points out that there are paragraphs in its statement of claim, (FDN 12) which mirror paragraphs in the cross-action on which judgment has already been given. Abigroup seeks to have judgment on the claim on paragraphs 44 and 50 and then on paragraphs 53 to 84 of the statement of claim. It says that these matters have been finally determined in its favour and that it is therefore entitled to judgment.
Mr Fenwick Elliott has submitted that the issue argued before me was limited to a declaration sought in respect of the binding effect of the expert determination. He argues that costs, being a claim for damages, was not an issue. Mr Fenwick Elliott has overlooked a fundamental point, namely, that his client has lost on the preliminary issue. Abigroup should be entitled to its costs. It is not to the point that HHI sought the declaration and that Abigroup did not seek any order for a separate trial on any of its claims.
Mr Fenwick Elliott argued that it was Abigroup that challenged the jurisdiction of the expert. He is quite right, of course, but again, that is irrelevant. Abigroup claimed a breach of the contract and the first step it took was to challenge the jurisdiction of the expert. It has ultimately been shown to be justified in the stand it took. I reject the argument that this disentitles Abigroup to costs.
Mr Fenwick Elliott opposes any order for costs on any aspect of the decision on the preliminary issue. In his written outline he claims that because Abigroup’s pleaded case of a sham was based on deception, and that this was rejected in the judgment, Abigroup has to re-plead before it has any entitlement. In my view, this is not a good argument based as it is solely on semantics. I reject the argument. My use of the word contrivance to describe the conduct of HHI was suggested by Mr Fenwick Elliott as having introduced or created a new legal doctrine. That is not so. I have merely decided that HHI, by a contrivance, has arranged to place disputes before the expert which were outside his jurisdiction and not properly the subject of any notified dispute. Such actions by HHI amounted to a breach of contract. My reasons for judgment make that clear.
Mr Fenwick Elliott submitted that if the matter were re-pleaded by Abigroup, his client would argue both causation and estoppel. As I understand his argument, he suggests that because Abigroup drafted the CSA they are causally responsible for SC12, which has been found to be void. Therefore he says that it should have no costs.
He also argued that in the event of a re-pleading by Abigroup, his client would then plead an estoppel. As I have indicated, I cannot see the need to re-plead simply because Abigroup claimed a sham and I called it a contrivance.
On the pleadings of HHI in its cross-action it has failed and judgment has been entered. I can see no reason why judgment should not be given on those paragraphs of the statement of claim as argued by Abigroup. The matter has been finally determined and it is not open for re-argument in the main trial of this action.
Mr Fenwick Elliott also argued that there is no basis for any claim for costs because there is now no claim based on clause SC12, which I found to be void. This submission flies in the face of the arguments which were presented and the way in which this matter proceeded. I reject the argument.
As I have indicated, the whole basis for the appropriate dispute resolution procedures was argued. It was an issue from the outset. Both clauses SC12 and GC8 were always relevant in argument. Reference was made repeatedly in both written and oral submissions from both parties relating to both clauses and it is clear from my reasons what was argued and what was decided.
Abigroup submits that it is entitled to indemnity costs because it made clear at all times that it was opposed to the course of action taken by HHI. At an early stage it pointed out to HHI why it considered that HHI’s actions were in breach of contract and it took out an injunction to prevent the expert determination from proceeding. Abigroup had maintained consistently that the procedure used by HHI in commencing the expert determination was in breach of the terms of the CSA. Abigroup’s protests were met only by HHI steadfastly refusing to consider that it was proceeding in a manner contrary to the CSA.
The court has a wide and unfettered discretion in relation to costs generally. This discretion includes the power to award costs on an indemnity basis. There must be some special or unusual feature to justify an award of indemnity costs instead of the usual party and party basis: see Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225. Rule 264(4) of the Supreme Court Civil Rules 2006 recognises that principle. It will also be a question of examining the facts and circumstances of each case: see Sheppard J in Colgate-Palmolive at 223 to 234.
Although HHI urged the court to conduct a hearing on a preliminary issue, and despite the protests of Abigroup, I am not convinced that this constitutes a special and unusual feature justifying the award of indemnity costs. Accordingly, I am not prepared to award indemnity costs.
I order that HHI pay the costs of Abigroup of and incidental to the determination of the preliminary issue on the basis of party and party costs to be taxed.
Payment under the Tomlin Order
Gray J made a Tomlin Order on 30 May 2008 after the parties agreed the terms. The agreement required a payment by Abigroup in the sum of $516,631.72 with security provided by HHI for the future recovery of that amount. A third party bank gave Abigroup a guarantee because of potential difficulties in recovery from outside the jurisdiction.
HHI has provided me with excerpts from various hearings before Gray J in submitting that the effect of the orders made was that the settlement agreement as part of the Tomlin Order contemplated a separate judgment on enforceability of the expert determination prior to the final determination of the entitlement to fees. HHI submitted that therefore what has in fact occurred was within the contemplation of the parties when the Tomlin Order was made.
