Makland Constructions Pty Ltd v Page Steel Fabrications Pty Ltd (Costs)
[2023] VCC 891
•2 June 2023
33333
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-19-05803
| Makland Constructions Pty Ltd (ACN 146 092 533) & Ors | Plaintiffs |
| and | |
| Page Steel Fabrications Pty Ltd (ACN 006 636 004) | Defendant |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers, written submissions dated 12 and 17 May 2023 | |
DATE OF RULING: | 2 June 2023 | |
CASE MAY BE CITED AS: | Makland Constructions Pty Ltd & Ors v Page Steel Fabrications Pty Ltd (Costs) | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 891 | |
RULING
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Subject:COSTS
Catchwords: Whether costs should be paid on a standard or indemnity basis – Whether rejection of Calderbank Offers reasonable – whether breach of minutes of consent relevant to exercise of discretion
Legislation Cited: County Court Civil Procedure Rules 2018 rr63A.30, 63A.30.1 & 63A.31; Supreme Court Act 1958 ss58 & 60; County Court Act 1958 s50; Civil Procedure Act 2010 ss19, 22, 23 & 25
Cases Cited:Colgate-Palmolive Co & Anor v Cussons Pty Ltd (1993) 46 FCR 225; BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2] [2015] VSCA 123; Hannover Life Re of Australasia v Colella [2014] VSCA 205; Calderbank v Calderbank [1975] 3 All ER 333; Aljade and MKIC v OCBC [2004] VSC 351; Oshlack v Richmond River Council (1998) 193 CLR 72; Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 3) [2002] FCA 1294; Hobartville Stud Pty Ltd v Union Insurance Co Ltd [2004] FCA 1600.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Hoyne | Griffin Law Firm |
| For the Defendant | Mr P Noonan | Hughes Legal Solicitors |
HER HONOUR:
Introduction
1On 5 May 2023, I gave judgment for Makland on its claim in the sum of $73,711.53 (GST inclusive) and for Page Steel on its counterclaim in the sum of $33,748.10 (GST inclusive).[1]
[1] Makland Constructions Pty Ltd v Page Steel Pty Ltd (No 2) [2023] VCC 706.
2I proposed to order that each party bear their own costs, unless either party had a basis for seeking a different order as to costs, and invited the parties to prepare draft orders to give effect to my reasons. The parties were unable to reach agreement on the issue of costs and interest and prepared written submissions.
3Makland submits that the most appropriate costs orders should be that it be entitled to the costs of its claim and Page Steel is entitled to the costs of the counterclaim. Makland contends that its costs would be substantially higher than Page Steel’s. However, taking into account the fact that Makland did not succeed on all of its claims and the difficulty of attributing particular costs, it is accepted that the costs order proposed by the Court is not unreasonable.
4Page Steel submits that, as a primary position, an order that the parties bear their own costs is appropriate, however, the costs position is affected by Page Steel’s offers made on 1 August 2022, 5 October 2022 and 19 October 2022. In those circumstances, it seeks the following costs order:
(a) each party bear its own costs of the proceeding to 1 August 2022.
(b) Makland pay Page Steel’s costs of and incidental to the proceeding (including reserved costs):
(i)from 2 August 2022 to 19 October 2022 on a standard basis;
(ii)from 20 October 2022 on an indemnity basis.
5For the reasons set out below, the appropriate costs order is that each party bear its own costs of the proceeding to 28 October 2022, and from 29 October 2022, Makland pay Page Steel’s costs of and incidental to the proceeding (including reserved costs) on the standard basis to be taxed in default of agreement.
Relevant Background
6In my primary judgment, Makland failed on their 12 November 2019 “repudiation” claim, which occupied most of the evidence and court time. Makland also lost on the counterclaim but succeeded on its “reasonable endeavours” claim. Put another way, Page Steel defeated Makland on its primary claim and succeeded on its counterclaim but lost on the “reasonable endeavours” claim.
7Each party had a measure of success, and it was accepted that the costs of the various successes and losses would largely net out.
8On 1 August 2022, Page Steel made a Calderbank offer to settle the proceeding, including the counterclaim, by paying Makland $100,000.00 plus costs to be taxed on a standard basis in default of agreement, within 14 days after acceptance of the offer and the release of the $33,748.10 held in the controlled monies account back to Makland. The offer was open for acceptance until 15 August 2022, after which time it lapsed (having not been accepted by Makland) (“the First Offer”).
9On 5 October 2022, Page Steel made an open offer to settle the proceeding by paying Makland $118,828.60 net. The offer was open for acceptance until it was withdrawn by letter on 9 March 2023 (“the Second Offer”).
10On 19 October 2022, Page Steel made a Calderbank offer to settle the proceeding by paying Makland $156,251.90 net, inclusive of costs and interest. The offer was open for acceptance until 28 October 2022, after which time it lapsed (having not been accepted by Makland) (“the Third Offer”).
Legal framework
11It is common ground that, as a general rule, the Court will order costs to be taxed on the standard basis.[2] The discretion to make a special costs order is an unlimited one, though it must be exercised judicially and not unreasonably, and the circumstances should be “special”.[3] The usual order as to costs is that costs follow the event, and the successful party is entitled to an award of costs in its favour.[4]
[2] County Court Civil Procedure Rules 2018 (“Rules”) r63A.30.
[3] Aljade and MKIC v OCBC [2004] VSC 351 at [10].
[4] Oshlack v Richmond River Council (1998) 193 CLR 72 at [97].
