Kennedy Civil Contracting Pty Ltd (Subject to a Deed of Company Arrangement) v Total Construction Pty Ltd (No.2)

[2023] NSWDC 403

District Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Kennedy Civil Contracting Pty Ltd (Subject to a Deed of Company Arrangement) v Total Construction Pty Ltd (No.2) [2023] NSWDC 403

Hearing dates:

On the papers

Date of orders:

3 October 2023

Decision date:

03 October 2023

Jurisdiction:

Civil

Before:

Abadee DCJ

Decision:

See paragraph 49

Catchwords:

COSTS – building and engineering contracts – dispute whether a valid payment claim was served – successful sub-contractor’s application for partial indemnity costs based on contractor’s rejection of a rules offer – whether the judgment was no less favourable than the terms of the offer satisfied – Uniform Civil Procedure Rules 2005 (NSW), r 42.14

COSTS – subcontractor’s application for gross sum costs order – Civil Procedure Act 2005 (NSW), s 98(4)(c)

Legislation Cited:

Building and Construction Industry (Security of Payment) Act 1999 (NSW)

Civil Procedure Act 2005 (NSW) s 59

Uniform Civil Procedure Rules 2005 (NSW) r 14.14, r 20.26, r 42.14

Cases Cited:

Beach Petroleum NL & Claremont NL v Johnson (No.2) (1995) 57 FCR 119

Bechara (t/as Bechara & Company) v Bates [2016] NSWCA 294

Maylord Equity Management Pty Ltd v Nauer (No.2) [2017] NSWSC 1467

Morgan v Johnson (1998) 44 NSWLR 578 at 581

Style Timber Floor Pty Ltd v Krivosudsky (2019) 100 NSWLR 193

Tim Barr Pty Ltd v Nauri Gold Coast Pty Ltd [2011] NSWSC 11

Texts Cited:

Nil

Category:

Costs

Parties:

Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) (plaintiff)
Total Construction Pty Ltd (defendant)

Representation:

Counsel:
Dr AJ Greinke with Mr P Hick for the plaintiff
Mr D Weinberger for the defendant

Solicitors:
Chamberlains Law Firm for the plaintiff
Crisp Law for the defendant

File Number(s):

2022/353359

Publication restriction:

Nil

REASONS JUDGMENT

Background

1. In this matter I delivered reasons for judgment on 18 August 2023 [1] . I ordered that there be a monetary judgment for the successful plaintiff (“Kennedy”) in the sum of $545,353.18, plus interest. I also ordered the defendant (“Total Construction”) to pay Kennedy’s costs.

   1. Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) v Total Construction Pty Ltd [2023] NSWDC 325 (the ‘Reasons’)

2. By a notice of motion filed on 1 September 2023, Kennedy applies:

1. for a variation of the costs order, so that Total Construction pays Kennedy’s costs up to 12 December 2022, and thereafter on an indemnity basis; and

2. for another variation of the costs order, being that Total Construction pay Kennedy’s costs in a specified gross sum, instead of assessed costs.

3. Total Construction opposes both applications.

4. In this judgment, familiarity with the Reasons is assumed.

The application for a partial order of indemnity costs

5. This order is sought pursuant to r 42.14 of the Uniform Civil Procedure Rules 2005 (NSW) (‘UCPR’).

6. As applicant, Kennedy relies upon a rules offer having been made on 12 December 2022. The material terms of that offer were that Total Construction would pay Kennedy the sum of $450,000 (inclusive of interest) plus costs, within 28 days.

Submissions

7. Kennedy argued that it obtained a no less favourable outcome ($545,353.18, plus interest) than the amount it indicated it was prepared to accept in the rules offer. The form of the offer complied with the requirements of r 20.26(2) of the UCPR. Prima facie, r 42.14 is engaged. Nevertheless, by r 42.14(2), the Court retains the discretionary power to “otherwise order” by not applying the usual operation of the provision. Kennedy argued that the onus fell upon Total Construction to persuade the Court that the ordinary operation of r 42.14 should be displaced and there was nothing in the case that suggested why that should occur: it argued that the mere reasonableness of a litigant’s view that it might reject a rules offer is insufficient [2] .

