Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd
[2013] NSWSC 1165
•23 August 2013
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd [2013] NSWSC 1165 Hearing dates: 11 April, 27, 30 May, 13 June and written submissions on 9, 11, 18 and 25 July 2013 Decision date: 23 August 2013 Jurisdiction: Equity Division Before: Sackar J Decision: See paragraph 50
Catchwords: COSTS - offers of compromise - whether offer of compromise complied with UCPR - whether rejection of Calderbank offer was reasonable - whether court should exercise its general discretion and award indemnity costs - whether court should depart from usual order as to costs - whether costs should be set-off against relevant judgment amount. Legislation Cited: Civil Procedure Act 2005
Uniform Civil Procedure Rules 2005Cases Cited: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 583
Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 768
Corbett v Nguyen (No 2) [2012] NSWSC 673
Cultus Petroleum v OMV Australia [1999] NSWSC 435
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
Green v CGU Insurance Ltd [2008] NSWSC 929
Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435
Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375
Kain v Mobbs (No 2) [2008] NSWSC 599
Leichhardt Municipal Council v Green [2004] NSWCA 341
Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd [2013] NSWSC 266
Mead v Watson (2005) 23 ACLC 718
Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344
Ng v Chong [2005] NSWSC 385
Rouse v Shepherd (No 2) (1994) 35 NSWLR 277
Russell v Edwards and Anor (No 2) [2006] NSWCA 52
SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323
The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706
The Uniting Church v Takacs (No 2) [2008] NSWCA 172
Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 288 ALR 385
Walton v McBride (1995) 36 NSWLR 440
Wentworth v Rogers [1999] NSWCA 403
Whitney v Dream Developments Pty Ltd [2013] NSWCA 188Texts Cited: Ritchie's Uniform Civil Procedure NSW Category: Costs Parties: Mainteck Services Pty Limited (Plaintiff)
Stein Heurtey SA (First Defendant)
Stein Heurtey Pty Ltd (Second Defendant)Representation: Counsel:
F Corsaro SC and F Kalyk (Plaintiff)
P Taylor SC and J T Gibson (Defendants)
Solicitors:
Piper Alderman (Plaintiff)
Jones Day (Defendants)
File Number(s): 2007/266650
Judgment
Procedural background
In the principal judgment in this matter handed down on 28 March 2013, I invited the parties to bring short minutes of order reflecting my reasons and to be heard on the question of costs (Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd [2013] NSWSC 266 at [307]-[308]). Orders giving effect to my reasons were made on 31 May 2013, and the only remaining points of contention between the parties related to costs. In the weeks that followed, the parties prepared a multitude of written submissions addressing these costs issues. Due to the multiplicity of submissions, the parties subsequently agreed to prepare a consolidated set of submissions, final versions of which were sent to my Associate on 9, 11, 18 and 25 July 2013 respectively.
The orders sought by the defendants, to which the parties' respective final written submissions are directed, are largely embodied in a notice of motion filed by the defendants on 13 June 2013. The defendants seek orders in the following terms:
(1) An order, that the Plaintiff pay the First and Second Defendants' costs, in relation to the Representation Claims on an ordinary basis up to 28 September 2008, or alternatively 2 July 2010;
(2) An order, that the Plaintiff pay the First and Second Defendants' costs, in relation to the Disruption Claims on an ordinary basis up to 28 September 2008, or alternatively 2 July 2010;
(3) An order that the Plaintiff pay the entirety of the First and Second Defendants' costs of the proceedings on an indemnity basis after 28 September 2008, or alternatively 2 July 2010.
(4) In the alternative to orders 1-3:
(a) an order, that the Plaintiff pay the First and Second Defendants' costs, in relation to the Representation Claims, and those costs to be assessed on an ordinary basis.
(b) an order, that the Plaintiff pay the First and Second Defendants' costs, in relation to the Disruption Claims, and those costs to be assessed on an ordinary basis.
(5) An order, that the costs of the Representation Clams include the costs of the Contract Issues other than those costs associated with the variation claims determined by the Referee in the December 2011 Report, or agreed during the course of the Reference.
The plaintiff opposes these orders, and submits that each party should bear its own costs on all outstanding costs issues.
