Balbi v Alcoa of Australia Limited

[2016] WASC 388

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   BALBI -v- ALCOA OF AUSTRALIA LIMITED [2016] WASC 388

CORAM:   LE MIERE J

HEARD:   22 AUGUST 2016

DELIVERED          :   30 NOVEMBER 2016

FILE NO/S:   CIV 2095 of 2013

BETWEEN:   CARLO BALBI

Plaintiff

AND

ALCOA OF AUSTRALIA LIMITED
Defendant

CSR LTD
First Third Party

AMACA PTY LTD
Second Third Party

KLINGER LTD
Third Third Party

OLYMPIC GENERAL PRODUCTS PTY LTD
Fourth Third Party

Catchwords:

Costs - Discontinuance - Whether there should be an indemnity costs order - Whether rejection of Calderbank offer was unreasonable - Whether there was some special or unusual feature justifying an indemnity costs order - Whether special costs order should be made - Turns on own facts

Legislation:

Legal Practitioners (Supreme Court) (Contentious Business) Determination 2014 (WA)
Rules of the Supreme Court 1971 (WA), O 23 r 2

Result:

Costs order made

Category:    B

Representation:

Counsel:

Plaintiff:     No appearance

Defendant:     Mr J A Thomson SC

First Third Party          :     No appearance

Second Third Party      :     No appearance

Third Third Party         :     Mr C G Colvin SC & Mr A Giurtalis

Fourth Third Party       :     No appearance

Solicitors:

Plaintiff:     No appearance

Defendant:     Harman Legal

First Third Party          :     No appearance

Second Third Party      :     No appearance

Third Third Party         :     Baker & McKenzie

Fourth Third Party       :     No appearance

Case(s) referred to in judgment(s):

Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122(S); (2003) 28 WAR 95

Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115

LE MIERE J: 

Background

1. These proceedings were commenced between the plaintiff, Carlo Balbi (Mr Balbi), and the defendant, Alcoa of Australia Limited (Alcoa).  Alcoa owned, operated and either controlled or occupied an alumina refinery located at Kwinana (the Kwinana Refinery).  Mr Balbi was employed by Alcoa as a trades assistant working at the Kwinana Refinery from 27 March 1968 to 5 December 1994.  Mr Balbi claimed that throughout his employment Mr Balbi was exposed to and inhaled asbestos dust particles and fibres in the following circumstances.  Mr Balbi carried out ad hoc repairs and maintenance, which included replacing leaking or burst valves, seals and pipes.  In the course of carrying out repairs and maintenance, Mr Balbi was required to remove any old asbestos insulation from the sections of pipe requiring repair, or from around pipe flanges, using a combination of a knife and chisel or angle grinder.  Mr Balbi also removed and reapplied asbestos gaskets.  That handling of old asbestos insulation and/or gaskets caused him to inhale asbestos.  On 2 December 2013 a consent judgment was entered for Mr Balbi in the sum of $190,000.00 inclusive of all costs.

2. Klinger Limited (Klinger), who is the third third party in this matter, was a manufacturer and supplier of compressed asbestos fibre sheeting and gaskets for Alcoa at the Kwinana Refinery.  Klinger denies that it owed any duty of care to Alcoa or Mr Balbi as supplier and vendor of products to Alcoa.  Klinger pleads that it ceased manufacturing and supplying to the defendant any products containing asbestos after about April 1989.

3. Alcoa sought to recover contribution from four third parties, including Klinger, who supplied and/or installed the asbestos insulation and gaskets referred to in the statement of claim and commenced third party proceedings on 24 January 2014.  The statement of claim in the third party proceedings was filed on 17 June 2014 and an amended statement of claim filed on 1 August 2014.  Klinger sought further and better particulars and a re‑amended statement of claim was filed on 11 March 2015.  Klinger filed its defence on 14 May 2015.  Alcoa and Klinger then proceeded to exchange lists of discovery and copies of documents.  Klinger's supplementary discovery list was received by Alcoa's solicitors, Harman Legal, on 17 November 2015 by which time all other third party contribution proceedings had settled.

