Forlyle Pty Ltd v Tiver
[2007] SASC 464
•21 December 2007
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
FORLYLE PTY LTD v TIVER & ANOR
[2007] SASC 464
Judgment of The Full Court
(The Honourable Justice Debelle, The Honourable Justice Sulan and The Honourable Justice Vanstone)
21 December 2007
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS - EFFECT OF ILLEGALITY OR INVALIDITY - SEVERANCE
Agreement compromising dispute between builder and building owners – agreement purported to resolve claims in respect of defects known to exist at date of execution of agreement as well as claims for future defects – whether by reason of s 42 of Building Work Contractors Act 1995 mutual release of claims void so far as it constituted a settlement of claims in respect of future defects – whether it is possible to sever void part of clause - appeal dismissed.
PROCEDURE - COSTS
Successful party ordered to pay costs of unsuccessful party – whether successful party entitled to recover some of their costs – relevant principles – appeal allowed.
Building Work Contractors Act 1995 s 2, s 3, s 32, s 42, referred to.
Attwood v Lamont [1920] 3 KB 571; Donald Campbell & Co Ltd v Pollak [1927] AC 732; Greenslade v Commissioner of Taxation (1978) 19 SASR 474; in re Davstone Estate Ltd’s Leases [1969] 2 Ch 378; Latoudis v Casey (1990) 170 CLR 534; Mason v Provident Clothing and Supply Co Ltd [1913] AC 724; McFarlane v Daniell (1938) 38 SR (NSW) 337; Oshlack v Richmond River Council (1998) 193 CLR 72; SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516; Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391, applied.
Binder v Alachouzos [1972] 2 QB 151 ; Dixon v Evans (1872) LR 5 HL 606; Hadley v Baxendale (1854) 9 Ex 341; (1854) 156 ER 145, considered.
FORLYLE PTY LTD v TIVER & ANOR
[2007] SASC 464Full Court: Debelle, Sulan and Vanstone JJ
DEBELLE J: This appeal from a decision of a judge of the District Court involves an important issue for consideration when resolving disputes arising out of a domestic building work contract as defined by the Building Work Contractors Act 1995.
A Building Dispute
The appellant Forlyle Pty Ltd (“Forlyle”) is a developer. It purchased an allotment of land in Stanley Street, North Adelaide and subdivided it into three allotments. In 2002 it sold one allotment to the respondents John Tiver and his wife Margaret Tiver. Forlyle entered into a separate agreement to construct a townhouse on that development. That agreement was called “the development agreement”. It is dated 26 September 2002.
The performance of the building work under the development agreement led to disputes between the parties. Forlyle claimed money said to be due and owing under that agreement. The Tivers alleged defective workmanship in the performance of the agreement. On 1 July 2004, Forlyle instituted proceedings in the District Court of South Australia. By order made on 30 July 2004, those proceedings were referred to an arbitrator. On that day it was also ordered that the Tivers pay $60,456.73 into the Suitors Fund of the District Court to abide the result of the arbitration.
The Dispute is Settled
The proceedings settled on the second day of the arbitration. The parties executed an agreement in writing recording the terms of the settlement. It is convenient to call that document the “settlement agreement”. It was made on 5 April 2005. The settlement agreement was in these terms:
1.Suitor’s fund money to be paid to Forlyle’s Solicitors Trust Account forthwith and Tivers to do all things necessary to effect that payment.
2.The sum of $42,500.00 to be paid by the Tivers to Forlyle’s Solicitors Trust Account or as directed on or before 4.00 pm 5th June 2005.
3.Forlyle to provide to Tivers the landscape lights purchased by Forlyle as soon as reasonably practicable and no later than 5th May 2005.
4.Costs of the arbitration to be borne jointly by each party.
5.Costs of the District Court proceedings shall [be] borne by the parties i.e. 1 and 2 above is a settlement inclusive of interest and costs.
6. Deed in usual terms to provide in particular;
·Confidentiality.
·Mutual discontinuance of District Court and Arbitration proceedings upon satisfaction of 1, 2 and 3 above.
·Mutual release and discharge of all and any actions known or unknown by Tivers to Forlyle and Foryle to Tivers.
7. All proceedings adjourned pending settlement.
The settlement agreement was also executed by counsel for each party.
