Council of the City of Liverpool v Turano (No 2)

[2009] NSWCA 176

New South Wales

Court of Appeal

CITATION:	Council of the City of Liverpool v Turano [No 2] [2009] NSWCA 176
HEARING DATE(S):	On the papers.
JUDGMENT DATE:	2 July 2009
JUDGMENT OF:	Beazley JA at 1; Hodgson JA at 1; McColl JA at 1
DECISION:	1. Sydney Water to pay Mrs Turano’s costs of the liability hearing and the appeal (including the leave application) insofar as those costs were incurred in her prosecution of her claim against it; 2. Mrs Turano to pay the Council’s costs of the liability hearing and the appeal (including the leave application) insofar as those costs were incurred in her prosecution of her claim against it; 3. The Council and Sydney Water to pay each other’s costs of their respective cross-claims; 4. Mrs Turano to have a certificate under the Suitors’ Fund Act 1951 in respect of her liability for the Council’s costs of the appeal (including the leave application).
CATCHWORDS:	PROCEDURE – costs – alternative claims against two defendants – action succeeding against one defendant only – Bullock and Sanderson orders – when applicable - PROCEDURE – costs – alternative claims against two defendants – action succeeding against one defendant only – where unsuccessful defendant asserted successful defendant liable on plaintiff’s claim – whether portion of plaintiff’s costs should be borne by unsuccessful defendant in absence of a Sanderson or Bullock order – requirement for conduct making it fair to impose liability - PROCEDURE – costs – application for costs on indemnity basis – refusal of Calderbank offer – whether Calderbank offer genuine compromise or invited capitulation
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW) Law Reform (Miscellaneous Provisions) Act 1946 (NSW) Suitors’ Fund Act 1951 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
CATEGORY:	Consequential orders
CASES CITED:	Almeida v Universal Dye Works Pty Limited (No 2) [2001] NSWCA 156 Bailey v Department of Land and Water Conservation [2009] NSWCA 100 Bullock v London General Omnibus Co [1907] 1 KB 264 Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586 Commonwealth of Australia v Gretton [2008] NSWCA 117 Coombes v Roads and Traffic Authority & Ors (No 2) [2007] NSWCA 70 Council of the City of Liverpool v Turano [2008] NSWCA 270 Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322. Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497 Gould v Vaggelas [1985] HCA 85; (1985) 157 CLR 215 Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 Lackersteen v Jones (No 2) (1988) 93 FLR 442 Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 Leichhardt Municipal Council v Green [2004] NSWCA 341 McCracken & McCracken v Pippett (No 2) [2000] VSCA 20 Nationwide News Pty Ltd v Naidu; ISS Security Pty Ltd v Naidu (No 2) [2008] NSWCA 71 Roads and Traffic Authority of New South Wales v Palmer (No 2) [2005] NSWCA 140 Sanderson v Blyth Theatre Co [1903] 2 KB 533 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 State of Victoria v Horvath (No 2) [2003] VSCA 24 Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179; (2000) NSWCCR 417 Sved v Council of the Municipality of Woollahra (1998) NSW Conv R 55-842 Townsend v Townsend (No 2) [2001] NSWCA 145
PARTIES:	Council of the City of Liverpool - Appellant Maria Turano - First Respondent Sydney Water Corporation - Second Respondent
FILE NUMBER(S):	CA 40330 of 2007
COUNSEL:	Mr G M Watson SC with Mr N J Polin for the Appellant Mr R B M J Toomey QC with Mr M J McAuley for the First Respondent Mr S Torrington for the Second Respondent
SOLICITORS:	Tresscox for the Appellant Paul A Curtis & Co for the First Respondent DLA Phillips Fox for the Second Respondent
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 322/04
LOWER COURT JUDICIAL OFFICER:	Delaney DCJ
LOWER COURT DATE OF DECISION:	2 May 2007

CA 40330/07

BEAZLEY JA
HODGSON JA
McCOLL JA

Thursday 2 July 2009
Council of the City of Liverpool v Maria Turano & Anor (No 2)

Judgment

1 THE COURT

: The Court delivered judgment on the appeal in this matter on 31 October 2008, upholding the appellant’s appeal against the trial judge’s finding that it was liable to the first respondent, Mrs Turano, in negligence: Council of the City of Liverpool v Turano & Anor [2008] NSWCA 270. The Court, by majority, allowed an appeal by Mrs Turano against the trial judge’s rejection of her claim against the Sydney Water Corporation (Sydney Water).

