Optus Networks Pty Ltd v Leighton Contractors Pty Ltd - [2002] NSWSC 450

No judgment structure available for this case.

CITATION: Optus v Leighton & Ors [2002] NSWSC 450

CURRENT JURISDICTION: Equity Division - Construction List

FILE NUMBER(S): SC 55059/97

HEARING DATE(S): 17 May 2002 and written submisions

JUDGMENT DATE: 17 May 2002

PARTIES :

First Plaintiff: Optus Networks Pty Limited
Second Plaintiff: Optus Systems Pty Limited
Fourth Plaintiff: Optus Vision Pty Limited
Fifth Plaintiff: Optus Communications Pty Limited
First Defendant: Leighton Contractors Pty Limited
Second Defendant: Norman Disney & Young & Partners Pty Limited
Third Defendant: Tyco Australia Pty Limited
Sixth Cross-claimant: EMAE Pty Limited
Fifth Cross-claimant: The WorkCover Authority of New South Wales

JUDGMENT OF: Hunter J at 1

COUNSEL : Plaintiffs: P Greenwood SC
First Defendant: R Pepper
Second Defendant: G Ellis
Third Defendant: N Hutley SC
Sixth Cross-claimant: N Kidd
Fifth Cross-claimant: S Donaldson SC

SOLICITORS: Plaintiffs: Minter Ellison Lawyers
First Defendant: Moray & Agnew
Second Defendant: Colin Biggers & Paisley
Third Defendant: Blake Dawson Waldron
Sixth Cross-claimant: Allen Allen &Hemsley
Fifth Cross-claimant: Phillips Fox

CATCHWORDS: Practice and Procedure - Costs - indemnity costs - relevant factors - importance of anticipated length and costs of proceedings - weakness of case against successful parties - tenuous basis for joinder of parties in cross-claims - Claderbank offers - unreasonableness of offerors' conduct - unrealistic assessment by offeree of its liability to plaintiffs - unrealistic assessment by offeree of plaintiffs' likely recovery of damages - whether offeree sufficiently informed at time of offer to make assessment as to quantum to offer if compromise - unsuccessful defendant an unreasonable obstacle to settlement - whether in conformity with Pt 22 - whether admissible as without prejudice offer in accordance with s131 of Evidence Act 1995 - Bullock Orders - conduct of unsuccessful defendants in inducing maintenance of proceedings by plaintiffs - conduct of unsuccessful defendant in inducing cross-claims by other defendants through initiating cross-claim

LEGISLATION CITED: Evidence Act 1995 (NSW)
Supreme Court Rules 1970

CASES CITED: Almeida v Universal Dye Works Pty Limited (No 2) [2001] NSWCA 156
Associated Confectionary (Aust) Limited v Mineral and Chemical Traders Pty Limited (1991) 25 NSWLR 349
Bruinsma v Menczer (1995) 40 NSWLR 716
Clancy v Prince & Ors [2001] NSWSC 164
Cumming v Sands [2001] NSWSC 706
Gould v Vaggelas (1985) 157 CLR 215
John S Hayes & Associates Pty Limited v Kimberly Clark Australia Pty Limited (1994) 52 FCR 201
Nobrega v Trustees of the Roman Catholic Church [1999] NSWCA 133
Richardson v Hough (unreported, Santow J, 12 May 1999)
Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179
Sved v Council of the Municipality of Woolahra (1998) NSW Convr 55-842
Van Doore v Mendez, unreported, 30 June 1997 Dunford J

DECISION: Indemnity costs and order in nature of Bullock orders made as set out in paragraph 106.

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CONSTRUCTION LIST

Hunter J

22 May 2002

55059/97 Optus Networks Pty Ltd & Ors v Leighton Contractors Pty Ltd & Ors

SLIP RULE ORDERS

In reviewing the orders made on 17 May 2002 it is noted that order 15 has been duplicated in order 17. Accordingly under the slip rule I make the following further orders:

1. Order 17 of the orders made on 17 May 2002 be deleted and orders numbers 18 to 24 inclusive be numbered 17 to 23 respectively.

2. The reference to orders 9, 14, 18, 19 and 23 in orders 13 and 15 of 17 May 2002 be corrected to refer to orders 9, 14, 17, 18 and 22

The transcript of orders made on 17 May 2002 records that in making order 16 I referred to order 1. To the extent that I may have referred to order 1 that is incorrect and the order should read as a reference to order 9. I have corrected order 16 accordingly.

-oOOo-

- 43 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CONSTRUCTION LIST

Hunter J

17 May 2002

55059/97 Optus Networks Pty Ltd & Ors v Leighton Contractors Pty Ltd & Ors

JUDGMENT

1 HUNTER J: There remains to be resolved in these proceedings the appropriate order as to costs. There is little agreement amongst the parties as to the manner in which costs should be disposed of. Essentially, the dispute centres upon two questions, namely, whether costs should be ordered on an indemnity basis and, in doing so, departing from the usual order as to costs; and, second, whether in respect of particular costs an order in the form of a Bullock order should be made. I have reached the conclusion that, in respect of particular costs, orders of those kinds should be made. In these further reasons I have adopted the terminology used in the principal reasons for judgment.

2 I think one starts with the proposition that if ever proceedings should have been settled, these proceedings fell into that category. That is not a view expressed with hindsight, nor one coloured by the evidence tendered on the applications as to costs. Subject to any issues as to contributory negligence, that one or more of the defendants was liable was, at the very least, a high probability. Indeed, Leighton admitted liability in final addresses, albeit only against the party with which it was in contractual relationship, namely, Networks.

3 The liability issue descended into one in which the defendants sought to shift responsibility on to the other and after the joinder of EMAE and WorkCover by Tyco, seeking to shift liability on to those entities. Leighton and NDY simply followed Tyco's lead during the course of the hearing, seeking contribution against those parties.

4 The issues of liability relating to contributory negligence had scant factual and legal basis. In my principal reasons for judgment, I found it necessary to be critical of aspects of those issues as relied upon principally by Tyco. I think it is also important to note that Tyco led the defence in these proceedings and the attack upon EMAE and WorkCover, although NDY did call evidence in its case against WorkCover.

5 Leighton's position was opportunistic, I think to an unfortunate extent, in following suit in relation to Tyco's position in these proceedings, even where I consider that position to have been untenable.

6 NDY also followed on Tyco's coat-tails while taking a more active role in the proceedings than Leighton on quantum issues, particularly those relating to technological matters concerning the migration application engaged in by Optus. However, it was Tyco that clearly led the defence and the prosecution of the cross-claims against EMAE and WorkCover and it was Tyco's conduct of the case that met with particular criticism, both in my principal reasons for judgment and in the separate reasons of 24 April 2002.

7 It is not particularly surprising that Tyco should have assumed that role having regard to its exposure to an adverse result in the proceedings.

8 A further factor of importance in my view is that the proceedings were defended, by Tyco in particular, as though there was no limit on resources to be applied to that defence from very early stages in the proceedings, the hearing of which commenced on 12 February 2001, concluding on 25 October 2001 with final submissions being received at the end of December that year. These were going to be extremely costly and lengthy proceedings, to the extent that I think it was incumbent upon the parties:

9 It is for that reason that any attempts at settlement assume a major role in consideration of factors relating to the proper exercise of the discretion as to costs. In the case of EMAE and WorkCover in particular, their respective exposures turned upon two main issues. One was the underdesign of the partition plates of the heat exchanger, and the second was the relationship that any failure to advert to the need for multiple hydrostatic tests of the heat exchanger may have had to the failure of MEF and of Tyco to ensure that the heat exchanger was completely drained and thoroughly dried prior to its delivery to Optus.

10 The cases against EMAE and WorkCover should be looked at under each of those separate bases of claim. Insofar as the cases involved an underdesign of the partition plate, at the very worst that would have resulted only in an exposure to damages in the sum of something like $150,000. As it happened, I found that there was no such liability or consequence.

11 As to Tyco's attempt to relate the failure to advert to the necessity for multiple hydrostatic tests to the failure to drain and dry the heat exchanger, that was a contention that lacked any real substance. It for the most part was pursued through cross-examination on the run, none of which was convincing, and a statement by Professor Bremhorst that he could not possibly adhere to in cross-examination, and he did not.

12 It is noteworthy, I think, that it was Tyco that brought those parties into the proceedings in the fourth cross-claim and that Leighton and NDY, for practical purposes, followed in Tyco's footsteps during the course of the hearing, no doubt as a matter of abundant precaution.