12In Colgate-Palmolive Co & Anor v Cussons Pty Ltd,[5] Justice Shepherd set out many categories of circumstances which will warrant the making of a special costs order:
(a) the making of allegations of fraud knowing them to be false;
(b) the making of irrelevant allegations of fraud;
(c) evidence of particular misconduct that causes loss of time to the court and to other parties;
(d) the fact that the proceedings were commenced or continued for some ulterior motive or with wilful disregard of known facts or clearly established law; and
(e) the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.
[5] (1993) 46 FCR 225 at [23]–[24].
13In IMC Aviation Solutions Pty Ltd v Altain Khuder LLC,[6] the Court of Appeal also stated that:
“Special circumstances may be found where, for instance, the unsuccessful party has made serious unfounded allegations, pursued the proceeding for an ulterior purpose, wasted the court’s time, committed a contempt of court or engaged in some other improper conduct. But in each case it is a question to be determined in the light of the particular facts and circumstances”.
[6] [2011] VSCA 248 at [325].
14In considering whether or not a party should have their indemnity costs, the principles that guide the Court are set out in the decision of Justice Habersberger in BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3)[7] as follows:
[7] [2012] VSC 414 at [59]– [67] referring to Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCoverAuthority (No 2) (2005) 13 VR 435.
“First, the fact that a less favourable result is achieved does not give rise to a presumption of a special costs order. The making of an offer and its rejection are “but two albeit important circumstances” to which the Court will have regard in the exercise of its costs discretion.
Secondly, the competing policy objectives relevant to the exercise of the costs discretion are principally the desirability of promoting settlement and reducing litigation costs as against the undesirability of discouraging potential litigants from bringing their dispute to the courts.
Thirdly, the critical question is whether the rejection of the offer was unreasonable in the circumstances. As the Court of Appeal said in Hazeldene:
In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as “manifestly” or “plainly” unreasonable.
Fourthly, a court considering submissions that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed for 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; and
(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
Fifthly, as the determination of whether it was unreasonable for the offeree to have rejected the offer is made “as at the time, or within a reasonably short time after, the offer” was made,[8] the Court should not too readily embrace submissions that it was inevitable that the proceedings would fail. As Hamilton J put it in Grynberg v Muller:
These submissions focus the bright light of hindsight. Hindsight sings a siren song of which Judges must be cautious …
Sixthly, the onus lies on the offeror to demonstrate the unreasonableness of the offeree’s rejection of the offer. This means that it is necessary to analyse what was proposed.
Seventhly, there is no general rule that the Calderbank offer must set out with specificity the basis for the offeror’s contention that the offeree should accept the compromise. Whether there is a need to do so depends upon a consideration of all of the circumstances existing at the time of the offer.
Eighthly, it is not necessary for the applicant for an indemnity costs order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Such conduct is not a pre-requisite for a finding that the rejection of the Calderbank offer was unreasonable.
Ninthly, an “all in” offer is permitted in a Calderbank offer.” (citations omitted)
[8] Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) [2002] FCA 1294 at [21] per Goldberg J.
15Habersberger J’s decision was upheld on appeal to the Court of Appeal in Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2].[9]
[9] [2015] VSCA 123 at [55].
16The above “principles established by Habersberger J” were referred to by the Court of Appeal in Hannover Life Re of Australasia v Colella[10] without any criticism.
[10][2014] VSCA 205 at [91].
Issues
17The issues for determination are as follows:
(a) was Makland’s rejection of the offers unreasonable;
(b) if yes, should Makland pay Page Steel’s costs of the proceeding:
(i)from 2 August 2022 to 19 October 2022 on a standard basis; and
(ii)from 20 October 2022 and thereafter on an indemnity basis.
(c) if no, should there be no order as to costs;
(d) what, if any, interest should be awarded on the claim and the counterclaim.
Submissions
First Offer
18Page Steel submits that the First Offer referred to Calderbank v Calderbank,[11] as adopted by the Victorian Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No.2)[12] and that Makland’s rejection of the First Offer was unreasonable having regard to the following factors:
[11] [1975] 3 All ER 333.
[12] (2005) 13 VR 435.
(a) the First Offer was expressed as a net offer of $100,000.00 (of both the claim and the counterclaim) plus costs to be taxed on the standard basis in default of agreement;
(b) the period of 14 days after service for consideration of the offer was reasonable and considered to be standard (see r26.03(3) and (4)(a) of the County Court Civil Procedure Rules 2018);
(c) the offer of $100,000.00 net of both the claim and counterclaim plus costs to be taxed on a standard basis in default of agreement, was generous and represented a genuine and fair compromise. Makland’s claim totalled $215,945.28 on their further amended statement of claim dated 16 March 2023 and their proved quantum at trial was $204,907.26 (if successful on the “repudiation” claim). The First Offer represented 62% of the outer limit of the damages claimed and 65% of their proved quantum, if they had been successful, being worth $133,963.43;
(d) at the time of the First Offer, Makland’s proceeding had been on foot for 2 years and 8 months and was approximately 4 months out from trial. In that context, Makland ought to have been well informed as to their prospect of success and risks. The First Offer was made early enough that acceptance of the offer would have entailed considerable savings on costs and avoided the need to conduct a trial;
(e) Makland’s prospects of success, assessed as at the date of the First Offer, faced very significant risks. In order to beat the First Offer, Makland had to succeed on both the “repudiation” claim and the counterclaim. The First Offer set out inter alia that:
(i)the proceeding was issued by Makland in an attempt to obtain a quantity of steel from Page Steel that had not been delivered because Makland had refused to pay for the cost of the variations on modified shop drawings;
(ii)no delivery dates for the supply of steel were specified;
(iii)no detailed works program was included in Makland’s purchase order. Any time dislocation or inefficiency was, therefore, not Page Steel’s responsibility;
(iv)payments for steel were not tied to any construction timetable but had to be made in advance of steel fabrication to enable Page Steel to meet the cost of purchasing steel, its fabrication and installation, which involved third party suppliers and contractors;
(v)Makland’s payment plan provided for payment in full prior to the installation of the steel;
(vi)Makland had a history of payment delinquency;
(vii)Makland was the primary cause of the delays;
(viii)the claim that Page Steel breached consent orders had no proper foundation because Makland refused to accept delivery of steel as ordered by the Court, Page Steel made no promise that the purlins could be manufactured within the time specified, the consent orders only obliged Page Steel to procure their manufacture and Makland nominated the manufacturer who was unable to comply with the time frame;
(f) the terms of the offer were clear; and
(g) the offer foreshadowed production of the letter on the questions of costs.