It is common ground (as indeed is apparent from the terms of the settlement agreement) that the parties intended that the mutual release clause was a compromise of all claims in relation to the performance of the building work. It was a resolution of all disputes relating to defective workmanship in the performance of the building work. It resolved the claims in respect of the defects known to exist whether or not the subject of the proceedings before the arbitrator as well as those alleged by the Tivers to exist at the date of the execution of the settlement agreement and in addition claims for future defects.
Proceedings to Enforce the Compromise
The Tivers failed to perform their obligations under the settlement agreement and, in particular, failed to pay the sum of $42,500 referred to in clause 2 of that agreement. Forlyle instituted these proceedings to enforce the settlement agreement. The Tivers admitted the execution of the settlement agreement but contended, among other things, that it was void and unenforceable because it was an illegal contract by reason of the provisions of s 32 and s 42 of the Building Work Contractors Act (“the Act”).
Building Work Contractors Act
The Act regulates building contractor’s work and, among other things, provides in s 32 warranties that are to be implied in every contract for what the Act calls a “domestic building work contract”. That expression is defined by s 3 of the Act in these terms:
“domestic building work contract” means a contract between a building work contractor and another person for the performance by the contractor of domestic building work (including any variation of such a contract), but does not include a subcontract for the performance of domestic building work.
The definition of “domestic building work” is in these terms:
“domestic building work” means –
(a) the whole or part of the work of constructing, erecting, underpinning, altering, repairing, improving, adding to or demolishing a house; or
(b) the whole or part of the work of excavating or filling a site for work referred to in paragraph (a); or
(c) work of a class prescribed by regulation.
A “house” is defined by s 2 to mean a building intended as a place of residence. The Tivers had contracted with Forlyle to erect a building intended as a place of residence. The trial judge correctly held that the development agreement was a domestic building work contract within the meaning of the Act. The warranties in s 32 of the Act were, therefore, implied into the development agreement.
Section 32 of the Act is in these terms:
32 (1) This section applies to a contract entered into on or after 22 January 1987.
(2) The following warranties on the part of the building work contractor are implied in every domestic building work contract:
(a)a warranty that the building work will be performed in a proper manner to accepted trade standards and in accordance with the plans and specifications agreed to by the parties;
(b)a warranty that all materials to be supplied by the contractor for use in the building work will be good and proper;
(c)a warranty that the building work will be performed in accordance with all statutory requirements;
(d)if the contract does not stipulate a period within which the building work must be completed – a warranty that the building work will be performed with reasonable diligence;
(e)if the building work consists of the construction of a house – a warranty that the house will be reasonably fit for human habitation.
(f)if the building owner has expressly made known to the contractor, or an employee or agent of the contractor, the particular purpose for which the building work is required, or the result that the building owner desires the building work to achieve, so as to show that the building owner relies on the contractor’s skill and judgment – a warranty that the building work and any materials used in performing the building work will be reasonably fit for that purpose or of such a nature and quality that they might reasonably be expected to achieve that result.
(3) A person who has purchased or otherwise acquired a house succeeds to the rights of the person’s predecessor in title in respect of statutory warranties.
(4) If a person has purchased a house from a building work contractor who performed domestic building work in relation to the house, the purchaser has rights under statutory warranties as if the house had been purchased from a third party for whom the vendor had performed the building work under a contract subject to statutory warranties.
(5) Proceedings for breach of a statutory warranty must be commenced within five years after completion of the building work to which the proceedings relate.
(6) The period of limitation prescribed by subsection (5) may not be extended.
(7) In proceedings for breach of a statutory warranty, it is a defence for the defendant to prove that the deficiencies of which the plaintiff complains arose from instructions insisted on by the building owner contrary to the advice in writing of the defendant.
Section 42 provides:
42.Any purported exclusion, limitation, modification or waiver of a right conferred, or contractual condition or warranty implied, by this Act is void.
The Tivers contended that the mutual release and discharge provided in the last part of clause 6 of the arbitration agreement purported to exclude the statutory warranties provided by s 32 of the Act so that the whole of the settlement agreement was void and inoperative.
Invalid Term Severed
The judge held that, although the mutual release clause in clause 6 of the settlement agreement was valid so far as it constituted a settlement of claims in respect of known defects, it was by reason of s 42 of the Act void so far as it related to future claims in respect of defects as yet unknown. However, he held that the words “or unknown” could be severed from the rest of the settlement agreement so that the balance of the settlement agreement was valid and enforceable.