13 I think that both EMAE and WorkCover are entitled to orders that fully protect them, as far as I am able to do so, against any adverse costs consequences of being involved in these proceedings.

14 I am fortified in that approach by what was revealed in the evidence on this application as to costs of attempts to resolve these proceedings in which both EMAE and WorkCover engaged over a period of years. I think it is both regrettable and calling for criticism that no worthwhile attempt appears to have been made by Tyco in particular to remove EMAE and WorkCover from these extremely lengthy and costly proceedings.

15 I am also of the view that one is entitled to look at the lack of substance in the respective cases against EMAE and WorkCover in conjunction with the various attempts by those entities to extract themselves from the proceedings in examining the question whether their costs from the outset should be protected by orders on an indemnity basis.

16 In the case of Optus's costs, indemnity costs I think should be ordered from the time of its offer of compromise of 23 January 2001. Costs prior to that I think should be on a party and party basis, declining to order indemnity costs prior to that on the basis that there is no evidence of what particular attempts were made to settle these proceedings prior to that and I do not think it can be said that the case of Tyco as adopted by Leighton and NDY was completely without merit, certainly as to quantum.

17 Although I have been critical in the principal reasons for judgment of the contributory negligence defence, I see little utility in endeavouring to extract out issues as to liability for the purpose of making any order as to indemnity costs prior to 23 January 2001.

18 Evidence of attempts at settlement establish that on 14 December 1999 EMAE's solicitors submitted a Calderbank offer of settlement in the following terms:

(a) Out client will pay the sum of $200,000 to Optus in reduction of its damages claim. This sum is meant to compensate Optus in respect of the full amount of the damage to the Switch and Transmission Room, together with interest. We consider this to be a more than reasonable offer, in view of the fact that the most proximate cause of the all the damage was in any event the presence of water in the heat exchanger, and not the bursting of the partition plate itself. In the event that Optus believed that this sum is insufficient to cover such damages and interest, we invite Optus to submit details of this component of its claim so that out client can consider whether or not to increase the offer.

(b) All cross-claims against out client shall be dismissed.

7. This offer requires acceptance from all parties in order to become effective. Although the offer is to pay a sum to Optus and thereby decrease Optus’ claim against each of the defendants by the amount paid, our client would be equally content to pay the $200,000 to such other party or parties in such proportions as may be agreed amongst each of the parties. In the event that this offer is not accepted by any party and judgment is obtained against our client on terms less favourable than this offer, we intend to tender this letter in support of an application for an order that any party or parties not accepting this offer pay our client’s costs on an indemnity basis from the date of this offer.”

19 That offer was not accepted. That offer, it was submitted by Tyco, was not capable of acceptance by it alone and that the "nature and complexity of the proceedings were such that it could not properly be said that the third defendant's conduct in pursuing its case against EMAE was plainly unreasonable within the meaning of that expression as applied in Norbrega and Sanko [and that no] evidence [had] been led from EMAE as to the attitude of the other defendants to its offers to attempt to meet its onus against the third defendant”.

20 On the evidence before me, I regard that submission as lacking in substance. As appears later in these reasons I am of the view that by the end of 1999 Tyco should have been in the position to adequately assess the reasonableness of EMAE's offer and to pursue it. There is no evidence that Tyco responded to that offer or took any steps to secure a settlement along the lines of the offer and I infer that none were taken. I think it is idle for Tyco to contend that it was incapable of acceptance by it alone in the absence of any effort by Tyco to secure the settlement.

21 When examining Tyco's conduct in the negotiations, one is entitled, if not obliged, to look at the spectrum of dealings amongst the parties and not in any offer and acceptance format. In Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179 the President's remarks as follows are apposite:

“The remaining grounds relating to the course of settlement negotiations (Grounds 71-72, 84) seek to analyse the stream of multi-partite negotiations according to principles of contractual offer and acceptance that on might expect to find in an early edition of Anson on Contract . Judge Curtis did not proceed in this way, not was he bound to do so (cf Evidence Act 1995 , s131(2)(h)). As Higgins J said in Quirk v Bawden (1992) 11 FLR 115 at 122 “the process of negotiation does not end with one offer made and declined and a counter-offer made and declined” .

22 As earlier noted, the exposure of EMAE to damages for the failure of the partition plates was at a maximum of some $155,000 and the other basis of attack made upon EMAE by Tyco lacked any substance, in my view.

23 At the time of the offer Tyco was the only party making a claim against EMAE. For reasons that follow I am satisfied that I am not constrained by the principles upon which the discretion in these matters should be exercised from concluding that Tyco's conduct warrants a departure from the usual order as to costs.

24 It is not just a case of acting completely unreasonably in not accepting an offer, or in pursuing it effectively; rather, it is a case of a party taking no apparent steps to pursue an obviously reasonable offer of settlement of proceedings which were destined to be extremely lengthy and costly and in which the offeror played a marginal role.

25 Although there is no evidence of efforts by WorkCover to settle the proceedings against it at that time, I think one is entitled to infer that Tyco's attitude to WorkCover was, and would have been, no different than that which it demonstrated in relation to EMAE's position.

26 On 20 September 2000 the solicitors for EMAE submitted a further Calderbank offer to Tyco's solicitors in the following terms

“With that in mind, our client would be prepared to contribute $250,000 towards a settlement offer in the region of $8 million, plus a contribution of 3.125% to the plaintiff’s costs, on the basis that out client’s exposure for those costs would be capped at $62,500. The offer would be made on the condition that if accepted, all cross-claims would be dismissed and all defendants to the cross-claims would bear their own costs of the proceedings.”

27 While the offer was made in the form of one offering to contribute to an overall settlement of the proceedings, I think it should be looked at in the context of EMAE's willingness to settle the proceedings as far back as December 1999 by payment of the sum of $200,000 and accepting a liability for its own costs.

28 The terms of the 20 September 2000 facsimile preceding the paragraph containing the Calderbank offer are not without interest. It is apparent from that facsimile that Tyco was "looking to" EMAE, Leighton and WorkCover to contribute "an additional $3,000,000 plus costs required for an offer of $8,000,000 plus costs to be put to the plaintiffs." EMAE's solicitors went on to state that they regarded such an offer as one "likely to fail," adding the following:

“Given that the plaintiffs’ claim is in the region of $27 million, we see little prospect, at least at this stage, based on the information which we have seen, of the proceedings being able to be settled other than at a figure substantially greater than $8 million.”

29 The obvious good sense of that appraisal need not be further emphasised. However, I think it reflected an attitude of Tyco that was quite unrealistic as an appraisal of the settlement prospects of these proceedings. In relation to the claims for indemnity costs made by Optus, Tyco has resisted such an order, inter alia, on the basis that it was not sufficiently apprised of the substance of Optus's quantum claim at the time of the submission of an offer to compromise the claim. I will come to that contention in the course of these reasons. For present purposes I will simply observe that I have been unconvinced that any uncertainty in the substance of that claim that Tyco may have harboured had anything to do with Tyco's failure to settle these proceedings. I am also far from satisfied that it was not reasonably informed of the substance of that claim.

30 On 1 November 2000 Tyco's solicitors set out Tyco's position as to settlement. The significant part of that facsimile was in the following terms:

“We refer to our previous correspondence in relation to a possible settlement offer to the plaintiffs.

The contributions which have been offered by the defendants so far are as follows:

NDY- $2.5 million plus 31.25% of the costs up to a maximum contribution of $625,000

Tyco- $2.5 million plus 31.25% of the costs up to a maximum contribution of $625,000 (matching NDY’s contribution)

Leighton- $2 million inclusive of costs

EMAE- $250,000 plus 3.125% of the costs up to a maximum contribution of $62,500

We have had no response as yet from the solicitors for WorkCover in relation to the proposed settlement offer despite follow up.

The maximum contribution to costs which was proposed by NDY was calculated as a percentage of assessed (recoverable) costs of $2 million. The same approach was taken by your client. If Leighton’s offer were construed in the same way, it would be an offer for $1.6 million plus costs of $400,000. On this basis, the contributions above amount to $6.85 million plus costs of $1,712,500. Hence, an additional $1,150,000 plus costs of $287,500 will be required to make an offer of $8 million plus costs of $2 million.

In our opinion your client’s offer of $250,000 made in your letter of 20 September 2000 significantly under estimates your client’s exposure in these proceedings.

