Mendrecki v Doan & Pham (No 2) - [2007] SADC 9

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MENDRECKI v DOAN & PHAM & ORS (No 2)
[2007] SADC 9
Judgment of His Honour Judge Rice
15 February 2007
CONTRACTS
First and second defendants, the home owners, found to be in breach of contract concerning the obtaining of public liability insurance for an extensive home renovation - whether the relevant clause was an insurance clause or an indemnity clause.
Held to be insurance clause only - no proof of damages - nominal damages only.
Valkonen and Anor v Jennings Constructions Ltd and Ors (1995) 184 LSJS 87; Luna Park (NSW) Limited v Tramways Advertising Proprietary Limited (1938) 61 CLR 286, considered.

PROCEDURE - COSTS
Rulings as to plaintiff's costs of the action and various applications, as against the defendants.
District Court Civil Rules 2006 rules 8(2), 263, 264 and 268, referred to.
Calderbank v Calderbank [1975] 3 All ER 333, considered.

MENDRECKI v DOAN & PHAM & ORS (No 2)
[2007] SADC 9
Introduction

These rulings relate to the trial of an action before me whereby I found in favour of the plaintiff against all defendants: Mendrecki v Doan & Pham & Ors [2006] SADC 140, reasons published on 22 December, 2006. The judgment was distributed to the parties on that day but no orders were made given the proximity to the Christmas/New Year break. As I understood the position, that course was not opposed by any party. It was always my intention, given that situation, that the plaintiff would receive an amount that included interest from that date, even though the entry of judgment was deferred. If there had been any objection to that course, and there was not, I would have made orders on that day.
The matter was adjourned to 2 February, 2007 for the entry of judgment and further submissions on a discrete point involving the first and second defendants on the one hand, and the third defendant on the other.
The matter came on again on 2 February, 2007. The amount to be the judgment sum as expressed in the reasons was $791,973.96. An amount equivalent to interest was added to that covering the period 22 December, 2006 to 2 February, 2007. Therefore, on 2 February, 2007, I entered judgment for the plaintiff against all defendants in the amount of $797,897.22. Orders on the Contribution Notices and costs as between the defendants was deferred until a later date.
Ambit of clause 23 of the contract between the first and second defendants and the third defendant
This portion of the judgment relates to the contractual arrangements relating to insurance as between the first and second defendants on the one hand, and the third defendant on the other. In the course of the judgment, I identified the dispute as between those parties in this way (para 136):
The essence of the dispute is this. The first and second defendants contend that the contractual arrangements with the third defendant were that the first and second defendants would arrange public liability for themselves and that the third defendant was to arrange public liability for himself. The third defendant contends that the first and second defendants agreed to extend their public liability insurance to cover the third defendant.
After an analysis of the evidence, I concluded that clause 23 of the contract (D(3)43) was the only written clause that potentially applied to public liability insurance. As a matter of convenience, I again reproduce clause 23:
23.(a) The Owner shall in the joint names of the Builder and the Owner and, if applicable, the Lending Institution and for their respective rights, interest and liabilities insure the works until practical completion
(b)Any existing structure (together with all its contents) on the site or adjacent to the works or any plant, machinery, appliances, tools, equipment or materials of the Owner which have not been supplied by the Builder pursuant to this contract shall be at the sole risk of the Owner who shall maintain insurance against risk of any loss or damage thereto.
I concluded that the first and second defendants had breached the terms of their contract with the third defendant. However, the third defendant led no evidence as to the quantum of his damages. In effect, the third defendant argues that there was no evidence that could be called because he did not know he was going to suffer any loss until liability and quantum were determined against him and judgment entered. The first and second defendants argue (in their uninsured capacity) that there is no evidence that such insurance was obtainable in 1997 or, if it was obtainable, what risks would it cover, what terms and conditions would have to be fulfilled before a successful claim could be made. They submitted that, at best, the third defendant should receive nominal damages only.
