Harrison v Hancock (No 2) - [2020] SADC 103

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
HARRISON & ANOR v HANCOCK & ORS (No 2)
[2020] SADC 103
Judgment of His Honour Judge Rice
31 July 2020
ADMINISTRATIVE LAW - JUDICIAL REVIEW - PROCEDURE AND EVIDENCE - COSTS
Application for costs by successful plaintiffs.
Two actions, which were initially commenced in the Magistrates Courts, were transferred to the District Court because of the amounts claimed and likely to be claimed, plus the anticipated legal and factual complexity of the matters. Plaintiffs at trial bettered their filed offers and seek indemnity costs against the defendants.
Held: Plaintiffs entitled to indemnity costs after 14 days after the first formal offer.
Other costs orders made for earlier periods.
Building Work Contractors Act, 1995 s6; District Court Act 1991 s42; Magistrates Court (Civil) Rules 2013 R32; District Court Rules 2006 r 111(3), r 263(2)(g), r 187, r 188F(3) and (4), referred to.
Cretazzo v Lombardi (1975) 13 SASR 4; Mann & Another v Paterson Constructions Pty Ltd (2019) 93 ALJR 1164; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, considered.

HARRISON & ANOR v HANCOCK & ORS (No 2)
[2020] SADC 103
Introduction

This is an application for costs on behalf of the successful plaintiffs. The details of the application are referred to below but, in the main, it is an application for indemnity costs.
As finally formulated, the plaintiffs’ applications were expressed in the alternative depending upon the effect of offers filed on behalf of the plaintiffs, the first offer being dated 27 July 2018 and the second being dated 29 August 2018.
The Plaintiffs’ Summary of Argument
“5.     The Minutes of Order marked Annexure A rely upon the Formal Offer of Settlement filed by the plaintiffs on 27 July 2018, comprising exhibit CGM1 to the Second Affidavit of Charles Geoffrey Moran (27 July 2018 Offer).
6.     The Minutes of Order marked Annexure B rely upon a Formal Offer of Settlement filed by the plaintiffs on 29 August 2018, being the Formal Offer of Settlement comprising exhibit CGM2 to the Second Affidavit of Charles Geoffrey Moran (29 August 2018 Offer).
7.     The difference between the orders comprising Annexure A and B is that:
7.1    Annexure A seeks, inter alia;
7.1.1 party/party costs on the plaintiffs’ claim up to 10 August 2018,   without reduction; and
7.1.2 costs of the plaintiffs’ claim from 11 August 2018 onwards on an   indemnity basis.
7.2    Annexure B seeks, inter alia:
7.2.1 90% of the party/party costs on the plaintiffs’ claim up to 12   September 2018; and
7.2.2 costs of the plaintiffs’ claim from 13 September 2018 onwards on an         indemnity basis.
7.3    The figure of 90% referred to in paragraph 7.2.1 above incorporates a broad         axe reduction to allow for the costs referable to the plaintiffs claiming in         excess of $60,500 on a quantum merit basis (being the costs referred to in           paragraph 5 of the 29 August 2018 Offer).”
That application is resisted, principally on the basis that the matter should have been determined in the Magistrates Court with much less costs consequences.
On 4 November, 2019 I delivered the judgment as to the claim by the plaintiffs and the counter-claim by the defendants. There was judgment for the plaintiffs against the second defendant in the amount of $38,965.00 (inclusive of pre-judgment interest) and judgment against the third defendant in the amount of $33,665.00 (inclusive of pre-judgment interest).
No judgment was sought against Mr Hancock personally.
The counter-claim was dismissed.
Principles to be applied
By s42 of the District Court Act and subject to sub-section (2) and the Rules, costs will be in the discretion of the court.
There are a number of Rules that have application here.
By Rule 263(1), as a general rule, costs follow the event.
Of importance in this case is Rule 263(g) whereby general costs are not to be awarded in favour of a successful plaintiff unless the amount awarded (which includes interest) exceeds $60,000.