19Makland contends that its rejection of the First Offer (and each subsequent offer) was not unreasonable for the following reasons, referring to the principles set out in the decision of Justice McDougall in Rickard Constructions v Rickard Hails Moretti:[13]
(a) it is trite law that a party seeking to rely on a Calderbank letter must not only demonstrate that it did better than the offer made but also demonstrate that the other party’s rejection of that offer was unreasonable;
(b) the fact that the offer was not accepted and a better outcome was not achieved does not shift the burden to the offeree to prove reasonableness;[14]
(c) whether or not it was plainly unreasonable to reject the offer is judged at the time of the rejection and not with the benefit of hindsight;
(d) the offer did not include any amount for costs even though the proceeding had been on foot for more than three years to this point in time;
(e) Makland was reasonably entitled to confirm in its view that its case was a strong one and that any offer from Page Steel ought to include an amount for costs.
[13] [2005] NSWSC 481 at [17].
[14] Foster v Galea (No 2) [2008] VSC 331 at [8].
Second Offer
20Page Steel submits that the Second Offer was made as an open offer to pay Makland a net sum of $118,828.60, comprising $152,576.70 to be paid to Makland on the claim and the $33,748.10 held in the controlled monies account on the counterclaim, which would be released to Page Steel or with a corresponding offset. Further, the letter stated that if the offer was not accepted, Page Steel would rely on the letter on the question of costs.
21Page Steel submits that Makland’s rejection of the Second Offer was unreasonable having regard to the following factors:
(a) the open offer was left open for acceptance for over 5 months until 9 March 2023, 2 business days before the trial. It was only withdrawn by letter dated 9 March 2023 because Page Steel had incurred significant costs in preparing for trial;
(b) the net offer of $118,503.80 was approximately 3 times the net outcome in the proceeding and represented a genuine and more than fair compromise. The sum of $152,576.70 represented 70.5% of the full claim and 74.3% of Makland’s proven claim at trial;
(c) Makland’s prospects of success, assessed at the date of the offer, was risky, reasons for which are set out in the letter and, specifically, the failure to properly substantiate a sum of $77,147.15 comprising alleged excess installations, panel clips, excess purlin costs, unspecified fasteners and unspecified steel not delivered;
(d) the terms of the offer were clear; and
(e) the consequence of not accepting the offer was foreshadowed.
Third offer
22On 19 October 2022, Page Steel made a further Calderbank offer to pay Makland the net sum of $151,251.90, comprising $190,000.00 on the claim (inclusive of all costs and interest) and the $33,748.10 held in the controlled monies account on account of the counterclaim, to be released to Page Steel.
23Page Steel submits that Makland’s rejection of the Third Offer was unreasonable having regard to the following factors:
(a) the net offer of $151,251.90 was approximately 4 times more favourable than the net outcome in the proceeding. The offer of $190,000.00 on the claim represented 88% of the claim at trial and 92.7% of their proven quantum. That is, $25,000.00 less than Makland’s claim and $15,000.00 less than their proven loss at trial;
(b) the Third Offer was made when the proceeding had been on foot for 2 years and 10 months and was only 1 month out from trial then listed on 21 November 2022;
(c) the offer was open until 28 October 2022 at 4.00pm;
(d) Makland’s prospects of success, assessed at the date of the offer, was poor, and the reasons were set out in the letter on a similar basis to that cited in the First Offer;
(e) the letter set out that the pleaded cause of action was illusory and payment of $190,000.00 was far more than what Makland could reasonably expect to receive on their claim, inclusive of interest and costs.
24Makland contended that the offer purported to pay the entirety of Markland’s claim but, in fact, did not, in light of the Court’s finding that the amount of $205,000.00 was payable if Makland had succeeded on the “repudiation” claim. Further, the offer did not include any amount for costs.
Analysis
Was Makland’s rejection of the offers unreasonable?
25For the reasons set out below, the answer in respect of each of the First Offer and Second Offer is no. The answer in respect of the Third Offer is yes.
26The present proceeding involves two Calderbank[15] offers being a letter, marked “without prejudice except as to costs”, setting out the terms of proposed settlements and an open offer.
[15] Calderbank v Calderbank [1975] 3 All ER 333.
27Page Steel relies on two Calderbank letters dated 1 August 2022 and 19 October 2022 and an open letter dated 5 October 2022.
28The First Offer offered to settle the proceeding by Page Steel paying Makland the sum of $100,000.00 on the claim and the counterclaim, plus costs to be taxed in default of agreement, within 14 days after acceptance of the offer. Makland’s costs of the proceeding up to the date of the offer would be paid within 14 days of taxation of those costs on the standard basis (or earlier if the parties reached agreement on costs). The sum of $33,748.10 held in the controlled money account paid by Makland on 8 December 2019 would be released to Makland as soon as practicably possible after acceptance of the First Offer. The terms stated, “for the avoidance of doubt, the release of the monies to the plaintiff under this paragraph is in addition to the payment of the $100,000.00 to be made by the defendant under the earlier paragraph 5 of this letter”.
