CJD Equipment v A&C Constructions

[2010] NSWSC 502

CITATION:	CJD Equipment v A&C Constructions [2010] NSWSC 502
HEARING DATE(S):	14 May 2010
JURISDICTION:	Equity Division Technology & Construction List
JUDGMENT OF:	McDougall J at 1
EX TEMPORE JUDGMENT DATE:	14 May 2010
DECISION:	Parties to bring in short minutes of order.
CATCHWORDS:	PROCEDURE - costs - exercise of discretion as to costs - where judgment for small percentage only of amount claimed - proportionality of recoupment of costs to amount of judgment - prima facie entitlement to costs overridden by Calderbank offer - whether Calderbank offer involved compromise.
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules
CATEGORY:	Consequential orders
CASES CITED:	Brand v Monks [2010] NSWSC 313 Calderbank v Calderbank [1975] 3 All E R 333 Prestige Residential Marketing Pty Ltd v Depune Pty Ltd (No. 2) [2008] NSWCA 341
PARTIES:	CJD Equipment Pty Limited (Plaintiff) A&C Constructions Pty Limited (First Defendant) Allan Keith Jeffree (Second Defendant) GF Murphy Consulting Pty Limited (Third Defendant) Telford Building Systems (Aust) Pty Limited (Fourth Defendant) Peter Marcus Consulting Engineers Pty Limited (Fifth Defendant)
FILE NUMBER(S):	SC 2008/290633
COUNSEL:	D C Price (Plaintiff) E M Olsson SC (First and Second Defendants) R J Cheney (Third Defendant) I G B Roberts (Fourth Defendant) D J Fagan SC (Fifth Defendant)
SOLICITORS:	The Builder's Lawyers (Plaintiff) Walsh & Blair Lawyers (First and Second Defendants) Kennedys Lawyers (Third Defendant) DLA Phillips Fox (Fourth Defendant) Colin Biggers & Paisley (Fifth Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY & CONSTRUCTION LIST

McDOUGALL J

14 May 2010 (ex tempore – revised 14 May 2010)

2008/290633 CJD EQUIPMENT PTY LTD v A & C CONSTRUCTIONS PTY LIMITED

JUDGMENT – (Re costs)

1 HIS HONOUR: In my reasons given on 20 December 2009 ([2009] NSWSC 1362) I concluded that CJD's claim for damages succeeded in part against A & C but failed against all other defendants. In my reasons given earlier today, I quantified the amount payable by A & C to CJD at $164,395. That may be compared with a total claim of the order of $6 million.

2 The parties have made applications for costs. It is necessary to deal with them individually.

3 CJD submits that it has succeeded against A & C. Accordingly, it submits, it has a prima facie entitlement to costs (UCPR r 42.1).

4 A & C submits that the amount recovered was, if not nominal, minimal compared to the amount claimed: of the order of 2.5 or 3 per cent. In those circumstances, it makes a number of alternative claims. It says (subject to a claim for indemnity costs) that CJD should pay its costs of the proceedings; alternatively, that each party should pay their own costs of the proceedings up until the date the Calderbank offer was made; alternatively, that it should pay no more than 20 per cent of CJD's costs up to that date.

5 From the date of the Calderbank offer (20 August 2009) A & C submits that it should have its costs, under any of the alternatives, on the indemnity basis.

6 The parties (by which in this context I mean A & C and CJD) addressed a number of issues relating to what A & C said were the delinquencies of CJD in its conduct of the proceedings. A & C referred to the proliferation of expert reports commissioned by CJD (not all of which were relied upon, and of those that were relied upon, one group, prepared by Mr O'Hea, was treated with some degree of suspicion for the reasons that I gave at [71] to [83] of my first judgment).

7 I accept the general proposition that the prima facie guide to the exercise of the Court's discretion as to costs is that costs should follow the event. However, it must be remembered that r 42.1 is one of a series of rules made in amplification of the very wide power as to costs given by s 98 of the Civil Procedure Act 2005 (NSW). It is necessary to set out only s 98 (1):

98 Courts powers as to costs

(1) Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.

8 In considering the exercise of the discretion as to costs, the Court is ultimately concerned to seek to do justice, so far as it can, between the competing claimants. The general rule established by r 42.1 reflects an understanding that it is normally unjust for someone who has been forced to go to court to secure enjoyment of a legal right to have to pay costs for the privilege without any prospect of recoupment. However, the very fact that the discretion is of the width set out in s 98(1) means that general principles, or guidelines, cannot dictate the exercise of the discretion in a particular case.