4. On 9 February 2016, the court granted Alcoa's application for leave to discontinue the third party proceeding against Klinger (Klinger Proceedings).  Klinger has applied for orders for payment by Alcoa of Klinger's costs incurred since 12 June 2014 to be paid on an indemnity basis.  The question of costs as between the defendant and the third third party was adjourned to a special appointment. I heard this matter on 22 August 2016.

5. Klinger seeks orders that Alcoa pay Klinger's costs with costs incurred since 12 June 2014 to be paid on an indemnity basis. Alcoa accepted that there should be an order that Alcoa should pay Klinger's taxed costs of the third party proceedings save for the costs of discovery by Klinger in respect of the allegation that Klinger supplied gaskets containing asbestos to Alcoa.  For the reasons which follow Alcoa should be ordered to pay Klinger's taxed costs, but there should be no order that Alcoa pay those costs on an indemnity basis.  The costs should be taxed without reference to the limits in item 7 of the scale of costs in the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2014 (the Scale).

General costs principles on discontinuance

1. Order 23 rule 2(3) of the Rules of the Supreme Court 1971 (WA) provides that the court has a discretion in that the court may order the action be discontinued upon such terms as to costs as may be just. The court will usually order the plaintiff discontinuing the action to pay the defendant's costs.

2. Alcoa accepts that it should pay Klinger's costs of the action save for the costs of discovery by Klinger in respect of the allegation that Klinger supplied gaskets containing asbestos to Alcoa.

Grounds on which an indemnity costs order is sought

1. At the hearing, counsel for Klinger submitted that Alcoa should pay its costs on an indemnity basis on two grounds. First, Klinger claims an entitlement to indemnity costs under the principles which relate to a Calderbank offer. Secondly putting aside the Calderbank offer and looking at the entirety of facts and circumstances indemnity costs should be ordered due to a special or unusual feature.

Calderbank offer

1. The principles governing when an award of indemnity costs should be made on the basis of a Calderbank offer were discussed by the Court of Appeal in Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115:

   A Calderbank offer will not justify an award of indemnity costs unless its rejection was unreasonable.  See Jones v Bradley (No 2) [2003] NSWCA 258 [7] - [9]; Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 [4]; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 [23]; Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65 [10]; Ofria v Cameron (No 2) [2008] NSWCA 242 [20].

   All of the relevant facts and circumstances must be considered in determining whether a party's rejection of a Calderbank offer was unreasonable.  See SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 [37]; Jones v Bradley (No 2) [7] - [9]; Leichhardt Municipal Council v Green [2004] NSWCA 341 [46]; Hazeldene's Chicken Farm [23]; Berrigan [10]; Ghunaim v Bart (No 2) [2006] NSWCA 82 [23].

   The mere fact that the recipient of a Calderbank offer is ultimately worse off than he or she would have been had the offer been accepted, does not mean that its rejection was unreasonable. See SMEC [37].

   As the Court of Appeal of Victoria noted in Hazeldene's Chicken Farm, deciding whether conduct is 'reasonable' or 'unreasonable' always involves matters of judgment and impression [24].  Although it is neither possible nor desirable to enumerate exhaustively all circumstances which must be taken into account, in a particular case, in deciding whether the rejection of a Calderbank offer was unreasonable, the Court of Appeal said that, ordinarily, regard should be had to, at least, the following:

   (a)the stage of the proceeding at which the offer was received;

   (b)the time allowed to the offeree to consider the offer;

   (c)the extent of the compromise offered;

   (d)the offeree's prospects of success, assessed as at the date of the offer;

   (e)the clarity with which the terms of the offer were expressed; and

   (f)whether the offer foreshadowed an application for ... indemnity costs in the event of the offeree's rejecting it. [25]. [16]-[19]