   2. Morgan v Johnson (1998) 44 NSWLR 578 at 581.

8. Total Construction argues that Kenney did not obtain a 'no less favourable' outcome than that which was contained in the offer of compromise. This is because Total Construction obtained an undertaking from Kennedy's administrator on 8 August 2023. That undertaking, in substance, was that the administrator (or liquidator) would be personally liable to Total Construction for any adverse costs order made in any appeal from a proof of debt lodged by Total Construction and any further appeal therefrom. This undertaking was valuable in the event that Total Construction successfully appeals an adjudication of its proof of debt.

9. Total Construction also cites an additional offer (which was not a rules offer) made on Kennedy’s behalf on 27 June 2023 and argues why the terms of that offer were no more favourable to Kennedy than the judgment. However, Kennedy did not invoke this particular offer as a basis for an indemnity order.

10. In reply, Kennedy submitted that at the time that the rules offer was made on 12 December 2022, there was no inkling that Total Construction might seek to stay any judgment that Kennedy recovered. The undertaking that Kennedy’s administrators gave was relevant only to the stay application subsequently brought. Further, the terms of the offer only compromised the quantum of any judgment Kennedy recovered. Total Construction could accept the offer whilst still applying for a stay of execution of the judgment.

Consideration

11. There is no issue that the offer of compromise complied with the formal requirements of the Court rules. Total Construction does not contend that if the offer engaged r 14.14(1), the Court should alter the operation of the rule to by ‘otherwise order(ing)’ (under r 14.14(2)).

12. The narrow issue is whether the judgment Kennedy recovered was no less favourable to it than the terms Kennedy offered by its rules offer.

13. In my view, it clearly was. I substantially agree with Kennedy’s submissions in reply. Total Construction’s submission regarding the undertaking it received from Kennedy conflates what Kennedy recovered by the judgment with its enforcement of it. Generally, in commercial or building litigation, the comparison drawn in r 42.14(1), from which the evaluative standard (‘no less favourable’) is assessed, is between the monetary sum offered and the monetary sum recovered on judgment. Whether what is obtained by the judgment is ‘less favourable’ is viewed from the perspective of the offeror (Kennedy); and not whether by reason of other matters extraneous to the judgment itself, Total Construction obtained a benefit that it did not obtain from the rules offer. Kennedy could not obtain anything more from the proceeding than a monetary judgment; which it not only did, but it exceeded what Kennedy had offered Total Construction.

14. The undertaking given to Total Construction had nothing to say about the comparison, in value between what was offered by Kennedy to Total Construction and what Kennedy obtained by the judgment. Such ‘benefit’ as Total Construction obtained by the undertaking did not mean that the judgment Kennedy obtained was less favourable than what Kennedy offered. The undertaking related, at its highest, to Kennedy’s (indirect) enforcement of the judgment; but even then was an undertaking potentially enforceable against a third party (Kennedy’s administrators) in hypothetical or contingent events (a proof of debt (a) being lodged; and (b) Total Construction being dissatisfied with the adjudication of it) which may not even come to pass. The undertaking itself would not reduce the amount of the judgment recovered. In any event, as Kennedy submitted, it was open to Total Construction to accept the compromised amount offered by Kennedy and still later apply for the stay after consent judgment was entered.

15. There being no other basis for opposition, I find that r 42.14(1) is engaged and should operate in accordance with its terms.

16. Kennedy should have its costs up to 12 December 2022 on the ordinary basis and its costs thereafter on an indemnity basis.

Application for specified gross sum for costs

Evidence for and against the application

Kennedy’s evidence

17. Kennedy relies upon the affidavits of Mr Terry-Whitall, a director of the law firm (Chamberlains) that represented Kennedy. Mr Terry-Whitall has been a practising solicitor for 13 years in commercial litigation, and has appeared in a wide range of Courts. Part of his expertise lies in providing costs estimates in commercial litigation.