2 Mrs Turano’s claim arose in circumstances where her husband was killed by a falling tree as he was driving along a semi-rural road located in the local government area of Liverpool City Council (the Council). Mrs Turano, together with her two children, were passengers in the vehicle being driven by her husband. Her claim in negligence against the Council was based upon the alleged failure of the Council to adequately construct or maintain a culvert which ran underneath the road, so that water failed to adequately drain away, causing the surrounding soil to become waterlogged. It was alleged that this, in turn, weakened the root system of the tree which had become affected by a fungal disease or pathogen, such that the roots of the tree were not strong enough to withstand the forces of a wind storm on that day and the tree fell on Mr Turano’s car.

3 Mrs Turano’s case against Sydney Water was that some time after the culvert had been constructed, it installed a water main through the culvert, thus damming the waters which flowed through the culvert. The water main also breached the naturally impermeable nature of the clay out of which the culvert’s discharge drain was constructed. The water main itself was laid in sand, which acted as an efficient hydraulic conduit for the water, draining it away from the intended system of drainage from the culvert. This had the effect of saturating the surrounding soil and, in particular, the soil around the roots of the tree that fell.

4 As is apparent from the Court’s judgment, the proceedings were complex and strenuously litigated by all parties. On the appeal, the Council and Mrs Turano joined forces in directing primary attention to Sydney Water’s liability. Nonetheless, Mrs Turano also sought to maintain the judgment in her favour against the Council on liability.

5 At the time the Court delivered its judgment on the appeal, it directed the parties to file written submissions in respect of the costs order which should be made, both on the appeal and in respect of the liability hearing at first instance. Upon receipt of the written submissions, the Court was of the opinion that the parties had not dealt fully with the implications of the orders they sought. Accordingly, the Court required further written submissions which have now been received.

6 These reasons are prepared on the basis that reflects the majority reasons on the appeal for the purpose of disposing of the costs arguments.

7 The Council submitted that the following costs orders should be made:

1 (a) That Sydney Water pay the Council’s costs of both the trial and the appeal, including costs on and from 23 June 2006 on an indemnity basis.

(b) That Sydney Water pay the costs of Mrs Turano of the trial and the appeal.

2 Alternatively, the Council submitted that Mrs Turano should pay her costs, those costs to be on an indemnity basis from 23 June 2006.

8 Orders 1 (a) and (b) are supported by Mrs Turano.

9 Sydney Water accepts that it is liable for Mrs Turano’s costs, both of the liability hearing at first instance and of the appeal. However, it resists order (1) sought by the Council and contends that the proper orders to be made in that regard are that Mrs Turano pay the Council’s costs of the hearing at first instance on liability and of the appeal.

Should Sydney Water be made liable for the Council’s costs of the liability hearing and of the appeal pursuant to a Sanderson or Bullock order?

10 The costs order formulated in terms of para 1 (a) and (b) is an order of the type generally known as a Sanderson order: see Sanderson v Blyth Theatre Co [1903] 2 KB 533. Such an order may be made where more that one defendant is sued, but the plaintiff is unsuccessful against one or more of those defendants. The court, in the exercise of its discretion, may order that the unsuccessful defendant(s) be liable for the costs of the successful defendant(s). In a Sanderson order, the unsuccessful defendant is ordered to pay the costs the plaintiff is ordered to pay directly to the successful defendant. In a Bullock order, the unsuccessful defendant is ordered to pay the plaintiff the costs the plaintiff is ordered to pay to the successful defendant: see Bullock v London General Omnibus Co [1907] 1 KB 264. The Council, as the successful defendant in the present proceedings, seeks the former of the two orders.

11 The Council’s claim for indemnity costs is based upon a Calderbank offer made on 23 June 2006: see Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586. It also relies upon the contents of that letter as establishing the basis upon which it contends that the Court should make a Sanderson order.