29The First Offer was open for a period of 14 days; it referenced the Calderbank decision and subsequent authorities and warned that the letter would be produced to the Court in the event of an application for costs. The letter explained the reasons why there was little merit in Makland’s claims.
30Page Steel contends that Makland’s failure to accept the First Offer was unreasonable for the following reasons:
(a) the best case for Makland was $215,945.28 in their favour, being the full claim as sought at trial and paying nothing for the counterclaim. The best case for Page Steel was $33,748.10 in favour of it, being the full counterclaim. The midpoint of the possible outcomes was $91,908.59 in favour of Makland;
(b) the First Offer exceeded the midpoint and constituted a better compromise and a better outcome for Makland than for Page Steel;
(c) in rejecting the First Offer, it would not be enough for Makland to expect to succeed on both the “reasonable endeavours” claim and the counterclaim, which would result in a payment of $73,711.53 in favour of Makland. In order to have any chance of bettering the First Offer, Makland had to succeed on at least its primary claim, being the “repudiation” claim;
(d) it represented a genuine and fair compromise of the proceeding where Makland’s claim at that stage totalled $229,623.75 pursuant to the amended statement of claim dated 28 June 2022 plus interest plus costs. This represented 58.25% of the claim as it then was pleaded plus Makland’s costs to be taxed in default of agreement. Page Steel was also agreeing to give up its counterclaim;
(e) the terms of the offer were clear;
(f) the period of 14 days for consideration was reasonable;
(g) the sum offered represented a genuine and fair offer;
(h) Makland’s prospects of success were limited;
(i) the cost consequences of not accepting the offer were foreshadowed.
31Makland contends that its rejection of the First Offer was not unreasonable for the following reasons:
(a) whilst the offer purported to pay for the entirety of Makland’s claim, it was less than the $204,907.26 found by the Court to be owing in the event that Makland succeeded on the “repudiation” claim;
(b) it did not include any amount for costs even though the proceeding had been on foot for more than three years;
(c) when faced with such an offer, Makland was entitled to confirm their view that their case was a strong one and that any offer ought to include an amount for costs;
(d) in relation to the counterclaim, a significant factor in Page Steel’s success was that its director changed her evidence during cross examination (after having sworn to the accuracy of her witness statement moments earlier). Makland was entitled to base its assessment of the relative strength of the case on the fact that Page Steel’s case was set out in its director’s witness statement.
32The mere refusal of an offer does not automatically mean that the Court should make an order for costs on an indemnity basis where the ultimate result is less favourable than that contained in the offer.[16]
[16] Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCoverAuthority (No 2) (2005) 13 VR 435 at [18]–[20].
33I accept Page Steel’s submissions that the First Offer was more favourable than the judgment entered. However, the principle is that there must be some unreasonableness in the refusal to accept.[17]
[17] Hobartville Stud Pty Ltd v Union Insurance Co Ltd [2004] FCA 1600 per Crennan J at [6].
34The principal issue is whether it was unreasonable for Makland to ignore Page Steel’s First Offer. In my view, on balance, Makland did not act unreasonably in rejecting the First Offer in circumstances where:
(a) on the one hand:
(i)the proceeding had been on foot for over 2 years and 8 months and the issues in dispute were well known to the parties and had been the subject of a judicial resolution conference on 7 June 2022;
(ii)the period of 14 days to consider the offer was reasonable;
(iii)although Makland submitted that the offer did not include an amount for costs, the First Offer clearly stated that Page Steel would pay Makland’s “costs of the proceeding up to the date of the offer within 14 days of taxation of those costs on the standard basis (or earlier if the parties reached agreement on costs)”;
(iv)although Makland submitted that it relied on Page Steel’s director’s witness statement as a basis to assess the relative strength of the counterclaim, the witness statement was not filed until 13 February 2023 and a further one on 8 March 2023, after the date of the First Offer, being 1 August 2022. The Court must consider reasonableness at the time of the offer, not with the benefit of hindsight. In any event, in the primary decision, the Court relied on the contemporaneous documents which disclosed what Mr Chuah (now deceased) took into account in preparing the quote and variation. All that the director of Page Steel could give evidence of was the usual practice. Page Steel had pleaded its case about the variations to the shop drawings in its then defence and counterclaim dated 5 February 2020 and provided discovery of the relevant documents on 1 June 2022. The counterclaim, it is noted, only accounts for the sum of $33,748.10 in the context of the overall proceeding;
(v)Makland submits, without elaboration, that at the time of the rejection of the First Offer, it was entitled to their view that their case was a strong one. No evidence or basis has been provided to justify that confidence as being reasonable. The mere assertion of holding that belief, absent a reasonable basis, does not make the belief reasonable;
(vi)the consequences of not accepting the offer were foreshadowed;
(b) on the other hand:
(i)although Page Steel submitted that the First Offer was expressed as a “net” offer of the claim and counterclaim, on a close examination of the terms of the First Offer, the offer made was $100,000.00 in full and final satisfaction of the claim, inclusive of interest and the counterclaim (i.e. net of both the claim and the counterclaim) (paragraph 5). However, paragraph 8 stated that the release of the $33,748.10 held in the controlled money account be released to Makland and “for the avoidance of doubt, the release of the monies to [Makland] under this paragraph is in addition to the payment of $100,000 to be made by [Page Steel] under the earlier paragraph 5 of this letter”;
(ii)arguably, there is a contradiction in the operation of paragraphs 5 and paragraphs 8 of this offer and the terms were not clear. This is highlighted by Page Steel’s submission at paragraph 3(a) that the terms provide for Page Steel to pay Makland a net sum of $100,000.00 (i.e. is net of both the claim and the counterclaim) and it also states that the offer was $133,963.43 at paragraph 12(a);