18. In his primary affidavit (1 September 2023) Mr Terry-Whitall set out his daily hourly rates (and those of his solicitor colleagues and support staff) and the hourly and daily rates of Dr Greinke of Counsel, who appeared for Kennedy at the hearing. He exhibited to that affidavit Chamberlains’ time sheets. On the basis of that information, costs incurred were quantified in the sum of $141,928.50 up to the date of the judgment (on 18 August 2023). This sum was exclusive of disbursements. The most significant disbursement was Counsel’s fees ($94,240, excluding GST) but overall the disbursements were quantified as being $101,267.21 (this figure being identified as the correct quantification in Mr Terry-Whitall’s supplementary affidavit of 5 September 2023).

19. Mr Terry-Whitall then provided a breakdown of his firm’s costs and disbursements in discrete periods, as follows:

1. 8 August 2022 – 12 December 2022;

2. 13 December 2022 – 18 August 2023;

20. He acknowledged that on 20 June 2023 the Court dismissed an application (by Kennedy) made on 25 November 2022 for summary judgment with no order as to costs and identified the costs and disbursements incurred in relation to that motion.

21. In addition, the costs and disbursements identified in period (b) included Kennedy’s costs thrown away as a result of a vacation of the hearing date of 19 June 2023. Those costs (quantified as $18,000) had been paid.

22. Mr Terry-Whitall provided an estimate of Kennedy’s costs and disbursements to be incurred subsequent to the Reasons, including the costs of preparing for the present notice of motion. This sum was estimated to be $14,000.

23. In relation to Kennedy’s costs prior to the making of its rules offer, Mr Terry-Whitall estimated the proportion of ordinary costs likely recoverable on an assessment. For solicitors’ fees, this was 60%; for barrister’s fees this was 90% and for other disbarments, this was 95%.

Total Construction’s evidence

24. Total Construction relies upon the affidavit of a costs expert, Mr Ian Ramsey-Stewart. Mr Ramsey-Stewart is a solicitor by occupation and, more specifically, a litigation lawyer of 28 years’ experience. Since October 2002, he has practised exclusively in the area of legal costing. In his affidavit (at paragraph 10) he gave a detailed summary of his work in that area.

25. At paragraphs 45 to 63, Mr Ramsey-Stewart gave a detailed description of a range of available methodologies for the calculation of gross sum costs and commented upon the advantages and disadvantages of those methodologies.

26. At paragraphs 65 to 72, Mr Ramsey-Stewart identified a disparity between the parties for counsel’s fees and explained why the principle of proportionality would result in greater reductions than those predicted by Kennedy.

27. At paragraphs 73-75, whilst acknowledging that the issue of the appropriateness of a gross sum costs order was in the Court’s discretion, Mr Ramsey-Stewart explained why, in his view, this was not a suitable case for it. First, he identified what might be described as the paradigm case where such orders are effective as involving a very large amount of costs at stake (exceeding one million dollars) and being where the parties agree to a methodology. Secondly, having regard to the instant circumstances, a full costs assessment was preferable. He considered that time spent to assess Kennedy’s claim would only take between 2-4 months upon filing; that it would be quantified by a costs assessor and there could be a thorough testing of the amount claimed. He believed that the materials to enable the Court to conduct its broad-brush approach were still inadequate and fairness to the parties would require more evidence and, necessarily, result in further time and thirdly, the scheme for costs assessments is intended to remove from the load of judges of this Court the burden of deciding, even on a broad-brush approach, what would be a fair and reasonable specified sum for costs.

28. At paragraphs 82-91, Mr Ramsey-Steward conducted an assessment of what costs were fair and reasonable on the assumption that Kennedy would obtain a partial order for indemnity costs (from 12 December 2022). His detailed analysis indicated a large number of discounts which resulted, on his analysis, as a sum of $172,681.04, which was significantly less than what Kennedy had claimed.