12 The Civil Procedure Act 2005 (NSW), s 98, provides that costs are in the discretion of the court subject, relevantly, to the rules of court. The Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1 provides:

“ 42.1 General rule that costs follow the event

Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.”

13 Given the Court’s decision on the appeal, the Council was entitled to an order for costs against Mrs Turano in accordance with r 42.1, unless the Court determined that some other order ought to be made. The Council and Mrs Turano contend that in the circumstances of this case, a Sanderson order should be made.

14 The underlying principle in the making of any costs order is that of fairness: see Commonwealth of Australia v Gretton [2008] NSWCA 117 (at [85] and [121]). In Sved v Council of the Municipality of Woollahra (1998) NSW Conv R 55-842 (at 56, 605), Giles J (as his Honour then was) stated the underlying principle that warrants the making of a Sanderson order is that “it was fair to impose some liability on [the unsuccessful defendant] for the costs of the successful defendant”.

15 In determining whether it is fair to make such an order, two matters are usually considered to be relevant. First, it must have been reasonable for the plaintiff to have brought the proceedings against the successful defendant: see Gould v Vaggelas [1985] HCA 85; (1985) 157 CLR 215 per Gibbs CJ (at 230); Wilson J (Murphy J agreeing) (at 247); Brennan J (at 260); Lackersteen v Jones (No 2) (1988) 93 FLR 442 (at 449); Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179; (2000) NSWCCR 417 (at [128]) per Mason P (Stein and Heydon JJA agreeing). In this case, it was reasonable for Mrs Turano to bring proceedings against the Council. Secondly, there must be some conduct on the part of the unsuccessful defendant which would make it fair to impose liability on it for the costs of the successful defendant: Gould v Vaggelas (at 230; 247 and 260).

16 In Stevedoring Industry Finance Committee v Gibson Mason P (Stein JA and Heydon JA agreeing) (at [128]), adopted the considerations stated by Asche CJ in Lackersteen v Jones to be relevant to the exercise of the court’s discretion in making such an order. Those considerations were:

“1. It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant.

2. The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other.

3. While it is essential to find that the plaintiff has acted reasonably and properly that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion.

4. Finally, in considering whether to make such an order, the court should, in the exercise of its discretion balance overall two considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; secondly, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful.”

17 In Stevedoring Industry Finance Committee v Gibson the plaintiff had contracted an asbestos-related disease in circumstances where he had been exposed to asbestos fibres over many years whilst employed by a number of different employers. The plaintiff succeeded, relevantly, against Stevedoring Industry Finance Committee (Stevedoring Industry), but failed against two employers, whom it is sufficient to identify as AEWL and SEAL. The trial judge made a Sanderson order against Stevedoring Industry in respect of the costs of AEWL and SEAL. The trial judge considered that such an order was appropriate because Stevedoring Industry had blamed the employers for the plaintiff’s contracting of the asbestos-related disease and, in those circumstances, it was prudent for the plaintiff to join all employers. Stevedoring Industry had denied in its pleadings, and maintained that denial throughout the proceedings, that it owed a duty of care to the plaintiff. It had also submitted that it was AEWL who owed the duty of care. The trial judge considered that in those circumstances it was just that Stevedoring Industry bear the costs of AEWL, which had succeeded in resisting liability. The trial judge said:

“If [Stevedoring Industry] had not denied duty the joinder of AEWL would not have been necessary.”

18 Mason P, with whom Stein and Heydon JJA agreed, considered those reasons amply supported the Sanderson orders made by the trial judge. Mason P said (at [136]):

“[Stevedoring Industry] submits that nothing that it did made it reasonable for the plaintiff to proceed against the unsuccessful defendants. Such arguments as were advanced by [Stevedoring Industry] about the liability of those defendants were, it was submitted, only raised in final addresses and were defensive and contingent upon the claims still being pressed by other parties. In my view this does not show that [the] discretion miscarried, because [Stevedoring Industry’s] own denials of any duty of care to the plaintiff, which preceded the filing of the claim, necessarily contributed to the plaintiff becoming enmeshed in complex litigation of uncertain outcome and remaining enmeshed (to this day).” (Original emphasis)

19 In Almeida v Universal Dye Works Pty Limited (No 2) [2001] NSWCA 156 a Bullock order was made in circumstances where the plaintiff’s husband was injured on a building site. The defendants in that case were under common control and the plaintiff was unable to ascertain who was the occupier or head contractor in charge of work on the site. These matters were denied by the defendants in the proceedings. Priestley JA (at [8]) stated the relevant consideration in these terms:

“… any conduct by the defendant or state of affairs in which the defendant is an integral part which makes it fair and reasonable for other parties to be joined as defendants will be relevant to deciding on fair costs orders.”