….

We urge your client to reconsider its contribution to a possible settlement offer. In the absence of a more substantial contribution from your client, it appears unlikely that the offer of $8 million plus costs of $2 million can be put to the plaintiffs. That would be unfortunate for all of the defendants.”

31 Of that statement of position the following observations may be made:

32 In short, I think one is entitled to infer that Tyco lacked any sense of proportion in evaluating its own exposure to damages, that of the other parties in the proceedings and appeared to be taking a leading role in the formulation of an unrealistic offer of settlement of Optus's claims. There appears to have been a meeting of the parties on 9 November 2000 following which Tyco's solicitors sent a facsimile to EMAE's solicitors which included the following:

“As previously advised the contributions proposed by Leighton, NDY and Tyco amount to $6.6 million plus costs. We suggest that your client and WorkCover split the shortfall. That is, we suggest your client increase its contribution to $700,000 plus costs and the WorkCover make the a [sic] contribution of $7000,000 plus costs.

Our client’s view is that the only way these proceedings can be resolved is for all of the defendants and cross-defendants to reach a settlement with the plaintiffs. Our client is not willing to release your client, either in relation to zone 1 or generally, in the absence of such a settlement.”

33 I think those comments only emphasise the relevance of my remarks in relation to Tyco's previous proposal of settlement.

34 To the extent that WorkCover's position remained unstated at that time, that was remedied by a Calderbank offer by WorkCover's solicitor's facsimile to Tyco's solicitors of 28 November 2000 which was in the following terms:

This offer is made on the basis that your client releases our client from the proceedings and provides it with an indemnity in respect of any claim arising from the subject matter of these proceedings (including costs) which may be made by any other party.

Calderbank v Calderbank

35 I find it difficult to disagree with the appraisal of WorkCover's position by its solicitors in its facsimile and regard the offer to contribute to an overall settlement as realistic in the sense that it was a party with little exposure to damages, but confronted with involvement in costly and protracted proceedings. If anything, the offer was a generous one and clearly should have been pursued as an offer of settlement not tied to what I regard as an unrealistic offer of an overall settlement of $8,000,000 to settle Optus's claim.

36 The position of WorkCover had been mirrored in a proposal by EMAE submitted to Tyco's solicitors by its solicitors' facsimile of 20 November 2000. In that facsimile EMAE's solicitors repeated their view that it was "unrealistic to expect that Optus would accept an offer of $8,000,000 and that [it was] also unrealistic to suggest ... that [EMAE's] exposure [warranted] a contribution from it of $700,000 plus costs amounting to almost 10 per cent of such an offer". It will be apparent from what I have said that I am in full agreement with that assessment. The facsimile, however, went on to note as follows:

“Having said that, our client considers that it is in its interests to settle the matter at an early stage. We are disappointed that you have not reverted to us with any proposal which would give our client an assurance that it would be released from the proceedings and therefore would not need to continue to incur further costs. Accordingly, in an effort to avoid the need for incurring further costs and to resolve the dispute at an early stage our client would be prepared to agree to the following proposal:

1. Our client obtains a release from all parties, including a release as to costs, or the extent to which any party is not prepared to release our client an indemnity from the releasing parties in respect of any claim arising from the subject matter of these proceedings (including costs) which may be made by any non-releasing party.

2. Our client agrees to contribute $500,000 plus a contribution of 5% to Optus costs, capped at $120,000. We understand that Optus’ costs to date are estimated at approximately $2,000,000. A cap of $120,000 allows for the possibility that those costs may run to as high as $2.4 million.

3. Our client agrees to bear all of its costs incurred to date in the proceedings.

Please let us have your instructions in relation to this offer.”

37 It will be noted that at this stage Tyco was the only party to have brought proceedings against EMAE and WorkCover.

38 The position, then, is that from as early as December 1999 in the case of EMAE and by November 2000 in the case of all parties, Tyco was in the position that it had a willingness to contribute to an overall settlement of these proceedings of $500,000 plus a proportion of the costs in the case of each of EMAE and WorkCover, of $2,500,000 plus a proportion of costs by NDY and $2,000,000 inclusive of costs by Leighton. In the absence of intractability on the part of Optus in any attitude to settlement, it is difficult to conceive any sensible basis upon which these proceedings could not have proceeded to settlement with contributions on offer of that magnitude. On 6 December 2000 WorkCover signified its adherence to its offer of 28 November 2000 as did EMAE in its solicitors' facsimile of 7 December 2000.

39 Mediation apparently had been appointed for a time in December 2000 preceding which the position of Tyco I think is reflected in its facsimile which included the following:

To enable an offer of $7.6 million to be put at the mediation, could you please confirm that if the plaintiffs’ claims can be settled for an amount of $7.6 million plus costs your client will contribute an amount of $500,000 plus costs of $120,000. In the event of such a settlement your client would be released by our client and could obtain the further releases it requires from the other parties.”

40 It is clear from that facsimile that Tyco continued to embrace what I think was a clearly unreasonable appraisal of the Optus claim in the sum of $8,000,000. More to the point, it was not willing to increase its minor contribution so as to make an offer of $8,000,000 notwithstanding the high level of contribution offered by the other parties to these proceedings, so much so it proposed reducing the offer to Optus from $8,000,000 to $7,600,000.

41 In proceedings which I have earlier described as one which called for settlement amongst the parties, I regard Tyco's stand in this matter as indefensible, particularly having regard to the level of contributions which each of the other parties were prepared to make to a proposed settlement. I think it is literally idle for Tyco to assert that these offers were not capable of acceptance by it alone and that it was not sufficiently informed as to quantum of Optus's claim to make an informed judgment about its exposures to damages. That is not reflected in any way in the evidence which has been presented to me on this application for indemnity costs.

42 I have found it almost impossible to reconcile Tyco's attitude in the context of its central position on the issue of liability and its consequent principal exposure amongst the defendants to damages that may be awarded at the end of lengthy and costly proceedings.

43 Before hearing commenced I encouraged the parties, in directions hearings in December 2000, to participate in conferences aimed at streamlining proof of quantum. I declined to give formal or explicit directions, placing what I think has turned out to be misguided reliance upon the capacity of the highly experienced legal representatives of the parties to work out amongst themselves a sensible regime to limit costs. The evidence of the manner in which that was pursued by the parties was reflected in an exchange of correspondence which, so far as the evidence goes, consisted of a facsimile from Optus's solicitors to the parties of 19 December 2000, the response of NDY's solicitors in their facsimile of 21 December 2000, that of Optus's solicitors of 22 December 2000 and their further facsimile to Tyco's solicitors of 17 January 2001.

44 I do not propose to enter into an examination of the responsibility of the respective parties for failing to make a more fruitful attempt at facilitating proof of quantum in these proceedings on that material alone, other than to observe that if it represented the totality of their efforts, it fell well short of what I expected. My impression is that the failure of the parties to do anything useful in the way of expediting proof of quantum issues arose out of the chronic dispute that tainted these proceedings over questions of onus and characterisation of items of claim which I have addressed in the principal reasons for judgment.

45 In relation to the material to which I have referred outlining the development of negotiations between Tyco, EMAE and WorkCover, objection has been taken by Tyco to the admissibility of communications by Tyco's solicitors in relation to settlement proposals on the ground that those communications are privileged. That may well have been the case prior to the Evidence Act 1995. It no longer has any support in the Act, nor in the judicial considerations of the relevant provisions of the Act. So far as is relevant, section 131 of the Evidence Act provides as follows:

131(1) Evidence is not to be adduced of:

(a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute, or
(b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.

(2) Subsection (1) does not apply if:
……

(h) the communication or document is relevant to determining liability for costs.

46 In Norbrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No. 2) [1999] NSWCA 133 the Court of Appeal treated that provision as overriding the previous common law position as to privilege in the particular respect in which these communications are sought to be used by EMAE. See also Bruinsma v Menczer (1995) 40 NSWLR 716 and Van Doore v Mendez (unreported), 30 June 1997, Dunford J.

47 On 23 January 2001 Optus offered to compromise these proceedings in the following terms:

“The plaintiffs offer to compromise their claims in these proceedings for the sum of $31,000,000.00.