Overview of outstanding costs issues
As apparent from the principal judgment, the proceedings between the parties involved a number of distinct issues, namely what have been labelled the "Representation Claims", the "Disruption Claims" and the "Variation Claims". The detail of these claims was discussed in the principal judgment. However, by way of summary:
(1) the Representation Claims involved an allegation by the plaintiff that it was induced, by various representations made by the defendants about aspects of the WBF2 design, to underprice the onsite component of the WBF2 "metal parts" work required by the Second Consortial Agreement;
(2) the Disruption Claims involved an allegation that various contractual breaches committed by the defendants disrupted the plaintiff's efficient performance of the WBF2 onsite contract work; and
(3) the Variation Claims involved a claim by the plaintiff for compensation for work alleged to be additional to the plaintiff's contractually agreed scope of work.
The disposition of the defendants' notice of motion depends on my answers to the following questions:
(1) Did a settlement offer made by the defendants to the plaintiff on 28 September 2008 comply with the offer of compromise regime under the Uniform Civil Procedure Rules 2005 (UCPR) so as to attract indemnity cost consequences (in respect of both the Representation and Disruption Claims)?
(2) Does the plaintiff's rejection of a Calderbank offer made to it by the defendants on 2 July 2010 attract indemnity cost consequences (in respect of both the Representation and Disruption Claims)?
(3) Even if the offer of 28 September 2008 did not amount to a valid offer of compromise and the plaintiff's rejection of the defendants' 2 July 2010 Calderbank offer does not attract indemnity cost consequences, should the court exercise its general discretion so as to order the plaintiff to pay the defendants' costs in relation to the Representation Claims on an indemnity basis?
(4) If the defendants are not entitled to their costs on an indemnity basis, should they receive their costs on an ordinary basis under the general rule that costs follow the event or should there be a departure from that general rule such that each party bears its own costs?
(5) Do the costs of the Representation Claims include the costs of what have been described as the "Contract Issues"?
(6) Should any costs to which the defendants are entitled be set-off against the 31 May 2013 judgment amount in favour of the plaintiff?
I will address each question in turn.
Purported offer of compromise
The defendants purported to make an offer of compromise to the plaintiff on 28 September 2008 in the following terms:
TERMS OF OFFER
1. This offer of compromise is made jointly by the first and second defendants.
Offer to Plaintiff
2. The First and Second Defendants pay the sum of $A2,200,000.00 in full satisfaction of the Plaintiff's claim in these proceedings, within 28 days of acceptance of this offer.
3. The First Cross-Claim is dismissed.
4. The First and Second Defendants pay the Plaintiff's costs of these proceedings, including the costs in relation to the First Cross-Claim, as agreed or assessed.
5. The offer set out in paragraphs 2 to 4 is an entire offer and may only be accepted in its entirety.
6. The offer set out in paragraphs 2 to 4 is open for acceptance until 31 October 2008, whereupon it will lapse.
NOTES TO OFFER
This offer is made pursuant to Division 4 of Part 20 of the Uniform Civil Procedure Rules 2005.
The plaintiff attacks the validity of the offer on the grounds that, contrary to requirements under the UCPR, the offer was not exclusive of costs and did not bear a complying notice that the offer was made in accordance with the rules.
On 25 June 2013 the Court of Appeal handed down its decision in Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 (Bathurst CJ, Beazley P, McColl, Barrett and Emmett JJA). The defendants purport to reserve their position as to the correctness of that decision, but accept, as they must, that I am bound to follow it. The defendants also concede, and I think it is quite clear, that on the reasoning of that decision, the offer of 28 September 2008 is not a valid offer of compromise. It follows that the indemnity cost consequences specified in Division 3 of Part 42 of the UCPR have no application to the present case, and that it is strictly unnecessary for me to consider whether the offer bore a complying notice that it was made in accordance with the rules. The defendants also concede that the terms of the offer do not permit it to be characterised as a Calderbank offer.
Although it is therefore strictly not necessary for me to address the question of whether the offer bore a complying notice that it was made in accordance with the rules, I propose to do so because the parties have prepared submissions on this issue. Rule 20.26(3) relevantly provides:
20.26 Making of offer
...
(3) A notice of offer:
(a) must bear a statement to the effect that the offer is made in accordance with these rules ...