(iii)as at 1 August 2022, Makland was seeking the sum of $229,623.75 on the “repudiation” claim and the “net” offer was $100,000.00 on the claim and the counterclaim. At that point in time, there were no witness statements and the further revised pleadings had not been filed, such that the refusal of the First Offer was not sufficiently unreasonable to warrant an order that Makland pay Page Steel’s costs from the day after the offer on a standard basis;
(iv)although the First Offer set out the reasons why Makland’s prospects of success on each ground were poor (referred to above), only some of those grounds were upheld in the primary judgment, including, as follows:
(v)the September Agreement did not impose a positive obligation on Page Steel to complete the works by a set time of approximately two weeks (at [49]);
(vi)clause 3 of the September Agreement did not provide a fixed time or date for the completion of work (at [50]);
(vii)the September Agreement did not vary the March Agreement or clarify what “a reasonable period of time” is for completion of the works (at [54]);
(viii)Page Steel was prevented from performing the contract by Makland seeking to use its own riggers and ordering Page Steel’s employees and contractors off the site (at [72], [76]);
(ix)there was a 3-month delay in Makland’s project from mid-March – June 2019 as a result of bad weather and the delay in the installation of the panels on 14 and 15 May 2019 which resulted in programming issues with coordinating VicRig (at [81]);
(x)Page Steel was wrong in its assessment of the “reasonable endeavours” claim in that Page Steel was required to have the purlins manufactured as early as practicable (at [125]) and J & C Threading was not nominated by Makland, but rather, Page Steel was advised of a $20,000.00 saving on the purlins if they used J & C Threading to bring the quoted price down (at [127]). However, this was Makland’s alternative case to the “repudiation” claim;
(xi)on the counterclaim, given the terms of the quote itself, it is clear that Page Steel only based the quote on the shop drawings, which were subsequently amended as provided to Page Steel by Makland and, therefore, it constitutes a variation for which Makland is liable to pay (at [146]).
35In my view, the Second Offer was a genuine offer to compromise, however, it was not unreasonable for Makland to reject the offer in circumstances where Page Steel did not explain in the open offer Makland’s prospects of success on the issues in dispute then existing between the parties on the claim and counterclaim. Rather, the open offer appears to be part of a chain of correspondence between the parties regarding a discovery dispute. The calculation was based on Page Steel’s own calculation of work completed by Makland with $77,147.15 deducted for alleged unsubstantiated amounts due to Makland’s “refusal to provide the documents necessary to substantiate those additional claims”. The open offer was, relevantly, put on the following basis:
“…it has been our client’s longstanding position that, despite its contractual rights, it is willing to agree a credit for work that your client completed itself. We refer you to Lynne Piacentini’s email to Matthew Francke on 18 November 2019. Our client’s calculation of such work is as follows:
Purlins: $62,094.10 (excl GST)
Rigging/installation: $89,100.00 (excl GST)
Total: $151,194.10 (excl GST)
We also note for completeness that, as rectification of some minor damage incurred in transport and installation is not unusual, our client has no issue with the minor rectification cost of $1,282.50, bringing the total to $152,576.70.
Our client’s position remains to the effect stated on 18 November 2019. Despite its contractual rights, it remains willing to agree a credit for such work, in the sum of $152,576.70. This proceeding could have ended at any time on reimbursement by our client to your client of this amount, after adjustment for the sum in trust of $33,748.10 (either payment of this amount to our client, or payment to your client with a corresponding offset).
However, it is your client’s demand for additional amounts and its refusal to provide the documents necessary to substantiate those additional claims, including its ongoing failure to make proper discovery in the proceeding, that has prevented any agreement of a credit amount.
Specifically, this proceeding has and is being driven by your client’s pursuit of the sum of $77,147.15 comprising:
- $48,023.53 in excess installation costs
-$1,364.00 for panel clips, despite the fact that our client has delivered the full quantity of panel clips specified under the contract
- $10,253.43 in claimed excess purlin costs
- $3,646.19 in unspecified ‘fasteners’, despite the fact that our client has delivered the full quantity specified in the bolt list in the contract
- $13,860.00 in unspecified ‘steel not delivered’, while refusing to properly substantiate that amount. …
Our client will rely on this letter, including on the question of costs.”
36Unlike the First Offer, the open offer:
(a) was expressed as separately addressing the claim and the counterclaim with a net sum of $118,828.60 calculated as comprising $152,576.70 on the claim to be paid to Makland and the $33,748.10 held in the controlled monies account to be released to Page Steel;
(b) it did not include any amount for Makland’s costs of the proceeding which had been on foot for 2 years and 10 months at this stage;
(c) was open until 9 March 2023;
(d) was not a Calderbank offer, but stated that Page Steel would rely on the letter on the question of costs. However, Makland is legally represented and they would know that Page Steel would seek costs on a higher or better basis than it would otherwise receive in the event that Makland did not achieve a more favourable outcome at trial.
37The open offer, in essence, awarded Makland $152,576.70 on its claim (then sought in the sum of $229,623.75) minus the sum of $77,147.15 in “unsubstantiated” amounts and awarded Page Steel its counterclaim amount of $33,748.10, as the offer required Makland to agree to release the funds in the controlled monies account to Page Steel in payment of its counterclaim. In my view, the Second Offer contemplated a measure of success for both parties and, as such, it was reasonable for each party to bear their own costs. However, the value of the Second Offer was less than the First Offer in real terms, given the effect of the net sum of both the claim and the counterclaim and no amount for costs.