I asked to hear further submissions as to the ambit of clause 23, in particular whether it was an insurance clause or an indemnity clause. The argument concentrated upon the meaning of that clause in light of the Full Court decision of Valkonen and Anor v Jennings Constructions Ltd and Ors (1995) 184 LSJS 87.
Part of the decision in Valkonen related to Jennings’ indemnity claim based upon the terms of the contract between them. The relevant facts are these. The plaintiff was injured when he fell from a mobile scaffold at the site of a supermarket construction. Jennings, the building contractor, engaged Ceilfix Pty Ltd (“Ceilfix”), of which the plaintiff was a shareholder, director and employee, to erect the ceiling of the supermarket. In its turn, Ceilfix contracted with The Scaffold Connection Pty Ltd (“Scaffold Connection”) to construct the scaffold which Ceilfix’s staff would use to construct the ceiling. At trial, the trial Judge found that Jennings should bear 20 per cent of the responsibility for the plaintiff’s injuries. The trial Judge dismissed the indemnity claim on the ground that the contract term in question was not applicable to the plaintiff’s accident. On appeal, Jennings’ apportionment was reduced to 10 per cent.
The contract between Jennings and Ceilfix included a number of insurance conditions, particularly that Ceilfix was to be solely liable “...and shall indemnify the Builder [Jennings] in respect of and shall insure against any liability, loss, claim or proceedings whatsoever arising under any statute...or at Common Law...” concerning death or injury in performance of the works.
It was argued on appeal by Ceilfix that the contract did not have anything to say about the negligence of Jennings, but that the clause was really about insurance, and whether Ceilfix had met its obligations to insure was not an issue in the proceedings.
It was held on appeal, contrary to the view of the trial Judge, that the contract was dealing more than with the obligation to insure and the consequences of a failure to insure. It was held that the crucial words (quoted above) “...create a right of indemnity of some sort that can stand independently of [Ceilfix’s] obligation to insure.” In effect, there were two separate obligations, an obligation to insure and an obligation to indemnify.
Further, giving the words “...their plain and natural meaning, and having regard to the context in which they appear, they are wide enough to include a liability caused by the negligence of Jennings’ own servants...”, Jennings was held to be entitled to be indemnified by Ceilfix against Jennings’ own liability to the plaintiffs.
It is submitted by the first and second defendants that clause 23, unlike the clause in Valkonen, makes no reference to an “indemnity”, rather, simply an obligation to insure whereby the first and second defendants are required to procure a contract by which a third party will indemnify. Further, the first and second defendants submit that the clause makes no reference as to the subject matter in respect of which the indemnity is said to apply.
In my view, having regard to the express words of clause 23 and the context of the words, no more arises than an obligation to insure. There is no obligation to indemnify.
Returning to the question of loss, the third defendant has called no evidence on that subject matter. In that situation, it was submitted that, although the contract was breached, the third defendant is only entitled to nominal damages: Luna Park (NSW) Limited v Tramways Advertising Proprietary Limited (1938) 61 CLR 286. I agree. I fix nominal damages at $10.00.
There will be judgment for the third defendant against the first and second defendants for breach of contract. There will be nominal damages of $10.00.
Plaintiff’s application for costs against all defendants
As is previously noted, judgment has been entered in favour of the plaintiff against all defendants. Their liability for the judgment sum is joint and several. The plaintiff now seeks his costs against all defendants. The application has two parts, first, what aspects of the trial, including related issues, are to be covered by the order and, secondly, the basis for the order as to costs.
The plaintiff seeks, against all defendants, the costs of and incidental to the trial, including necessary applications to which reference will be made.
The application comes within the new District Court Civil Rules 2006 that commenced on 4 September, 2006. Costs are covered by Chapter 12. For present purposes, the important Rules are Rules 263, 264 and 268. There is no need to consider the transitional provisions in detail. The effect of DCR 8(2) is that Chapter 12 applies from 4 September, 2006 to an action commenced before or after that date. A wide discretion is preserved.