The judge ordered that Forlyle recover the sum of $42,500 and that the sum held in the Suitors Fund together with interest thereon be paid out to Forlyle. The judge made another order in the nature of a declaration that the settlement agreement does not operate to exclude the statutory warranties provided by s 32 of the Act in respect of potential breaches of those warranties by Forlyle that were not known by Mr and Mrs Tiver on or after 5 April 2005 with respect to the domestic building work. Forlyle has appealed against the order that the settlement agreement was invalid so far as it related to future claims.
In the action to enforce the settlement agreement, Forlyle had also made a claim for damages for losses incurred in consequence of the failure of the Tivers to pay the monies due under the settlement agreement. The District Court judge dismissed that claim. There is no appeal from that part of the order.
The judge further ordered that each party bear their own costs of the proceedings save and except that Forlyle is to pay the disbursements of the Tivers relating to the preparation of an accounting report with respect to the failed claim by Forlyle for damages. Both parties have appealed against the order as to costs.
A Void Clause?
The order declaring that the settlement agreement made on 5 April 2005 does not operate to exclude the statutory warranties provided by s 32 of the Act in respect of defects as yet unknown leaves Forlyle exposed to future claims by the Tivers for defective workmanship which become manifest after 5 April 2005. For convenience, I will call such claims as “claims for future defects”. Section 32(5) provides a five year limitation period for bringing actions claiming a breach of the statutory warranties. Thus, if defects should occur after the settlement agreement but before that limitation period of five years has expired, the building owner may bring proceedings to recover damages for breach of the statutory warranty. Forlyle is, therefore, exposed to the risk of claims for future defects which became manifest after 5 April 2005 until the five year limitation period expires in 2008. When agreeing the terms of the settlement agreement, Forlyle had allowed $20,000 for claims for future defects. The effect of the orders in the District Court is that Forlyle will receive no benefit for having allowed that amount to the Tivers. Although its notice of appeal has included a ground seeking recovery of the sum of $20,000 from the Tivers, counsel for Forlyle expressly stated that it does not now seek to recover that sum. The only issue raised by Forlyle is whether the judge erred in holding that the settlement agreement was invalid so far as it related to claims for future defects. The Tivers have cross-appealed on the ground that the judge erred in severing the offending words from clause 6.
The policy of the courts is to enforce a compromise of an action where it is made bona fide and without impropriety: Greenslade v Commissioner of Taxation (1978) 19 SASR 474 at 477 citing Binder v Alachouzos [1972] 2 QB 151 and Dixon v Evans (1872) LR 5 HL 606. However, a court will not enforce an agreement which is illegal either under statute or under the general law. Equally, a court will not enforce an agreement which is void either under statute or under the general law. The question in this case is whether a compromise of legal proceedings agreed by parties both of whom have been separately advised falls within the ambit of s 42 of the Act.
The starting point for such an enquiry is to determine the mischief which s 32 and s 42 respectively seek to remedy. Both provisions were initially enacted in the Defective Houses Act 1976. Examination of the second reading speech (Hansard, House of Assembly, 5 August 1976) shows that the intention of the predecessor of s 32 was to replace the warranties implied at common law with statutory warranties and to ensure that those statutory warranties could not be excluded by agreement or waiver. The intent was to protect building owners from unscrupulous builders who might seek to avoid the obligations flowing from the statutory warranties by inducing the building owner to contract out of them. For that reason, the predecessor of s 42 was enacted. In addition, Parliament intended to protect a subsequent purchaser who purchases the house within five years of the date on which the building work was completed. The predecessor of s 32 therefore extended the operation of the statutory warranties to such a purchaser.
There is, I think, a further consideration stemming from the fact that s 32(5) provides a limitation period of five years from the completion of the building work. It is common knowledge that some consequences of defective workmanship do not become apparent for some time. In my view, Parliament took the view that a period of five years was a reasonable time to allow for that possibility. Given that the defects may not become apparent until after a period of time, the building owner cannot know the nature or extent of future defects. The building owner is not, therefore, in the position to estimate the cost of remedying future defects. Assume that future defects result from a breach of the statutory warranties provided by s 32 and the cost of remedying the defects is $100,000. If a building owner has agreed to compromise claims for future defects for $20,000, he has excluded, limited or modified his rights under the Act, if he has not also waived them. The intent of the Act, as an instrument of consumer protection, is to prevent building owners from entering into contracts which prevent them from recovering adequate compensation to remedy future defects.