2. In this matter there have been four offers to settle.  First, Klinger offered on 12 June 2014 to settle with no orders as to costs.  Secondly, Alcoa offered on 19 August 2014 to settle with each of the four third parties for $38,000 each.  Thirdly, Alcoa offered on 4 December 2015 to settle with Klinger on the basis that the action would be dismissed and no order made as to costs.  At this stage Klinger was the only remaining third party who had not settled with Alcoa.  Fourthly, Klinger offered on 17 December 2015 to settle for $577,399.38 plus GST being Klinger's costs and disbursements; alternatively with no orders as to costs provided Alcoa undertake to release Klinger for all claims it has or may have in future in any way connected with any alleged exposure by an employee of Alcoa to asbestos allegedly emanating from any product manufactured and/or supplied by Klinger during the course of their employment.  At the hearing Klinger relied on its offer of 12 June 2014 as a Calderbank offer and submits that Alcoa should be required to now pay its costs on an indemnity basis as it was unreasonably rejected. 

3. The test the court must employ is to determine whether Alcoa's rejection of the Calderbank offer was unreasonable in the circumstances:  Ford Motor Company of Australia Ltd v Lo Presti [23]. The party who makes a rejected Calderbank offer bears the onus of satisfying the court that there should be an award of indemnity costs made in their favour: Ford Motor Company of Australia Ltd v Lo Presti [21]. I am not satisfied that the rejection of the offer was unreasonable in the circumstances for the following reasons.

4. First, the offer was made very early in the litigation, before the statement of claim in the third party actions had been filed, which was done on 17 June 2014.  Secondly, the offer was that the proceedings be dismissed and no order made for costs.  Alcoa submits that the offer did not contain any true element of compromise.  At this stage in the proceedings Klinger had incurred costs of $17,907 including GST in defending the action, although Counsel for Klinger submitted that it would have been entitled to an amount less than that as solicitor/client costs.  The offer made in the letter of 12 June 2014 contains an element of compromise but it could not be characterised as substantial.

5. Thirdly, Klinger states that Alcoa's prospect of success at the time of the offer was very low.  The onus is on Klinger to show that the case was one in which the prospect of success was so low that it was unreasonable for Alcoa to reject an offer that each party bear its own costs.  Klinger produced a number of reports with the 12 June 2014 offer which are said to support their position.  Counsel for Alcoa submitted that those reports were not enough in isolation to make it unreasonable for Alcoa to reject Klinger's offer of settlement and that it was not evident that the gaskets discussed in the reports provided by Klinger were the only asbestos containing gaskets provided by Klinger to Alcoa in the period of Mr Balbi's employment.  This is not a hopeless case and I am not satisfied that Alcoa's prospects of success were so low, when objectively assessed at the date of the offer, that it was unreasonable for them to not accept the offer that the matter be dismissed on the basis that each party bear their own costs.

6. Fourthly, these proceedings involved considerations for the defendant and third parties which go beyond the specific circumstances of the individual case. Counsel for Alcoa submitted that there are disputes between Alcoa and Klinger relating to the operation of Alcoa's refinery and the products which Klinger has supplied which raise the potential of other claims involving other workers.  This is evident from the letter of Klinger to Alcoa on 4 December 2013 in which Klinger explained that they have a firm and consistent policy that they will never contribute to settlement of such litigation unless ordered to do so by a court of law following a finding of liability.  Counsel for Alcoa submitted that despite the quantum involved in the proceedings, both parties view the proceedings as having larger implications.  This is supported by the fact that the second offer of Klinger provides an alternative to Alcoa paying Klinger's costs of $577,399.38 plus GST which is that Alcoa release Klinger from any and all claims which Alcoa has now, or may in the have, against Klinger arising out of or in any way connected with any alleged exposure by any employee of Alcoa to asbestos allegedly emanating from any product manufactured and/or supplied by Klinger during the course of their employment. In these circumstances it was not unreasonable for Alcoa to reject the offer of Klinger made on 12 June 2014.

Whether the circumstances justify an indemnity costs order

1. The principles applying to an indemnity costs order were examined by Pullin J in Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122(S); (2003) 28 WAR 95. Pullin J noted that the usual costs order is one for party and party costs and that an order for indemnity costs will only be made if there is some special or unusual feature in the case to justify a departure from the ordinary practice. For the following reasons, I am not satisfied that this is a case in which there is some special or unusual feature which justifies a departure from the ordinary practice of the court.

