Kemp v Ryan

[2011] ACTSC 42

GRAHAM RONALD KEMP V MICHAEL J RYAN & ANOR
[2011] ACTSC 42 (11 March 2011)

PRACTICE AND PROCEDURE – costs – building case resolved by consent orders – costs unresolved – plaintiff seeking indemnity costs consequent on Calderbank offer – Calderbank offer not unambiguously clear – Calderbank offer not capable of being accepted and thereby creating binding contract – order for costs on party-and-party basis only

Court Procedures Rules 2006 (ACT), rr 1616, 1617, 6700(1), 6701.

Zammit v EL-Khoury [2010] ACTSC 6
Calderbank v Calderbank [1976] FAM 93
Quirk v Bawden (1992) 112 ACTR 1
Heywood v Miller [2005] ACTSC 12
Andonaros v Titcume [2005] ACTSC 38
Cairns v Woolworths Ltd [2006] ACTSC 17
Becker v Queensland Investment Corporation and Bovis Lend Lease Pty Ltd (No 2) [2009] ACTSC 147
John Goss Projects Pty Ltd v Thiess Watkins White Constructions Ltd (in liq) [1995] 2 Qd R 591
Grbavac v Hart [1997] 1 VR 154
M T Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163
Evans Shire Council v Richardson (No 2) [2006] NSWCA 61

No.  SC 126 of 2008

Judge:             Master Harper
Supreme Court of the ACT

Date:              11 March 2011

IN THE SUPREME COURT OF THE     )
  )          No.  SC 126 of 2008
AUSTRALIAN CAPITAL TERRITORY )

BETWEEN:GRAHAM RONALD KEMP

Plaintiff

AND:MICHAEL J RYAN

First Defendant

SARA RYAN

Second Defendant

ORDER

Judge:  Master Harper
Date:  11 March 2011
Place:  Canberra

THE COURT ORDERS THAT:

1. The plaintiff’s application for an order that costs be assessed on an indemnity basis be dismissed.

1. There be no order as to the costs of the application.

1. This is a plaintiff’s application for a more favourable order as to costs than the usual order, following the settlement of a building case.

1. The plaintiff is a builder. The defendants, who are both lawyers, owned a house at Curtin and in July 2007 they signed a contract with the plaintiff to carry out extensions and alterations to their house.

1. After some work had been carried out, there was a falling out between the parties. In February 2008 the plaintiff commenced proceedings in this court. He claimed the difference between the value of work carried out and progress payments he had received, a difference of $64,228.00. In addition he claimed interest at 20%, said to have been the agreed interest rate for late payments.

1. The defendants filed a defence through the first defendant’s law firm. In essence the defendants said that the plaintiff had failed to carry out the work in a proper and workmanlike manner, and that they had been put to expense to have the work rectified. They made a counterclaim for unspecified damages.

1. In June 2008 the plaintiff amended his statement of claim to include a quantum meruit count. In August 2008 the defendants, by then represented by Meyer Vandenberg, filed an amended defence and counterclaim. Also in August 2008, a Scott Schedule was filed setting out details of the disputed items of work. The parties appear to have reached an informal agreement to prepare and file affidavits which would constitute the evidence in chief at hearing. The general rule is that evidence at the trial of a proceeding started by originating claim must be given orally in open court: Court Procedures Rules 2006, r 6700(1). The parties may agree that evidence is to be given by affidavit. The parties must tell the court about the agreement and the court may order that notwithstanding the agreement, the general rule is to apply: r 6701.

1. The parties have now settled their dispute, and reached agreement on the orders that should be made, except as to costs. In June 2010, consent orders were entered as follows:

Orders

(a)  Judgment for the plaintiff on the claim and counterclaim for $53,330.00.

(b)  Costs be reserved for hearing on 3 May 2010.

(c)  The defendants pay contractual interest in the sum of $32,964.50 calculated to 4 May 2010 and continuing to so accrue until the judgment sum of $53,330.00 is paid.

(d) Post-judgment interest is otherwise payable at the rate prescribed by Schedule 2, Part 2.2 of the Court Procedures Rules 2006.

(e)  The matter is listed on 3 May 2010 in relation to costs.

Judgment

(a) The defendants pay the plaintiff $86,294.50.00 plus contractual interest on the judgment sum referred to in Order 1 above until judgment is paid.