Consistently with the Rules, the defendants are ordered to pay the plaintiff’s costs of and incidental to the action.
During the course of the trial or between the various times when the Court was sitting upon the trial, certain applications were brought where the question of costs were reserved. Costs in these situations are picked up in Rule 268, which provides as follows:
268—Reservation of costs
If the Court reserves the costs of an application or other proceeding incidental to an action, the costs of the application or other incidental proceeding follow the event of the action unless the Court later orders to the contrary.
In other words, here, where Rule 268 is applicable, the costs of such applications are to be awarded to the plaintiff unless the Court orders otherwise.
These and other applications are now dealt with separately.
Applications heard on 8 February, 2005
These were applications by the first and second defendants and the third defendant to amend their pleadings. No order as to costs was made at that time.
In accord with Rule 263(2)(a) (see below), there being no reason to order to the contrary, I order that the first and second defendants and the third defendant pay the plaintiff’s costs of these applications.
Applications heard on 1 March, 2005
These were applications by the fourth defendant and the fifth defendant to amend their pleadings. Again no order as to costs was made at that time.
Again, in accord with Rule 263(2)(a), I order that the fourth defendant and the fifth defendant pay the plaintiff’s costs of these applications.
Application heard on 15 March, 2005
This application was made jointly by all defendants after the first period of time during which the Court sat upon the trial, but before the second period. The application was made to another Judge of the Court, Judge Lee, seeking an extension of time to file, in effect, a Rules offer. The plaintiff opposed the application.
The recollections of counsel differed as to whether a costs order had already been made at the conclusion of the hearing of that application. To resolve the matter I had recourse to the sealed transcript. Judge Lee specifically ordered “...costs of and incidental to this morning’s hearing be reserved.”
On the face of it, the plaintiff’s application for his costs of this application sits comfortably with Rule 268. This is a matter to which I will return when considering the basis upon which costs are to be paid and Mr Stratford’s submissions and application.
Application heard on 15 April, 2005
The trial resumed on Wednesday, 13 April, 2005. On the afternoon of Friday, 15 April, 2005 the third defendant applied for leave to amend his Statement of Claim against all other defendants. The application was granted. The trial proper did resume for the balance of the day.
The Court record shows that an order was made at that time that the third defendant pay the costs of all parties for that lost afternoon of trial hearing. I confirm the order that the third defendant pay the plaintiff’s costs of that afternoon, on a party and party basis.
Application heard on 29 April, 2005
This was an application by the fourth defendant to amend its pleadings. The amendment was granted and I reserved the question of costs.
This application is covered by Rule 263, particularly sub-rule (2)(a). The relevant parts of Rule 263 are as follows:
263—Court’s discretion as to costs
(1)As a general rule, costs follow the event.
(2)The general rule is, however, subject to specific rules to the contrary and also to the following exceptions (which apply subject to the Court’s order to the contrary)—
(a) the costs of an amendment are to be awarded against the party making the amendment;
I see no reason to order to the contrary, so I order the fourth defendant to pay the plaintiff’s costs of this application.
Application heard on 14 November, 2005
This was an application by the first and second defendants to amend their Defence to the plaintiff’s claim and, further, to amend their Statement of Claim against the third defendant, fourth defendant and fifth defendant. There was a subsidiary question relating to whether the first and second defendants may seek leave to call expert evidence.
I granted leave to the first and second defendants to amend their Defence to the plaintiff’s claim. Costs were reserved.
As to the application by the first and second defendants to amend their Statement of Claim against the third defendant, fourth defendant and fifth defendant, no decision was made on that application on 14 November. I gave the third defendant and the fifth defendant the opportunity to adduce medical evidence because, it was submitted, to allow the amendment would call for expert investigation and a consequential delay in the trial which would adversely affect their health.
As to the plaintiff’s application, this situation is again covered by Rule 263(2)(a). Again there is no reason to order to the contrary so I order the first and second defendants to pay the plaintiff’s costs of this application.