1. This offer is made without prejudice and in accordance with Part 22 of the Supreme Court Rules 1970.”

48 Whether that offer is treated as one inclusive of costs or as one plus costs it is one which would have left Tyco, if accepted, in a better position than it finds itself under the judgment in these proceedings. That position pertains whether regard is had to the availability of contributions which existed at the end of the year 2000 or whether those offers of contributions are ignored.

49 The position is also arrived at whether one takes the date from which interest is to be calculated as running from the date the proceedings commenced, as contended by Optus, or as running from 30 June 1998 as I have ordered. Optus' solicitors have calculated interest from the date of institution of these proceedings on 17 November 1997 to date of judgment of 24 April 2002 and from 30 June 1998 to date of judgment, the 30 June date being in accordance with my orders of 24 April 2002.

50 They have also calculated interest in accordance with directions given from 30 June 1998 to 23 January 2001. Calculation of interest on the judgment sums from 30 June 1998 to date of judgment amounts to $10,440,401.40, bringing the total payable under the judgment of 24 April 2002 to $37,686,292.17.

51 A calculation of interest from 30 June 1998 to 23 January 2001 came to $6,913,364.86. If that sum is added to the judgment sum as awarded in these proceedings, it gives a total of $34,159,255.63. I think it is legitimate to contrast that last-mentioned figure with the offer of compromise of $31,000,000 of 23 January 2001.

52 Clearly, treating that amount as inclusive of interest, the offer of Optus of 23 January represented a significantly lesser figure than the amount to which Optus was entitled under the judgment in these proceedings, whether one treats the offer of compromise as inclusive or exclusive of costs or whether one takes into account any availability of contribution to the settlement of the proceedings by the other parties to the litigation.

53 While Optus has maintained that it is entitled to indemnity costs in respect of the whole of the proceedings, as an alternative it was submitted that Optus should have indemnity costs from the date of the offer of compromise which was not taken up by Tyco.

54 In response to the latter submission, Tyco has raised numerous bases upon which such an order for indemnity costs should be resisted, none of which has found any attraction. It was contended that the offer of compromise was not one which conformed with part 52A rule 22 in that it was an offer of settlement inclusive of costs. Part 52A rule 22, so far as is relevant, provides as follows:

22. Offer of compromise
(1) Upon the acceptance of an offer of compromise in accordance with Part 22 rule 3 (5), the defendant shall, unless the Court otherwise orders, pay the costs in respect of the claim by the plaintiff against the defendant up to and including the day the offer was accepted.
(2) If a notice of offer contains a term which purports to negative or limit the operation of subrule (1), that offer shall be of no effect for any purpose under Part 22 or this rule.

55 If properly construed the offer of compromise of 23 January 2001 was an offer inclusive of costs, I think it is clear that such an offer is struck down by part 52A rule 22(2).

56 I think that much is clear from what was said by Giles J, as his Honour then was, in considering such an offer in relation to provisions of the Supreme Court Rules comparable to part 52A rule 22 (see Associated Confectionery (Aust) Limited v Mineral and Chemical Traders Pty Limited (1991) 25 NSWLR 349).

57 Accepting for the moment that the offer should be treated as one inclusive of costs, it does not follow that the offer is of no effect. Part 52A rule 22(2) restricts the ineffectiveness of the offer to any "purpose under part 22 or this rule". It does not follow that recourse may not be had to such an offer of compromise as a factor in exercising the discretion as to costs, particularly having regard to the provisions of section 131 of the Evidence Act earlier quoted in these reasons.

58 As a matter of construction of the offer, however, I take the view that it is one made inclusive of interest and exclusive of costs. I think that this much is clear from a reading of the whole of the offer which contained the term that it is without prejudice and in accordance with part 22 of the Supreme Court Rules.

59 Tyco has relied upon the approach of Santow J, as his Honour then was, in Richardson v Hough (unreported) 12 May 1999 which dealt with an offer of compromise of $50,000 "in full satisfaction of the plaintiff's claim" as one inclusive of costs. It would be difficult to reach a contrary conclusion. However, as observed in Richardson by Santow J, that offer was not expressed to be in accordance with part 22 of the Rules. As a consequence, it was struck down as one which did not conform with part 22, following Associated Confectionery.

60 Moreover, section 131 of the Evidence Act was of no avail to the defendant offeror in Richardson, having regard to the inability of the Court to satisfactorily compare the benefits to the plaintiff under the subject judgment with the offer of compromise.

61 It was further submitted on behalf of Tyco that the construction which I favour is defective for the reason that the term of the offer of compromise which expressed it to be "in accordance with part 22" failed to identify the reference as being to division 1 of part 22. That submission was explained in the following way:

“Indeed, the plaintiffs’ notation does not comply with the requirements of Part 22 Rule 1A(2)(b). It is meant to refer to Division 1 of Part 22 and not to the whole of the Part because of the dichotomy between Divisions 1 and 2. Division 1, as stated in Part 22 Rule 1, does not apply to an offer to compromise a party’s entitlement, under the rules or an order, to costs. Division 2, on the other hand, does apply to an offer to compromise a claim for costs. The fact that the plaintiffs’ notation refers generally to Part 22 which includes compromises of costs, and not just to Division 1 as the Rules stipulate, puts beyond question that the plaintiffs offer was inclusive of costs.”

62 Division 1 of paragraph 22 relates to offers to compromise non-costs claims. Division 2 refers to offers to compromise cost claims, while division 3 relates to offers to contribute.

63 As a matter of construction there can be no doubt, in my view, that the reference to part 22 in the offer to compromise of Optus was a reference to an offer to compromise non-cost claims and is not a reference to an offer to compromise costs claims. One only has to view the terms of part 22, rules 10 and 11, I think, to come to that conclusion.

64 It was also contended that one cannot have regard to the reference to part 22 in the offer to "read down the clear and unambiguous terms of [the] offer to compromise 'their claims in the proceedings' which included costs." That submission treats the term of the offer, which is expressed to be without prejudice and in accordance with part 22 of the Supreme Court Rules, as not part of the offer. It clearly is. It is not a case of reading down the clear and unambiguous terms of the offer. Rather, the construction which I favour is a reading of the whole of the terms of the offer and viewed in that way it, in my view, is not one inclusive of costs and conforms with part 22.

65 It will be apparent from what I have observed so far in these reasons that whether this offer of compromise should be treated as one conforming with part 22 or as one to which regard may be had in addressing the question of costs in these proceedings is of no material significance and that, in my view, if Optus was not entitled to indemnity costs prior to 23 January 2001, it was clearly so entitled from that date.

66 It was also submitted that the offer was bad for the reason that it failed to differentiate amongst the five plaintiffs seeking damages in the proceedings at the time of the offer. That contention ignored the fact that in the summons as filed on 17 November 1997, and for that matter in the further amended summons in respect of which leave to amend was granted on 24 April 2002, one set of damages was claimed without any apportionment of claims amongst the plaintiffs. Moreover, that is the way in which the proceedings were conducted, that is, with no attention whatsoever paid to the differentiation of claims amongst the plaintiffs (save so far as it became relevant to the position of Mobile prior to its discontinuance).

67 In fact, it was not until final addresses that the quantum was apportioned amongst Networks, System and Vision and that was done without challenge. As I understood it, apportionment was of no relevance in the proceedings other than for the purposes of making final orders. Part 22 does not, in my view, require any such differentiation to be stipulated in an offer of compromise.

68 Following the offer of compromise, the solicitors for EMAE submitted a further Calderbank offer by facsimile of 19 February 2001. It confirmed that the offer to pay $500,000 in addition to a proportion of Optus's costs, as made on 20 November 2000, still stood. In doing so, it was brought to the attention of the parties that in the opening address of senior counsel for Optus, the claim for rectification outside of zone 3 was in the sum of $155,000. It was also noted that Dr Doig had expressed the view, referred to in the principal reasons for judgment, that the rupture of the partition plates had occurred as a result of the increase in pressure beyond design limits as a consequence of the presence of water in the heat exchanger. The offer was clearly a reasonable offer, and one that should have been pursued. The reliance upon the evidence of Dr Doig was a valid and I think telling basis for further supporting the reasonableness of EMAE being let out of the proceedings. I think the failure of Tyco to pursue that avenue of settlement justifies a conclusion that it acted unreasonably. Moreover, I think it warrants a strong criticism of its conduct of these proceedings in not doing so. I find no attraction in the proposition that it was an offer not capable of acceptance by Tyco alone.