38The Third Offer was also a genuine offer to compromise, not an invitation to capitulate, by offering to pay Makland the sum of $190,000.00 on its claim, inclusive of costs and interest within 14 days after acceptance of the offer. Makland would agree to release to Page Steel the sum of $33,748.10 held in the controlled money account to Page Steel as soon as practicably possible after the acceptance of the offer. The offer was open for acceptance for 9 days, until 28 October 2022.
39The principal issue is whether it was unreasonable for Makland to ignore Page Steel’s Third Offer. In my view, Makland did act unreasonably in rejecting the Third Offer in circumstances where:
(a) the proceeding had been on foot for over 2 years and 10 months;
(b) the period of 9 days to consider the offer was reasonable;
(c) the offer of $190,000.00, including costs and interest, represented a genuine and fair compromise of the proceeding where Makland’s claim at that stage totalled $229,623.75, representing 82.74% of the amount then sought and 92.72% of the amount proven at trial on the “repudiation” claim (or 4 times the “net” outcome of the proceedings on the “reasonable endeavours” claim);
(d) the Third Offer set out the reasons why Makland’s prospects of success on each ground were poor, including repeating the grounds set out in the First Offer and adding new grounds in relation to the “reasonable endeavours” claim and noting the rejection of the open offer of the refund of work completed by Makland in the sum of $151,194.10, which had been rejected;
(e) to be reasonable, the refusal of the Third Offer required a reasonable basis to expect a high prospect of success across the proceeding, in particular, on the “repudiation” claim. No litigant can have complete confidence in their claim given the risks and uncertainties in litigation. In the present case:
(i)the repudiation claim was founded on “silence” in the failure to explicitly withdraw an earlier request for a deed of release. Makland knew that Page Steel, at and before the time they purported to terminate the contract, was continuing to work and had emailed through a schedule containing future work and attempting to send workers to the site. Makland was sending Page Steel’s workers away. This claim was ambiguous and uncertain;
(ii)Makland was successful at trial on the “reasonable endeavours” claim, however, it relied on the interpretation of that phrase and was dependent on the particular facts and circumstances of the case. There was risk in the outcome of the interpretation of the consent orders made by his Honour Judge Macnamara on 9 December 2019 (“December 2019 consent orders”);
(iii)Makland disputed the fair and reasonable sum of the variation contained in the counterclaim. However, there was no specific or substantive challenge to the reasonableness of any item or cost in Mr Chuah’s variation notice (at [149]);
(f) the terms of the offer were clear; and
(g) the consequences of not accepting the offer were foreshadowed.
Should Makland pay Page Steel’s costs of the proceeding on a standard basis from 2 August 2022 to 19 October 2022 and from 20 October 2022 and thereafter on an indemnity basis?
40Page Steel submits that Makland incurred time and costs to run the litigation, prepare witness statements, prepare for trial and appear over several days and draft submissions for the mere chance of gaining as little as $25,000.00 (which required success on all claims as well as the counterclaim on the Third Offer). The legal costs required to run the matter to the end of trial after the offers were made vastly outweighed the small amount that Makland might have foregone by accepting the offers (assuming full success). Given the refusal of the offers was unreasonable, Page Steel sought orders that after the First Offer, Makland pay Page Steel’s costs on a standard basis and, given the refusal of the Third Offer was so egregiously unreasonable, indemnity costs from the day the Third Offer was made.
41In addition to the usual analysis in relation to offers, Makland further contends that Page Steel should not be entitled to an award of costs in its favour because the nature of Makland’s case against Page Steel on which it was successful involved Page Steel disobeying a court order.
42Makland submitted that:
(a) its success on the “reasonable endeavours” claim was in the context of a breach of the December 2019 consent orders by Page Steel and it contended that those breaches were intentional or, at best, reckless;
(b) the deliberate or reckless disregard of the orders of the Court is a significant factor in the award of costs;
(c) the fact that the “reasonable endeavours” claim was added after the commencement of the proceeding (in the amended statement of claim dated 28 June 2022) is irrelevant given the nature of the breaches and the fact that Page Steel knew what it had not done to comply with the December 2019 consent orders;
(d) Page Steel ought not have a windfall because they breached the December 2019 consent orders and hid it for years;
(e) it would be a significant injustice and potentially bring the Court into disrepute if a party was to be awarded its costs in a dispute involved in disobeying a court order;
(f) Page Steel put Makland to the cost of demonstrating the breach of the December 2019 consent orders and it would be incongruous for Page Steel to be entitled to claim its costs of the defence.
43Page Steel submits that Makland’s assertion that it had deliberate or reckless disregard to court orders is an extraordinary allegation and it is wrong. A deliberate breach is prima facie contempt of court and a serious allegation to make. Makland did not plead such an allegation in its further amended statement of claim. The allegation was on the basis of a breach of the parties’ agreement giving rise to the consent orders, not a breach of an order.[18] The allegations of deliberate breach or reckless disregard were not put to Page Steel’s witness at trial. The allegation that making a costs order in favour of Page Steel would bring the Court into disrepute is also a serious allegation.
[18] Paragraphs 15(a) and 26.
44Page Steel submits that the allegations are factually wrong as follows:
(a) the relevant agreement on 9 December 2019 was the parties’ agreement as recorded in “Other Matters” of the December 2019 consent orders;
(b) matters recorded in “Other Matters” are not a binding or enforceable order of the Court (with the possible exception of an undertaking given to the Court);
(c) the obligation in the actual order regarding the delivery of the purlins was expressly qualified so as to only apply to the purlins “if manufactured as referred to in Other Matters”;
(d) there was a breach of the parties’ agreement as recorded in “Other Matters” but the order itself had no operative effect in relation to the unmanufactured purlins and there could be no breach of any court order.