As already noted above, the defendants' offer stated:
This offer is made pursuant to Division 4 of Part 20 of the Uniform Civil Procedure Rules 2005.
The plaintiff says that, on the authority of Kain v Mobbs (No 2) [2008] NSWSC 599 (Harrison J), this offer was not compliant with r 20.26(3)(a). The defendants respond by relying on a subsequent Court of Appeal decision in The Uniting Church v Takacs (No 2) [2008] NSWCA 172 (Hodgson JA, McColl and Basten JJA agreeing) where an offer bearing the statement "this offer is made in accordance with Part 20 of the Uniform Civil Procedure Rules 2005" was held to be compliant with the UCPR.
There are subtle differences between the manner of expression of the offer in Kain v Mobbs (No 2) [2008] NSWSC 599 and the offer in the present case. For example, the offer in Kain v Mobbs (No 2) never contained a clear statement that the offer was made in accordance with the relevant rules, but it was curiously worded to provide that the defendants offer "to compromise this action...pursuant to Part 20 of Division 4" and also that "this offer may be accepted in accordance with Part 20 Rule 27". Having regard to these differences, and to the result of the subsequently decided Court of Appeal decision of The Uniting Church v Takacs (No 2), it is my view that the terms of the offer in the present case comply with r 20.26(3). I need not express any opinion as to whether there is any inconsistency between Kain v Mobbs (No 2) and The Uniting Church v Takacs (No 2).
The Calderbank offer
On 2 July 2010, the defendants sent to the plaintiff a "without prejudice save as to costs" letter containing an offer, open for seven days, to pay the plaintiff $1 million in settlement of all claims, with each party to bear its own costs. Mr Atie died on the eve of the hearing before the referee, which commenced on 5 October 2010. The parties accept that the letter of 2 July 2010 was a Calderbank offer, but they are in dispute as to whether the plaintiff's rejection of the offer was unreasonable so as to lead to indemnity cost consequences in favour of the defendants.
It is settled in New South Wales that there is no presumption in favour of awarding costs on an indemnity basis from the date of the offer if the offer was reasonable. A Calderbank offer will not justify an indemnity costs order unless the offer embodies a compromise and its rejection was unreasonable (Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] per Basten JA with whom McColl and Campbell JJA agreed; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] per Giles JA, Russell v Edwards and Anor (No 2) [2006] NSWCA 52 at [7] per Ipp JA with whom Beazley JA and Hunt AJA agreed). It is correct, as a matter of principle, to say that it is the offeror which must persuade the court that the rejection of the offer was, in the circumstances at the relevant time, unreasonable (Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) at [16]). Several factors relevant to determining whether the rejection of an offer was unreasonable were listed in the Victorian decision of Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 (Warren CJ, Maxwell P and Harper AJA). These factors, which appear to have been cited with approval by the New South Wales Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) at [12], are:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree's prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed;
(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.
The plaintiff received the offer on 2 July 2010 and, as I have said, the hearing before the referee commenced on 5 October 2010. The parties indicated that they had all, or substantially all, of their evidence ready at the time the Calderbank offer was made, and therefore the plaintiff had the necessary evidence to assess the reasonableness of the offer (unlike the situation in Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 768 for example, where the offer expired before the offeree had the necessary evidence to assess its reasonableness). The hearing before the referee was still some three months away, and so the parties were not faced with the immediate pressure of an imminent trial nor had they commenced to incur the expenses involved in conducting the actual trial.
As to the duration of time for which the offer was open for acceptance, I am mindful that the offer was open for only seven days. It is clear from their letter of 2 July 2010 that in calculating the quantum of the offer, the defendants were conscious of costs they had incurred up to that point. The obvious purpose behind the limitation of seven days was to take into account the daily increasing costs incurred by the defendants. For this reason, the defendants explicitly stated in a covering letter that if after the expiry of seven days the plaintiff wished to settle, the defendants would still be prepared to do so, but only after a new calculation was made to take into account further costs incurred. Further, as the hearing before the referee commenced only about three months after the Calderbank offer, I think the parties would have been aware of their respective evidentiary strengths and weaknesses. The parties have indicated that at the time of the offer on 2 July 2010, their evidence was complete or substantially complete. In my view, the limitation of seven days would therefore not have hindered the plaintiff's ability to assess the offer in light of the evidence.