This is not apparent to me from a reading of the whole of the proceedings which took place before Gray J. I tend to agree with the submission of Abigroup that the main, if not sole, purpose of the Tomlin Order was to dispose of HHI’s application for summary judgment on its counterclaim. That seems clear from the whole content of the discussions between the judge and counsel.
Abigroup claims an entitlement to a refund of the $516,631.72 because:
(i)     the claim the subject of HHI’s application for summary judgment was decided against HHI;
(ii)    HHI has no present entitlement to the money; and
(iii)   it would be unreasonable, in light of unclear terms in the agreement as to the repayment, in the event that Abigroup has been successful, to allow HHI to retain the benefit of the money.
His Honour was not prepared to order a separate trial, and mentioned several factors in his reasons, including Abigroup’s agreement to pay HHI the amount determined by Mr Fullerton in the expert determination. At that stage His Honour was proceeding to fast-track a trial of all issues but declined to order a separate trial. His Honour specifically said that he had regard to what he described as Abigroup’s “reasonable and sensible offer”. It was, of course, subject to the security of a third party guarantee to be provided by HHI.
It seems that His Honour regarded the compromise as a payment by Abigroup to HHI for the amount determined by the expert, on the one hand, as against the obligation by HHI to repay if it was unsuccessful on the other hand. This is clear from my reading of the transcript of argument and His Honour’s reasons: see Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC [2008] SASC 244, Gray J at [11].
I have also been considerably assisted by the affidavit of Joshua James Marchant sworn on 24 April 2009, including the exhibits thereto, deposing to the history of the hearings leading up to the making of the Tomlin Order. The history deposed to by Mr Marchant accords with my reading of the transcript.
Both parties agree that the Tomlin Order does not specifically provide for the circumstances which have now eventuated. Abigroup suggests that the Tomlin Order should be rectified in order to facilitate the reimbursement to it of the amount paid, together with interest. HHI argues that it is not the order but rather the agreement which would have to be rectified.
Mr Fenwick Elliott argued that the purpose of the Tomlin Order and the agreement between the parties was two-fold. He suggested that it included the interim payment of $516,631.72 relating to the amount of the expert determination plus interest. However, he suggested the other purpose related to a claim by Abigroup, as yet undetermined, that it had overpaid an amount of $418,000 in round figures.
He submitted that the parties contemplated that Abigroup’s claim for repayment of the $516,000 would be dealt with eventually when its claims, including the one for $418,000, were finally dealt with. He submitted that this was part of the agreement reached and the Court could not re-write the agreement.
Mr Walsh QC pointed out that the $516,631.72 the subject of the expert determination related to the counterclaimed amount and that HHI failed on that aspect. He also stressed the lack of logic or commercial necessity for there to be an entitlement to $516,000, but that payment should await his client’s own claim for a further $418,000. I agree that it does not make commercial sense. Why, if Abigroup was entitled to one amount, would it wait some months or even years to have a separate and quite unrelated claim resolved? In my view, that result was not within the contemplation of the parties when they entered the agreement.
The agreement fails to deal with the present circumstances. It makes no sense to hold up the payment of $516,000 until a final decision is made on other claims unrelated to the counterclaim. The fact that paragraph 2 of the agreement refers to the expiry of the guarantee after four years is explicable. The parties were heading for a trial on all issues. Four years was a sufficient time for a long preparation, a long trial, a reserved judgment and the likely possibility of an appeal.
It is my view that it was the purpose of the Tomlin Order and the attached settlement agreement to dispose of HHI’s application for summary judgment on the counterclaim. The counterclaim has been determined. It has been determined in Abigroup’s favour. In those circumstances it is my view that the sum of $516,631.72 plus interest, together with the sum of $3,583 paid to Mr Fullerton should be reimbursed to Abigroup, although that has not been made clear in either the order or the settlement agreement. To order otherwise would create an unfair advantage to HHI who now has no entitlement to that money.
I consider that the Tomlin Order made by Gray J on 30 May 2008 was for the purpose of disposing of HHI’s application for summary judgment on its counterclaim.
Therefore I make the following orders:
1.That the defendant pay the plaintiff the costs of and incidental to the determination of the preliminary issue on the basis of party and party costs to be taxed.
2.The Interim Payment of $516,631.72 made by the plaintiff to the defendant pursuant to the agreement in the schedule attached to the Tomlin Order be repaid by the defendant within 21 days, with interest at the rate of 8% per annum.
3.That the guarantee procured by the defendant in favour of the plaintiff be released within 21 days of the repayment of the Interim Payment with interest to the plaintiff.
4.That the defendant reimburse the plaintiff the sum of $3,583 with interest at the rate of 8% per annum, being the amount the plaintiff paid the second defendant pursuant to the Tomlin Order.