Ku-ring-gai Council v Chan (No 2)

Ku-ring-gai Council (the fourth defendant) appealed to the Court of Appeal of New South Wales against a judgment that had been entered in favour of the plaintiffs. The dispute concerned the plaintiffs' claim against the Council, which asserted a novel duty of care owed by the principal certifying authority to avoid pure economic loss to a subsequent purchaser. The Council sought to recover its costs incurred after the plaintiffs rejected an informal offer to settle made on a Calderbank basis.

The primary legal issue before the Court of Appeal was whether the costs incurred by the Council after the plaintiffs rejected its Calderbank offer should be assessed on an indemnity basis. This required the court to consider the reasonableness of the plaintiffs' refusal to accept the offer, particularly in light of the novel nature of the duty of care asserted and the evidence available to the plaintiffs at the time of the offer.

The Court of Appeal reasoned that the claim involved a close legal and factual analysis of the relationships between the parties, and crucially, no lay or expert evidence had been served on the plaintiffs at the time the Council's offer was made. In these circumstances, the court found that it was not unreasonable for the plaintiffs to refuse to settle the claim. Accordingly, the court allowed the Council's appeal in part, setting aside the previous order for indemnity costs and ordering that the plaintiffs pay the Council's costs of their claim against it on the ordinary basis. The Council was also ordered to pay the costs of the first and second respondents of the appeal application.