Ozzie Homes Building & Constructions Pty Ltd v Sukhvinder Singh (Costs)
[2024] VCC 1557
•8 October 2024
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised (Not) Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-23-03422
| Ozzie Homes Building & Construction Pty Ltd (ACN 130 154 906) | Plaintiff | |
| v | ||
| Sukhvinder Singh | First Defendant | |
| and | ||
| Rupinder Singh | Second Defendant | |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers, written submissions dated 16 September 2024 and 23 September 2024 | |
DATE OF RULING: | 8 October 2024 | |
CASE MAY BE CITED AS: | Ozzie Homes Building & Constructions Pty Ltd v Sukhvinder Singh and Anor (Costs) | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 1557 | |
RULING
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Subject:COSTS
Catchwords: Whether costs should be paid on a standard or indemnity basis – Whether rejection of Calderbank Offer reasonable
Legislation Cited: County Court Civil Procedure Rules 2018 (Vic), O63A and rr 30 and 31; Penalty Interest Rates Act 1983 (Vic); Supreme Court Act 1958 (Vic), s 58
Cases Cited:Aljade and MKIC v OCBC [2004] VSC 351; Oshlack v Richmond River Council (1998) 193 CLR 72; Colgate-Palmolive Co & Anor v Cussons Pty Ltd (1993) 46 FCR 225; BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 3) [2002] FCA 1294; Calderbank v Calderbank [1975] 3 All ER 333 (EWCA); Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2] [2015] VSCA 123 ; Crump v Equine Nutrition Systems Pty Ltd Trading as Horsepower (No 2) [2007] NSWSC 25; Leichhardt Municipal Council v Green [2004] NSWCA 341; Dunstan v Rickwood (No 2) [2007] NSWCA 266; Jones v Bradley (No 2) [2003] NSWCA 258; Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322; Perry v Comcare (2006) 150 FCR 319; Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Winslow Constructors Pty Ltd v Head, Transport for Victoria (Costs) (2021) 64 VR 200; Banksia Securities Ltd v Insurance House Pty Ltd (Costs) [2020] VSC 234; J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301; Cardona v Brown (2012) 35 VR 538; Macedon Ranges Shire Council v Thompson (2009) 170 LGERA 41; Winslow Constructors Pty Ltd v Head, Transport for Victoria (Costs) (2021) 64 VR 200; Hobartville Stud Pty Ltd v Union Insurance Co Ltd [2004] FCA 1600
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | L P Wirth | Johnston Construction Lawyers |
| For the Defendant | Daniel Legal Group |
HER HONOUR:
Introduction
1On 2 September 2024, I gave judgment in favour of the plaintiff (“the Builder”) in this matter for the sum of $169,750.00 plus interest pursuant to contract plus costs on account of completion of lock-up stage of the building works pursuant to a contract dated 21 January 2021. I dismissed the counterclaim brought against it by the defendants (“the Owners”) for alleged damages in the sum of $105,042.25 comprising of delay damages, interest charges and the loss of a land deposit.
2I ordered that the defendants pay the plaintiff’s costs of and incidental to the proceeding on a standard basis to be taxed in default of agreement, unless either party had a basis for seeking a different order as to costs and invited the parties to prepare draft orders to give effect to my reasons. The parties were unable to reach agreement on the issue of costs and interest and prepared written submissions on the question of whether the cost of the proceeding should be paid on a standard (that is, partially in accordance with the County Court Scale) or indemnity basis (that is, in their entirety).
3The Builder seeks orders that the Owners pay it the costs of and incidental to the proceeding (including reserved costs) on an indemnity basis, alternatively, to be taxed in default of agreement on the standard basis in respect of costs incurred up to and including 15 May 2024 and thereafter on an indemnity basis on the basis of the Owners’ unreasonable failure to accept the Builder’s offer in its solicitors’ letter dated 16 May 2024 (“the Offer”).
4The Owners oppose the orders sought by the Builder and submit that the appropriate order is that they pay costs on a standard basis from 29 June 2023, being, the date of the issue of the proceedings.
5For the reasons set out below, the Owners ought to pay the Builder’s costs of and incidental to the proceeding (including reserved costs) to be taxed in default of agreement on the standard basis in respect of costs incurred up to and including 3 June 2024, and, thereafter, on an indemnity basis.
Legal framework
6It is common ground, that as a general rule, the Court will order costs to be taxed on the standard basis.[1] The discretion to make a special costs order is an unlimited one though it must be exercised judicially and not unreasonably, and the circumstances should be “special”.[2] The usual order as to costs is that costs follow the event, and the successful party is entitled to an award of costs in its favour.[3]
[1] O63A r31 of the County Court Civil Procedure Rules 2018 (“Rules”) (see r30 regarding the meaning of “standard basis”).
[2] Aljade and MKIC v OCBC [2004] VSC 351 at [10].
[3] Oshlack v Richmond River Council (1998) 193 CLR 72 at [97].