9 I deal first of all with the position up to 20 August 2009. In my view, it would be unjust in the extreme to require A & C to pay the whole of CJD's costs (on the ordinary basis) for that period. First of all, as I have pointed out, the amount that was recovered was minimal in comparison to the total extent of the claim. That is because CJD asserted, from start to finish in these proceedings, that it was entitled in substance to have the entire building, including its external pavement, reconstructed. On the findings of fact that I made, its entitlement was limited to the repair of some defects in the internal pavement and a fraction of the cost required to secure compliance with relevant requirement of the BCA.

10 It is open to those who wish to do so to drive Rolls Royces, and it is open to those who wish to do so to conduct litigation in a similar fashion. But it does not follow that those who drive Rolls Royces are entitled to be subsidised by others for the costs of doing so. Nor does it follow that those who choose to run litigation in a "Rolls Royce" fashion should expect to recover the costs incurred by them in doing so in the event that they succeed.

11 In my view, considerations of proportionality alone would make it entirely unjust for CJD to recover anything beyond a relatively small fraction of its costs for the period with which I am presently concerned.

12 A & C pointed to what it said were a number of procedural delinquencies on CJD's part. There is some contest as to the existence and extent of any delinquency; and the evidence, which is at best assertive or conclusory rather than probative, does not assist in a resolution of that dispute. Accordingly, whilst I am concerned that it took so long for CJD's case to be prepared for hearing, and whilst I am concerned that it was run on an elaborate basis that left no conceivably possible relevant issue unexamined, I am not prepared to decide the question of costs on the basis that there was some delinquency in the way that CJD conducted the proceedings.

13 Having said that, I am quite satisfied on the evidence as a whole that it was the inflated expectation of success that CJD had caused its case to be run in the way that it was run. That is apparent, apart from anything else, in the way that CJD replied (or often did not bother to reply) to offers of settlement that were made to it by one or other of the parties. In my view, CJD took an entirely unjustified approach to its prospects of success, and allowed this approach to interfere with a proper assessment of what it was likely to achieve. By way of example: one of the major issues was whether the defendants were liable for defects in the external pavement. On the view to which I came, having considered the competing oral and other evidence, it was clear that it was CJD itself that had driven the design of the external pavement. It was clear that CJD had effectively ignored or overridden the advice repeatedly given to it. It is clear that if CJD had followed the advice given to it, whilst the pavement might have cost more to construct, it would be unlikely to have failed.

14 In those circumstances, it would be a great injustice for A & C to have to pay the costs of that aspect of CJD's case. And there are other aspects of the case in respect of which similar comments can be made.

15 Equally, considerations of justice could well be taken to suggest that A & C's success on those parts of the case might entitle it to some favourable costs award. That is in essence one of the bases on which A & C's application for costs was put.

16 However, it is also necessary to bear in mind that A & C's attempts to resolve the case were in my view likely to have been frustrated by the mindset on the part of CJD to which I have referred. In this context as I shall indicate in a moment, the extent to which CJD succeeded against A & C is substantially less than the amount offered by A & C on 20 August 2009.

17 In many ways, it is not an exercise of assessing, or comparing, like with like in an attempt to balance and measure the various matters to which I have referred, and the other matters referred to by counsel in submissions. There is no ready yardstick of commensurability by which those factors can be assessed and put up, one against the other. That, no doubt, is one of the reasons why the discretion for costs is as broad as appears from s 98(1).

18 In the circumstances of this case, I think that sufficient justice would be done between CJD and A & C if, for the period up to 20 August 2009, A & C were ordered to pay ten per cent of CJD's costs. On that basis, and bearing in mind what I am about to say, I think that there is an appropriate balancing of the prima facie position for which r 42.1 demands recognition and all the other factors to which I have referred.

19 However, as I have said, there were aspects of the preparation of the case that were in my view excessive. Those aspects relate in particular to the involvement of Mr O'Hea and to the preparation of other experts' reports that were not relied upon in evidence. For those reasons, I think, the costs in respect of which the ten per cent factor is to apply should exclude all costs referable to Mr O'Hea and all costs referable to experts' reports served by CJD but not relied upon in evidence.