In Ritchie's (at [42.13.27]), a number of cases are cited as examples of situations where a party's rejection of an offer was not unreasonable, and therefore indemnity costs orders were refused. These include where the offer was only open for five days and acceptance was conditional on the release of claims in unrelated proceedings (Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 583), where the offer was made after commencement of the trial and was only open for seven days (Ng v Chong [2005] NSWSC 385), where the offer was only open for a period significantly shorter than the acceptance period applicable to formal offers of compromise and expired before the offeree had the necessary evidence to assess the reasonableness of the offer (Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 768) and where the offer expired before the offeree could obtain a required third party approval (Green v CGU Insurance Ltd [2008] NSWSC 929). However, those cases are materially distinguishable, as it was not merely the shortness of the duration for which the offer was open which prompted the court's refusal to grant indemnity costs. In those cases, the relevant offer sought to compromise unrelated proceedings, or was made after the commencement of the trial, or was made before the offeree had evidence to assess the offer, or expired before it could possibly be accepted. There are no such circumstances here.
I pause here to make comments of some relevance to both the extent of the compromise offered, and also to the plaintiff's prospects of success assessed as at the date of the offer. The referee's comments indicate that there were a number of fundamental difficulties with Mainteck's case which were unrelated to Mr Atie's unavailability at the hearing. For example, as I have already noted in the principal judgment, the referee criticised Mr Atie's evidence as being extremely general, not compelling, and in some respects unhelpful (Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd at [164]). He was also critical of the quality of other evidentiary materials put forward by Mainteck, saying they were lacking in detail, sometimes wholly inadequate, "unfruitful", lacking in contemporaneous material, confused, sometimes anomalous, and sometimes actually inconsistent with the contemporaneous material that was available (see [203], [211], [188], [206], [208], [209] and [210] of my principal judgment). The referee also identified what he thought was a fundamental disconnect in Mainteck's case between the misrepresentations alleged by Mainteck against the defendants, and the loss Mainteck alleged it sustained as a result (at [195]). The referee was not satisfied that there was any evidence of reliance by Mainteck on the misrepresentations alleged, nor was he satisfied that there were any relevant contemporaneous materials to that effect (at [201]). I have also noted in the principal judgment the similar evidentiary inadequacies noted by the referee in relation to the Disruption Claims (at [225]-[226]), including a fundamental disconnect between the alleged breaches and the delay and disruption quantified by the plaintiff (at [227]). Given the nature of the deficiencies in the plaintiff's evidence, it is by no means clear to me that the outcome of the case would have been any different if Mr Atie had been present during the course of the hearing.
Overall, I do consider that an offer of $1 million (with each party to bear its own costs) involves a real element of compromise, within the meaning of the authorities (Leichhardt Municipal Council v Green [2004] NSWCA 341 at [23] per Santow JA with whom Bryson and Stein JJA agreed; Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [5] per Handley, Beazley and Basten JJA; The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706 at [8] per Basten JA with whom Santow JA and Young CJ in Equity agreed). The ultimate outcome of the case supports this view, as the plaintiff was only awarded an amount materially less than what the defendants offered. The plaintiff's submission that it was reasonable to reject the Calderbank offer of $1 million because it had incurred costs at the time in excess of $3 million, should not be accepted. The defendants' element of compromise in the offer was directed to the merits of the proceedings, not the costs the parties had incurred.
The terms of the Calderbank offer were expressed with clarity and foreshadowed that the letter containing the offer would be used by the defendants as a basis for seeking a special costs order (as it was clearly headed "WITHOUT PREJUDICE, SAVE AS TO COSTS").
Having regard to the circumstances of this case, I would be inclined to grant an order that the plaintiff pays the defendants' costs in relation to the Representation and Disruption Claims on an indemnity basis but only after 2 July 2010.
General discretion as to costs
Since I have found that the defendants should be entitled to their costs in relation to the Representation and Disruption Claims on an indemnity basis after 2 July 2010, the question of whether I should exercise my discretion to award indemnity costs in relation to the Representation Claims only arises in relation to costs incurred prior to 2 July 2010. The defendants contend that although the offer of 28 September 2008 was not a valid offer of compromise and not a Calderbank offer, the offer is relevant to determining whether the court should award the defendants indemnity costs from the date of the offer pursuant to an exercise of its general discretion as to costs.
