Owners Corporation 1 Plan No. PS 707553K v Shangri-La Construction Pty Ltd (ACN 130 534 244)

[2023] VCC 2294

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

BUILDING CASES LIST

Case No. CI-22-05416

OWNERS CORPORATION 1 PLAN NO. PS 707553K and ORS	Plaintiffs
v
SHANGRI-LA CONSTRUCTION PTY LTD (ACN 130 534 244) and ANOR	Defendants

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JUDGE:	HIS HONOUR JUDGE MACNAMARA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	6 December 2023
DATE OF RULING:	6 December 2023
CASE MAY BE CITED AS:	Owners Corporation 1 Plan No. PS 707553K and Ors v Shangri-La Construction Pty Ltd (ACN 130 534 244) and Anor
MEDIUM NEUTRAL CITATION:	[2023] VCC 2294

RULING
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Subject:COSTS

Catchwords:              Proceeding decided in favour of the thirteenth plaintiff (the State) – whether the State is entitled to costs of the proceeding from involvement as intervener in VCAT proceedings – whether the State as intervener had obvious interest – whether costs to be awarded on standard or indemnity basis – defendant’s failure to accept Calderbank offer and offer of compromise – whether offer of compromise satisfies Rule 26.02 –  satisfaction of Rule 26.08 by judgment exceeding offer

Legislation Cited:      Building Act 1993 (Vic); Corporations Act 2001 (Cth); County Court Civil Procedure Rules 2018 (Vic)

Cases Cited:Guss v Johnstone [2000] HCA 26; Mandalinic v Stone (No 2) [2023] FCAFC 176; Calderbank v Calderbank [1976] Fam 93; PCCEF Pty Ltd v Geelong Football Club Ltd (No 3) [2019] VSCA 191; Re Saric; Saric v Vukasovic (No 2) [2018] VSC 254; Stavrakijev v Ready Workforce (No 2) [2018] VSC 767; Sarina Investments Pty Ltd v Brotherhood of St Laurence (No 2) [2022] VCC 2122;

Ruling:  Second defendant pay thirteenth plaintiff’s costs

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APPEARANCES:	Counsel	Solicitors
For the Thirteenth Plaintiff	Mr R Chaile	Corrs Chambers Westgarth
For the Second Defendant	Dr M Wolff	Prior Law

HIS HONOUR:

1This proceeding arises out of the scandal and upheaval that has occurred in the building industry amongst the regulators of this State, in connection with the use of flammable cladding on buildings. 

2Following a serious fire caused a flammable cladding in Victoria at a building at Docklands known as LaCrosse which generated complex litigation in the Victorian Civil and Administrative Tribunal which was resolved in the Court of Appeal, and following further similar fires, in other parts of the world, including in particular the Grenfell Tower in London. 

3Parliament amended the Building Act 1993 by inserting s137F. This section made detailed provision for the State of Victoria to involve itself in the issue of removal and rectification of flammable cladding and gave the State remedies against the building companies involved in the attachment of the cladding to the relevant buildings and their officers.

4In the present case, the State in exercise of its powers under s137F took over a proceeding in the Victorian Civil and Administrative Tribunal originally commenced by the Owners Corporation of a residential building against its builder, Shangri-La Construction Pty Ltd.

5That proceeding was referred to this court, and went to trial before me earlier this year.  I published reasons in which I accepted the contentions of the State, that it was entitled as against the building company, and against its officer, a Mr Obaid Naqebullah to recover the costs of rectification of the relevant residential building required to remove flammable cladding. 

6By the time the trial took place, Shangri-La Construction Pty Ltd had been placed in voluntary liquidation, and so the proceeding as against it was, by force of the Corporations Act stayed.  The active defendant remaining was Mr Naqebullah. 