20 I turn to the Calderbank offer. That was made on 20 August 2009. It was made by the solicitors for Marcus on behalf of their client and on behalf of A & C, and was expressly stated to have been made in accordance with Calderbank v Calderbank [1975] 3 All E R 333. The offer made by A & C and Marcus was that they would together pay CJD $750,000 and CJD's costs on what was said to be the party and party basis (which I take to mean the ordinary basis). Although that offer was made in consideration of a full release, it has not been suggested that the negotiation of the terms of that release was any obstacle to acceptance of the offer that was put.

21 CJD did not, in terms, reply to that Calderbank offer. However, on 26 August 2009, its solicitors wrote to the solicitors for A & C and Marcus and, without apparently referring to the earlier Calderbank offer, nonetheless as "an act of good faith" offered to settle on the basis that CJD be paid $1,600,000, that all existing costs orders be vacated and that each party bear it's own costs.

22 The terms of CJD's Calderbank offer suggest to me that although it had begun the process of reassessing the strength of its case, it nonetheless held an exaggerated view both of its prospects of success and of the value of those prospects.

23 In my view, if an independent and dispassionate analysis had been undertaken of CJD's case, it must have led to the conclusion that the offer of 20 August 2009 represented an extremely favourable settlement. That can be seen of course with the benefit of hindsight, because the amount offered was a little less than five times the amount of the verdict, and included as well half of CJD's costs on the ordinary basis. But in my view it is not necessary to engage in hindsight analysis to see that the offer was, as I have said, favourable and one that merited very careful attention.

24 In those circumstances I think that the offer of 20 August 2009 should be regarded as what might be called a "circuit breaker" as between A & C and CJD. In my view, to the extent that the presumption set out in r 42.1 remains of relevance, it is effectively overwritten by that offer. Thus, I think, from 20 August 2009 on, the offer becomes the determining factor in the exercise of the costs discretion as between CJD and A & C. Taking into account the terms of the offer, I think that it would be totally unjust to require A & C to continue to contribute to CJD's costs, and equally unjust that A & C should not have some costs satisfaction thereafter. Having regard to the terms of the offer, and the important policy of encouraging settlement, anything less than the usual consequences of a Calderbank offer would be in my view inadequate to achieve justice as between CJD and A & C.

25 For those reasons I conclude that, from 20 August 2009, CJD should pay A & C's costs of the proceedings on the indemnity basis. I should add that nothing was put to the effect that A & C's conduct of the proceedings, then or at any time, was relevantly delinquent so as to make such an order inappropriate.

26 I turn to the position between Mr Jeffree and CJD. CJD accepts that it must pay Mr Jeffree’s costs. Mr Jeffree, however, relying on an offer of compromise made on 13 October 2008, says that costs should be payable on the indemnity basis from that date. The offer of compromise was one whereby Mr Jeffree indicated that he would settle on the basis of a verdict in his favour with each party bearing its or his own costs. CJD submitted that this was not a valid offer because it contained no element of compromise. However, it is to be noted that r 20.26(2) (which occurs in the division of the rules dealing with compromise) expressly contemplates that an offer of compromise may state "that it is a verdict for the defendant and that the parties are to bear their own costs". In other words, there is a recognition in the rules that an offer of the kind made by Mr Jeffree on 13 October 2008 is a valid offer of compromise for the purposes of the rules.

27 Since the offer of compromise was not accepted, the usual result is that Mr Jeffree should have his costs from the date of the offer. The position must be that Mr Jeffree had incurred costs at the date the offer of compromise was made, and thus that in offering to bear his own costs he was incurring some degree of detriment. Since he has succeeded in defending the claim and by concession is entitled to have his costs paid on at least the ordinary basis, he has bettered the offer that he made. In those circumstances it seems to me that r 42.15A is enlivened and, unless the Court is minded to order otherwise, Mr Jeffree is entitled to his costs on the indemnity basis from the day following the day on which the offer was made. Since the only substantive reason put as to why the Court might order otherwise was the one that I have rejected - that there was no valid offer, or element of compromise - there is no reason to deflect the operation of r 42.15A.

28 It follows that Mr Jeffree should have his costs on the ordinary basis up to 14 October 2008 and on the indemnity basis thereafter.