45For the reasons set out above, in my view, the refusal of the Third Offer was unreasonable as to warrant an order that Makland pay Page Steel’s costs from the date of the expiry of the Third Offer, being 28 October 2022, and not from the day after the offer.[19] I rely on the principles set out in BHP Billiton set out above and, in particular, the public policy of promoting settlement and reducing litigation costs. I accept Page Steel’s submission that litigation entails significant time and cost commitments from parties. If Makland had been pursuing significant sums, the potential upside in continuing on with litigation might have justified the rejection of the offers. In the present case, Makland rejected sums significantly in excess of its ultimate outcome of the proceeding before interest and costs, in the sum of $39,963.43 (inclusive of GST).
[19] Border Lifting and Safety Pty Ltd v Russell & Anor (Costs) [2023] VCC 569 at [22].
46The Third Offer made by Page Steel in net sum terms of $152,576.70 represented 66.45% of the then amount claimed on the amended statement of claim, 70% of the claim sought at trial and 76.63% of the proven claim at trial. Significant costs were expended by the parties in order for Makland to pursue the balance of its claim, which required success on everything: all claims and the counterclaim. This is not commercially or economically reasonable. Makland ought to have taken into account the significant litigation risks in running an action such as the present one, and there was no basis for its view that it had a higher than 80% chance of success across the entire proceeding, and most importantly, the “repudiation” claim.
47In relation to Page Steel’s contention that it should be awarded indemnity costs from the day after the Third Offer was made, Makland submits that I ought to take into account that there was a breach by Page Steel of the December 2019 consent orders. This involves the agreement that sat behind the consent orders and the agreement that “found its way” into the consent orders in “Other Matters”. During the trial, the December 2019 consent orders were also variously described as “the December Agreement”[20] and the “December consent order agreement”.[21]
[20] Transcript page 6 lines 16-31 and paragraphs 75 of Makland’s closing submissions.
[21] Transcript page 228, line 2.
48In my primary reasons, I found, inter alia, that, pursuant to the December 2019 consent orders, Page Steel was required to use reasonable endeavours to procure the manufacture of the purlins by a reputable third party by 13 December 2019 for Warehouse 1 and, in any event, as early as practicably possible (at [109]).
49I accept Page Steel’s position that the very serious allegation of “deliberate or reckless disregard” of the December 2019 consent orders was not pleaded, was not put to Page Steel’s director in cross examination and is a very serious allegation.
50A consent order, once authenticated or signed by a judge, is a legal document to confirm the agreement between the parties and makes the agreement binding. The December 2019 consent orders, both in “Other Matters” and the order made by consent, must be read in their entirety and consideration must be given to the circumstances that gave rise to the making of the consent orders by the parties and the Court. Although the orders required Page Steel to deliver up to Makland the purlins as early as reasonably practicable on 13 December 2019 (in the event the purlins are manufactured by that time) for Warehouse 1 and on 18 December 2019 for Warehouse 2, the orders must be read in the context of the agreement set out in “Other Matters” and how the case was put by Makland and argued at trial.
51Makland, in its further amended statement of claim filed on 16 March 2023, after the hearing of evidence, defined the “Consent Orders” as the consent orders made by Judge Macnamara dated 9 December 2019, in which it was noted in “Other Matters” that:
“i. The Defendant would use reasonable endeavours to procure the manufacture by a reputable third-party supplier of the purlins hereinafter referred to in this order for the East Warehouse by 13 December 2019 and, in any event, as early as practically possible;
ii. The Defendant would use reasonable endeavours to procure the manufacture by a reputable third-party supplier of the purlins hereinafter referred to in this order for the West Warehouse by 18 December 2019 and, in any event, as early as practically possible; …”
52The further amended statement of claim then relies on a breach of the agreement giving rise to the “Consent Orders”, whereby, Page Steel did not use reasonable endeavours to procure the manufacture of the purlins by the specified dates, and, in any event, as early as practically possible.
53Makland’s closing submissions referred to these allegations as the “December Agreement” and the revised list of issues as a “breach of agreement between the parties which gave rise to the consent orders of 9 December 2019”.
54As I found in the primary reasons (at [125]):
“Page Steel did not have the purlins manufactured as early as practically possible. The references in the December 2019 consent orders are to use reasonable endeavours to have the purlins manufactured and supplied by 13 and 18 December 2019 (that is, only a few days after the December 2019 consent orders were made)”.
55Further, (at [126) I concluded that:
“Page Steel was required to deliver the purlins as early as reasonably practicable on 13 December 2019 (i.e. an obligation going to the time of day that delivery was to occur on). Whether the purlins were manufactured by that time is not to the point and did not obviate the obligation on Page Steel to seek to have the purlins manufactured as early as practically possible”.
56The primary reasons refer to the agreement set out in “Other Matters” as the “December 2019 consent orders”. The agreement between the parties that Page Steel had separately promised with Makland to use reasonable endeavours to procure the manufacture of the purlins by 13 December 2019 for Warehouse 1 and 18 December 2019 for Warehouse 2 appears in the December 2019 consent orders in “Other Matters” because counsel for Page Steel informed the Court of the relevant agreement between the parties. The actual orders made by his Honour Judge Macnamara at subparagraphs 1(c)(i)(1) and (ii)(1) provided Page Steel with an “out” on delivery as the order only obliged it to deliver the purlins as early as reasonably practicable on 13 December 2019 for Warehouse 1 and as reasonably practicable on 18 December 2019 for Warehouse 2 in the event they were manufactured by that time. If they were not manufactured by that time, Page Steel did not have to deliver the purlins by those dates.