69 There was a proposed settlement of the dispute by mediation before the Honourable T.R. Morling QC for Friday, 30 March 2001. Prior to that proposed mediation, by facsimile of 28 March 2001 EMAE's solicitors notified the parties that it was not EMAE's intention to attend a meeting for the discussion of settlement prior to mediation, or to attend the mediation on the basis that its position remained the same as it had been stated on 20 November 2000 and 19 February 2001. It was stated that the offer remained open for acceptance until 30 March 2001.

70 That restatement of its position was of no avail in securing a release from the lengthy proceedings to which the parties were otherwise committed. In my view there was no justification for Tyco failing to pursue settlement with EMAE along the lines of EMAE's offer, notwithstanding that it required the release from liability from other parties in the proceedings.

71 On 24 May 2001 Optus made a further offer of settlement in the form of a Calderbank offer by facsimile to the defendants of that date. It was in the following terms:

“We have been instructed to convey to you an offer on the part of the plaintiffs to settle these proceedings upon payment of the sum of $29,000,000 in full and final satisfaction of all causes of action, claims for interest and costs raised in its further amended summons filed in court on 12 February 2001.

This offer if open for a period of seven (7) days as from the date of your receipt of this facsimile.

The offer in the preceding paragraphs reflected a substantial discount on the plaintiffs’ claims in these proceedings, especially after taking into account the fact that interest at Supreme Court rates on the confirmed amount of $29m (Refer ex 10.22A) and assessable costs together exceed $10m.

In the event that this offer is not accepted by your clients, the plaintiffs reserve their rights to produce a copy of this letter to the Court on the issue of costs and to make submissions for costs orders against the defendants on an indemnity basis.

In addition, in the event that the plaintiffs received a judgment in their favour equal to or in excess of $31 million, we expressly reserve all of their rights under their offer of compromise dated 23 January 2001.

This letter is not intended to waive any of those rights.”

72 The offer of settlement was unarguably, in my view, one that was so reasonable as to compel acceptance. I think the facsimile of Leighton's solicitors to Tyco's solicitors of 28 May 2001 sent on behalf of Leighton, NDY, WorkCover and EMAE is of particular significance. It was in the following terms:

“We refer to Minter Ellison’s facsimile dated 24 May 2001 offering on behalf of the Plaintiffs settlement of all causes of action raised in the Further Amended Summons for the sum of $29 million inclusive of interest and costs. The consensus among the other defendants and cross defendants is that the Plaintiff’s offer is a realistic and reasonable one and reflects a genuine discount of the likely quantum of damages they will receive.

We make the following proposal on behalf of our client, NDY, WorkCover and Emae (“the non-Tyco parties”):-

1. The non-Tyco parties offer to contribute the sum of $7.4 million towards a settlement on the basis set out in the Minter Ellison facsimile dated 24 May 2001. This represents a contribution of 25.52%.

2. This offer expires on the expiry of the Plaintiffs’ proposal namely 31 May 2001.

3. In the event that Tyco does not avail itself of this contribution to negotiate a settlement with the Plaintiffs or better, and the ultimate result is that the Plaintiffs recover damages, interest and costs in excess of $29 million and that Tyco’s proportion of such damages, interest ad costs exceed 74.48% then the non-Tyco parties will rely upon your clients’ rejection of this offer to contribute in support of an application that your client pay the costs of the Plaintiffs and of the non-Tyco parties from the date of this offer. In other words this offer is made in accordance with the principles set out in Calderbank v Calderbank .

We appreciated that the Plaintiffs’ offer is inclusive of costs. We are assuming that the Plaintiffs’ costs are currently in the order of $4 million.”

73 What I think may be justifiably gleaned from that facsimile is the following: the obstacle to settlement was Tyco. I think one is entitled to further infer from earlier attempts by particular parties and Optus to settle these proceedings in the context of Tyco's unrealistic assessment of the level of exposure of the defendants to damages that Tyco was the obstacle to earlier settlement, and unreasonably so down to a point which again I think calls for the strongest criticism.

74 Tyco has defended the reasonableness of its conduct on the basis that the offer did not include settlement of a possible separate claim by Mobile, a matter that was the subject of separate reasons for judgment. Of that contention it may be noted that such a dilemma was no deterrent to a very substantial contribution being offered by other parties and, in my view, was no deterrent at all. It is just another reinforcement of the strongest of views that Tyco had formed a completely unrealistic and unjustified assessment of its liability to Optus.

75 I think one is entitled to conclude that, dating back to the first offer by EMAE in December 1999 into the year 2000 and well into the hearing of these proceedings, Tyco acted unreasonably in relation to settlement. Further, that settlement could readily have been achieved had a different mindset prevailed within Tyco in relation to proceedings that plainly required serious consideration of realistic settlement.

76 In dealing with Tyco's position I have deferred consideration of Tyco's contention that it was not in a position to properly consider settlement of Optus's claims due to the failure of Optus to evidence its claim as to quantum until some time well into the hearing. To the extent that there is any substance in that contention, it is a factor that I think Tyco must bear some significant level of responsibility for so far as it failed to take advantage of the course proposed by the Court in December 2000 to convene in conference with appropriate experts to facilitate the proof of quantum in these proceedings.

77 However, the real basis for my rejection of Tyco's position lies in two approaches which I have taken to this aspect of the dispute. One is that such an approach falls very uncomfortably beside the completely unrealistic approach to damages reflected in the proposed offer of $7,600,000 based on a proposed contribution by Tyco of $2,500,000 beyond which it was not even proposed to go to bring the offer up to $8,000,000.

78 It sits uncomfortably besides the absence of any record by Tyco that it was deterred from approaching settlement in any sensible way by Optus's failure to fully evidence its quantum claim. Moreover, it is not reflected in the manner in which it failed to take up what were obviously reasonable bases for releasing EMAE and WorkCover from the proceedings which were virtually non-dependent upon this claimed deficiency in information from Optus.

79 Finally, it is a contention that I think is at odds with the conclusion which I have drawn that Tyco was an unrealistic obstacle to settlement in the face of a willingness on the part of all others in the proceedings in the case of Optus to significantly discount its claim and, in the case of the other parties, to make substantial contributions to an overall settlement in amounts which were plainly reasonable and ones which Tyco should have taken advantage of in my view.

80 Independently of those considerations, I think the suggestion that Tyco acted reasonably in not pursuing the various settlement opportunities by reason of the absence of sufficient information from Optus should be viewed in the way in which Tyco conducted this case. That case may be very briefly summarised as follows:

81 It is not unduly unfair to observe that, in the face of that approach, perhaps one should not be surprised that the proceedings were not settled. However, the evidence on this application does not justify a finding that it was reasonable for Tyco not to pursue offers of settlement by reason of the insufficiency of information as to quantum provided by Optus. I accept that the issue of quantum was a vexed one prior to and throughout the hearing and it was reflected in cross-examination more of an exploratory nature both by NDY and, in particular, Tyco and a succession of exchanges of statements of evidence throughout the hearing. For the most part, however, I think the series of statements as to quantum as served by Optus during the proceedings fell into the category of further statements to meet challenges to Optus's quantum case as raised, in particular, by NDY and Tyco during the course of proceedings.

82 Further, I think the evidence before me, principally that of Mr David Goldstein in an affidavit sworn 15 May 2002, established that Tyco was well informed of the particulars of Optus's quantum claim by the end of 1999.

83 As noted in the principal reasons for judgment, the itemisation of claims by Optus was evidenced through the register of costs established under the recovery program put in place by Optus following the incident. Mr Cearns was the principal witness in the proving of those costs. The evidence of Mr Goldstein established that shortly after 19 June 1998 Optus served upon Tyco a list of documents which included document OPT 315 which was the first version of the register record of Optus's costs. That was in the sum of $25,209,868. It was in the form of the register which was described in the course of the principal reasons for judgment. It comprised some 30 pages of detailed items of costs. That register was updated from time to time and, as updated, it was discovered by Optus in supplementary lists of documents filed 22 February 1999, 6 May 1999 and 2 December 1999 evidencing costs up to $29,842,306.

84 A further supplementary list of documents was filed on 11 April 2000 and on 16 March 2001, the latter evidencing costs in the amount of $30,167,470.

85 Mr Goldstein has further evidenced the sequence in which supporting documentation in the form of invoices for the Optus cost register were discovered to the defendants and he has undertaken the task of reorganising the exhibit 8.001, which comprised some 22 volumes, to identify when the subject documents were discovered. I am satisfied from that material that Tyco possessed or had access to an abundance of material upon which it was in a position to make some informed assessment of the defendants’ exposure to damages in these proceedings.