20 His Honour (at [13]) considered that the denials of occupation and the head contract, of themselves, would have been sufficient conduct to warrant the making of a Bullock order in that case.

21 In Sved v Council of the Municipality of Woollahra Giles J said (at 55, 605 – 55, 606):

“… reasonableness as between the plaintiff and the unsuccessful defendant will normally be demonstrated by some conduct of the unsuccessful defendant which made it proper that the successful defendant be joined or that the unsuccessful defendant should bear the costs of the successful defendant. Such conduct was found in Lackersteen v Jones (No 2) in the unsuccessful defendant denying the authority of its agent whereby the plaintiff joined the agent who became the successful defendant, and more widely has been found in the unsuccessful defendant telling the plaintiff in one way or another that it should look to the successful defendant for its remedy.” (Citations omitted)

That passage was applied in Roads and Traffic Authority of New South Wales v Palmer (No 2) [2005] NSWCA 140 at [303].

22 In Coombes v Roads and Traffic Authority & Ors (No 2) [2007] NSWCA 70 the Court made a Sanderson order in circumstances where the plaintiff, at an early stage of the proceedings, had sought to ascertain from each defendant, the Roads and Traffic Authority (the RTA) and Bombala Council, which of them had been responsible for the roadworks at the location where she had had a motor vehicle accident. Neither defendant provided an answer that was of assistance to the plaintiff in determining which party she should sue. She thus sued both. In its Statement of Defence, Bombala Council denied liability for the care, control and carrying out of the relevant road works. On the appeal, the Court held that Bombala Council was responsible for the traffic control plan relating to the road works and had also carried out those works. The RTA had done no more than exercise its statutory function in determining what road works were to be carried out. At [28], Beazley JA considered that Bombala Council’s failure to make the admissions sought by the plaintiff in her correspondence prior to the commencement of proceedings caused her to maintain her action against the RTA. Had Bombala Council made the relevant admission that it was responsible for the road works to the exclusion of the RTA, proceedings against the latter would not have been necessary. Ipp JA agreed.

23 Mrs Turano commenced proceedings against the Council and Sydney Water in 2004. There is no evidence of any communication between the parties prior to the commencement of proceedings.

24 In her Amended Statement of Claim, Mrs Turano particularised her claim against Sydney Water as follows:

“[Sydney Water] was negligent in that it:

a. Failed to take any or any adequate care for the safety of the deceased.

b. Installed a water main running parallel to the road, adjoining the perimeter of the culvert headwall in such a way as to block discharge of the water from the culvert pipe under the road and the culvert headwall contrary to engineering practice by laying a water main above the invert of the water course.

c. Installed the water pipe without regard for the tree and without regard for the necessity of water to discharge from the culvert pipe in accordance with proper engineering standards.

d. Installed the water main in a manner which caused water emerging from the culvert pipe to pond in such a way as to endanger the root system of the tree.

e. Permitted a trench to be dug for the water main adjacent to the tree in such a fashion as to cause damage to the root system of the tree with consequential risk to the stability of the tree.

f. Failed to inform relevant local government authority of work undertaken to lay water main to allow the local government authority to inspect the work.

g. Res ipsa loquitur.”

25 Sydney Water denied the particulars of negligence. It admitted on the pleadings that it had installed the water main on the western side of Edmondson Avenue, although it did not admit that water draining through the culvert tended to bank up on the western side. It denied that the root system of the tree became waterlogged over a long period of time and denied that that was the cause of the root system ultimately failing.