Bearing in mind there were complying formal offers filed by the plaintiffs/defendants and they obtained a judgment no less favourable than the terms of that, Rules 188F(3) and (4) apply. Those sub-rules are as follows:
(3)     When a complying offer is made by a plaintiff and not accepted by a defendant and the plaintiff obtains judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer –
(a)     the costs incurred in respect of the claim up to 14 days after service of the formal offer are unaffected by the making of the formal offer;
(b)     the plaintiff is entitled to an order against the defendant for the plaintiff’s costs of action in respect of the claim to which the complying offer relates thereafter on an indemnity basis.
(4)     When a complying offer is made by a defendant and not accepted by a plaintiff and the defendant obtains judgment on the claim to which the offer relates –
(a)     the costs incurred in respect of the claim up to 14 days after service of the formal offer are unaffected by the making of the formal offer;
(b)     the defendant is entitled to an order against the plaintiff for the defendant’s costs of action in respect of the claim to which the complying offer relates thereafter on an indemnity basis.
Finally, I adopt the plaintiffs’ reference to Jacobs J in Cretazzo v Lombardi.[1]
Background
[1] (1975) 13 SASR 4 at page 16
Initial filings in Magistrates Court
To understand the positions of the parties it is necessary to consider the sorry history of the matter. These reasons need to be read in conjunction with the primary judgment.
On 11 March, 2014 a minor civil action was commenced in the Magistrates Court (Action No 925 of 2014) by the Harrisons for $25,000 being the final payment for the purchase of property at Lot 3/Unit 4, 28 Liston Road, Lonsdale.
On 2 April, 2014 Mr Hancock filed a Defence and Counterclaim. Mr Hancock and the purchasing companies (the second and third defendants) denied any liability to the Harrisons on the basis that there was a failure to complete the building works.
The denial of any liability under the building contracts was a position maintained by the defendants up until the time of trial.
It should also be noted that Mr Hancock at the earliest stage of this action pleaded that the Harrisons were disentitled to claim any monies by virtue of Section 6(2) of the Building Work Contractors Act, 1995.
Mr Hancock’s counterclaim was in the amount of $88,500.
On 29 April, 2014 the second and third defendants commenced Action No 1577 of 2014 in the Magistrates Court against the Harrisons whereby they claimed $88,500 on the same basis as pleaded in the counterclaim in Action No 925 of 2014.
On 20 May, 2014 the Harrisons’ claim was amended to $60,500 to include the amount then owing in respect of Lot 2/Unit 3.
Although other documents were filed in both actions on 25 September, 2014, there was no change in the overall quantum claimed.
On 13 November, 2014 the Harrisons filed a Defence and Counterclaim in Action No 1577 of 2014.
The Defence of the Harrisons denied any liability to the plaintiffs (Mr Hancock and Others) and the Counterclaim was pleaded in contract such that if the Harrisons were required to hold a licence (and there was no inadvertence), relief was sought on a quantum meruit basis in the amount of $60,500.
Offers to consent to Judgment by Mr Hancock and two other Defendants in September 2014 and January 2015
On 26 September, 2014 offers to consent to judgment (in both actions) were filed by Mr Hancock and the two corporate defendants. The effect of those offers is the subject of disagreement between the parties. The defendants, in their very first submission to this court on the question of costs, put this:
In September 2014 the defendants filed an offer to pay the plaintiffs $20,500 plus costs.
I do not accept that that represents the effect of the offers. By letter dated 25 September, 2014, the solicitors for the defendants purported to explain the effect of the offers.[2]
[2] See Seventh Affidavit of J.D. Radbone, Ehibit JR4 filed 25/11/2019
I accept as the true effect of the offers the points made by the solicitors for the plaintiffs[3].
[3] See Third Affidavit of C.G. Moran filed 22/11/2018, Exhibit CGM78, being a letter dated 29/8/2018
pages 1-2
As was noted in the letter of 29 August, 2018, the first offers were withdrawn and replaced by new offers which were also rejected. Again I accept as the effect of the new offers the points also made in the letter of 29 August, 2018.