(b)  Costs reserved.

1. There is no issue between the parties that the contract provided for a 20% rate of interest on late payments. This is the rate intended by the parties to apply as “contractual interest”.

1. The solicitors for the parties had made earlier attempts to have consent orders sealed and entered but drafts had been the subject of requisitions by the registry. Hence the apparent inconsistency between the date of the orders and the earlier dates referred to in them.

1. The court has previously accepted that it may be an appropriate course of action for parties to reach agreement on all of the issues in dispute between them except for costs, and to ask the court to determine the appropriate order or orders as to costs: Zammit v EL-Khoury [2010] ACTSC 6 per Higgins CJ, in which His Honour referred to the importance of encouraging parties to resolve their differences, particularly in building cases, by negotiation and compromise rather than litigation.

1. The defendants accept that the plaintiff is entitled to an order for costs, but say that it should be the usual order as to costs, that is to say, an order that the defendants pay the plaintiff’s costs as between party and party. The plaintiff seeks an order for indemnity costs. His primary position is that he should have an order for the costs of the action generally on an indemnity basis because the defendants never had a genuine defence. Their defence and counterclaim have put him to expense in recovering money to which he is entitled and he should not be left out of pocket.

1. If his submission to that effect is unsuccessful, he seeks indemnity costs following the non-acceptance and lapsing of a Calderbank offer, the descriptor arising from the decision of the Court of Appeal of England and Wales in Calderbank v Calderbank [1976] FAM 93, and now well recognised within the legal profession throughout Australia.

1. The offer was contained in an email of 6 September 2008 from the plaintiff’s solicitor, Mr Giles of S & T Lawyers to the then solicitor for the defendants, Ms Scheul of Meyer Vandenberg. The email was in the following terms:

Kemp v Ryan – without prejudice save as to costs

Kristine,

This offer is made pursuant to the principles of Calderbank v Calderbank and will remain open for acceptance to 7 October 2008, whereupon it will lapse.

1.     The plaintiff will accept $53,146.00.00 in settlement of his claim (this comprises the contract sum due, plus all provisional and prime cost items and variation no 6 for additional roof tiling).

2.     Plus interest at 20% in accordance with clause 21 of the contract until that money is paid.

3.     Plus costs as agreed or assessed.

We advise that our solicitor-client costs and disbursements are $48,828.00.00 to date.

Regards

Fil Giles

Solicitor

1. The defendants did not accept the offer set out in the email prior to its lapsing, although further settlement negotiations took place at various times prior to settlement being reached, as the parties continued with their preparations towards hearing. The plaintiff does not rely on anything which happened in those subsequent negotiations as entitling him to a special costs order.

1. The rejection of a Calderbank offer has been accepted in this Territory as entitling the subsequently successful offeror to a special costs order at least since Quirk v Bawden (1992) 112 ACTR 1. Special orders have been made in many proceedings since. As with all costs orders, the making of an order in a particular matter is within the discretion of the court and such orders may vary from case to case depending on their individual features. On occasions costs have been ordered on a solicitor-client basis rather than a party-party basis. In other cases orders have been made on an indemnity basis. The consequences will vary depending upon whether the offer was made by a plaintiff or a defendant. The relative financial positions of the parties may be relevant: Heywood v Miller [2005] ACTSC 12; Andonaros v Titcume [2005] ACTSC 38. On occasion the court has come to the view that a plaintiff who has rejected a reasonable Calderbank offer should suffer a costs penalty of a fixed dollar amount: Cairns v Woolworths Ltd [2006] ACTSC 17.

1. There is no evidence in the present case of any difference in financial position of the parties which might be relevant to the exercise of the discretion.

1. Refshauge J recently summarised the history of the development of the Calderbank offer and related special costs orders, in Becker v Queensland Investment Corporation and Bovis Lend Lease Pty Ltd (No 2) [2009] ACTSC 147. This was an example of a modest offer by a plaintiff which was not accepted. The plaintiff went on to recover a much greater amount. Refshauge J ordered the defendants to pay her costs up to the date of expiry of the Calderbank offer as between party and party, and thereafter on an indemnity basis. His Honour, in setting out the essential elements, said at [12] (4): the terms of the settlement offered must be unambiguously clear: John Goss Projects Pty Ltd v Thiess Watkins White Constructions Ltd (in liq) [1995] 2 Qd R 591 at 595; Grbavac v Hart [1997] 1 VR 154 at 160. It must be capable of being accepted and thereby concluding the proceedings by creating a binding contract: M T Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163 at [56].