7In Colgate-Palmolive Co & Anor v Cussons Pty Ltd,[4] Justice Shepherd set out many categories of circumstances which will warrant the making of a special costs order:
(a) the making of allegations of fraud knowing them to be false;
(b) the making of irrelevant allegations of fraud;
(c) evidence of particular misconduct that causes loss of time to the court and to other parties;
(d) the fact that the proceedings were commenced or continued for some ulterior motive or with wilful disregard of known facts or clearly established law; and
(e) the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.
[4] (1993) 46 FCR 225 at [23]– [24].
8In BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke gmbH (No 3)[5] Justice Habersberger set out the matters to be considered in circumstances involving the rejection of letters of offer as follows:
[5] [2012] VSC 414 at [59]-[67] (“BHP Billiton”) (with reference to Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCoverAuthority (No 2) (2005) 13 VR 435 (“Hazeldene’s Chicken Farm”)).
(a) the fact that a less favourable result is achieved does not give rise to a presumption of a special costs order. The making of an offer and its rejection are only two factors which the Court will have regard in the exercise of its costs discretion.
(b) the competing policy objectives of promoting settlement and reducing litigation costs as against discouraging potential litigants from bringing their dispute to the courts.
(c) the critical question is whether the rejection of the offer was unreasonable in the circumstances.
(d) in considering whether the rejection of the letter of offer was unreasonable, the Court should have regard to the following matters:
(i)the stage of the proceeding at which the offer was received;
(ii)the time allowed for the offeree to consider the offer;
(iii)the extent of the compromise offered;
(iv)the offeree’s prospects of success, assessed as at the date of the offer;
(v)the clarity with which the terms of the offer were expressed; and
(vi)whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
(e) whether it was unreasonable for the offeree to have rejected the offer is made “as at the time, or within a reasonably short time after, the offer” was made.[6]
(f) the Court should not too readily embrace submissions that it was inevitable that the proceedings would fail.
(g) the onus lies on the offeror to demonstrate the unreasonableness of the offeree’s rejection of the offer. This means that it is necessary to analyse what was proposed.
(h) there is no general rule that the Calderbank[7] offer must set out with specificity the basis for the offeror’s contention that the offeree should accept the compromise.
(i) it is not necessary for the applicant for an indemnity costs order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Such conduct is not a pre-requisite for a finding that the rejection of the Calderbank[8] offer was unreasonable.
(j) an “all in” offer is permitted in a Calderbank[9] offer.
[6] Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 3) [2002] FCA 1294 per Goldberg J at [21].
[7] [1975] 3 All ER 333 (EWCA) (“Calderbank”).
[8] Ibid.
[9] Ibid.
9Justice Habersberger’s decision was upheld on appeal to the Court of Appeal: Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2].[10]
[10] [2015] VSCA 123 at [55].
10The above “principles established by Habersberger J” were referred to by the Court of Appeal in Hannover Life Re of Australasia v Colella[11] without any criticism.
[11] [2014] VSCA 205 at [91].
Issues
11The issues for determination are as follows:
(a) Should the Owners pay the Builder’s costs of and incidental to the proceeding on an indemnity basis; alternatively –
(b) was the Owners’ rejection of the Offer unreasonable;
(c) if yes, should the Owners pay the Builder’s costs of the proceeding on a standard basis up to 15 May 2024, and, thereafter, on an indemnity basis.
(d) if no, should the Owners pay the Builder’s costs of the proceeding to be taxed on a standard basis in default of agreement.
Submissions
12The Builders contend that the Owners are in breach of s24 of the Civil Procedure Act 2010 (Vic) (to keep costs reasonable and proportionate) and, in circumstances where there is no merit to their defence, ought to pay costs of the proceeding on an indemnity basis.
13The Builder submits that the conduct in rejecting the Offer to reduce interest, is conduct that falls within the limbs of Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd[12] warranting an award of indemnity costs. Further, the Builder contends that it was apparent from the evidence given on behalf of the Owners that the true motivation for pressing on with the trial was an unfounded belief that the Owners were entitled to compensation and other demands before the Builder was entitled to payment of its claim.
[12] (1988) 81 ALR 397 at [401].
14The Owners’ written submissions did not directly address the first limb of the Builder’s costs application. Instead, they asserted “If the Owners are ordered to pay costs, it should be on a standard basis from the 29 June 2023”.
The Offer
15By a letter dated 16 May 2024, the Builder offered, in accordance with the principles in Calderbank[13] and Hazeldene’s Chicken Farm[14], to settle the proceeding on the basis of the Owners paying $160,000.00, inclusive of the Builder’s costs. The Builder submits that, notably, at that time, the defence continued to press allegations that were later abandoned by amendment, such as the non-completion of frame stage. Interest to the date of the Offer under the contract on the claim was the sum of $51,596.49. The compromise was, therefore, $61,346.49 plus the Builder’s costs of the proceeding. By then, the Builder had incurred costs in the order of some $40,000.00.