57In my view, it is unnecessary for me to make a finding on whether Page Steel’s breach of the December 2019 consent orders was intentional, deliberate or reckless and there is no evidence before the Court to support this allegation. The factual circumstances arising in the breach of the agreement that gave rise to the December 2019 consent orders are recorded in my primary reasons (at [110]-[125]). In particular, the breach occurred due to:
(a) the proprietor of J & C Threading suffering a workplace injury at the relevant time;
(b) after being told by Mr Spiteri of J & C Threading that he was (or may be) unable to deliver in the time frame, Page Steel made no attempts to secure purlins from an alternative manufacturer;
(c) Page Steel decided to stay with the existing manufacturer, John Spiteri of J & C Threading, because his costing was included in the initial quote to make it $20,000.00 cheaper at a 2% profit margin;
(d) it did not obviate the obligation on Page Steel to seek to have the purlins manufactured as early as practically possible.
58In the above circumstances and:
(a) where I have found that Page Steel did not use its reasonable endeavours to procure the manufacture of the purlins in breach of the December 2019 consent orders agreement;
(b) where the agreement giving rise to the December 2019 consent orders was recorded in “Other Matters” and gave rise to the making of the consent orders by the parties and the Court; and
(c) where Page Steel informed the Court that it would use reasonable endeavours to procure the manufacture of the purlins as early as practicably possible and it did not do so,
I decline to exercise my discretion to award indemnity costs from the date of the expiry of the Third Offer, being a special costs order. However, for the reasons set out above, Makland ought to pay the costs of Page Steel on a standard basis from the date of the expiry of the Third Offer.
Interest
59Makland seeks interest from the time of commencement of the proceeding pursuant to s60 of the Supreme Court Act 1958. The claim does not depend on any particular demand being made. Although it admits that the “reasonable endeavours” breach did not occur until after the proceeding commenced, it says that the breach had plainly occurred by no later than 31 January 2020. On this basis, it seeks an alternative claim for interest to be calculated from that date.
60Page Steel contends that the “reasonable endeavours” claim was based on an agreement dated 9 December 2019 and the subsequent breach of that agreement. It notes that the claim was not introduced until 22 June 2022. Page Steel submits that interest on a damages claim applies on that sum from the date of the writ “unless good cause is shown to the contrary” (s60 of the Supreme Court Act 1958). However, in the present case, the action was not merely added by subsequent amendment, but also did not exist at the date of the writ on 3 December 2019. Makland was, therefore, not out of money until sometime later. It notes that no demands were made on the claim or the amount before it was added to the amended statement of claim. The first demand on the “reasonable endeavours” claim is on 22 June 2022.
61Makland’s losses are set out in invoices of the third party suppliers, being De Vries Engineering (CB 347-8, 388, 419, 437), Steeline (CB 403, 414) Shishan Products (CB 430) and Fix and Fasten (CB 416). Based on the dates of these invoices, the loss clearly crystallised by 31 January 2020, however, there is no evidence of a demand for payment by Makland until it amended its statement of claim on 22 June 2022. In my view, the overarching obligations of the Civil Procedure Act 2010 (ss19, 22, 23 and 25) require that a demand for debt ought to be issued prior to a party initiating proceedings to recover that amount. For those reasons, interest on the “reasonable endeavours” claim is calculated from 22 June 2022.
62Page Steel seeks interest on the counterclaim as a sum certain pursuant to a written instrument within the meaning of s58 of the Supreme Court Act 1958 and s50 of the County Court Act 1958. It submits that interest ought to be calculated from the date it became payable, being 15 October 2019.
63Makland contends that Page Steel’s claim was not for a sum certain, but rather, was for an amount that was “fair and reasonable” under the contract. It submits that the Court had to determine that the amount claimed by Page Steel was a fair and reasonable sum. It submits that the time for interest to run is from the date of the commencement of the proceeding under s60 of the Supreme Court Act 1958 because it was a claim for debt or damages.
64In my view, the counterclaim seeks a debt in the sum of $33,748.10 in the prayer for relief and relies on the unpaid invoice dated 1 October 2019 (CB 250). I, therefore, find that the counterclaim is for a sum certain pursuant to a written instrument, here, the invoice within the meaning of s58 of the Supreme Court Act 1958. Interest runs from the time when demand for payment was made. The invoice dated 1 October 2019 required payment by 15 October 2019. Interest runs from that date.
Conclusion
65For the reasons set out above, the orders are as follows:
(a) There be judgment for the first plaintiff on its claim in the amount of $73,711.53.
(b) There be judgment for the defendant on the counterclaim in the amount of $33,748.10.
(c) There be interest on the first plaintiff’s claim from 22 June 2022 to the date of judgment pursuant to the penalty interest rate.
(d) There be interest on the defendant’s counterclaim from 15 October 2019 to the date of judgment pursuant to the penalty interest rate.
(e) The amount in subparagraphs (a) plus (c) be set off against the amount in subparagraphs (b) plus (d) and the defendant pay the first plaintiff the balance owing.
(f) The defendant take such steps as are necessary so that the amount held in trust pursuant to the controlled money account no 183388 127837 is released to the plaintiffs (which, for the avoidance of doubt, is in addition to the payment of the amount set out in subparagraph (e) above).
(g) Each party bear its own costs of the proceeding up to 28 October 2022 and the plaintiffs pay the defendant’s costs of and incidental to the proceeding (including reserved costs) on the standard basis to be taxed in default of agreement in respect of costs incurred from 29 October 2022.
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Certificate
I certify that these 31 pages are a true copy of the judgment of Her Honour Judge Burchell delivered on 2 June 2023.
Dated: 2 June 2023
Andrea Ko
Associate to Her Honour Judge Burchell
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