When applying s 42, a distinction must be made between a compromise of claims in respect of known defects and a compromise of claims in respect of future and as yet unknown defects. Section 32 implies conditions into a domestic building work contract. If the building contractor has acted in breach of those warranties, the building owner is able to enforce the warranties in a claim against the building contractor. Should the parties to the dispute decide to reach a compromise, they do so in the knowledge that the building owner is able to rely on the statutory warranties. In relation to those defects already known to the building owner any compromise will turn on the extent to which the owner wishes to enforce those warranties. The intention of the Act is to ensure that a building owner has the benefit of the statutory warranties. It is not the Act’s intention to prevent a building owner who has made a claim against a builder in reliance upon those warranties from being able to compromise a claim against the builder in respect of defects then known. A building owner is, therefore, at liberty to settle claims for known defects and the settlement of such claims does not offend s 42.
The position is different in respect of a compromise of claims made pursuant to the statutory warranties in respect of claims for future defects. The warranties expressed in s 32 are plainly rights conferred by the Act within the meaning of s 42. Section 42 is expressed in terms which are intended to invalidate any form of agreement or arrangement which purports to prevent a building owner from making a claim in respect of future defects.
A compromise by which a building owner agrees not to make a claim in respect of future defects is an exclusion of the statutory warranties provided by s 32. It is also a limitation, modification or waiver of those rights. Neither the fact that it is a compromise nor the fact that the builder has given valuable consideration for the compromise alters this conclusion. Section 42 is intended, among other things, to provide protection for building owners in at least two ways. The first is to protect building owners from unscrupulous builders who might, on the building owner taking possession of the completed domestic building, persuade the building owner to accept a money sum in settlement of any claim for future defects. The second is to ensure that building owners do not compromise, whether inadvertently or deliberately, the unknown value of claims for future defects. The public policy considerations in seeking to hold parties to an agreement compromising legal proceedings are outweighed by the public policy considerations implicit in the Act. It is for these reasons that a compromise of claims for future defects falls within the ambit of s 42. For these reasons, the judge in the District Court correctly held that, to the extent that the settlement agreement purports to compromise claim for future defects, it was contrary to s 42 and so invalid.
Is Severance Permissible?
The next question is whether it is possible to sever only the phrase “or unknown” from the mutual release clause. An invalid clause or clauses or part of a clause can be severed if the elimination of the invalid promises changes the extent only but not the kind of contract: Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391 at 411 where Kitto, Windeyer and Owen JJ applied the test of Jordan CJ in McFarlane v Daniell (1938) 38 SR (NSW) 337 at 345:
When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature: Horwood v Millar’s Timber & Trading Co Ltd [1917] 1 KB 305 at 315. If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable: Putsman v Taylor [1927] 1 KB 637 at 640-1. If the substantial promises were all illegal or void, merely ancillary promises would be inseverable.
It is necessary to distinguish between cases in which a promise made by a party to a contract is void or unenforceable, but not illegal, and cases in which the contract or the performance of a promise would be illegal: SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516 at 531-532, applying McFarlane v Daniell at 345. The distinction between an illegal and a void promise is noted in Halsbury’s Laws of England 4th Edition, Vol 9(1), para 877, where it is said that, as a general rule, severance is not possible where the objectionable parts of the contract involve illegality and not mere void promises. See also Halsbury’s Laws of Australia, Vol 6 paras 110-7410 to 110-7435 and the cases there cited. It is to be noted that s 42 does not provide that it is illegal to enter into an agreement which purports to exclude, limit or modify a statutory warranty under s 32. It is not an offence to act in breach of s 42. Section 42 does no more than declare that the purported exclusion, limitation, modification or waiver is void. This is not, therefore, a case where a clause is unenforceable for illegality.
Severance will be permitted where it is possible simply to strike out the offending word or words; the court will not re-write the contract: in re Davstone Estate Ltd’s Leases [1969] 2 Ch 378 at 387; Lindner v Murdock’s Garage (1950) 83 CLR 628 at 654 per Kitto J. The court will not sever an offending provision where that would alter entirely the scope and intention of the agreement: Mason v Provident Clothing and Supply Co Ltd [1913] AC 724 at 745; Attwood v Lamont [1920] 3 KB 571 at 580.
