Duthy Homes Pty Ltd v Tincknell & Tincknell - [2018] SADC 30

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
DUTHY HOMES PTY LTD v TINCKNELL & TINCKNELL
[2018] SADC 30
Decision of Her Honour Judge Tracey
9 April 2018
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - GENERAL RULE: COSTS FOLLOW EVENT - PARTIAL SUCCESS
Action between the plaintiff and the defendants concerning construction of house by the plaintiff. Plaintiff awarded $173,049.41 on its claim. Damages and remedial work orders awarded to the defendants on their cross-claim.
Application for costs by plaintiff and defendants. The plaintiff seeks an award for costs on its claim and on the defendants' counterclaim. Defendants deny plaintiff is entitled to all its costs on claim and seek an order for their costs on the counterclaim.
Held: Plaintiff entitled to 60% of its costs of the District Court action on a party/party basis.
Trade Practices Act 1975 generally; District Court Civil Rules 2006 Rule 263, 274, referred to.
Badge Construction Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6; BHP Billiton v Parker (2012) 113 SASR 206; Formosa & Anor v Eminent Forms Pty Ltd [2005] SASC 35; Miles v Palm Bridge Pty Ltd [2001] WASC 42, considered.

DUTHY HOMES PTY LTD v TINCKNELL & TINCKNELL
[2018] SADC 30

The plaintiff, Duthy Homes Pty Ltd (the Builder), and the defendants, Michael and Beth Tincknell (the Owners), entered into a contract for the Builder to construct a house at Mannum.
The Builder issued proceedings seeking payment of its last progress claim and payment of a number of variations made by the Owners. The Owners denied liability and cross-claimed, alleging that the Builder was in breach of the contract and statutory duties, and sought compensation in relation to allegedly defective work undertaken by the Builder, together with delay damages, damages for pain and suffering and for breaches of the Trade Practices Act 1975.
On 1 December 2017, I found that the Builder was entitled to the sum of $173,049.41 and that in relation to certain aspects of the alleged defects, a remedial work order was appropriate. Where a remedial work order was inappropriate, orders were made for the Builder to pay compensation. I dismissed the Owners’ claim for delay damages, pain and suffering, and breaches of the Trade Practices Act 1975.
Both parties have sought orders for costs, filed detailed outlines in support of their respective positions, and have made submissions.
I note that the principles relevant to the determination of costs issues are set out in BHP Billiton v Parker.[1]
·I have an unfettered discretion as to costs, subject to the District Court Civil Rules 2006.[2]
·It will generally be the case that costs follow the event.[3]
·I can award costs on any basis I think appropriate.[4]
[1] (2012) 113 SASR 206 at [261]
[2] Section 42(1) District Court Act 1991 (SA).
[3] Rule 263 District Court Civil Rules 2006.
[4] Rule 264(1) District Court Civil Rules 2006.
I understand that there is no relevant offer made by either party in relation to their claims.
Submissions by Builder
Mr Ross-Smith on behalf of the Builder submitted that the Builder had succeeded in its claim, less variations to the contract, which had been abandoned at trial. Only a small part of the trial was spent on the Builder’s claim as compared to the Owners and the Owners succeeded on only a small percentage of their claim and set-off. The Owners’ claim expressed as a dollar figure was close to $2,000,000.00 while the monetary award on their claim was less than $100,000.00
Mr Ross-Smith referred to the case of Badge Construction Pty Ltd v Penbury Coast Pty Ltd[5] as authority for the award of costs in construction disputes. Debelle J at [11]-[14] said:
The overriding principle is that the order for costs is fair and just in all the circumstances. The arbitrator has a broad discretion to ensure such a result. Thus, it will be appropriate when considering what award should be made as to costs to have regard to the conduct of the parties. So, a party may not be entitled to costs if he has advanced an inflated claim or counter-claim with the apparent purpose of frightening the other party by the fear of the costs of proceedings to drop the claim or accept less than the claim: Archital Luxfer Ltd v Henry Boot Construction Ltd [1981] 1 Lloyds Rep. 642.