26 The Council and Sydney Water each cross-claimed against the other. The Council relied upon the particulars of negligence alleged by Mrs Turano against Sydney Water and made the following additional allegations:

“(b) Destroying the tailout drain from the culvert which would otherwise have allowed water from the culvert to dissipate over a wider area;

(c) Laying highly permeable sand around the water main, permitting water from the culvert to pass along the pipe trench through the sand to the roots of the tree, causing the roots of the tree to become rotten, and the tree to become unstable.”

27 These two particulars of negligence were the essential bases upon which the Court determined liability against Sydney Water.

28 In its cross-claim against the Council, Sydney Water relied upon the particulars of negligence alleged by Mrs Turano against the Council.

29 Neither the Council nor Sydney Water pleaded to the cross-claims. Nonetheless, the allegations of negligence must be taken to have been denied, as the matters alleged in the cross-claims were in issue in the proceedings.

30 On 23 June 2006, TressCox, solicitors for the Council, wrote to each of Sydney Water and Mrs Turano making an offer in relation to the proceedings. This is the letter relied upon as a Calderbank offer. The offer to Sydney Water was that it indemnify the Council and assume conduct of the Council’s defence. The Council’s solicitors advised that it was their opinion that the claim against it would not succeed, but the claim against Sydney Water would, because:

“Any ponding of water in the vicinity of the culvert outlet prior to the accident results solely from the installation of the water main by Sydney Water or its predecessor.”

The solicitors said they anticipated that should Mrs Turano succeed against Sydney Water but fail against the Council, she would seek a Bullock order against Sydney Water. The Council’s solicitors also indicated that, alternatively, they would seek a Sanderson order against Sydney Water.

31 In making the offer, the Council relied upon the expert reports of Mr Bewsher, engineer, Mr Lumsdaine, the geotechnical expert and Mr Castor, arborist. The reports of those experts had been served on the opposing parties prior to the Council’s offer. Nonetheless the Council summarised the essential aspects of the experts’ reports in its letter. Each of those reports was critical in the Council’s case in identifying the likely cause of the tree falling being as particularised by the Council in paras (b) and (c) of the cross claim against Sydney Water.

32 Mr Bewsher’s evidence was that the culvert had initially been constructed as free-draining, but the placement of the water main across the culvert had had the effect of damming the water. Mr Lumsdaine’s evidence established that the culvert outlet was constructed out of the surrounding impermeable clay and that water would have drained from that outlet along the sand base in which the water main was placed. Mr Castor’s evidence was relevant in the Council’s case in demonstrating that there was nothing about the observable condition of the tree which would have put the Council on notice that the tree’s health and/or stability was compromised.

33 The first question which arises is whether, being put on notice of those matters, it was incumbent upon Sydney Water, in the sense of placing it at risk of a Sanderson or Bullock order being made against it, to make some admission, or, alternatively, to take over the conduct of the Council’s case so as to minimise costs.

34 The effect of the Council’s offer to Sydney Water was that Sydney Water was being asked to accept the correctness of the following propositions contained in the Council’s expert reports:

1. That the culvert as originally constructed was constructed with a tail-out drain;

2. The installation of the water main impeded the drainage from the culvert;

3. That this created a damming effect that made it impossible for the Council to restore the culvert to its previously free-draining position;

4. That the impermeable clay soil effectively prevented the movement of water from the discharge outlet into the surrounding ground soil;

5. The placement of the water main across and through the discharge drain breached the impermeable clay walls of the discharge drain;

6. The sand backfilling of the trench in which the water main was laid provided the ideal medium for the flow of water from the culvert to the root ball of the tree;

7. The tree appeared to be in good condition prior to its fall (so that there was nothing to alert the Council to the poor root condition).

(See p 3 of the affidavit of John MacLennan, 6 November 2008)

35 In the circumstances of this case, these were all matters that depended upon expert opinion. Even the question whether the culvert as originally constructed had a tail-out drain had to be inferred from other evidence, including inferences drawn from aerial photographs. This was not a case like Coombes (No 2), where the Council ought to have known from its own records that it had carried out the roadworks.

