McLeay & Sons Carpets Pty Ltd v McDonald - [2017] SASC 142

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
MCLEAY & SONS CARPETS PTY LTD v MCDONALD & ANOR
[2017] SASC 142
Judgment of The Honourable Justice Vanstone
29 September 2017
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - COSTS
Application for permission to appeal against two costs orders made in the Magistrates Court after plaintiffs accepted a filed offer by defendant. By interlocutory application respondent seeks determination of the question of permission ahead of the appeal hearing.
Held: Appropriate to consider question of permission in advance of hearing the appeal. Magistrate’s discretionary decisions not plainly unreasonable and the amounts in dispute do not justify the costs of the proposed appeal.
Magistrates Court (Civil) Rules 2013 (SA) r 2, r 55, r 58; Supreme Court Act 1935 (SA) s 50; Supreme Court Civil Rules 2006 (SA) r 288, referred to.
Daniel v Van Zwol [2015] SASCFC 38; Oxer v Astec Paints Australia Pty Ltd [2008] SASC 64; Lombard Insurance Company (Australia) Limited v Pastro (1994) 175 LSJS 448, considered.

MCLEAY & SONS CARPETS PTY LTD v MCDONALD & ANOR
[2017] SASC 142
Magistrates Appeal: Civil
VANSTONE J.

McLeay and Sons Carpets Pty Ltd (McLeays) has applied for permission to appeal against orders made in the Magistrates Court relating to costs. The respondents to the appeal, Kellie and Ashley McDonald (the McDonalds) now apply by interlocutory application to have the question of permission determined in advance of the appeal hearing. The application has been supported by affidavits on both sides, which have set out, not only the facts, but the parties’ arguments. I have heard orally from both parties in relation to the application as well. For the reasons which follow, I have determined that it is appropriate to deal with the question of permission in advance of the appeal, and that permission to appeal should be refused.
Background
The proceedings in the Magistrates Court stemmed from a contract between the McDonalds and McLeays, on the basis of which McLeays were to provide and install timber flooring at the McDonalds’ home. The McDonalds alleged that the flooring was defective and issued proceedings against McLeays claiming damages which, upon later amendment, amounted to about $21,000. McLeays filed a defence. McLeays also filed a third party notice against the manufacturer of the floorboards.
On 14 December 2016 McLeays filed and served an offer to “consent to judgment for the sum of $4,000.00 in full and final settlement of the plaintiff’s claim including interest and costs”. The offer was not limited in terms of time. Then, in January 2017, the court notified the parties of the proposed trial date, being 18 April 2017.
On 10 April 2017 the offer was accepted by the McDonalds. On 12 April 2017 McLeays discontinued the third party claim.
Two applications for costs were subsequently filed. First, the third party filed an application seeking an order that McLeays pay its costs. Against McLeays’ opposition the Magistrate found that McLeays were liable to pay the third party’s costs and he assessed them at $11,610, which amount included disbursements for three expert reports. On appeal McLeays would argue that this was a wrongful exercise of discretion and the Magistrate should have ordered that the McDonalds pay the third party’s costs.
The second application was by McLeays itself, seeking an order that the McDonalds pay its costs, fixed at $5,422. The Magistrate set out McLeays’ argument in support of that application, gave reasons for rejecting it and struck out the claim. That order, too, is the subject of appeal.
I now set out those of the Magistrates Court (Civil) Rules 2013 (SA) which are relevant to the appellant’s argument. McLeays’ offer to consent to judgment against it was filed pursuant to r 55 of the Magistrates Court Rules. Relevant parts of that rule are reproduced:
OFFERS TO CONSENT AND PAYMENTS TO REGISTRAR
55.(1)     A party may file and serve on any other party an offer to consent to judgment, provided such offer is filed and served at least 21 days prior to the trial.
(2)     The offer must specify whether it is inclusive of costs and interest.
(3)     [not relevant].
(4)     [not relevant].
(5)     A party may file and serve an acceptance of the offer, provided such acceptance is filed and served at least seven days prior to the trial.
…
As will be seen, McLeays rely on r 58 of the Magistrates Court Rules in support of its appeal. I reproduce that rule:
58.(1)     In making an order as to costs at the trial of an action, the Court must take into account any offer to consent to judgment, or any payment of a sum of money to the Registrar, and any refusal or failure to accept such offer or payment.