7Section 137F subjects officers of building companies in the circumstances described to the same liabilities as the company, subject to a defence which the relevant officer might make good by establishing that the application of the flammable cladding took place without his or her knowledge or approval. For reasons which I gave, I did not accept in the circumstances that Mr Naqebullah was entitled to escape liability on that basis.

8The upshot is that inclusive of interest, a judgment will be entered against Mr Naqebullah, in the sum of approximately $1.5 million. 

9The matter before me now is as to the form of the judgment and as to what costs order ought to be made.  The State's contention is that it is entitled to its costs of the proceeding from the moment it became involved initially as an intervener at the Victorian Civil and Administrative Tribunal and thereafter as an active plaintiff by order of that tribunal made in December of last year. 

10It was at the same time and as part of the same group of orders, that Mr Naqebullah was, for the first time added as a party to the proceeding. 

11The State served an offer of compromise expressed to be made pursuant to Order 26 of the court's rules addressed to Mr Naqebullah and stating as follows:

“1     In relation to the claims by the Thirteenth Plaintiff [that is the State]      against the Second Defendant [that is Mr Naqebullah], the Thirteenth      Plaintiff makes an offer of compromise to the Second Defendant to      accept the sum of $1,250,000 (exclusive of GST), consisting of:

(a) $1,050,000 on account of the Thirteenth Plaintiff's claims; and

(b) $200,000 on account of the Thirteenth Plaintiff's legal costs, within       21 days of the date of acceptance of this offer.

2     This offer of compromise is open to be accepted until 5.00pm on 26      May 2023.

3 This offer of compromise is served in accordance with Order 26 of the County Court Civil Procedure Rules 2018 (Vic).”

12Mr Chaile who appears today for the State, contends that in the circumstances described, Rule 26.08 of the court's rules is engaged.  Sub rule (2) of that rule states inter alia: 

"Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled

…

(b) in the case of any other claim of the plaintiff, to an order against the      defendant for the plaintiff's costs in respect of the claim before 11.00      a.m. on the second business day after the offer was served, taxed on       the ordinarily applicable basis and for the plaintiff's costs thereafter           taxed on an indemnity basis." 

13The costs which Mr Chaile seeks on the State's behalf extend not only to its costs incurred on and after its joinder as thirteenth plaintiff from December 2022, but also to costs which it incurred as an intervener, having been granted that entitlement by an earlier order of the tribunal in 2022. 

14Dr Wolff, on behalf of Mr Naqebullah concedes the general principle that costs follow the event. My substantive determination is subject to a pending appeal in the Court of Appeal. In the meantime, Dr Wolff correctly concedes that the event which guides the making of the costs order is a substantial and unqualified victory for the State. He says, however, that the proposed order which the State seeks, is inappropriate for a variety of reasons. He challenges the proposed order insofar as it purports to reach back prior to December 2022. He observes that prior to that date, neither his client, nor the State were parties to the proceeding. Mr Naqebullah was a non-party and the State was a mere intervener. In any event, he says that the form of offer which I have recited, is not an offer made in accordance with Order 26. He took me to Rule 26.02 which he said made good this contention. Sub rule (4) of that rule provides:

"An offer of compromise must state either –

(a) that the offer is inclusive of costs; or

(b) that costs are to be paid or received, as the case may be, in          addition to the offer." 

15He contended correctly that sub paragraph (b) of the sub rule does not apply, nor he said does sub paragraph (a). He said that this sub paragraph would properly be engaged if the offer simply stated a compendious figure or an all in settlement, $1.25 million, for instance, exclusive of goods and services tax. The elaboration which breaks down the compendious figure in to an amount for costs, and an amount for the substantive claim, according to Dr Wolff, takes the matter outside the ambit of Order 26, and the strong presumption established by Rule 26.08 does not apply accordingly.

16Mr Chaile said that the offer was in accordance with Order 26 of Rule 26.02(4) paragraph (a) as being an offer inclusive of costs and the further elaboration breaking it down, did not derogate from that.