Application heard on 23 November, 2005
This application needs to be understood as a continuation of the application heard on 14 November whereby the first and second defendants applied to amend their Statement of Claim against the third defendant, fourth defendant and fifth defendant. The application by the first and second defendants for dispensation from the former Rule 38 to produce expert evidence was abandoned.
The trial was set to continue on Monday, 28 November, 2005.
As to the application by the first and second defendants, the amendment was granted to amend their Statement of Claim. Again this situation is covered by Rule 263(2)(a) and, there being no reason to order to the contrary, I order that the first and second defendants pay the plaintiff’s costs of this application on this day.
The ruling in favour of the amendment led to an argument by the third defendant and the fifth defendant that the trial be adjourned until early 2006 to enable them to obtain expert advice and possibly expert evidence. I took the view, contrary to Mr Stratford’s submissions, that those defendants should be given the opportunity to seek expert advice before the trial resumed, but I was not prepared to adjourn the trial until 2006. The view I took was that those matters were within a narrow compass such that delaying the resumption of the trial for a week should be sufficient.
The application for an adjournment of the trial was itself adjourned for mention to 30 November, 2005. On that occasion I was informed that additional time was not needed. The trial was ordered to resume on 5 December, 2005.
With that background, the plaintiff seeks his costs of the lost week, that is, the week commencing 28 November, 2005. I intimated at the time that I thought the first and second defendants should pay the costs of the plaintiff and the third defendant, fourth defendant and fifth defendant for that lost week. Nothing occurred in the balance of the trial to cause me to change that view.
For present purposes, I order that the first and second defendants, but not the other defendants, pay the plaintiff’s costs thrown away for the week commencing 28 November, 2005. The costs of the attendance for mention on 30 November, 2005 are necessarily subsumed in that order. I leave it to a Taxing Master to ascertain costs actually thrown away.
Basis upon which the plaintiff’s costs are to be paid
The plaintiff seeks orders as to costs against each defendant to be taxed or agreed on a party and party basis to 31 March, 2005 and thereafter on a solicitor and client basis. I have already made various orders. The remaining question relates to the basis upon which the plaintiff’s costs are to be paid.
The date of 31 March, 2005, after which the plaintiff submits he is entitled to costs on a solicitor and client basis, is inter-related with Mr Stratford’s submissions on costs to which I referred earlier.
I have already touched upon the joint application by the defendants for an extension of time to file an offer in accord with the former Rules. Judge Lee, not being the trial Judge, suggested an affidavit or other agreed document be filed to provide a framework for a decision on the application. Alternatively, His Honour suggested that the offer be filed in any event and the plaintiff take advice on it and the procedural steps that are available.
In the result, the application (dated 10 March, 2005) was adjourned sine die with liberty to any party to apply. As recited earlier, costs were reserved. The matter was certified fit for all counsel present.
So far as I have seen, no offer was filed by the defendants or any of them after this time.
As I have already observed, this activity was after the first period of time when the trial proceeded and before the second period that had been set aside. Affidavit material supplied for the purposes of the argument on costs revealed that, after the first period in Court, the first and second defendants made an offer to the plaintiff to settle their potential liability to him. By letter dated 23 December, 2004, the solicitors for the first and second defendants wrote to the solicitors for the plaintiff outlining the offer and its rationale. The offer was expressed to be in the nature of a Calderbank offer (following Calderbank v Calderbank [1975] 3 All ER 333), offering to pay $100,000 “...towards an assessment of your client’s damages, or alternatively 25% of your client’s damages to be assessed after allowing for contributory negligence...” There was also an offer to pay an appropriate proportion of the plaintiff’s costs on a party and party basis to be agreed or taxed.
As can be seen, part of the rationale was that the plaintiff was guilty of some contributory negligence. In my judgment I did not find any such contributory negligence. Further, part of the rationale for the quantum of the offer was on the basis that s 72 of the Development Act applied such that liability would be proportionate. On this point I found that s 72 did not apply and that therefore liability remained joint and several. In the result, the full judgment has been ordered to be paid by all defendants.