86 I am comforted in that conclusion by the fact that, on 16 November 1999, Tyco filed and served a report of PricewaterhouseCoopers prepared essentially by Mr Lonergan which is a comprehensive assessment of the costs as claimed by Optus to that point and while it stated that further information was sought from Optus, I think the content of that report clearly demonstrated the ability of Tyco to make some informed assessment of Optus's claim in these proceedings. The report as evidenced by Mr Goldstein was not tendered in the proceedings.

87 A similar observation may be made in respect of a report by Mr Frank Lombardo filed and served by NDY on 6 August 1999. Mr Lombardo's report was to the effect that some $18,000,000 should be accepted and deferred consideration of a sum a little in excess of $2,000,000. His report was not tendered.

88 I have not found it necessary to consider the further detail of statements of evidence as furnished by the parties subsequently in these proceedings. I think it is sufficient for me to state that I am satisfied that Tyco had ample information as far back as November 1999 upon which it was in a position to make an informed judgment of the defendants' exposure to damages in these proceedings.

89 In my view, the evidence has established a compelling case for a departure from the usual order as to costs by requiring Tyco to pay Optus's cost of the proceedings to be assessed on an indemnity basis from 23 January 2001. For much the same reasons, I think that orders for costs against Tyco in favour of NDY or Leighton should be on an indemnity basis from 23 January 2001. Although there is no direct evidence of their willingness to contribute to a settlement at that time, the evidence of such a willingness at the end of the year 2000 and in the middle of 2001 gives rise to a strong inference that nothing had changed in the interim other than their willingness to increase their level of offered contribution to several millions dollars.

90 Added weight to that conclusion may be found in the facsimiles by Leighton's solicitors to Tyco's solicitors each of 17 July 2001. In the first of those Leighton exhorted Tyco to participate in a settlement with EMAE (WorkCover I think being in the same position as EMAE) based upon EMAE's offer of settlement of $500,000. In that facsimile Leighton's solicitors I think correctly assessed the likely outcome of the proceedings against EMAE. It is apparent from that facsimile that Tyco had the conduct of negotiations with EMAE and had been, in Leighton's view, inactive. In the second of the facsimiles Leighton confirmed its continued willingness to contribute $3,500,000 towards settlement. Tyco did not respond to either of those facsimiles.

91 Although EMAE's first offer of settlement did not emerge until December 1999 I see little point in differentiating in time EMAE's costs to be assessed an indemnity basis.

92 I think the facts which I have outlined in these proceedings call for orders on an indemnity basis against Tyco and in favour of both EMAE and WorkCover.

93 The only real question, in my view, calling for particular attention in the proceedings is the time from which indemnity costs should be imposed. In considering this matter and related questions, I have been guided by the general principles upon which the discretion to award costs should be exercised. The principles were stated by Santow J, as his Honour then was, in Clancy v Prince & Ors [2001] NSWSC 164 as follows:

13 The principles applicable to the award of indemnity costs are well established. In Colgate Palmolive Co. & Anor v Cussons Pty. Limited (1993) 118 ALR 248, Sheppard J stated the position regarding the discretion to award indemnity costs in the following manner, at 256-7:

"4. In consequence of the settled practice which exists, the court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v. Barnes (39 ChD at 141) said that the court had a general and discretionary power to award costs as between solicitor and client 'as and when the justice of the case might so require'. Woodward J in Fountain Selected Meats (Fountain Selected Meats (Sales) Pty. Limited v. International Produce Merchants Pty. Limited (1988) 81 ALR 397) appears to have adopted what was said by Brandon LJ (as he was) in Preston v. Preston ([1982] 1 All ER at 58) namely, there should be some special or unusual feature in the case to justify the court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Tetijo (Tetijo Holdings Pty. Limited v. Keeprite Australia Pty. Limited - Federal C of A, 4 May, 1991, unreported): 'The categories in which the discretion may be exercised are not closed'. Davies J expressed (at 6) similar views in Ragata (Ragata Developments Pty. Limited v. Westpac Banking Corporation - Federal C of A, 5 March, 1993, unreported).
5. Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion ... the fact that proceedings were commenced or continued for some ulterior motive (Davies J in Ragata ) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain ...); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata ); an imprudent refusal of an offer to compromise ..."

In Varga Group Investments No.8 Pty. Limited v. Geebung Investments Pty. Limited (NSWSC - Abadee J, 15 November, 1994 unreported), his Honour said (at 17):

“In Baillieu Knight Frank (NSW) Pty. Limited v. Ted Manny Real Estate Pty. Limited (1992) 30 NSWLR 359 at 362, Powell J, as he then was, indicated the circumstances which warranted a departure from the established principle to which I have made reference. His Honour considered that indemnity costs could be awarded in circumstances where there was an abuse of process of the Court, and as I understand it, in the particular sense that the Court's time and litigants' money have been wasted on totally frivolous and unjustified defences.

In support of his application for indemnity costs, Mr. Gray did not submit in 'terms' that these proceedings in the present case involved an abuse of the process of the Court, as such is generally understood. I did not take him to be submitting that if the circumstances suggested that in the instant case the defendants had been involved in totally frivolous and thoroughly unjustified defences, that such jointly, severally or in combination would not warrant the making of an order for indemnity costs. The principles were related to indemnity costs and have been considered by Sheppard J in Colgate Palmolive Co. & Anor. v. Cussens Pty. Limited 118 ALR 248 at 256-257 inclusive. Indeed, his Honour appears to have had regard to six principles or guidelines, one of which included the applicability of the principle stated by Woodward J in Fountain Selected Meats (Sales) Pty. Limited v. International Produce Merchants Pty. Limited & Ors . (1988) 81 ALR 397 at 401. Mr. Justice Woodward said (at 401): 'I believe that it is appropriate to consider awarding solicitor and client or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard to known facts or the clearly established law'."

In Varga, Abadee J made an order for indemnity costs, not from the commencement of the proceedings, but from the time (by reference to the filing of affidavit evidence) that the defendants, properly advised, should have known that they had no chance of success in the proceedings (see p.19).

…….
16 As has been decided recently by the court of Appeal in Nobrega v The Trustees of the Roman Catholic Church of the Archdiocese of Sydney (No. 2) [1999] NSWCA 133, 21 May 1999, unreported) while the refusal to accept a Calderbank type letter offer may in some circumstances be categorised as imprudent, Powell JA at para 21 confirmed yet again the principle that

"The ordinary rule is that costs when ordered in adversary litigation are to be recovered on the party and party basis. Any attempt to disturb that situation needs to be carefully considered. It should only be departed from where the conduct of the party against whom the order is sought, is plainly unreasonable."

17 The question in those terms is whether the conduct of the First Defendant was so plainly unreasonable in defending these proceedings that the exceptional order of indemnity costs should be made.”

94 The role of offers of compromise as a factor in the exercise of discretion has been the subject of numerous cases, one of which is that of Hamilton J in Cumming v Sands [2001] NSWSC 706 in which his Honour expressed the approach to offers of compromise in that context as follows:

4 The parties agree (correctly) that the critical question is whether the first defendant has acted unreasonably in refusing to accept the plaintiff's offer of settlement. In determining this the Court looks to all the circumstances of the case: see Nobrega v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133 [20], [21]; SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323 [37], [43] and [85]. In the latter case, Giles JA said at [37]:

"The making of an offer of compromise in the form of a Calderbank letter (from Calderbank v Calderbank [1976] Fam 93), where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree 's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: see for example, John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 235."”

95 See also the discussion of cases concerning indemnity costs where an offer of compromise is a relevant factor in John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201.

96 In the circumstances of this case I think it will be apparent that I have had little difficulty in the application of those principles in concluding that it is essential for the making of orders fair to the parties in these proceedings that indemnity costs must be awarded against Tyco. I think I have sufficiently outlined the reasons for reaching the conclusion. Without wishing to truncate those reasons, I am content to note the special features of this case which strike me as dictating the need for such an order, namely:

97 This is not a case where the issues were so complex as to preclude a sensible appreciation of risks and entitlements required to formulate and effect an appropriate settlement. If authority permitted me to do, so I would order indemnity costs against Tyco from the commencement of proceedings. However, I have refrained from making such an order in relation to the principal proceedings, mainly because there was a real issue as to quantum, although not in the exaggerated form as presented by Tyco, which purported to treat the damage to the Optus property as cosmetic. While the liability issue was extremely weak as between Optus and the defendants, I have not been persuaded to draw any distinction between liability and quantum issues in the absence of an offer of settlement by Optus prior to 23 January 2001 and it is mainly for that reason that I have determined that indemnity costs in favour of Optus should run only from that date.