The defendants contend that the offer of 28 September 2008 is relevant and, under s 131 of the Evidence Act 1995, admissible, for the purpose of the exercise of the court's costs discretion. The plaintiff does not appear to dispute the admissibility of the offer for this purpose, but argues that this is not a case where it would be appropriate for the court to exercise its general discretion as sought by the defendants.
As noted in Ritchie's (at [42.5.5]), costs may be ordered on an indemnity basis under s 98 of the Civil Procedure Act 2005 and, perhaps, under the court's incidental power to control its proceedings (Walton v McBride (1995) 36 NSWLR 440 at 461). There are a variety of cases where indemnity costs have been awarded pursuant to the court's general discretion. Although the discretion is absolute and unfettered, it must be exercised judicially in the sense that there is some special or unusual feature in the case justifying such an award (Mead v Watson (2005) 23 ACLC 718 at [8] per Sheller, Ipp and Tobias JJA). Situations in which indemnity costs have been ordered include where a party has misled the court or conducted the proceedings in a way to cause unreasonable delay and expense (Wentworth v Rogers [1999] NSWCA 403 per Handley and Stein JJA and Sheppard AJA), or maintained proceedings which had no chance of success such as a case involving fraud allegations known to be either untrue or irrelevant (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 per Woodward J), or maintained proceedings for an ulterior purpose (Cultus Petroleum v OMV Australia [1999] NSWSC 435 per Santow J), or unreasonably delayed an admission of liability for the purpose of obtaining a tactical advantage (Rouse v Shepherd (No 2) (1994) 35 NSWLR 277 per Badgery-Parker J).
The defendants' argument that the court should exercise its discretion and award indemnity costs against the plaintiff rests, in substance, on two bases. First, the defendants say the offer of 28 September 2008, though technically flawed, contained a genuine compromise, and second, they point to a number of serious difficulties they say the plaintiff had with its case. Several pages of detail in the parties' submissions were directed to this second point. Having considered the authorities on this point, I am not persuaded that this is a case where I should award indemnity costs to the defendants pursuant to the court's general discretion as to costs.
As has been stated in a number of cases, a party should not face adverse indemnity cost consequences because it has rejected an offer of compromise which is defective and which did not purport to operate as anything other than an offer in accordance with the UCPR. It is true, "[t]hat is not to say that the conduct of the parties during litigation, including the making of open offers, may not in certain circumstances be relevant to the appropriate manner in which a court's discretion as to costs should be exercised" (Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 at [43] per Bathurst CJ). But I do not think that there are any warranting circumstances in this case. I do not think that the court's residual power is there to always be used to cure technical defects in offers purporting to be made pursuant to the UCPR. If that were the case, all non-compliant offers of compromise would nonetheless carry indemnity cost consequences, as they would be saved by the court's discretion as to costs, provided they contained a genuine element of compromise.
I accept the criticisms made by the referee, and identified in the defendants' submissions, about the plaintiff's case. The plaintiff attributes those criticisms, at least in part, to the untimely death of Mr Atie on the day before the hearing before the referee commenced. The defendants say that even if Mr Atie was present, the result would have been the same due to the serious evidentiary difficulties in the plaintiff's case. Perhaps that is so, but perhaps not. It is possible that Mr Atie's presence would in fact have made a difference. In any event, with Mr Atie no longer present, the plaintiff's position was effectively unchangeably dependent upon its written evidence, whatever defects that evidence suffered from, while the defendants' position was dependent on how the evidence of Mr Hounliasso, the defendants' key witness, unfolded. Although he did not ultimately do so, the referee may have made unfavourable credibility findings in relation to Mr Hounliasso, affecting the weight of his evidence. If that was the case, the outcome may have been very different. The decision to maintain proceedings after Mr Atie's death was a forensic decision made by the plaintiff. In all the circumstances, I do not consider it was an unreasonable position to take, given the dynamic nature of cross-examination. Although Mr Atie's untimely death dealt a forensic blow to the plaintiff, it is as well to acknowledge that there is no case that cannot be lost, and more to the point however, no defence that may not fail. In an affidavit sworn by the solicitor on the record for the plaintiff, the plaintiff's solicitor indicated that his decision to continue with the case was based on advice he had received, though the content of that advice is not disclosed. Despite the parties' competing submissions as to the effect of Mr Atie's death on the plaintiff's case, I am simply not in a position to express any view one way or the other.