36 The conclusion that Sydney Water was negligent was based on two central findings: first, on the basis that the level of the water main had the effect of damming water flowing through the culvert; and secondly, that the sand acted as a conduit draining the water away from the culvert in a north/south direction, so that it effectively altered the intended westward drainage course of the water from the culvert. The surrounding area thus became waterlogged over a long period, making the tree rootball susceptible to the pathogen that eventually weakened it.

37 The Court does not consider Sydney Water was required to “take over” the Council’s case at risk of incurring costs on the basis of a Sanderson order. It was entitled to defend itself on the basis of its expert evidence. To have acceded to the Council’s offer would have placed it in a position of conflict. In particular, it would have had to accept Mr Lumsdaine’s view that the water most likely reached the roots of the tree via the sand along the base of the water main. Although the highly permeable nature of sand was not challenged in the running of the case or on the appeal, it was in issue as to whether it had been established that the water had travelled by that route to the roots of the tree. It was not unreasonable for the appellant to put that matter in issue. Indeed, McColl JA found in favour of Sydney Water on that matter.

38 Nor was it unreasonable for Sydney Water to challenge the manner in which the culvert was constructed. The Council had no records of how the culvert had been constructed and in particular, whether it had been constructed with a tail-out drain. That that was the case had to be established, essentially, from old aerial photographs. Mr Clark, Sydney Water’s engineering expert, did not agree with the interpretation that the Council’s expert engineering experts gave to those photographs. His approach was not unreasonable, notwithstanding that his view was not accepted by the Court.

39 There was no other matter to which the Court’s attention was drawn to support the making of a Sanderson order. In the Court’s opinion, it would not be fair to visit the costs for which Mrs Turano is liable to the Council, on Sydney Water. Although it was not unreasonable for Mrs Turano to have instituted proceedings against the Council, there was no conduct by Sydney Water that induced Mrs Turano to commence or continue these proceedings other than to deny liability. Accordingly, the question whether costs ordered on a Sanderson basis should be payable from the date of the letter of offer on an indemnity basis, does not arise.

What costs order should be made?

40 Having rejected the submission that Mrs Turano should have the benefit of a Sanderson order, the question is what order for costs ought to be made? There is no doubt that the Council is entitled to an order for costs. The question is whether Mrs Turano should bear all of those costs or whether, in the exercise of the Court’s discretion as to costs, a portion of those costs should also be borne partly by Sydney Water on the basis that in its cross claim it also asserted that the Council was liable on the plaintiff’s claim.

41 The proposition that part of Mrs Turano’s costs could be awarded in favour of the Council against Sydney Water, where the factual substratum for a Sanderson or Bullock order was not established, was raised by the Court. The Council did not oppose that course, but considered that any argument as to the apportionment of the costs should be between Mrs Turano and Sydney Water. Mrs Turano did not embrace the proposition, arguing only that she should be the beneficiary of a Sanderson order having regard to the complexity of the Council and Sydney Water’s involvement with the site of the accident. Sydney Water submitted there should be no apportionment of the Council’s costs between it and Mrs Turano. It said Mrs Turano had elected to join the Council, and the Council had only cross-claimed against it on the second last day of the hearing. It submitted the costs of both cross-claims should reflect the fact that both failed.

42 Mrs Turano’s failure to advance any argument other than that on which she sought a Sanderson order was, in our view, a realistic acceptance of the proposition that unless she established one of the Sanderson preconditions, there was no basis upon which Sydney Water could be burdened with any part of the Council’s costs whether of the appeal or the liability hearing.

43 The object of a costs order is to indemnify a successful party for the costs it has incurred in the proceedings, the rationale of the order being that it is “just and reasonable that the party who has caused the other party to incur the costs of the litigation should reimburse that party for the liability incurred” (emphasis added): Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 (at 567 – 568) per McHugh J.

44 The Court’s broad power to award costs set out in s 98 of the Civil Procedure Act is subject to the Rules of Court, relevantly in this case, UCPR r 42.1: Bailey v Department of Land and Water Conservation [2009] NSWCA 100 (at [159]) per Tobias JA (Allsop P and Hodgson JA agreeing); Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497 (at [76] – [77]) per McColl JA (Beazley and Santow JJA agreeing).