98 In the case of EMAE and WorkCover I think the court should strive to ensure that neither entity has been disadvantaged by their involvement and continued involvement in these proceedings from which they, in my view, should have been released at a very early stage. I have not found it of any utility to attempt to divide costs on a time basis upon which indemnity costs should be ordered and have reached the conclusion that whole of their costs should be assessed as against Tyco on an indemnity basis.

99 There remain the claims by various parties to be entitled to a Bullock order in relation to costs ordered to be paid by them in these proceedings. The principles upon which such an order should be made are not controversial. The approach to be adopted, I think, is that stated by Gibbs CJ in Gould v Vaggelas (1983) 157 CLR 215 at 229, 230 as follows:

The third question for decision is whether the Full Court was right in setting aside an order made by Connolly J. whose effect was that the unsuccessful defendants to the counterclaim (Vaggelas, his wife and the vendor companies) should pay to the plaintiffs by counterclaim (the Goulds) the costs ordered to be paid by them to the successful defendants (Messrs. Ingles and Tiffin). It is sometimes said that the court may make an order of that kind — a Bullock order — where it was reasonable in all the circumstances for the plaintiff to bring the action against two or more defendants: see The Supreme Court Practice (U.K.) 1982, par. 62/2/39 and Halsbury's Laws of England , 4th ed., vol. 37, par. 219. There are some statements in the authorities which appear to support that view, including the judgment of Latham C.J. in Johnsons Tyne Foundry Pty. Ltd. v. Maffra Corporation 55 (1948) 77 C.L.R. 544, at p. 556. In my respectful opinion, however, the mere fact that the joinder of two defendants was reasonable does not mean that the unsuccessful defendant should be ordered to pay, directly or indirectly, the costs of the successful defendant. Obviously a judge should make a Bullock order only if he considers it just that the costs of the successful defendant should be borne by the unsuccessful defendant, and, if nothing that the unsuccessful defendant has said or done has led the plaintiff to sue the other defendant, who ultimately was held not to be liable, it is difficult to see any reason why the unsuccessful defendant should be required to pay for the plaintiff's error or overcaution.
The ground on which a Bullock order may be made is, in my opinion, more accurately stated in a passage in Sanderson v. Blyth Theatre Co. 56 [1903] 2 K.B. 533, at p. 539, which was cited with approval in Bullock v. London General Omnibus Co. 57 [1907] 1 K.B. 264, at p. 272 and Hong v. A. & R. Brown 58 [1948] 1 K.B. 515, at p. 522, viz., that the costs which the plaintiff has been ordered to pay to the defendant who succeeded, and which the plaintiff recovers from the defendant who has failed "are ordered to be paid by the unsuccessful defendant, on the ground that ... those costs have been reasonably and properly incurred by the plaintiff as between him and the [unsuccessful] defendant". In Johnsons Tyne Foundry Pty. Ltd. v. Maffra Corporation , Williams J. 59 (1948) 77 C.L.R., at pp. 572-573 stated the principle in a similar way and Starke and Dixon JJ., in giving their reasons for making a Bullock order, both relied on the circumstance that the attitude adopted by the successful defendant had induced the plaintiff to join the other defendant 60 (1948) 77 C.L.R., at pp. 559-560, 566. In my respectful opinion the true position was clearly stated by Blackburn C.J. in Steppke v. National Capital Development Commission 61 (1978) 39 L.G.R.A. 94, at p. 100; 21 A.C.T.R. 23, at pp. 30-31, when he said that "there is a condition for the making of a Bullock order, in addition to the question whether the suing of the successful defendant was reasonable, namely that the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on it for the costs of the successful defendant".

100 This statement of the law has been considered more recently in Almeida v Universal Dye Works Pty Limited (No. 2) [2001] NSWCA 156 and Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179 each being decisions of the NSW Court of Appeal. In Sved v Council of the Municipality of Woolahra (1998) NSW ConvR 55-842 the approach to the making of a Bullock order was stated by Giles J, as his Honour then was, in the following terms:

“It is not sufficient for the making of a Bullock order that it was reasonable for the plaintiff to bring the proceedings against both defendants, although sometimes the condition for making a Bullock order is stated in that way (eg Johnsons Tyne Foundry, Pty Ltd v Maffra Corporation (1948) 77 CLR 544 at 556; Altamura v Victorian Railways Commissioners (1974) VR 33 at 35). One statement of principle is that the order may be made where the costs have been reasonably and properly incurred by the plaintiff as between it and the unsuccessful defendant (eg Johnsons Tyne Foundry Pty Ltd v Maffra Corporation at 572-3; Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA Pty Ltd (1984) 157 CLR 149 at 163; Gould v Vaggelas (1984) 157 CLR 215 at 247, 229); it has also been said that the conduct of the unsuccessful defendant must have been such as to make it fair to impose some liability on it for the costs of the successful defendant, or that the conduct of the unsuccessful defendant must show that the joinder of the successful defendant was reasonable and proper to ensure of recovery of the damages sought ( Steppke v National Capital Development Commission (1978) ACTR 23 at 30-31; Gould v Vaggelas at 229; Fennell v Supervision & Engineering Services Holdings Pty Ltd (1988) 47 SASR 6 at 7-8, 15; Lackersteen v Jones (No 2) (1988) 93 FLR 442 at 449). The difference in formulations is probably more apparent than real, as reasonableness as between the plaintiff and the unsuccessful defendant will normally be demonstrated by some conduct of the unsuccessful defendant which made it proper that the successful defendant be joined or that the unsuccessful defendant should bear the costs of the successful defendant. Such conduct was found in Lackersteen v Jones (No 2) in the unsuccessful defendant denying the authority of its agent whereby the plaintiff joined the agent who became the successful defendant, and more widely has been found in the unsuccessful defendant telling that the plaintiff in one way or another that it should look to the successful defendant for its remedy ( Altamura v Victorian Railways Commissioners; Gould v Vaggelas; Fennell v Supervision & Engineering Services Holdings Pty Ltd ).”

101 That passage was the subject of citation in Almeida by Priestly JA which I understood to be with approval.

102 There is no doubt as to the reasonableness of NDY's joinder in these proceedings by Optus, if for no other reason than it furnished its August 1995 certificate of compliance with specification. Similarly, however, I do not think it can be fairly stated that the joinder of NDY was attributable to the conduct of Leighton or Tyco. However, although the cases usually address the circumstances in which joinder of a successful defendant has taken place, a Bullock order may be made, in my view, in relation to the costs of maintaining proceedings against a successful defendant where the maintaining of those proceedings has been induced by the conduct of the unsuccessful defendant or defendants.

103 That is the case, I think, in these proceedings where Tyco and Leighton brought proceedings in negligence (in the case of Leighton also in contract) against NDY which, in my view, was quite unmeritorious for the reasons I expressed in the principal reasons for judgment.

104 I am satisfied that the unjustified pursuit of NDY by Leighton and Tyco played a significant role in Optus's maintaining of the proceedings against NDY. It was not until the hearing was several months under way that Optus served a statement of expert evidence seeking to place responsibility upon NDY. While it is not practicable to pinpoint the time from which the conduct of Tyco and Leighton should be seen as inducing the maintenance of these proceedings against NDY by Optus, I think one is entitled to treat that time as shortly after the filing of defences and cross-claims amongst the defendants.

105 While the costs of joinder of NDY by Optus might be correctly excised from any Bullock order, I do not regard that as a practical application of the Bullock order in this case and for that reason I am of the view that Optus is entitled to a Bullock order in respect of the costs it has been ordered to pay NDY. Accordingly, I confirm the orders earlier made in these proceedings and make the further orders as follows:

106 Order that:

1. Leave be granted to the first, second and fourth plaintiffs to amend in terms of the further amended summons, save for paragraph 178.

2. Judgment be entered for the first plaintiff against the first and third defendants in the sum $7,423,071.10 plus interest in the sum of $2,844,459.83.