The plaintiff did succeed in establishing a number of critical elements of its claims, but ultimately failed as a result of (admittedly serious) gaps in its evidence. I am not persuaded that, on the authorities, the plaintiff's case was so defective, or that the plaintiff conducted itself in a manner, such that the plaintiff's persistence with its case justifies an exercise of the court's discretion to award indemnity costs in favour of the defendants.
Costs on an ordinary basis
The plaintiff contends that the defendants should not be awarded costs, even on an ordinary basis. It argues that each party should bear its own costs, or that there should be an apportionment of costs by reference to the issues on which the parties have or have not been successful. In particular, the plaintiff argues that the case involved two key issues, namely the Representation Claims and the Disruption Claims, on each of which it has been at least partially successful.
On the Representation Claims, the plaintiff says that the referee's ultimate finding was that while the scope meetings were held for the purpose of determining the plaintiff's scope of works and the price of the works (which is what the plaintiff contended for), he was unable to determine what transpired at the scope meetings. This in turn led him to make a finding of uncertainty. That finding was not contended for by any of the parties, and was one which I did not accept in the principal judgment. The plaintiff therefore contends that the defendants cannot be said to have been successful in respect of this issue.
The plaintiff's argument should not be accepted. The Representation Claims were brought by the plaintiff against the defendants. The plaintiff's inability to prove what took place at the scope meetings was a failure which deprived the plaintiff of the substance of its claim, even though the referee's ultimate finding of uncertainty was not one contended for by either party. Although in the principal judgment I did not accept the referee's finding on the uncertainty point, I accepted the defendants' contentions as to the scope of works, not the plaintiff's. The defendants should be entitled to their costs in relation to the Representation Claims on an ordinary basis up to 2 July 2010.
On the Disruption Claims, the plaintiff notes that the referee accepted that there was significant disruption, but that the Disruption Claim ultimately failed due to evidentiary inadequacies preventing quantification of loss. As with the plaintiff's argument in relation to the Representation Claims, the present argument seems to suggest that because the plaintiff was successful in establishing a number of matters relevant to its claim, but failed on just one (albeit critical) aspect, namely a deficiency of evidence to quantify its loss, it should not pay the defendants' costs. Again, that argument should not be accepted for the simple reason that the plaintiff's Disruption Claims failed because of its inability to establish an essential element of its claim, and it is no answer to say that it managed to prove other essential elements.
I wish to make one further observation which, though placed under this particular heading of the judgment, is of general relevance to the parties' submissions on costs. As I have already noted, on the matter of costs, the parties have submitted a multitude of submissions, spanning numerous pages, most of which revisited, in minute detail, the merit or lack thereof, of the various issues and sub-issues of their respective cases. It is true that the material before the referee was complex, but that exercise is not entirely helpful when considering costs, given that the outcome of the case and the basis or bases of that outcome or outcomes has or have been determined. I note the comments made by Campbell JA (with whom Macfarlan and Young JJA agreed), though in a different context, in Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 288 ALR 385 at [84]:
[84] This is a highly artificial way of proceeding and gives a false air of mathematical precision. As has been repeatedly stated, where there is a mixed outcome in proceedings the question of apportionment of costs between issues on which the party who has overall been successful has succeeded, and those on which that party has failed, is very much a matter of discretion, and mathematical precision is illusory [extensive citations omitted]. Further, even the number of topics that are identified and categorised overstate matters to some extent.
Representation Claims and "Contract Issues"
In its second further amended list statement, Mainteck particularised the contract it contended for as comprising eight discrete components, (a) - (h). This included:
(c) Discussions and oral agreements between MTK and SH "between July 2003 and August 2004".
In further particulars (paragraph C34) there were particularised conversations between Mr Hounliasso and Mr Brondex and Mr Atie.
There can be little argument that the Representation Claims and the Contract Issues were factually closely intertwined. The defendants therefore submit that it is appropriate that the costs of the Representation Claims should include the costs of the totality of the factual evidence and hearing relating to the negotiations and execution of the Second Consortial Agreement.