45 Mrs Turano sued the Council and Sydney Water respectively. They cross-claimed against each other seeking contribution and indemnity pursuant to the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 5. Sydney Water’s cross-claim against the Council relied entirely upon the particulars of negligence Mrs Turano pleaded against the Council in her Statement of Claim. There was nothing Sydney Water did which induced Mrs Turano either to commence or continue her proceedings against the Council, other than its denial of liability, which denial, as we have said (see [37]) was not unreasonable.

46 Although it might be accepted that both Mrs Turano and Sydney Water actively conducted a case that the accident was caused by the negligence of the Council, that circumstance arose essentially because Sydney Water piggy-backed on Mrs Turano’s particulars of negligence against the Council in pursuing its claim for contribution. There is no evidence, nor did Mrs Turano submit, that her costs of proceeding against the Council were in any way increased by Sydney Water’s pursuit of its cross-claim.

47 It must be borne in mind that the mere fact that the joinder of two defendants was reasonable on the plaintiff’s part is insufficient to support the making of an order that the unsuccessful defendant should pay, directly or indirectly, the costs of the successful defendant, whether in whole or in part: see Gould v Vaggelas (at 229) per Gibbs CJ; (at 260) per Brennan J. Prima facie an unsuccessful defendant should not have to pay a successful defendant’s costs unless the unsuccessful defendant has acted in a way “that makes it appropriate to shift the incidence of the successful defendant’s costs”, bearing in mind that “[t]he plaintiff [too] has been unsuccessful”: McCracken & McCracken v Pippett (No 2) [2000] VSCA 20 (at [11]) per Callaway JA (Batt and Chernov JJA agreeing); State of Victoria v Horvath (No 2) [2003] VSCA 24 (at [10]) per Winneke P, Chernov and Vincent JJA; Nationwide News Pty Ltd v Naidu; ISS Security Pty Ltd v Naidu (No 2) [2008] NSWCA 71 (at [20]) per Spigelman CJ, Beazley and Basten JJA.

48 In our view, where there is no basis for suggesting that Sydney Water caused the Council to incur costs other than those it would have incurred in the course of defending the issues which arose on the Statement of Claim, there is no basis upon which it would be fair to order Sydney Water to pay part of the Council’s costs.

49 Accordingly, Mrs Turano should pay the Council’s costs of the trial and of the appeal.

Should the Council have indemnity costs?

50 In accordance with UCPR, r 42.2, those costs are payable on the ordinary basis, unless the Court makes a different order. The Council claims costs on an indemnity basis from 23 June 2006. We have already referred to the basis upon which it claimed indemnity costs should a Sanderson order be made. It also claims indemnity costs against Mrs Turano on the basis that it made an offer to Mrs Turano on that day that she consent to a verdict in favour of the Council on the basis that each party pay its own costs. The offer made to Mrs Turano was also based on the expert evidence to which reference has already been made.

51 It will be convenient to first consider whether the costs ordered to be paid by Mrs Turano should be paid on an indemnity basis.

52 Unlike the position with an offer made under the rules of court, the making of a Calderbank offer does not give an automatic entitlement to a favourable costs order: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323. It is usually said that the refusal of the offer must be unreasonable: Leichhardt Municipal Council v Green [2004] NSWCA 341; Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322.

53 In Commonwealth v Gretton Hodgson JA said (at [117]):

“… where the question is whether, by reason of refusal of a Calderbank offer, a party should have to pay costs on an indemnity basis rather than party and party basis, it is generally necessary that the party seeking assessment on an indemnity basis satisfy the court that the other party was acting unreasonably in refusing the offer. In Rosniak v Government InsuranceOffice (1997) 41 NSWLR 608, Mason P (Clarke AJA agreeing) at 616 notes the requirement of unreasonableness for indemnity costs in contradistinction to party-party costs:

‘Later cases have emphasised that the discretion to depart from the usual ‘party and party’ basis for costs is not confined to the situation of what Gummow J described as the ‘ethically or morally delinquent party’ ... Nevertheless the court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation. This is because party and party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity.’”