29. Earlier in his affidavit, at paragraphs 76 – 81, Mr Ramsey-Stewart conducted an assessment of what costs were fair and reasonable on the alternative assumption that all of Kennedy’s costs would be payable on the usual basis. Again, Mr Ramsey-Steward identified a significant number of discounts, resulting in a sum of $155,556.22.

30. Finally, at paragraphs 92-94, Mr Ramsey-Stewart analysed the costs of Kennedy’s application for a gross sum costs order and concluded that an appropriate sum would be $8,234.66; in contrast to Mr Whithall’s calculated costs of $19,859.

Submissions

Kennedy’s submissions in chief

31. Kennedy argues that a relevant consideration to this type of costs order is the nature of the proceeding: being an application under the Building and Construction Industry (Security of Payment) Act 1999 (NSW), which is avowedly concerned with providing subcontractors with a fast-track means of cashflow [3] . It argued that the costs were relatively confined with a two-day hearing and with only limited interlocutory steps. This was a case where the Court could engage in a “logical, fair and reasonable” [4] estimation of the successful party’s costs. Kennedy acknowledges that the principle of proportionality must be considered. In this regard, it emphasises that its claim was simple, based upon the payment claim. Most of its costs was devoted to considering and responding to the various defences brought by Total Construction in resisting its claim. Some, smaller, part of the costs were also incurred responding to Total Construction’s unsuccessful stay application.

    3. Style Timber Floor Pty Ltd v Krivosudsky (2019) 100 NSWLR 193 at [25]-[26]

    4. Beach Petroleum NL & Claremont NL v Johnson (No.2) (1995) 57 FCR 119 (“Beach”)

32. Kennedy submits that if there is to be any discount, which Kennedy accepts represents usual practice although it ought not be axiomatic, then it should be in the order of 7.5% (the percentage discount applied in Beach). Part of the reason why the discount should be small is that the preponderance of the costs were incurred after the date of the rule offer and therefore, that part of its costs would be payable on an indemnity basis.

33. Adopting the rates identified in the supporting affidavit, recovery of costs on the usual basis up to the date of the rules offer yields a sum of $19,700. After the date of the rules offer, and up to the date of judgment, the costs on an indemnity basis would be $197,762. Once the (7.5%) discount was adopted, this component would reduce to $182,929. Thereafter, there should be some deductions for the summary judgment application and the costs thrown away.

34. Kennedy calculates that up to the date of the judgment, its total costs are either $193,783 or $178,950 which, with a 7.5% discount, is $174,006. On top of this is its estimate for the costs of this motion, which are $11,300. These figures are exclusive of GST and provided for only one counsel. All up, Kennedy contends that on a broad-brush approach, it should receive a sum in the range of between $190,000 to $205,000.

Total Construction’s submissions

35. In a nutshell, Total Construction’s expert considers that Kennedy’s costs should be the subject of scrutiny in the usual costs assessment to determine what costs are fair and reasonable. It cites, in particular, the disproportion between its own costs and those of Kennedy.

36. Alternatively, if a gross sum costs order is made, Total Construction submits that it should reflect its expert calculations, in conformity with the Court’s assessment of whether costs are wholly payable on the ordinary basis or partly payable on the indemnity basis.

Kennedy’s submissions in reply

37. In reply, Kennedy took issue with Mr Ramsey-Stewart’s opinion about disparity as between the parties’ estimates of costs incurred and, to that end, attached an affidavit from Total Construction’s solicitor, Mr Stephenson as at 14 June 2023 for the purpose of proving a more reliable indication of Total Construction’s costs to that date.

38. Kennedy criticised Mr Ramsey-Stewart’s analysis for other reasons. The latter was said to have adopted a narrow view as to when gross sum costs orders should be made. The expert did not analyse Kennedy’s costs or Counsel’s invoices. For the indemnity costs component, he imposed an arbitrary discount.

Consideration

39. I have regard to the principles applicable to orders made under s 98(4)(c) as articulated by the Court of Appeal in Bechara (t/as Bechara & Company) v Bates [2016] NSWCA 294 at [12]-[15].