This settlement agreement consists of seven separate clauses each of which deals with a discrete issue. The clauses are not interdependent neither is the performance of any one clause a precondition of the performance of the other clauses. In addition, clause 6 itself deals with three separate and discrete topics. The mutual release clause is, therefore, a separate clause independent of any other clause in the contract. Severance of that clause will not change the nature of the contract but limit only the extent of the contract.
The only part of the mutual release clause which is invalid is the phrase “or unknown” which purports to constitute a release of claims for future defects. There is no illegality in the parties agreeing to compromise existing claims. The mutual release clause will be valid if the words “or unknown” are deleted so that the clause reads:
Mutual release and discharge of all and any actions known by Tivers to Forlyle and Forlyle to Tivers.
The words “or unknown” are neither an integral part of the agreement nor of clause 6 in the sense that the parties would not have agreed to compromise existing disputes if they could not lawfully agree to compromise future claims. It is possible to strike out the words “or unknown” without altering the meaning and operation of either clause 6 or of the balance of the settlement agreement.
For these reasons, both the appeal and the cross appeal against the judge’s decision to strike out the words “or unknown” must be dismissed.
The Orders as to Costs
Although Forlyle succeeded in its claim in the District Court, it did not recover costs and was ordered to pay costs incurred by the Tivers in obtaining a report from an accountant. The judge’s reasons for the orders as to costs were grounded on the fact that Forlyle had failed on that part of its claim which represented a claim based on the second limb of the rule in Hadley v Baxendale (1854) 9 Ex 341; (1854) 156 ER 145, a claim which the judge called the “Hadley and Baxendale damages”. That was the claim referred to in paragraph 11 of these reasons, that is to say, the claim for damages by Forlyle for losses incurred by it upon the failure of the Tivers to comply with the terms of the settlement agreement. Forlyle had claimed damages in excess of $250,000 for the loss of the use of the money which ought to have been paid by the Tivers pursuant to the settlement agreement. I will call it “the claim for consequential losses”. The judge dismissed that claim and there is no appeal against that part of his order.
The trial lasted five days. The judge found that the claim for consequential losses had occupied approximately two thirds of the trial. In addition, Forlyle had obtained an accounting report in support of its claim. The Tivers were put to the cost of obtaining a report in answer to that claim as well as the costs of defending the claim. Forlyle later abandoned one of the heads of consequential damage. After reviewing the authorities, the judge concluded:
23As has been seen, the plaintiff pursued a separately identifiable cause of action occupying at least two thirds of the trial. It generated the need for the exchange of extensive and costly expert accounting reports. In the result these were in one respect abandoned and in another barely used in the trial. The maintenance of that cause of action locked the defendants into defending it. The plaintiff on two occasions, wrote what might be conveniently described as Calderbank letters trying to break the deadlock, substantially but not quite in accordance of the ultimate orders made by the court. Their weakness lay in the fact that full costs were claimed, but they were nevertheless genuine efforts to settle: ACCC v Universal Music (No 2) (2002) 201 ALR 618 at 631-632. These were not accepted by the defendants because of their maintenance of what was ultimately found unjustified claim that the whole contract fell.
24No doubt the plaintiff was annoyed and if not frustrated by the failure of the defendants to pay monies due under the original building contract; even so the proper remedy always lay in interest. Insofar as it sought the additional head of damages, it seemed obvious these stemmed – if at all - from breach of the building contract rather than from the settlement. In any event that claim would always have struggled in view of the bare details provided by the plaintiff through Mr Packer of what was proposed with respect to the McKinnon Parade development.
25A number of points can be made at this juncture. First, the plaintiff was entitled to the benefit of a consent judgment, which left it with no other alternative than to sue because of the intransigence of the defendants. It wrote two letters trying to break the deadlock, to which the defendants did not respond. As a consequence, a narrow legal argument delayed the plaintiff in obtaining its due. On the other hand, it overreacted in pursuing a claim for an exaggerated and speculative claim in damages, a claim that ultimately failed. That claim was separate and distinct. As mentioned, it is possible to attribute approximately two-thirds of court time to the failed damages limb.
26To sum up, there are weighty arguments, as well as fault, on both sides. These have led to protracted litigation on unnecessary issues on both sides. Two attempts to provoke settlement, fell on deaf ears.