17In my view, the offer does fall within the literal terms of sub paragraph (a).  By way of reductio ad absurdum, Dr Wolff proposed that in the present instance and having regard to the outcome at trial that I already described, an offer for instance, valuing the stakes claim, substantively of $100,000, but claiming $1 million as costs would not be a proper offer to compromise under Order 26.

18In my view, albeit that there is an element of absurdity in Dr Wolff's reductio ad absurdum, an offer so constructed would fall within the literal terms of the rule, and having regard to the outcome at trial would attract the presumption that a costs order on the indemnity basis ought to be granted. 

19Before I proceed further with a consideration of how Order 26 operates in the present circumstances, I need to deal with the issue as to how far back the costs order may reach.

20The State's costs before December of 2022 cannot be its costs as a party or its costs as a plaintiff.  Its status then was as intervener.  Mr Chaile referred me to two authorities, one of the High Court of Australia, and another of the Full Court of the Federal Court, namely Guss v Johnstone [2000] HCA 26 at paragraph 70 and Mandalinic v Stone (No 2) [2023] FCAFC 176 at paragraphs 4 5 as indicating a principle that an intervener may be entitled to costs where it appears that the intervener had a genuine interest in the proceeding and advanced contentions that were accepted.

21The State, as I have described, has been ultimately victorious in this litigation.  That would seem to be a vindication of the position which it has taken. It has an obvious interest in the outcome.

22In those circumstances, it seems to me that the authorities referred to are supportive of the view that the State in a general sense as intervener ought to be entitled to a costs order in its favour. Dr Wolff said how could his client, Mr Naqebullah be liable for costs incurred before he became a party to the proceeding. Mr Chaile's response was, that insofar as s137F of the Building Act 1993, which I analyse in some detail in my substantive determination subjects in the circumstances proven here, an officer such as Mr Naqebullah to the same liabilities as the building company would have. The State was entitled as at 2022 in accordance with the principles just described to look to Mr Naqebullah's company, Shangri-La Construction Pty Ltd for its costs. Shangri-La continued to be liable for those costs, and in a sense still is, subject of course, to the stay imposed by the Corporations Act.  That stay was imposed only earlier this year. 

23In those circumstances, I accept the contention that the State is entitled to reach back to recover its costs as intervener relative to what it did after it was given leave to intervene by the tribunal and before it was joined as a party. 

24I return, therefore, to the operation of Order 26. Dr Wolff said even if his contention that the offer in question was to be regarded as outside Order 26 were not accepted, Rule 26.08 was not engaged in the circumstances. He said the outcome at trial could only be regarded as having been better or no less favourable than the offer, based upon a view that had regard to the costs and the breakdown as between costs and the substantive amount claimed.

25In my view, for reasons similar to the ones which I expressed relative to the contention that this offer was outside Order 26, it is the compendious figure which is the important one. That figure is $1,250,000. The judgment as I have noted, inclusive of interest will be for an amount approximately or perhaps exceeding $1.5 million. That being the case, in my view, the outcome and the judgment to be entered or given will exceed and better the amount of the offer; and hence the requirements of Rule 26.08 will have been satisfied and as a result, there will be a presumption in favour of an order for indemnity costs from and after the making of the offer and its non-acceptance.

26Dr Wolff, in his written outline which was somewhat elaborated this morning was critical of the manner in which the offer was made.  He noted that in a covering letter which accompanied the offer in its formal documentation and in a paper tabled for mediation purposes, the State asserted that its total costs were approximately $500,000, and the amount included as a part of the compendious figure inclusive of costs, making up the offer was $200,000.  He said it was impossible for his client to assess the validity of the assertion that the State had incurred costs of $500,000 as at May of 2023. 

27In any event, for reasons which he elaborated upon in his written outline, there were good grounds for being sceptical as to whether this was a true figure.  In all those circumstances said Dr Wolff, it was not unreasonable, or perhaps affirmatively reasonable for his client not to accept an offer which was based on an unsatisfactory and unverifiable premise. 