1. Relevantly to the email in the present case, Refshauge J noted at [20] (8) that the offer in Becker did not foreshadow an application for indemnity costs. This did not seem to His Honour to be essential. His Honour considered that it was now so common that a Calderbank offer would encompass an intention to seek indemnity costs that the reference to that case would bring that expectation with it without need for an express reference. I respectfully adopt His Honour’s conclusion as to that aspect.

1. A further ingredient of the Calderbank scheme as it has developed is that the onus lies upon the offeror to establish to the satisfaction of the court that in all the circumstances the failure of the opponent to accept the offer was unreasonable: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26].

1. I should say at once that the evidence adduced on the hearing of the application was quite insufficient to satisfy me that the defendants never had any defence to the claim and that their conduct in defending it and making a counterclaim was so egregious that an indemnity costs order for the whole proceeding should be made against them. I do not understand counsel for the plaintiff to have ultimately made such a submission.

1. The question is whether the Calderbank offer of 6 September 2008 was unambiguously clear, and whether it was capable of being accepted and thereby concluding the proceedings by creating a binding contract. I am not persuaded that it was.

1. I am satisfied that the offer was on its face one which was clearly intended to carry to the recipient the consequences of a Calderbank offer. Paragraph 1 of the offer was clear as to the settlement amount of $53,146.00, and this is a little less than the eventual settlement sum. However, I consider that paragraph 2, as to interest, was unclear. There are a number of possible interpretations of paragraph 2 of the offer. It may have been intended to mean that interest from the entry of judgment until payment was to be calculated at 20% rather than the rate prescribed by the Court Procedures Rules (presently 11% - see rule 1617 and Schedule 2, Part 2.2).

1. Alternatively, paragraph 2 of the Calderbank email might have been read as requiring the defendants to agree to pay interest at 20% on some or all of the settlement amount up to judgment. Rule 1616 gives the court a wide discretion to make an order about interest up to judgment on all or part of the amount for which judgment is given, including a discretion as to the rate of interest, with the default rate currently being 9% (see Schedule 2, Part 2.1).

1. The reference in the email to clause 21 of the contract requires some reference to that document.

1. The contract is a printed document published by the Master Builders Association of the ACT, titled ACT Home Building Contract. The variables were handwritten. These included the names of the contractor (the plaintiff), the owners (the defendants) and details of the property. Clause 21 is in the following terms:

21           Progress Payment

(a)       The contract sum must be paid to the Builder as set out in item A 7 of Appendix A.

(b)       The Builder must give the Owner a written claim for each progress claim.

(c)       The Owner will pay the progress payment claim to the Builder within the period stated in item A 11 of Appendix A, or, if not stated, within (7) days of the date the claim is submitted to the Owner.

(d)       Progress Payment claim will be paid in the preparation and value stated in item B 1 of Appendix B.

(e)       A progress payment to the Builder is not proof or admission that any particular work has been executed in accordance with the Plans and Specification but only as payment on account.

(f)        If the Builder does not receive a progress payment by the due date, in addition to any other rights it might have, the Builder is entitled to interest on the overdue amount at the rate in item A 18 of Appendix A.

1. Appendix A consists of five pages of 21 items. The copy of the contract in evidence did not include an Appendix B. Item A 18 was as follows:

A 18        Builder’s Margin

Rate to be added for any amount added to the Contract Sum 25%

(If nothing stated, 20%).

1. The figures 25% had been inserted in handwriting.

1. Neither party suggested that the rate of 25% was applicable. Both parties accepted that the intended agreed interest rate was 20%. This would be consistent with item A 15 in Appendix A which was in the following terms:

A 15         Interest rate applicable to Late Payments

Annual interest rate applicable to Late Payments

(Adjusted Weekly Compounding (20%))

(If nothing stated, 20%)

1. Again, the figure 20 had been inserted in handwriting.

1. Militating against a construction that clause 21(f) in the contract was intended to refer to item A 15 rather than A 18 of Appendix A is the fact that neither party suggested that compound interest was applicable.