The reasoning underlying the principles so far as they apply to cases arising out of building contracts are expressed in these terms in Hudson:[6]
"It should be remembered that in building and engineering cases the issue between the parties is almost invariably financial, and that the machinery of the sealed offer is available to protect the position on costs. Though there may be many issues, in legal pleading terms, of claim, set-off, and counterclaim, the parties' eyes will always have been fixed on the final balance owing one way or another. Whoever secures or avoids paying that balance in effect has won. Only in the case of wildly exaggerated claims, or separate and costly issues on which the successful party has failed and which it was wholly unreasonable for him to raise, can there be, it is submitted, any justification for departing from the rule that the party ultimately successful on a final balance of claim and counterclaim should be paid his costs. There are cases in other situations where separate orders for costs on claim and counterclaim are appropriate, but counterclaims on building and engineering contracts arise out of the same transaction and are equitable set-offs, and the basic commercial realities, in the vast majority of cases argue very strongly, it is submitted, for a single award of costs in favour of the party ultimately successful on balance, unless the balance is so small as to justify the view that a party responsible for initiating the litigation and obtaining such a balance can be regarded as having been effectively unsuccessful."
In this context it is relevant to note that in cases under a building contract, where both the claim and the cross-claim arise under the building contract, the cross-claim constitutes an equitable set-off: Hanak v Green [1958] 2 QB 9 at 25-26 and at 29. That principle will usually have important consequences in respect of costs since, if the cross-claim exceeds the amount of the claim, the claim will be treated as having failed: Hanak v Green (supra) and see also the discussion in Hudson (11^th edition) para 8.118.
Given the particular issues which arise when determining costs where both the claim and counter-claim arise out of a building contract and both claim and counter-claim are successful, it might be putting the principle too high to assert that exceptional circumstances are required to justify a departure from the general principles noted above. It is not necessary to decide that issue here. But it can at least be said that there must be good cause for departing from the general principles.
In this case there was a claim and cross-claim or counter-claim. The builder claimed certain items as variations. The building owner cross-claimed for an entirely separate item, namely, the failure of the builder to construct a cross-over, which failure was in breach of the building contract. Since both the claim and the cross-claim arose out of the same building contract, the cross-claim constituted a set-off. In the result, the award substantially favoured the builder. It justified a single costs order in favour of the builder or at least that an order that each party have its costs. If the arbitrator applied settled principles, he would have ordered the building owner to pay the builder's costs on the balance recovered by the builder. The arbitrator should not have made any other order unless there was good reason to depart from that general principle.
[5] [1999] SASC 6.
[6] Hudson's Building and Engineering Contracts (10th edition).
Mr Ross-Smith argued that his client was entitled to an award for costs in relation to its claim in that costs follow the event and that the Builder plainly succeeded on the cross-claims. Detailed analysis on an issue by issue basis would ultimately result in the Builder being found overwhelmingly successful. The claims that took up most of the sitting time where those involving termites and water proofing, and both of those cross-claims failed.
Submissions by Owners
Mr Jenner on behalf of the Owners said that whilst Badge reflects one approach to the question of costs, it is nothing more than that. Costs need to be considered in the context of all of the facts and circumstances of the case.
The Owners accepted that the Builder is entitled to its costs of the claim, but say that the amount recoverable should be reduced because of the variations, which were put in issue by the Builder and not abandoned until trial, or in some instances, until the closing address. Mr Jenner invited me to consider that an order that the Builder recover 50 % of its party and party costs of the claim would be appropriate.
In relation to their cross-claim, the Owners contend that they should be entitled to their party and party costs. As there was no relevant offer made by the Builder in relation to the cross-claim, the starting point for any decision on costs is that it was necessary for the Owners to bring their cross-claim to recover in those areas of the cross-claim in which they were successful.