By letters of the same date, the solicitors for the other defendants were supplied with a copy of the letter to the plaintiff. Part of the letter to the defendants’ solicitors reads as follows:
Our client has instructed us that it will agree to pay 25% of the plaintiff’s damages to be assessed after allowing for any finding as to contributory negligence, or alternatively it will contribute $100,000.00 toward the plaintiff’s damages as ultimately awarded. As a condition of this offer, our clients will require an indemnity from the party or parties accepting the offer both in relation to the plaintiff’s claim, and in relation to the contribution proceedings against the first and second defendants by each of the remaining defendants.
This letter was also said to be a Calderbank letter and included the following paragraph:
If the defendants do not achieve a better outcome on the contribution proceedings than set out in this letter we will seek appropriate orders in relation to costs, including an order that the remaining defendants pay the first and second defendants costs from 14 days from the date of this letter, and an order that the defendants indemnify the first and second defendants in relation to any cost liability to the plaintiff which accrues after 14 days from the date upon which this letter is received.
Correspondence between some of the solicitors sought clarification of the meaning of the offer. In the result, as I understand the position, all parties rejected this offer or it lapsed.
Mr Stratford, on behalf of the first and second defendants, accepts that the plaintiff should receive the costs of the action on a party and party basis against all defendants up to and including fourteen days after 23 December, 2004. However, he submits that, thereafter, the first and second defendants should have their costs on a solicitor and client basis against the plaintiff.
I mention at this stage an additional aspect of Rule 263. By sub-rule (3), the Court, in the exercise of its discretion as to costs, may “...have regard to any offer to consent to judgment or other attempt to settle the action...” I do not interpret “offer to consent” as being limited to an offer made in accord with the Rules. Bearing in mind the wide discretion as to costs being exercised, it should extend to informal offers of the Calderbank type. In any event, such offers are caught by the remaining words of the sub-clause “...other attempt to settle the action...”
The essence of the submission made by Mr Stratford is that the judgment only found the first and second defendants liable for 10% of the plaintiff’s damages and the $100,000 is greater than 10% of the judgment sum. On that basis, it is submitted, the plaintiff was awarded less than the offer apropos the first and second defendants and therefore they should receive their costs fourteen days after 23 December, 2004 (or some greater period having regard to the Christmas/New Year break).
Mr Stratford’s argument cannot be accepted because, with respect, it misunderstands the effect of the judgment entered. I have ordered the judgment sum be entered for the full amount against all defendants. On that basis, the first and second defendants have not bettered their “attempt to settle the action”.
Further, the offer by the first and second defendants very much hinged on an acceptance by the Court that s 72 of the Development Act applied such that any liability was proportionate. The rejection of the application of s 72, together with the first and second defendants being found negligent, inevitably led to their offer being inadequate.
The plaintiff is, at the very least, entitled to the costs of the action on a party and party basis. However, there remains an additional aspect to Mr Frayne’s submissions on behalf of the plaintiff. From 31 March, 2005, the plaintiff seeks costs against each defendant on a solicitor and client basis. Some explanation is necessary.
Following the attempts by the first and second defendants to settle the action with the plaintiff and other defendants, there were clearly other efforts to settle the action. Mr Frayne, in support of his argument, relies upon two such attempts.
The first was the plaintiff’s offer to consent to judgment in the amount of $560,000, plus costs as agreed or taxed, filed on 18 March, 2005. I note that this offer did not comply with the then Rules because it was required to be filed and served 21 days before the commencement of the trial. However, given the new Rules, it is relevant to the exercise of the discretion when considering costs.
The second was contained in a letter dated 31 March, 2005. The letter is written by the plaintiff’s solicitors to the solicitor acting for the fourth defendant but its terms show it was directed to all defendants. The text is as follows:
We confirm the Defendants’ offer to settle this claim for an amount of $400,000.00 plus party/party costs is rejected.