(2)     Unless the Court for special reasons orders otherwise –
(a)A plaintiff who obtains final judgment for a sum of money that is more than the amount of its offer plus the costs and interest due at the time of the offer is entitled to costs on a solicitor and client basis after the expiration of 14 days from the date the notice of the offer was served.
(b)A plaintiff who obtains final judgment for a sum of money that is equal to or less than the amount of any such offer or payment by the defendant (plus costs and interest due at the time of payment, is not entitled to costs after the expiration of 14 days from the date the notice of offer or the notice of payment was served and thereafter the defendant is entitled to solicitor client costs.
McLeays also refer to r 2 of the Magistrates Court Rules for the definition of “final judgment”, that expression appearing in r 58(2)(b) of the Magistrates Court Rules. In r 2 of the Magistrates Court Rules that term is defined as follows:
“final judgment” means any judgment –
(a)     made with the consent of the parties;
(b)     given at the conclusion of a contested hearing;
(c)     made in the terms of the acceptance of either an offer to consent to judgment or a payment of a sum of money to the Registrar; or
(d)     a summary judgment.
McLeays’ appeal is brought under s 50 of the Supreme Court Act 1935 (SA). By r 288 of the Supreme Court Civil Rules 2006 (SA) the appeal lies by permission of the Court. Under r 288(1) of the Supreme Court Rules, the appellant having commenced the appeal before obtaining permission to appeal, the appeal is conditional on permission to appeal being granted. If permission is refused, the appeal lapses: r 288(2) of the Supreme Court Rules.
I remind myself that a costs order involves a discretionary judgment. A party seeking to challenge such a judgment has a formidable task. In Daniel v Van Zwol [2015] SASCFC 38 Stanley J, speaking for the Full Court, said this at [48]:
I reject the appellant’s challenge to the master’s costs order. A costs order involves a discretionary judgment. There is no good reason to adopt a different approach to an appeal from a costs order in a family provision matter from any other matter. On appeals against discretionary costs orders there is a strong presumption in favour of the correctness of the decision: Kazar v Kargarian (2011) 97 FCR 113. In order to succeed on an appeal against an order for costs, the appellant must show that the exercise of the discretion of the trial judge as to costs was so unreasonable or unjust as to require the appellate court to substitute its own discretion: Southern Resources Ltd v Residues Treatment and Trading Co Ltd (1990) 56 SASR 455; N E Perry Pty Ltd v Judge (No. 2) [2003] SASC 364. ...
[references incorporated]
Stanley J went on to observe that generally a party requiring leave to appeal will need to identify an important question of principle requiring resolution: [53].
In Oxer v Astec Paints Australia Pty Ltd [2008] SASC 64 Debelle J considered r 281(b) of the Supreme Court Rules which was a predecessor to r 288(1)(b). Debelle J said this at [7]:
The requirement to obtain permission to appeal on a question of costs exists for the purpose of limiting appeals as to costs to those cases where the judge has not exercised the discretion as to costs judicially: Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 811; Jones v McKie [1964] 1 WLR 960 at 966; Copping v ANZ McCaughan Ltd (1995) 63 SASR 523 at 528-529. It is not the intention of the rule to require leave to appeal where the issue as to costs falls outside the question whether an order for costs should be made between party and party and the terms of that order. …
Mr Guthrie, for McLeays, argues that the construction of r 58 of the Magistrates Court Rules and the application of r 58(2) in particular to this situation raises a question of principle and therefore permission to appeal is not required. He argues that the opening words of r 58(2) “… a plaintiff who obtains final judgment …” apply to the McDonalds due to the definition of “final judgment” in r 2 of the Magistrates Court Rules. If r 58(2) were applied to McLeays’ situation, then the defendant McLeays is entitled to solicitor client costs. That follows, counsel argues, because the amount obtained by the McDonalds in the final judgment was equal to McLeays’ rules offer and that offer was accepted after the expiration of 14 days from the date when the offer was served.
In relation to the Magistrate’s order that McLeays pay the third party’s costs, Mr Guthrie concedes that a discretionary judgment is involved. However, he argues that the Magistrate failed to have regard to the principle embodied in the statement of King CJ in Lombard Insurance Company (Australia) Limited v Pastro (1994) 175 LSJS 448. That was an appeal by an insurance company against one of several costs orders made by a Judge following a trial in the District Court. There, the insurer successfully defended itself against the claim for damages by its insured. The insurer had joined an insurance agent as a third party, but ultimately succeeded on the basis that arson was proved against the insured, who was consequently not entitled to recover. In that context King CJ said this at 450:
I think that a guiding principle for the exercise of the discretion in such cases may be formulated as follows. Where the nature of the plaintiff's claim, or allegations in support thereof, render it reasonable, having regard to the purposes of third party procedure, to bring in the third party, and the third party claim is unsuccessful solely by reason of the failure of the plaintiff to sustain its claim or the relevant allegations, the defendant should ordinarily recover from the plaintiff the costs of the third party claim including those which the defendant is ordered to pay to the third party. The emphasis is on the word “ordinarily”. The discretion is unfettered and a variety of factors may properly enter into the exercise of it.