Expert’s Report
The defendants (Mr Hancock and others) commissioned a report from Mr Jankovic to peruse certain documentation and inspect and comment on the building works at Lonsdale. The report was provided on 8 December, 2014. The cost estimates assumed the various breaches of contract alleged and that the plaintiffs were responsible for faulty/non-compliant work (e.g. front entry gate).
The cost of rectification works was approximately $74,000, exclusive of the defendants’ other potential claims for delay and misrepresentation.
Further Pleadings and Correspondence
On 11 November, 2014 the plaintiffs filed a Second Amended Statement of Claim (in Action No 925 of 2014) which claimed on a quantum meruit basis. This was the first time a quantum meruit basis was pleaded in that action and is consistent with the Harrisons Defence and Counterclaim (in Action No 1577 of 2014) filed on 13 November, 2014.
It should be noted that notwithstanding Mr Jankovic’s report, Mr Hancock did not seek to amend the quantum of the counterclaim.
On 17 March, 2015 the two actions were listed for trial on 1 June, 2015, with four days set aside. The defendants before me made the valid point that had the matters proceeded to trial at that time, the plaintiffs’ claim would have been $60,500 and the defendant’s cross-claim would have been in the amount of $88,500. Based upon the pleadings that is a valid point. However, as earlier correspondence had revealed, the potential cost of the remedial work suggested by Mr Jankovic could be as much as $158,000[4]. The same email notes that notwithstanding the increase in the potential claim, the defendants (Mr Hancock and Others) wanted the matter to remain in the Magistrates Court.
[4] See the email dated 16/12/14 from the plaintiffs then solicitor to their then counsel, Fourth Affidavit of C.G. Moran, Exhibit CGM 13.
On the topic of whether the matter should remain in the Magistrates Court or be transferred to the District Court, in an email on 27 January, 2015 the solicitor for Mr Hancock raised with the solicitor for the Harrisons, whether the Harrisons were prepared “… to extend the jurisdiction of the Magistrates Court beyond $100,000 or whether it will be necessary to raise the proceedings to the District Court.[5]”
[5] See Fourth Affidavit of C.J. Moran, Exhibit CGM14
It is submitted by the Harrisons that this topic was raised on behalf of Mr Hancock because the latter was giving consideration to increasing the counterclaim and/or claim, by a significant amount.
The basis for such a submission was Mr Jankovic’s report and the later apparent confirmation by the solicitor for Mr Hancock at a Directions Hearing on 28 January, 2015.[6]
[6] See note in Fourth Affidavit of C.G. Moran, Exhibit CGM 15
It is also apparent from that note that the solicitor for Mr Hancock was hoping to have it agreed that the parties were prepared to extend or waive the jurisdictional limit beyond $100,000.
To the same effect is Mr Harrison’s affidavit of 3 February, 2020, whereby his recollection of a Direction Hearing (likely to be that of 28 January, 2015) was that the claim/counterclaim was increasing to over $100,000, particularly so as to replace the whole bitumen driveway with concrete.
Listing for Trial and Subsequent Correspondence
As noted, at a Directions Hearing on 17 March, 2015 both actions were listed for a four day trial commencing on 1 June 2015.
On 24 March, 2015 the solicitor for Mr Hancock wrote to the court saying the listing date was convenient. However, the content and tone of the letter foreshadowed additional procedural steps that needed to be undertaken and that both parties were in the process of obtaining additional specialised evidence/reports in relation to quantum. Clearly the foundation was being laid for an application that the matters came out of the list given the limited timeframe to obtain and respond to the suggested reports.
One such report had been sought by the Harrisons by letter dated 16 March, 2015 to Mr Chris Sale, Quantity Surveyor[7].
[7] See Seventh Affidavit of J. D. Radbone dated 25/11/19, Exhibit JDR 7
On 2 April, 2015 the solicitors for Mr Hancock filed an application to amend his defence and counterclaim. Despite the counterclaim again being pleaded at $88,800, the individual components of it plus unquantified alleged further defects went way beyond the jurisdictional limit of the Magistrates Court of $100,000.
On 24 April, 2015 the Harrisons advised that they consented to those amended pleadings.
On 1 May, 2015 Mr Sale provided his expert’s report.