54 Hodgson JA further explained (at [121]):

“… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. Costs follow the event generally because … if a defendant wins, the defendant was caused to incur costs in resisting a claim for something to which the plaintiff was not entitled: cf Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. Departures from the general rule that costs follow the event are broadly based on a similar approach.”

55 The discretion is to be exercised having regard to all the relevant circumstances in the case. The question that had been raised in Leichhardt Municipal Council v Green was whether there had been a genuine offer of compromise. As the Court said (at [21]):

“There is little appreciable difference between saying that an offer should not in the court’s discretion attract costs sanctions in the circumstances and saying that an offer is not a genuine offer of compromise in the circumstances. Both depend upon a value judgment of the offer and the conduct of the parties in the circumstances of the claim.”

56 There are cases which have held that a “walk-away” offer, for example, that the party withdraw from the appeal and each party pay their own costs, did not constitute a genuine compromise. In Townsend v Townsend(No 2) [2001] NSWCA 145, a Calderbank offer of compromise was made in respect of the appeal. The offer, which was made shortly after a holding appeal had been filed (and the respondent’s costs were thus minimal) was that the appellant agree that the appeal be discontinued or dismissed and that the parties pay their own costs. Giles JA noted that the trial judge had regarded the matter as “extremely closely run” and although different considerations applied on appeal, the appeal was not frivolous, and was not one that the appellant should lightly have abandoned. His Honour considered, therefore, that the appellant had not acted unreasonably or in a way that meant adverse costs consequences should be visited upon her.

57 In Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 the Court referred to the authorities that established there must be a genuine offer of compromise which would be unreasonable for the appellant not to accept in order to trigger the favourable exercise of the costs discretion and noted (at [5]) that:

“The general approach adopted in this Court is that where an offer involves ‘no real element of compromise’ but merely ‘invites capitulation by the appellant’ it will not result in a variation of the usual costs order: see, eg, Townsend v Townsend (No. 2) [2001] NSWCA 145 (Giles JA) at [5].”

58 In this case, the offer invited capitulation by Mrs Turano. The case was not so obviously hopeless that it was unreasonable for her not to proceed against the Council. As the discussion of the expert evidence in the principal judgment reveals, the case was difficult and liability issues were far from a foregone conclusion. There was no other conduct by Mrs Turano that made her prosecution of the case unreasonable. The Court is of the opinion that a proper basis has not been made out for indemnity costs of the trial.

59 The Council did not renew or make any further offer in respect of the appeal. There is a long line of authority in this case that unless a new offer is made in respect of the appeal, it is unlikely a pre-trial offer of compromise will attract the favourable exercise of the costs discretion. In this case, there was not only no offer of compromise made in respect of the appeal, there were no different circumstances operating that would cause the Court to make an order for indemnity costs of the appeal.

60 We have already referred to the terms of the Calderbank offer made to Sydney Water. That offer was made in the context that the Council expected that a Sanderson order would be made. However, we do not think the offer should be so confined and that it should be considered as extending to a situation such as this, where Sydney Water might be liable for portion of those costs. However, for the reasons already given, namely, that the offer was not a reasonable one as it placed Sydney Water in a conflicted position, the Court refuses the application that costs be paid on an indemnity basis from 23 June 2006.

61 That leaves the costs of the respective cross-claims by the Council and Sydney Water. Both parties’ cross-claims failed because at trial, and on appeal, Mrs Turano only succeeded against one defendant: cf s 5, Law Reform (Miscellaneous Provisions) Act. Each defendant should have been alive to this risk, and it is appropriate that each bear the costs of their unsuccessful cross-claims.

62 Accordingly, the Court’s orders as to costs are as follows:

1. Sydney Water to pay Mrs Turano’s costs of the liability hearing and the appeal (including the leave application) insofar as those costs were incurred in her prosecution of her claim against it;

2. Mrs Turano to pay the Council’s costs of the liability hearing and the appeal (including the leave application) insofar as those costs were incurred in her prosecution of her claim against it;

3. The Council and Sydney Water to pay each other’s costs of their respective cross-claims;

4. Mrs Turano to have a certificate under the Suitors’ Fund Act 1951 (NSW) in respect of her liability for the Council’s costs of the appeal (including the leave application).

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