Mr Jenner argued that analysis of the quantum associated with the claim would be inappropriate when considering an entitlement to costs and particularly where, as in this case, the court has made remedial work orders. The artificiality of such an approach would, Mr Jenner submitted, be demonstrated in relation to the Owners’ claim as to whether there had been delay occasioned by the Builder in the works being completed. The claim had been formulated at over $1 million and yet this aspect of the case occupied very little hearing time.
Mr Jenner submitted that the appropriate order would be to allow the Owners their costs but provide a discount to reflect the fact that they were unsuccessful on some of their claims, and suggested an order for 50% of the Owners’ party and party costs of the cross-claim would be appropriate.
Essentially, Mr Jenner argued that the Owners had to come to court to get the orders and that it is not correct to say that the remedial work orders reflect what the Builder offered to do. There was no relevant offer put before them.
Mr Ross-Smith argued against treating the claim and the cross-claim discretely when ordering costs for reasons of practicality. For example, there was a good deal of evidence about the terms of the agreement reached between the parties, and the court was addressed comprehensively on the interpretation of the contract. Those issues pertain to both the claim and the cross-claim. Treating the claim and cross-claim discretely will give rise to all sorts of dilemmas in taxation.
Analysis
In Formosa & Anor v Eminent Forms Pty Ltd,[7] Bleby J at [27] accepted that as a general rule, a party who secures a judgement for the balance after arbitration of a series of contested claims and counterclaims, will generally be regarded as the successful party and that generally it may be appropriate for costs to be awarded in his favour, but not necessarily for the full amount which might be expected if there were a single issue in contest.
[7] [2005] SASC 35.
His Honour said that although the arbitrator in Badge was “obviously influenced by that part of the passage from Hudson,” he did not consider that the passage represented the law in South Australia and that he was comforted in that view by the decision of Hasluck J of the Supreme Court of Western Australia in Miles v Palm Bridge Pty Ltd.[8] His Honour went on to note that the relevant passage was not repeated in the 11^th edition of Hudson and that in any event it must be read in the context of what was decided in that case.
[8] [2001] WASC 42.
While his Honour agreed with Debelle J at [11], he added that the matters to which Debelle J said it was proper to have regard, are not exhaustive. They are merely given by way of example. The error from the passage from the 10^th edition of Hudson relied on by the arbitrator is the assertion that only in the circumstances stated, that is, in the case of wildly exaggerated claims, or separate and costly issues on which the successful party has failed and which it was wholly unreasonable for him to raise, can there be any departure from the general rule that the party ultimately successful on the net balance awarded should be paid his costs.
In my view, the Builder is entitled to its costs on the claim on a party and party basis.
In relation to the cross-claim, a good deal of the trial was spent on the issues of whether the contract had been breached as regards waterproofing and protecting the building from termites. In relation to both issues, I found that there had been breaches by the Builder but that there was a lack of proportionality between the cost of the proposed remedial work and the benefit that would be achieved. In relation to the claims concerning the supply of hot and cold water to the house, the Builder acknowledged at trial that certain work should be undertaken and agreed the plumber who installed the system should attend to remedy the defects. I ordered the work as recommended by the Builder’s expert be undertaken.
While I found there was simply no basis for a number of the complaints and claims made, and questioned the genuineness of claims made as regards drainage and the layout of the front pavers, there were in a number of respects complaints made by the Owners that were justified in the sense that the building was defective. On the one hand, I accept Mr Jenner’s submission that the Owners had the support of experts with respect to a number of their claims, however, as Mr Ross-Smith pointed out, those claims ultimately failed.
While in my view the counter-claim was exaggerated in some respects and a great deal of time was taken up by issues that should never have been raised, there should be some adjustment in relation to the costs on account of the merit in a proportion of the Owners’ claims.
I am mindful of the concerns raised by Mr Ross-Smith of making any taxation of costs a more laboured and complicated process than necessary.
In all of the circumstances a just award of costs is for the Builder to receive a portion of its costs of the whole action to arrive at a less complicated result. Arriving at an appropriate percentage is difficult however doing the best I can, I find that the Builder is entitled to 60% of its costs of the District Court action on party/party basis, to be taxed or agreed.