Magistrates Court or District Court?
By letter dated 1 May, 2015 the Harrisons, inter alia, proposed to Mr Hancock that the parties waive the monetary limit of the Magistrates Court to enable that court to have the jurisdiction to determine the action without regard to that limitation.[8]
[8] See Seventh Affidavit of J D. Radbone, Exhibit JDR 10
A similar letter was again sent by the Harrisons on 18 May, 2015. On that same date the trial date was vacated and the matter adjourned until 10 June, 2015. Mr Hancock had yet to obtain a responding report to Mr Sale’s report.
By letter dated 22 May, 2015, Mr Hancock advised he was not prepared to waive monetary limit of the jurisdiction of the Magistrates Court.[9]
[9] See Seventh Affidabit of J. D. Radbone, Exhibit JDR 12
By letter dated 29 May, 2015, the Harrisons wrote to Mr Hancock stating as follows:
As your clients are not prepared to waive the jurisdictional limit of the Magistrates Court of South Australia, the actions should be referred to the District Court of South Australia. This should not be controversial and we therefore enclose a copy of Minutes of Order by consent in relation to each of the actions.
It should be noted that as to each action the Minutes of Order were expressed to be “By consent”.[10]
[10] See Seventh Affidavit of J. D. Radbone, Exhibit JDR 13
The applications in the Magistrates Court were listed for 10 June, 2015 (having been filed on 5 June, 2015).
Each of the applications relied upon Rule 32 of the Magistrates Court (Civil) Rules 2013.
I accept the evidence of Mr Harrison that he was guided by the advice of his solicitors in relation to the substantial increase in the quantum meruit. I find that Mr Hancock was also proposing to increase his claim to an amount above the $100,000 limit.
By email from Mr Radbone on behalf of Mr Hancock to Mr Graham for the Harrisons, Mr Radbone said:
… although not consenting to the orders [Mr Hancock] will not oppose the orders sought in your Minutes of Order on your applications.[11]
[11] See Seventh Affidavit of J. D. Radbone, Exhibit JDR 15
Mr Radbone’s email was sent to the Magistrates Court and the orders were made without the attendance of counsel. The orders of the Magistrate went slightly further than the email from Mr Radbone. The orders were made “by consent” but Mr Radbone did not consent, merely that he did not oppose them.[12]
[12] See AMC file and Fourth Affidavit of C. G. Moran, Exhibit CGM 21
Discussion
My assessment of the history of these actions is that both parties reached the point where there was a realisation that the claim and counterclaim, properly particularised, would each be well in excess of $100,000.
Certainly the Harrisons’ claim showed that and the counterclaim, although pleaded for $88,500, in reality was going to be far much more than $100,000.
It is plain from Mr Radbone’s email of 27 January, 2015 that Mr Hancock contemplated that the jurisdictional limit of the Magistrates Court of $100,000, was likely to be exceeded.
Sensibly that must have been on the basis of a proposed increase in his counterclaim/claim.
Mr Graham’s note of 28 January, 2015 made during the Directions Hearing on that date, being a note made of Mr Floreani’s (then appearing for the Harrisons) submission as to the effect of Mr Jankovic’s report, confirms the likely increase in the counterclaim/claim.
Mr Graham’s note of Mr Radbone’s submission on that same date, that it was hoped to extend the jurisdictional limit (of what must have been meant) the Magistrates Court, confirms such an approach.
Reverting to the Harrisons’ attitude, it is also plain that they contemplated the jurisdictional limit of the Magistrates Court would be exceeded.[13]
[13] See Letter of 1/5/2015
That letter and a follow-up letter of 18 May 2015 proposed a waiver of the jurisdictional limit of the Magistrates Court. As Mr Hancock was not prepared to waive the jurisdictional limit of the Magistrates Court[14] it was quite reasonable for the Harrisons to apply to have the actions transferred to the District Court.