In a further effort to resolve this matter our client is prepared to settle his claim by consenting to Judgment against the Defendants for the amount of $510,000.00 plus party/party costs as agreed or taxed.
Without Prejudice save as to costs.
This offer is plain and represents another genuine attempt by the plaintiff to settle the action. Correspondence provided as part of this argument shows that the offer to consent to judgment by the plaintiff was a significant amount less than previously sought and, leaving costs to one side, not too far from what the defendants were offering. It would have been very prudent for the defendants to accept the plaintiff’s offer.
The offer by the plaintiff should not have required too long to consider, in part because the parties were preparing to resume the hearing on 12 or 13 April.
On that basis, there were two genuine attempts by the plaintiff to settle the action before the trial resumed. Both documents are relevant to the costs discretion. They form the basis of the plaintiff’s submission that he should have his costs on a solicitor and client basis from 31 March, 2005 onwards.
There are countervailing considerations.
Prior to the actual commencement of the trial in December, 2004, there was no offer to consent to judgment filed by the plaintiff in accord with the former Rules. Further, prior to the commencement of the trial, the plaintiff did not inform the defendants that he was prepared to consent to judgment for an amount that has now been exceeded. The entire trial was conducted against the former Rules. The only events that have occurred after the commencement of the new Rules are the publication of reasons, the later entry of judgment and this argument about costs.
The plaintiff now seeks to take advantage of the new Rules on this question of costs by invoking the wider discretion now apparently available under Rule 263(3). It was proper so to do but, in my view, it would be unreasonable to order that solicitor and client costs be awarded to the plaintiff in the exercise of that wide discretion. The plaintiff did not, so far as I am aware, take advantage of the former Rules by an offer in accord with those Rules. Further, where the trial is conducted and judgment reserved under one Rules regime, it would seem unreasonable, in this particular situation, to elevate a non-Rules offer, or letter of offer to consent to judgment, to a point justifying solicitor and client costs.
Finally, the plaintiff opposed the defendants being permitted to file a Rules offer but now seeks to rely upon a later letter offering to consent to judgment. This is a factor relevant to the exercise of the discretion.
Taking all matters into account, I order that the defendants pay the plaintiff’s costs of and incidental to the action on a party and party basis.
I also order that, concerning the application heard on 15 March, 2005, the defendants are to pay the plaintiff’s costs.
Costs are to be agreed or taxed. All costs are on a party and party basis.
A Schedule of Orders is annexed hereto.
ANNEXURE
SCHEDULE OF ORDERS MADE ON 15 FEBRUARY, 2007
1.There will be an order for judgment in favour of the third defendant on his claim against the first and second defendants for breach of contract. I award nominal damages of $10.00.
2.The plaintiff’s costs of and incidental to the action are ordered to be paid by all defendants on a party and party basis.
3.As to the applications heard on 8 February, 2005, I order that the first and second defendants and the third defendant pay the costs of the plaintiff.
4.As to the applications heard on 1 March, 2005, I order that the fourth defendant and the fifth defendant pay the costs of the plaintiff.
5.As to the application heard on 15 March, 2005 before Judge Lee, I order that all defendants pay the costs of the plaintiff. Certified fit for all counsel present.
6.As to the application heard on 15 April, 2005, I order, by way of confirmation, that the third defendant pay the costs of the plaintiff of the application and the balance of the day, on a party and party basis.
7.As to the application heard on 29 April, 2005, I order that the fourth defendant pay the costs of the plaintiff.
8.As to the application heard on 14 November, 2005, I order that the first and second defendants pay the costs of the plaintiff.
9.As to the application heard on 23 November, 2005, I order that the first and second defendants pay the costs of the plaintiff.
10.As to the five days commencing 28 November, 2005, I order that the first and second defendants pay the costs of the plaintiff thrown away on a party and party basis.