29 Before I move away from A & C and Mr Jeffree, I should note that CJD sought a "Sanderson" order against A & C: that is to say, an order making A & C directly liable for costs that otherwise would be payable by CJD to other defendants. In my view no ground has been shown for the making of a Sanderson order. This is not a case where CJD sued only A & C and A & C drew in others, thereby in effect causing CJD to join them as defendants. It is common ground that the proceedings were commenced as they finished: against all five defendants.

30 In my view there is no conduct on A & C's part that would enliven the discretion to make a Sanderson order.

31 I turn to the position between Murphy and CJD. Again, CJD concedes that it is liable to pay Murphy's costs. Again, there is a claim by Murphy for costs on the indemnity basis arising out of the making of a Calderbank offer. In addition, Murphy seeks interest on costs and an order that it be at liberty to call on a bank guarantee given to it by way of security for costs.

32 The Calderbank offer was made on 3 November 2006. It comprised a letter of some eight pages that set out, in detail, why CJD's claim against Murphy was likely to fail. It is interesting to note that, in substance, the reasons advanced in that letter were the reasons upheld by me in my judgment. In substance, Murphy succeeded because the slab that it designed was adequate, the design that failed was not its design (as CJD must have known), and - something perhaps not known to CJD at the time - Murphy had refused to accept responsibility if the integrity of the slab were reduced below the minimum that it was prepared to recommend.

33 The offer that was made was that there should be a verdict in Murphy's favour with a costs order in its favour for what was said to be a substantially compromised sum of $2,000. That was indeed a compromise, since the evidence suggests that, at the time the offer was made, costs incurred by Murphy in the defence of the proceedings exceeded $11,000.

34 The offer was open for acceptance for 28 days. There was no reply within that time. Murphy's solicitors wrote again, on 29 January 2007. They referred to the earlier offer, noted that it had lapsed and raised some more arguments as to why CJD's claim was likely to fail. They then solicited an offer of settlement, which they said if it were to be put should be put "in the very near future". That letter did provoke a response, dated 22 February 2007. The response was cast in patronising and dismissive terms - "your client's kind offer to accept a small amount in regard to its costs to date as a condition of permitting our client to discontinue against it". The response did not seek to engage in any meaningful way with the substantive points that had been made in the Calderbank offer of 3 November 2006.

35 Undeterred by that, Murphy's solicitor made one more attempt to re-agitate the question of settlement, in an email of 2 March 2007. It went nowhere.

36 The substantial opposition to the application for indemnity costs was based on the proposition that there was no element of compromise in the Calderbank offer. However, I do not think that it is correct to characterise the offer that was made as requiring total capitulation on the part of Murphy. As Ward J pointed out in Brand v Monks [2010] NSWSC 313 at [121], an offer to settle on the basis of a verdict in favour of the offering defendant but with that defendant receiving only a relatively small proportion of her costs could involve an offer of compromise. That was particularly so, her Honour said, "when the offer was made at an early stage of the proceedings and it might be assumed that both parties' costs would be relatively low".

37 Although I do not think that it is particularly useful to look at decided cases, and to discern from the figures in them some guide to the application of the discretion in a totally different case, I do note that in Prestige Residential Marketing Pty Ltd v Depune Pty Ltd (No. 2) [2008] NSWCA 341, Bell JA (with whom Beazley JA and Matthews AJA agreed) regarded an offer involving a discount of only 5 per cent as a compromise (admittedly, in the context of offers of compromise) involving a valid concession sufficient to trigger the relevant consequences.

38 In my view, in the particular circumstances in which the offer of 3 November 2006 was put, it was incumbent on CJD to give it careful consideration rather than to act, as it did, by ignoring it for some months and then sending a patronising and dismissive reply.

39 Although the purpose of indemnity costs is not to punish parties for discourtesy in the conduct of litigation, and I do not wish it to be thought that that is what I am about to do, the way in which parties conduct litigation, insofar as it indicates whether or not they are complying with their obligations under s 56 of the Civil Procedure Act, cannot be put to one side entirely. In my view, as I have said, the failure to give proper attention to the letter at some relevant time is sufficient to trigger the usual Calderbank consequences.

40 For those reasons I conclude that CJD should pay Murphy's costs on the ordinary basis up until 1 December 2006 (I think, the day when the Calderbank offer would expire) and on the indemnity basis thereafter.