[14] See Letter of 22/5/2015
In view of the pleadings and the likely amendments to the pleadings as at that time, it was virtually inevitable that the actions would be transferred to the District Court in the absence of a waiver. Mr Hancock allowed that transfer to take place; even if he did not consent to it he certainly acquiesced in it. There was no opposition by him to the transfer. Leaving those matters to one side, it was nonetheless appropriate that the actions be heard in the District Court. There were potentially very complex legal and factual issues to be determined, including the interpretation of legislation, both State and Federal. In those circumstances the District Court was appropriate to hear the matter.
Proceedings before the District Court
It is unnecessary to detail every step of the pleadings in the District Court, but a number of salient points can be made.
First, I accept that it was necessary for the Harrisons to obtain a quantity surveyor’s report to support their claim in quantum meruit because the Ryemma companies denied having any liability in quantum meruit.
Secondly, by the Third Defence and Counterclaim, Mr Hancock pleaded, for the first time, that the building contracts were valid and enforceable, contrary to the position taken in the Magistrates Court. On that basis, it was pleaded there was no basis to claim a quantum meruit and they were not entitled to any payment on that basis.
Thirdly, Mr Hancock continued to deny any liability to the Harrisons.
Fourthly, the Fifth Defence and Counterclaim claimed damages on the counterclaim in the sum of $176,148.80 plus additional damages to be determined. Again there was a failure to recognise even the entitlement to the Harrisons for $60,500 that was unpaid pursuant to the Building Contracts.
District Court Offers of Settlement
Leaving to one side the informal negotiations to resolve this case, there were two formal offers of settlement served and filed. Those offers were made on 27 July, 2018 and 29 August, 2018. The difference between the two offers is explained in paragraph 7 of the Plaintiffs’ Summary of Argument reproduced earlier in these reasons. There was no challenge to the fact that these offers comply with Rules 187 and 188F(3) and (4) of the District Court Rules (as to the latter Rule, also recited earlier).
As is plain from the history of this matter, there are numbers of periods of time relevant to the question of costs.

The first period is the time the actions were in the Magistrates Court. The next period is that leading up to the filing of the offers and to the final period at the time after the filing of the offers (and after 14 days).
I deal with the first period of time, up to the time of the transfer to the District Court. As to this period, the plaintiffs rely upon Rule 111(3) to submit that costs before removal are to be assessed on the District Court scale because steps taken when the matter was in the Magistrates Court are taken to be the equivalent steps in the District Court.
I do not accept that submission.
The word “steps” must refer to a procedural/interlocutory step and does not mean that it would pick up the District Court scale for that step. When the work was undertaken in the Magistrates Court there was, quite properly, an expectation that the Magistrates Court scale would apply. The remuneration for that step should not be elevated to the District Court scale because the actions were later transferred to that court.
As to the remaining two periods, much depends upon whether there should have been an acceptance of one or other of them by Mr Hancock. It is conceded on behalf of Mr Hancock that the offer of 29 August, 2018 was a reasonable offer. Further, the defendants submitted this:
34 The decision of the defendants to refuse the offer in the expectation that they might obtain a judgment in excess of the claim and thereby recover their costs of the action was, in light of the judgment of the Court, unreasonable.
That was a proper concession in the light of the judgment of this court.
The plaintiffs submit that the defendants decision to reject the 27 July, 2018 offer, was equally unreasonable. I accept that submission. In my view the conduct of this case by Mr Hancock and other defendants (that is, as defendants and plaintiffs on the counterclaim), has been generally unreasonable and, in part, virtually devoid of merit. Apart from some of the Magistrates Court costs, as mentioned, the plaintiffs should receive their costs. Their costs will be without reduction, on an indemnity basis as referred to below.
Discussion
The first point to be made is that the second and third defendants denied, up until the eve of the trial, that they had any liability to the plaintiffs, whether that was in quantum meruit or otherwise. That position was unreasonable. Either in contract, or on a quantum meruit basis, the defendants were liable for works undertaken beyond the two instalments that had been paid. The second and third defendants were trying to have the best of both worlds. If there were enforceable contracts, no moneys were owing because works were incomplete/defective and there had been unreasonable delays. If there were no enforceable contracts, no money was said to be owing even on a quantum meruit basis. On top of that was a counterclaim without merit. At best there was, as found at trial, a minor set-off. The counterclaim contributed in a major manner to the duration of the trial.