1. For paragraph 2 of the Calderbank email to be unambiguously clear and capable of being accepted and thereby creating a binding contract, it must be objectively clear when, in relation to the principal, interest was to start running. The reference in paragraph 2 to clause 21 of the contract points to an interpretation whereby interest was to be calculated from the due date for each progress payment. The plaintiff claims in paragraph 8 of the amended statement of claim interest in accordance with clause 21 of the contract at the rate of 20% per annum on payments not received by the due date. Particulars are given of a claim for interest on progress payment 5 claimed at $19,631.00, from 11 October 2007, and progress claim 6 in the sum of $29,407.00 from 30 October 2007. Interest is also claimed in the particulars at 20% from 23 November 2007 in relation to variations 2 to 10, and from 11 December 2007 in relation to variations 12, 13 and 15.

1. In their amended defence and counterclaim, the defendants do not admit paragraph 8 of the amended statement of claim. They do not plead specifically to the claim for interest. They were not required to do so and the plaintiff took no point about their failure to do so.

1. It was open to the plaintiff’s solicitor to spell out clearly what the plaintiff was offering in relation to the interest claim. It is not obvious to me and cannot have been obvious to the solicitor for the defendants.

1. In paragraph 3 of the Calderbank email the solicitor for the plaintiff, sought, as part of the offer, “costs as agreed or assessed” but in the next paragraph gave a figure to date of the plaintiff’s costs and disbursements as between solicitor and client. This was to my mind also ambiguous. If the last paragraph had not been included, I would have had no difficulty in reading paragraph 3 of the offer as limited to party-and-party costs, but the addition of the final paragraph adds some confusion to that interpretation. Counsel for the plaintiff submitted that the point of the last paragraph was simply to emphasise to the defendants that costs in the matter were already very high by comparison with the amount at issue, and likely to increase. That may or may not have been the purpose in the mind of the drafter of the email. Even if it was, that is not to say that it would have been obvious to the recipient. Another possible interpretation is that the plaintiff was asking for costs on a solicitor-and-client basis as part of the offer.

1. I have come to the conclusion that in relation to both interest and costs, the terms of the settlement offered were not unambiguously clear. If the offer had been accepted, its terms would not have been clear and there would have been some doubt as to whether a binding contract had been created.

1. For those reasons, the plaintiff’s solicitors’ email of 6 September 2008 did not meet the requirements of a valid Calderbank offer. The plaintiff has not made out his case for a costs order on other than the normal basis.

1. It is apparent that, on both sides, substantial costs have been incurred in relation to a building dispute about relatively modest amounts. The standard form Master Builders Association contract included clauses 28 (dispute resolution), 29 (alternative dispute resolution process) and 30 (arbitration). With the benefit of hindsight it is regrettable that the parties did not take advantage of those provisions of the contract to resolve their dispute. I have not had the opportunity to go into the detail of the disputed items listed in the Scott Schedule, but it seems to me that the dispute was one which would have been far better dealt with by a building construction professional acting as an arbitrator, or in some less formal capacity. A resolution in that way would, it seems to me, probably have been very much cheaper for both sides.

1. Counsel for the defendants has submitted that if I find against the plaintiff on his application for a special costs order I should order him to pay the costs of this application. I am not satisfied that that follows. The parties agreed to settle the action on terms which required the court to decide on the appropriate order for costs. At the conclusion of the hearing of the application on 4 May 2010, after asking counsel for the parties for submissions about it, I ordered that the defendants pay the plaintiff’s costs of the action as assessed between party and party as an interim order, and I reserved my decision in relation to the plaintiff’s application for indemnity costs, and also for the costs of the application. I have arrived at the conclusion that the order I made about the costs of the action was adequate, and that the plaintiff has not made out his case for an order for any additional costs. However, the application was made necessary by the terms of the agreement between the parties as to settlement of the action.

1. In those circumstances, I should make provision for the costs of the application so as to do justice between the parties. If I were to order that the costs of the application be costs in the cause that would operate unjustifiably to the plaintiff’s benefit. It is appropriate that the parties pay their own costs of the application. I shall accordingly make no order as to those costs.

I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

Associate:

Date:    

Counsel for the plaintiff:  Mr P A Walker

Solicitors for the plaintiff:  S & T Lawyers
Counsel for the defendants:  Mr D J C Mossop
Solicitors for the defendants:  Colquhoun Murphy
Date of hearing:  4, 5 May 2010

Date of judgment:  11 March 2011