2. Klinger pointed to four matters which taken together identify this case as one in which a special or unusual feature justifies a departure from the ordinary practice.  First, the amount in dispute was small, which was acknowledged as part of the explanation of why the matter was discontinued.  Secondly, there was little basis for the claim on the material available to Alcoa.  Thirdly, Alcoa's own documents supported Klinger's position.  Fourthly, the proceedings were likely to be expensive for all parties.

3. It was initially put to me by counsel for Klinger that the rejection of the Calderbank offer was a fifth matter which could also be considered.  However it was properly conceded that a consideration of the principles laid out by the Court of Appeal to be applied in cases where a Calderbank offer has been rejected is a separate and distinct issue to whether a consideration of the circumstances of the case generally justify an indemnity costs order being made.

4. Counsel for Klinger's submissions also suggested that the lack of a supervening event between Alcoa bringing the action and the decision to discontinue could also support an order for indemnity costs.  It is at first attractive to think that where the quantum of the claim was only for $38,000 and the proceedings were always likely to be expensive and those two considerations were put as reasons for discontinuing the application that this could suggest some kind of impropriety in the bringing of the claim against Klinger.  However, this conduct was in part explained because the decision to discontinue was made once settlement had been reached with the other three third parties.  It was conceivable that were Alcoa to have pursued proceedings against only three suppliers of asbestos products and not Klinger, the other providers could have refused a settlement on the basis that they could seek to blame Klinger.  This concern falls away once a settlement has been reached with the three other suppliers.  Such conduct could potentially be of the kind that would attract an indemnity costs order if the only reason for proceeding with the action against Klinger was to enable Alcoa to recover from other suppliers, however that is not suggested as being what occurred in this case.

5. The quantum of the claim against Klinger was relatively small and the costs were likely to be relatively high but other considerations informed the decision to commence the proceedings. Alcoa accepts that it should pay the costs of Klinger.  I have found that this is not a case that could be characterised as being hopeless. I am not satisfied that the combination of matters raised by Klinger satisfy the threshold of a special or unusual feature justifying indemnity costs.

The appropriate costs order in this case

1. In its written submissions Alcoa accepted that there should be an order that Alcoa pay Klinger's taxed costs of the third party proceedings, save for the costs of discovery by Klinger in respect of the allegation that Klinger supplied gaskets containing asbestos to Alcoa.  The reason for the carve out of that element of discovery was put as being that where it was not in dispute that Klinger provided gaskets containing asbestos to Alcoa then Klinger should have made an express admission to that effect in its pleadings.  Counsel for Alcoa acknowledged that it would pay the costs of discovery if the discovery went to whether the supply of asbestos of this type was liable to cause injury or foreseeably would cause injury.  Counsel for Alcoa also conceded that if the supply of gaskets containing asbestos truly was a point in issue then it would be appropriate to not include the discovery carve out in the costs order because the costs of general discovery required in this case would not have been unnecessary (ts 124).

2. In coming to the conclusion that the rejection of the 12 June 2014 was not unreasonable, I accepted that part of the issues in dispute was the types of asbestos containing gaskets that were provided by Klinger, and at what time they were provided.  In those circumstances it would have been necessary for general discovery to occur even if Klinger had expressly admitted that it had supplied some asbestos containing gaskets to Alcoa.

3. Counsel for Klinger submitted that if I found that indemnity costs should not be ordered then there should be a special costs order which would provide for the costs to be taxed without reference to the limits provided in item 7 of the Scale, which goes to discovery (ts 126). Counsel for Alcoa submitted that it would accept such a special costs order should be made in those circumstances (ts 125).

4. I have found that neither of the grounds on which Klinger sought an indemnity costs order from Alcoa have been made out.  I am of the opinion that the amount of costs allowable in respect of this matter under the relevant costs determination is inadequate because of the complexity of the matter.  The appropriate order is that Alcoa should be ordered to pay Klinger's taxed costs and the costs should be taxed without reference to the limits in item 7 of the Scale.