As noted on behalf of the plaintiffs, it was only on the eve of the trial that the second and third defendants conceded, for the first time, that the sum of $60,500 was payable (although subject to the set-off and counterclaim). If that concession had been made earlier, there may not have been a need for the plaintiffs to obtain a report from a quantity surveyor.
In addition to those matters the plaintiffs rely upon the adverse findings as to Mr Hancock, as some measure of the unreasonableness of the defendants in the conduct of the litigation. I accept that submission. There is no need for me to repeat my findings but I found him to be an unsatisfactory and unreliable witness.
Claim in Quantum Meruit
This is an aspect of the submissions that requires separate consideration.
As is noted in the primary judgment, the plaintiffs were unlicensed ‘builders’. In that situation, s6(2) of the Building Work Contractors Act, 1995, operated to prevent recovery of the contract amount for the building work. The position that was accepted by both parties at trial was that the plaintiffs were nonetheless entitled to payment on a quantum meruit basis.
One of the major disputes between the parties was whether the remedy available to the plaintiffs was limited to the contract price. The plaintiffs, initially relying upon authority to which I will come, took the position that their claim could go beyond the contract price. However, at trial the plaintiffs limited themselves to a quantum meruit claim at the contract price.
The defendants, as noted, initially took the position that no money was payable, even on a quantum meruit basis. At trial it was accepted that there was a valid claim in quantum meruit, but no more than the contract price.
The authorities upon which the plaintiffs initially relied are referred to in a letter from the plaintiffs’ solicitors to Mr Radbone of 9 September, 2018.[15]
[15] See Seventh Affidavit of J.D. Radbone at page 145
Although not binding on me, that is a respectable line of authority supporting the plaintiffs’ position.
There was also a contrary authority.[16]
[16] See Pavey & Matthews Pty Ltd v Paul …. from Deane J at para. 15
Finally on the question of authority, the High Court, in a judgment delivered on 9 October, 2019 in the case of Mann & Another v Paterson Constructions Pty Ltd., effectively decided that in this type of situation the right to recover is limited to the amount that would have been due under the contract.
The defendants argue that as at the time of the pleadings in the Magistrates Court and District Court the decision to increase the quantum meruit claim beyond the contract price was unreasonable. I do not accept that approach. As I have observed, there was a respectable line of authority supporting the plaintiffs’ position as at that time. It is not for me, in retrospect, to determine that those authorities were devoid of merit or so lacking in weight that they could safely be ignored.
In my view it was not unreasonable for the plaintiffs to pursue a quantum meruit claim in excess of the contract price. That did have the effect of potentially taking the action into the District Court if a waiver of the jurisdictional limit of the Magistrates Court was not forthcoming. Further, as I observed earlier, it suited the defendants to have their action in the District Court given the realistic value of their counterclaim.
In that situation I do not make any criticism of either party for obtaining whatever expert reports that were thought advisable.
As also already observed, the counterclaim was devoid of merit. The pursuit of it at trial caused the trial itself to be vastly longer than it otherwise was going to be.
The second and third defendants had no reasonable basis for non-payment of the contract monies outstanding. The plaintiffs exceeded the threshold in Rule 263(2)(g).
Each of the formal offers of the plaintiffs bettered the judgment obtained by the plaintiffs/defendants by counterclaim. In my view, the default position under Rules 188F(3) and (4) applies. I decline to exercise my discretion otherwise.
Orders
As to the time before that, while the actions were in the Magistrates Court, the plaintiffs are to have their costs on their claim and the defendants counterclaim on the Magistrates Court scale on a party/party basis.
As to the time while the actions were being pursued in the District Court up to and including 10 August, 2018, the plaintiffs are to have their costs on the claim and their costs as defendants to the counterclaim on a party/party basis on the District Court scale.
The plaintiffs/defendants by counterclaim are to have their costs on an indemnity basis on the plaintiffs’ claim and the defendants’ counterclaim from 11 August, 2018 onwards, on the District Court scale.
The orders for costs in favour of the plaintiffs include all reserved costs.