Conclusion
27Doing the best one can in these divisive circumstances, judiciously exercising a rather blunt but discriminating discretion as to costs, the court considers each party should bear their own costs of the litigation, but that the plaintiff should pay the defendants’ costs of the disbursements incurred in the production of its accounting report in response to the claim for damages which failed at first instance. This order embraces the orders relating to discovery, the subsequent hearing in relation to the issue of costs as well as the failed claim for summary dismissal.
The reference in paragraph 25 of the judge’s reasons to “an exaggerated and speculative claim in damages” is a reference to Forlyle’s claim for consequential losses. However, the judge did not find that the claim for consequential losses by Forlyle was unreasonably or improperly made, although he found that it “would always have struggled in view of the bare details provided by the plaintiff”.
As a general rule, an appellate court will be reluctant to interfere with an order for costs made by the trial judge. The judge has experienced the trial and is likely to be more acutely aware of the time occupied on the several issues before the court. More importantly, when making the orders as to costs, the trial judge is exercising a discretion and an appellate court will only interfere where the exercise of that discretion has miscarried.
When making the order, the judge referred to the relevant principles. Nevertheless, the exercise of his discretion has miscarried. While a successful party may be deprived of its costs, this was not an appropriate case in which to do so. The Tivers had determined not to perform their obligations under the settlement agreement. Forlyle had no alternative but to bring the proceedings in order to compel them to perform those obligations. The Tivers persisted with their defence of the claim to the bitter end. Forlyle succeeded in that claim. It is entitled to be compensated for the costs incurred in enforcing its entitlement to the monies under the settlement agreement. As the trial judge found, the Tivers had reneged on that agreement.
The general rule is that a successful party has a reasonable expectation of obtaining an order for costs unless for some reason connected with the case a different order was specially warranted: Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 812 applied in Latoudis v Casey (1990) 170 CLR 534 per McHugh J at 569 and at 557 per Dawson J; Oshlack v Richmond River Council (1998) 193 CLR 72 at [134] per Kirby J. In Oshlack v Richmond River Council at [69] McHugh J pointed out that a successful party will be disentitled an order for costs if its conduct justifies that course. He said:
The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, Devlin J formulated the relevant principle as follows:
“No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.”
“Misconduct” in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute.
I do not understand the reasons of Gaudron and Gummow JJ in Oshlack v Richmond River Council to qualify that principle. Forlyle has not been guilty of misconduct in the sense identified by McHugh J. It simply pursued a claim which has failed.
As Forlyle has failed in its claim for consequential losses, it cannot expect to recover the costs associated with that claim. The claim for damages was ambitious but that is not a reason for depriving Forlyle of its costs. Although it was an exaggerated and speculative claim, it was not improperly made. Forlyle had obtained accounting advice which supported its claim. As events turned out, that advice was wrong. The fact that the advice was incorrect should not be the cause of an order that Forlyle be ordered to pay the Tiver’s costs in obtaining an accountant to prepare an answering report. Nor should it be the cause of it failing to recover that part of its costs which it incurred in prosecuting the successful part of its claim. The orders as to costs rewards the Tivers for their conduct in refusing to comply with the terms of the settlement agreement. Forlyle had to incur substantial cost to compel the Tivers to comply with that agreement. It should be entitled to recover those costs. At the same time, Forlyle should not recover any costs which are in any respect associated with its failed claim for consequential losses. In all the circumstances, the appropriate order as to costs is to allow Forlyle to recover the costs of two days of the hearing and for other costs associated with that claim including the cost of issuing the proceedings but not allow it to recover those costs or disbursements associated with the claim which failed.
For these reasons, I would allow the appeal as to costs by Forlyle and dismiss the cross-appeal as to costs by the Tivers.
Conclusion
I would make the orders to the following effect:
1Dismiss Forlyle’s appeal against the declaration that the settlement agreement does not operate to exclude claims for future defects.
2Allow Forlyle’s appeal against the order as to costs.
3Set aside the order as to costs and in lieu thereof order that Forlyle recover costs for two days of the hearing as well as those costs and disbursements which relate to its successful claim.
4Dismiss the cross appeal of the Tivers.
SULAN J: I agree with the reasons of Debelle J. I agree with the orders that Debelle J proposes.
VANSTONE J: I agree with the orders proposed by Debelle J and with his reasons.
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