The defendants however further submit that the variation aspects of Mainteck's claims, although they raise Contract Issues, do not overlap with the Representation Claims. The defendants further submit that there were in reality two aspects to the Contract Issues.
First, the Contract Issues which included the "discussions and oral agreements".
Secondly, whether or not the contract, on its proper construction, did include the Technical Specification insofar as it determined Mainteck's scope of works.
The defendants further submit that the construction of the Second Consortial Agreement and the Technical Specification were quite separate from many Representation Claims. They submit that the costs of the Variation Claims were the subject of the 31 May 2013 orders, and the defendants seek no further costs in relation to the Variation Claims, but they do seek the costs order referred to above.
Mainteck submits that the Contract Issues and Misrepresentation Claims were dominated by two factual issues, namely the parties' knowledge of the design to be used and the purpose and content of the scope meetings. Clearly, both of these matters were the subject of the various discussions particularised in the Mainteck pleading. Mainteck accepts that determination of those factual matters, as it puts it, would determine both the Representation Claims and Contract Issues.
Mainteck however submits that the defendants failed to persuade the referee that their factual assertions in relation to these issues were correct. Indeed, Mainteck in effect submits that the defendants must have lost on their contentions on the contract otherwise the referee would not have concluded that the contract was void for uncertainty. That in my view does not reflect the reality. The contract contended for by the defendants (although rejected alongside that contended for by Mainteck) was the one I ultimately found was the correct assertion.
The referee could not determine what in fact had taken place at the scope meetings, although it was not this fact alone that led him to make a finding that the contract was void for uncertainty. The fact is that Mainteck (partly perhaps due to the absence of Mr Atie) was unable to satisfy the referee that, on the balance of probabilities, anything material had taken place at the scope meetings. To that extent, Mainteck failed to discharge its onus and prove that, if they did exist, there were any oral terms to the agreement as contended by it.
I consider the correct position then to be that Mainteck failed on the oral component of its contractual case.
I therefore consider that on balance it can fairly be said that the defendants were successful on those issues and should be entitled to a costs order accordingly. I am therefore of the view that the defendants, as part of the costs awarded on the Representation Claims, should also recover the costs of the totality of the factual evidence and hearing relating to the negotiation and execution of the Second Consortial Agreement. That is if in fact those costs can be identified and differentiated from the costs in relation to the Representation Claims, so there is no double counting.
Set-off
The defendants submit that the 31 May 2013 judgment amount in favour of the plaintiff should be set-off against the defendants' costs entitlement under this judgment. The plaintiff contends that there is no authority permitting a set-off of costs and damages ordered in the same proceedings, and that in any event, until such time as the costs are quantified no set-off should be allowed. The plaintiff relies on s 21 of the Civil Procedure Act 2005 to support its argument. However, that section does not support the plaintiff's contention, as it merely provides rules concerned with the set-off of mutual debts in a proceeding, but does not address the present issue.
I think there is authority for the view that a court has power to set-off costs entitlements against damages ordered in the same proceedings. In Corbett v Nguyen (No 2) [2012] NSWSC 673, Windeyer AJ said (at [13]):
[13] The final claim of the defendants is that the costs judgment should be set off against the judgment in favour of the plaintiff of $24,281.26. I consider the general equitable principles of set off allow such an order. The case generally relied upon to support such orders was decided in 1772 namely Thrustout d. Barnes v Crafter (1772) 2 Wm Bl 826; 96 ER 487 but the general principle was followed in Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 when in an appeal on a claim for specific performance which succeeded an order was made that the costs of the trial and appeal be set off against the purchase price payable under the contract.
As the costs incurred by the parties (whether the defendants or the plaintiff) will far exceed the 31 May 2013 judgment amount, I am inclined to order the set-off contended for by the defendants. However, as the defendants rightly point out, the appropriate course is to order the stay of the judgment, pending quantification of the costs, and then to permit the set-off of the quantified amounts (see orders 4 and 5 in Corbett v Nguyen (No 2)).
Conclusion
I invite the parties to prepare and send to my Associate short minutes of order giving effect to my reasons.
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Amendments
04 September 2013 - Addition of name of Counsel
Amended paragraphs: Coversheet
Decision last updated: 04 September 2013
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