40. There is force in Kennedy’s point concerning the nature of this particular litigation; and the circumstance that it is even more desirable than in ordinary civil proceedings [5] that it be disposed of quickly. That includes costs disputes. Nevertheless, there is substance in Mr Ramsey-Stewart’s opinion, that given the differences between what the parties actually claim in any lump sum order, a costs assessment process is not likely to be unnecessarily prolonged.

    5. See Civil Procedure Act 2005 (NSW), s 59

41. Both parties have prosecuted and defended the proceeding with vigour. On one view this might encourage the Court to try to bring about the end of any dispute about costs once and for all, without putting the parties to further expense of a costs assessment. However, this is not a case where there any suggestion has been made by Kennedy that Total Construction is unable to pay a costs order which would prejudice Kennedy by having to incur further irrecoverable costs. That is one instance where gross sum costs orders are regarded as being especially appropriate (Tim Barr Pty Ltd v Nauri Gold Coast Pty Ltd [2011] NSWSC 11 per Barrett J (“Tim Barr”) at [59]; Maylord Equity Management Pty Ltd v Nauer (No.2) [2017] NSWSC 1467 per Slattery J at [61]).

42. Further, the Court is not dealing with individual litigants to whom further personal aggravation, and stress of delay would likely be occasioned by a costs assessment. The two litigants here are corporations (one of whom is in external administration).

43. The authorities in this area emphasise that a court will make such orders when it is confident that it can do so fairly. ‘Fairness’ in this context, encapsulates a requirement that the Court can be confident on the materials placed before it that it can arrive at an appropriate sum. Such confidence can be derived from the opinion of a costs expert unconnected with the proceeding (Tim Barr at [26]). Total Construction adduced a costs expert’s opinion (with that expert not being relevantly ‘connected’ to Total Construction). Kennedy did not.

44. Although there may be arguable force in Kennedy’s (few) criticisms of Mr Ramsey-Stewart’s analysis, one point that it did not challenge was the expert’s opinion of there being alternative methodologies for quantifying gross sum costs orders. Although it is unnecessary to decide, my somewhat tentative impression is that Mr Ramsey-Stewart’s general analysis is more rigorous than the analysis conducted by Mr Terry-Whitall (including, without limitation, consideration of CARC Guidelines) and it strikes me, with no disrespect to the latter, that Mr Ramsey-Stewart has greater expertise to opine on what would likely be recoverable in a costs assessment.

39. On balance, I am not satisfied, in the light of Mr Ramsey-Stewart’s evidence, that the Court can fairly make a gross sum costs order.

40. Kennedy’s application for such order is therefore refused.

Costs of the motion

47. Total Construction says that whether or not a gross sum costs order is made, it should have its costs of the motion since Kennedy’s application for this particular order was insufficiently detailed. Alternatively, if a gross sum order is made, costs should be fixed in a way that does not exceed Mr Ramsey-Stewart’s analysis.

Consideration

48. To be sure, my findings above when refusing Kennedy’s application for a gross sum costs order noted that Kennedy did not rely upon its own costs expert. But the pivotal finding that the Court was not confident that it could fairly make the order was more influenced by matters raised by Mr Ramsey-Stewart. Put another way, it was not inevitable that, absent Mr Ramsey-Stewart’s evidence, the Court would have found that Kennedy’s evidence was insufficiently detailed for the Court to perform a ‘broad-brush’ estimate.

49. Further, the result of Kennedy’s motion indicated a mixed outcome, given Kennedy’s success on its application for a partial indemnity costs order, over Total Construction’s opposition. Total Construction’s position pays no regard to that result.

Orders

50. For the foregoing reasons:

1. the defendant is to pay the plaintiff’s costs of the proceeding:

1. up to 12 December 2022 on the ordinary basis; and

2. thereafter on an indemnity basis.

2. the parties are to bear their own costs of the plaintiff’s notice of motion dated 1 September 2023.

**********

Endnotes

Amendments

04 October 2023 - Par [13]: "offeree" to "offeror"

Decision last updated: 04 October 2023