41 The order for interest on costs is not opposed, and the formula, which by now is well-known, is agreed. It is appropriate that Murphy should have an order for interest on its costs.

42 Before I move to the final issue involving Murphy, I should note that although there was no notice of motion filed for A & C and Mr Jeffree in which interest was sought, I was informed, in the course of argument, that they did seek interest. I think the position is that CJD, consistent with what it has said in respect of those defendants who have expressly claimed interest, does not oppose the order of interest on their costs and I should indicate that unless I am told to the contrary I would be minded to order that those defendants do have interest in accordance with the proper formula.

43 That leaves, so far as Murphy is concerned, its application for leave to call on the bank guarantee.

44 I am satisfied, from the evidence as to the amounts of costs incurred, that even if costs were to be paid wholly on the ordinary basis they would well exceed more than $150,000, which is the amount of the guarantee. A fortiori, since the great bulk of those costs will be paid on the indemnity basis, the amount involved greatly exceeds the amount of the guarantee.

45 In those circumstances I see no reason in justice why Murphy should not now have access to the benefit of the guarantee. However, I accept that it is perhaps commercially detrimental to a company in CJD's position to have bank guarantees called upon. Accordingly, whilst I note that the form of the guarantee is unconditional (and that it does not, for example, require presentation of a certificate of assessment or some such equivalent), nonetheless CJD should be given an adequate opportunity to make the payment itself.

46 In those circumstances I think it is appropriate to give Murphy liberty to call on the bank guarantee, if the amount of the bank guarantee, $150,000, is not paid within 21 days of today's date.

47 I turn to the position as between Telford and CJD. Again, there is no dispute that Telford is entitled to its costs. The question is whether those costs should be paid on the indemnity basis after an offer of compromise was made on 12 November 2007. In addition, Telford seeks interest. As I have said, that is not contentious.

48 The offer of compromise that was made offered to settle on the basis that there be judgment against Telford in the sum of $20,000 and that it pay CJD's costs. Again, in terms, since Telford has done far better than that, r 42.15A is triggered.

49 The dispute is as to whether there is a real element of compromise. Again, that dispute was conducted, among other things, by reference to various cases in totally different areas of jurisprudence and involving totally different facts. If I may say so with great respect, both to those who relied on the cases and to the judges who decided them, I do not regard them as providing any real guide to the exercise of the discretion in this case.

50 The form of r 42.15A indicates that there is a presumption in favour of indemnity costs if the circumstances described in the rule apply. That is clear from the words "unless the Court orders otherwise". It is sufficient to say that there is no evidence put on as to why the offer was rejected and no basis shown in submissions for thinking that the offer reflected a totally inappropriate assessment of Telford's prospects of success.

51 I accept that the offer was very substantially less than the amount of CJD's claim. But that does not seem to me to be a reason to order otherwise.

52 In those circumstances, the appropriate order should be that costs are payable on the ordinary basis until 12 November 2007 and on the indemnity basis thereafter.

53 There was also sought liberty to apply on three days' notice for a lump sum in lieu of interest. There were no submissions directed to that and I think that the simplest course is to reserve that liberty in the event that Telford wishes to avail itself of it.

54 I move to the position as between Marcus and CJD. Again, there is no dispute that Marcus is entitled to its costs. Again, the question is whether those costs should be paid on the indemnity basis following the dates of offers of compromise. One of those offers of compromise was the offer of 20 August 2009 to which I have referred already. The other was an offer made some two days earlier, on behalf of Marcus alone. It offered $695,000 plus 50 percent of "party/party costs". There was no response to that offer. Otherwise, what I have said above remains applicable, and for the reasons given above (which do not need to be repeated) Marcus is entitled to costs on the indemnity basis from the date of expiry of the earlier of the Calderbank offers.

55 Marcus too seeks interest and that is not in dispute. Finally, Marcus seeks leave to call on the bank guarantee that it has received. There is no relevant distinction between its position and the position of Murphy in this regard and the same order should be made.

56 I direct the parties to bring in short minutes of order to give effect to these reasons. That is to be done at 9.30 am on Tuesday, 18 May 2010. If the parties can agree on the form of orders to be made I will vacate that and give them liberty to approach in chambers.

57 I should say that the costs payable by A & C to CJD are to be set off against the costs payable by CJD to A & C.

*********