3. Judgment be entered for the second plaintiff against the first and third defendants in the sum of $19,804,652.53 plus interest in the sum of $7,588,980.17.

4. Judgment be entered for the fourth plaintiff against the first and third defendants in the sum of $18,167.14 plus interest in the sum of $6,961.50.

5. Upon the third plaintiff by its counsel giving the undertaking set out in the attachment to these orders (that undertaking having been given) leave is granted to the third plaintiff to discontinue these proceedings.

6. The proceedings by the fifth plaintiff be dismissed.

7. Judgment be entered for the second defendant in the proceedings.

8. The first, second and fourth plaintiffs pay the costs of the second defendant in the proceedings.

9. The first and third defendants pay the costs of the first, second and fourth plaintiffs, in the case of the third defendant on an indemnity basis from 23 January 2001, those costs to include the costs the subject of order 8.

10. The first and second cross-claims, the third cross-claim against the first cross-defendant to that cross-claim, the fourth, fifth, sixth, eighth, ninth, tenth, eleventh and twelfth cross-claims be dismissed.

11. Judgment be entered for the cross-claimant to the third cross-claim against the second cross-defendant to that cross-claim by way of contribution in the form of a full indemnity in respect of the liability of the first defendant to the first, second and fourth plaintiffs in the proceedings and under contract by way of full indemnity in respect of the liability of the first defendant to the first plaintiff in the proceedings.

12. Judgment be entered for the cross-claimant in the seventh cross-claim by way of contribution as to 30 per cent in respect of its liability to the first, second and fourth plaintiffs.

13. The cross-defendant to the first cross-claim pay the first cross-claimant’s costs of that cross-claim other than costs covered by orders 9, 14, 18, 19 and 23.

14. The cross-defendant to the second cross-claim pay the second cross-claimant’s costs on an indemnity basis from 23 January 2001.

15. The cross-claimant to the third cross-claim pay the costs of the first cross-defendant to that cross-claim other than costs covered by orders 9, 14, 18, 19 and 23.

16. The second cross-defendant to the third cross-claim pay the costs of the third cross-claimant on an indemnity basis from 23 January 2001, those costs to include the costs ordered to be paid by the first defendant under order 9.

17. The cross-claimant to the third cross-claim pay the costs of the first cross-defendant to that cross-claim other than costs covered by orders 9, 14, 18, 19 and 23.

18. The cross-claimant to the fourth cross-claim pay the costs of the cross-defendants to that cross-claim, in the case of the third and sixth cross-defendants to that cross-claim on an indemnity basis; in the case of the fourth and fifth cross-defendants to that cross-claim on an indemnity basis from 23 January 2001.

19. The third cross-defendant to the fifth and sixth cross-claims pay the costs of the cross-claimants and the fifth cross-defendants to those cross-claims on an indemnity basis and the costs of the first and second cross-defendants to those cross-claims on an indemnity basis from 23 January 2001.

20. The cross-defendant to the seventh cross-claim pay the costs of the cross-claimant.

21. The third defendant pay the costs of the cross-claimant to the eighth and twelfth cross-claims on an indemnity basis from 23 January 2001, the costs of the first cross-defendant to the eighth cross-claim and of the cross-defendant to the twelfth cross-claim on an indemnity basis in each case.

22. The cross-claimant to the ninth cross-claim pay the costs of the cross-defendants to that cross-claim on an indemnity basis.

23. The third defendant pay the costs of the cross-claimant to the tenth and eleventh cross-claims on an indemnity basis from 23 January 2001 and the costs of the cross-defendant to each of those cross-claims on an indemnity basis in each case.
24. Otherwise, no further orders as to costs.

107 In relation to various pleadings it is not clear to me that the pleadings that were handed up from time to time, as distinct from being filed in the registry, were given leave to be filed in court and I propose to make an order covering the ones in respect of which I have some doubt so that, to the extent it is necessary, that leave will be recorded as having been given.

108 I grant leave to file in court the further amended summons; to the extent that it is necessary, the defence to the further amended summons by NDY; the amended defence of the fourth cross-defendant to the fourth cross-claim; the amended eighth cross-claim; and the defence to the amended eighth cross-claim by EMAE.

109 I think I will add this: it will be seen in relation to the orders as to costs that I have not acceded to Leighton's submissions to differentiate costs on the basis of costs of adjournments or to have regard to the costs effect of the discontinuance of the proceedings by Mobile and the like. The basic reason for my doing so I have expressed in rejecting similar submissions on behalf of Tyco and I think Leighton must bear the responsibility for following in Tyco's footsteps to that extent.

-oOOo-

Last Modified: 06/12/2002

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Citations

Optus Networks Pty Ltd v Leighton Contractors Pty Ltd [2002] NSWSC 450

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Statutory Material Cited

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CITATION:	Optus v Leighton & Ors [2002] NSWSC 450
CURRENT JURISDICTION:	Equity Division - Construction List
FILE NUMBER(S):	SC 55059/97
HEARING DATE(S):	17 May 2002 and written submisions
JUDGMENT DATE:	17 May 2002
PARTIES :	First Plaintiff: Optus Networks Pty Limited Second Plaintiff: Optus Systems Pty Limited Fourth Plaintiff: Optus Vision Pty Limited Fifth Plaintiff: Optus Communications Pty Limited First Defendant: Leighton Contractors Pty Limited Second Defendant: Norman Disney & Young & Partners Pty Limited Third Defendant: Tyco Australia Pty Limited Sixth Cross-claimant: EMAE Pty Limited Fifth Cross-claimant: The WorkCover Authority of New South Wales
JUDGMENT OF:	Hunter J at 1

COUNSEL :	Plaintiffs: P Greenwood SC First Defendant: R Pepper Second Defendant: G Ellis Third Defendant: N Hutley SC Sixth Cross-claimant: N Kidd Fifth Cross-claimant: S Donaldson SC
SOLICITORS:	Plaintiffs: Minter Ellison Lawyers First Defendant: Moray & Agnew Second Defendant: Colin Biggers & Paisley Third Defendant: Blake Dawson Waldron Sixth Cross-claimant: Allen Allen &Hemsley Fifth Cross-claimant: Phillips Fox
CATCHWORDS:	Practice and Procedure - Costs - indemnity costs - relevant factors - importance of anticipated length and costs of proceedings - weakness of case against successful parties - tenuous basis for joinder of parties in cross-claims - Claderbank offers - unreasonableness of offerors' conduct - unrealistic assessment by offeree of its liability to plaintiffs - unrealistic assessment by offeree of plaintiffs' likely recovery of damages - whether offeree sufficiently informed at time of offer to make assessment as to quantum to offer if compromise - unsuccessful defendant an unreasonable obstacle to settlement - whether in conformity with Pt 22 - whether admissible as without prejudice offer in accordance with s131 of Evidence Act 1995 - Bullock Orders - conduct of unsuccessful defendants in inducing maintenance of proceedings by plaintiffs - conduct of unsuccessful defendant in inducing cross-claims by other defendants through initiating cross-claim
LEGISLATION CITED:	Evidence Act 1995 (NSW) Supreme Court Rules 1970
CASES CITED:	Almeida v Universal Dye Works Pty Limited (No 2) [2001] NSWCA 156 Associated Confectionary (Aust) Limited v Mineral and Chemical Traders Pty Limited (1991) 25 NSWLR 349 Bruinsma v Menczer (1995) 40 NSWLR 716 Clancy v Prince & Ors [2001] NSWSC 164 Cumming v Sands [2001] NSWSC 706 Gould v Vaggelas (1985) 157 CLR 215 John S Hayes & Associates Pty Limited v Kimberly Clark Australia Pty Limited (1994) 52 FCR 201 Nobrega v Trustees of the Roman Catholic Church [1999] NSWCA 133 Richardson v Hough (unreported, Santow J, 12 May 1999) Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179 Sved v Council of the Municipality of Woolahra (1998) NSW Convr 55-842 Van Doore v Mendez, unreported, 30 June 1997 Dunford J
DECISION:	Indemnity costs and order in nature of Bullock orders made as set out in paragraph 106.

NDY-	$2.5 million plus 31.25% of the costs up to a maximum contribution of $625,000
Tyco-	$2.5 million plus 31.25% of the costs up to a maximum contribution of $625,000 (matching NDY’s contribution)
Leighton-	$2 million inclusive of costs
EMAE-	$250,000 plus 3.125% of the costs up to a maximum contribution of $62,500