28Assuming that the proper analysis is, as I have put it, namely that there is no objection to an offer or, including a breakdown as between its costs and the substantive claim in an offer of compromise under Rule 26.02(4)(a), it is not obvious [to me at least], how a solicitor in the position of the State's solicitor would satisfy the requirements which Dr Wolff said would make it reasonable for a defendant to accept the offer or unreasonable for the defendant not to accept. 

29How would the quantum of the State's costs be disclosed to an offeree?  Would it be necessary a certificate from a costs consultant, for instance? Would it be necessary for the provision of a bill in a taxable form? Surely either of those requirements would be unreasonable, and oppressive. 

30It can scarcely be thought that with a matter still in contest between the parties, some representative of an offeree would be at large to peruse the plaintiff's files and briefs to counsel to assess costs. 

31In those circumstances, I am not satisfied that there was any reasonableness in the rejection of the offer, or unreasonableness in the making of the offer.  Even if I were wrong on this point, Mr Chaile referred me to a series of authorities to the effect that in so far as these issues of reasonableness may, in accordance with established authority be appropriate for consideration relative to offers made in accordance with the decision of the English Court of Appeal in Calderbank v Calderbank which are popularly described as "Calderbank offers", they are not generally relevant to offers of compromise under Order 26.

32He referred to a decision of the Court of Appeal, PCCEF Pty Ltd v Geelong Football Club Ltd (No 3) [2019] VSCA 191; Re Saric; Saric v Vukasovic (No 2) [2018] VSC 254 and Stavrakijev v Ready Workforce (No 2) [2018] VSC 767.

33Without going to the detail of most authorities, they state the proposition that even if it appears that it is not unreasonable for an offeree not to accept an offer, for instance, because of an inability to verify the quantum of the offeror's costs, that in itself without more, will not be sufficient to avoid the presumption created by Order 26.

34Dr Wolff referred me to a ruling which I gave in another matter which is the subject of an appeal to the Court of Appeal, and the matter involving the Brotherhood of St Laurence where I declined to make an order based on Rule 26.08 because of an issue about an undiscovered document, which I considered might potentially be regarded as 'dynamite'. 

35Mr Chaile's contention was that it was considerations such as that, which might enliven the court's discretion under Order 26 to order otherwise, despite the presumption established by Rule 26.08; and the matters which I have just been referring to were insufficient.

36I accept that contention.  In my view, in those circumstances, it is therefore appropriate to make an order with the uplift of scale as from May of this year, in the manner contended for by the State.  A final matter that was subject of challenge by Dr Wolff, as to the form of judgment sought by the State, was as to certification for counsel.  He said that insofar I was asked to certify for particular periods of time involved in preparation, it was inappropriate that I should do so, it was impossible in the present context to establish how much preparation had been undertaken.  These were matters proper for the investigation by the Costs Court. 

37Further, he said that insofar as daily rates or hourly rates or counsel were concerned, the Costs Court where the parties would be represented by costs consultants rather than by members of counsel was a more appropriate venue for any necessary debate to be carried out.  It was embarrassing and inappropriate to put him, Dr Wolff, in the position perhaps of reflecting upon the relative worth of the two counsel to whom he was opposed.

38In my experience, it is common and I might say almost invariable for judges of this court to be asked to certify rates for counsel.  I accept the contention put by Dr Wolff that the material is not before me, which would enable me to make a finding as to how much time was spent in preparation.  All that I could say is that there is a presumption, perhaps a nearly irrebuttable one that an assertion made by counsellors to be treated as correct. 

39In the circumstances, I think the proper course is for me to certify as to the rates for counsel, leaving the issue as to the number of hours engaged in outside court for determination by the Costs Court, and I would request that a revised minute of order be prepared by the State, reflecting the reasons which I have given.