McLeays argue that it was reasonable for it to have joined the third party and the Magistrate should have considered the matter in that light and by reference to the guidance given by King CJ.
Mr Bullock, for the McDonalds, argues among other things, that r 58 has no application, as it applies to costs orders made after a trial. The Magistrate’s decision as to that is not attended by doubt. In relation to the third party’s costs he emphasises that, by its offer, McLeays consented to judgment against itself. It is not as if there was a denial of liability by it. Anyway, by discontinuing against the third party, it abandoned the claim that the third party bore responsibility. In relation to both grounds, Mr Bullock puts that having regard to the relatively “miniscule” amounts of money in issue, the costs of appeal are likely to outweigh those amounts, and on that basis alone permission should be refused.
Consideration
I consider that both arguments put by the appellant are unmeritorious.
In my opinion r 58 of the Magistrates Court Rules does not apply in the present situation. Rule 58 is directed to the situation where costs of a trial of an action are at issue. That this is so is reinforced by the text of both sub‑rule (1) and (2) which address the situation where an offer has been made but not accepted. Both paragraphs of r 58(2) invite a comparison between the amount of the “final judgment” and the amount of the offer made. Accordingly the meaning of “final judgment” in this context must be the second alternative of those given in r 2, namely “any judgment … (b) given at the conclusion of a contested hearing”. I reject Mr Guthrie’s argument that r 58(2) of the Magistrates Court Rules should be considered as if it were a stand alone rule divorced from sub-rule (1). Plainly, sub-rule (2) relies on the context established in sub-rule (1) and builds upon it.
Furthermore, r 55 of the Magistrates Court Rules which deals with offers to consent to judgment plainly regulates the situation as to costs. As seen, the offer to consent to judgment filed by McLeays specified that the offer included interest and costs and it did so in compliance with r 55(2). It did so without limiting the offer in terms of time. The argument now put by McLeays appears to be contrary to the terms of the very offer it made, which the McDonalds accepted.
The reasons of the Magistrate make it plain that he was of the same view. I would refuse permission to appeal on this ground on the basis that the ground is not reasonably arguable.
The appellant’s argument in relation to the third party’s award for costs proceeds on a similar misapprehension. The principle adverted to by King CJ in Lombard’s case is applicable to the situation which pertains after a trial of the action. The context in which the statement was made and its terms demonstrate that it cannot apply to the situation where the plaintiff and defendant choose to settle the matter without reference to the third party. Whether or not the third party bore any responsibility for whatever defects there were in the floor installed for the McDonalds will never be elucidated. There has been no determination of that issue. The third party has had no opportunity to refute the claim that the materials it provided were faulty. In this situation, on the face of it, it should not be required to bear its own costs. Naturally, it would look to McLeays to pay its costs. McLeays are responsible for the third party being brought into the action. The McDonalds had no control over that and cannot be expected to bear any responsibility for that decision.
Accordingly, far from considering that the Magistrate’s decision that McLeays are responsible for the third party’s costs is wrong, I agree with it.
However, even apart from these considerations I would refuse permission. The amounts in issue do not justify allowing the appeal to go ahead. The claim for costs made by McLeays against the McDonalds was for the sum of $5,422, significantly more than the judgment sum. The order made against McLeays in favour of the third party was in the sum of $11,610. The costs of an appeal, potentially involving three sets of solicitors and counsel, are likely to transcend the amounts in issue.
For this reason, too, permission should be refused.
Conclusion
In my opinion this is not a case “where the issue as to costs falls outside the question whether an order for costs should be made between party and party and the terms of that order”, using the words of Debelle J in Oxer. Therefore the appeal is “limited to a question about costs”: r 288(1)(b) of the Supreme Court Rules and permission is required.
I consider that permission to appeal should be refused, not only because there is nothing plainly unreasonable about the orders made by the Magistrate, but also because the amounts in dispute do not justify the costs of the proposed appeal.
Permission to appeal is refused.