[13]Calderbank.
[14] Hazeldene’s Chicken Farm.
16The Builder submit that Owner’s rejection of the Offer was unreasonable, having regard to the following factors:
(a) The proposed settlement sum of $160,000.00 in full and final resolution of the dispute, inclusive of costs, was less than the principal debt of $169,750.00;
(b) The proposed settlement sum forgave the interest that had accrued either on the basis from 15% per annum from 8 May 2022 or 10% per annum from that date or the date of the commencement of the proceeding;
(c) As at the date of the Offer, the Owners can be taken to understand that the Builder, like them, would have had, by the time of the Offer, incurred costs in the tens of thousands of dollars;
(d) There was no merit to the Owners’ defence that they were liable to pay the sum claimed by the Builder, whether as a debt accrued under the contract or on a quantum meruit; and
(e) The letter referred to Calderbank,[15] as adopted by the Victorian Court of Appeal in Hazeldene’s Chicken Farm.[16] Further, that the letter stated that if the Offer was not accepted, and the Builder obtained at trial a result not more favourable to it than the terms of the Offer, the letter would be produced to the Court in support of an application for indemnity costs from the date the Offer.
[15] Calderbank.
[16] Hazeldene’s Chicken Farm.
17The Owners contend that their rejection of the Offer was not unreasonable for the following reasons:
(a) The Court must take into account all the relevant considerations, including the facts known to the Owners at the time they received the Offer;
(b) The reasonableness or otherwise of the refusal to accept the Offer must be considered by reference to the situation at the time when the Offer was made and not solely by reference to the ultimate outcome of the proceeding[17] and there is no room for hindsight;
[17] Crump v Equine Nutrition Systems Pty Ltd Trading as Horsepower (No 2) [2007] NSWSC 25 at [41].
(c) The question of reasonableness in rejecting an offer should not give rise to a prima facie presumption of indemnity costs if the offer is not bettered[18] and requires a careful analysis of the issues in the proceeding and the state of the evidence at the time the Offer was made;[19]
[18] Leichhardt Municipal Council v Green [2004] NSWCA 341.
[19] Dunstan v Rickwood (No 2) [2007] NSWCA 266.
(d) The Offer did not contain an element of genuine compromise. The Builder only offered to reduce the claim by $9,000.00 from a total of $169,000.00 (sic);
(e) At the time the Owners were arguing a claim for damages which the Builder did not address in a meaningful way;
(f) The Owners did not have the benefit of the Single Joint Expert’s (“SJE”) Report dated 21 July 2024. At the time of the Offer, they had a limited ability to assess the strengths and weaknesses of their case;[20]
(g) Although the Offer was made on the basis of a valid progress claim, the Offer then stated that, if the Owners rejected the Offer, the Builder would amend their claim to seek quantum meruit as an alternative to recovery for the debt accrued. It was not unreasonable for the Owners to reject the Offer on the basis that the Builder was intending to amend its claim on a quantum meruit, which the Owners believed was significantly less than the proposed settlement sum;
(h) The Offer should have been expressed as “plus costs” to avoid confusion.[21] The Offer was expressed as an “all-inclusive offer”. It was not unreasonable for the Owners to not accept the Offer as it failed to make the content of the claim independently and transparently clear;[22]
(i) The Owners were not given an opportunity to make some inquiry of the taxed costs to be able to make a careful comparative assessment of the value of the Offer as against the ultimate relief sought to be obtained;[23]
(j) The email to the Court on 9 September 2024 from the Builder’s counsel was the first time that the Owners understood that the interest on the claim was $51,596.49 at the time of the Offer, and, therefore, the compromise was $61,346.49 plus the Builder’s costs. The Builder failed to make this information independently clear at the time of the Offer;
(k) After the Offer, the Builder abandoned its claim for damages for loss of profit and introduced a quantum meruit claim. The Owners suffered prejudice from these late amendments that came one year after filing the claim on 29 June 2023. This was a material change to the Builder’s case. The Owners would have assessed the Offer on this new information and could have come to a different conclusion;
(l) The evidence in relation to the new quantum meruit claim was foreshadowed to be principally that of the Builder’s director and the SJE. At the time of the Offer, the SJE had not been appointed. The report was significant for the Owners to read to assess the Offer, which was not known to the Owners at the time; and
(m) The Owners amended their counterclaim after the Offer, which produced a change of circumstances.
[20] Jones v Bradley (No 2) [2003] NSWCA 258.
[21] Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 (“Elite”).
[22] Perry v Comcare (2006) 150 FCR 319 at [53].
[23] Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [24].
Analysis
Should the Owners pay the Builder’s costs of the proceeding on an indemnity basis?
18The principles and case authorities to be applied with respect to unmeritorious claims was considered in detail and helpfully summarised by Justice Riordan in Winslow Constructors Pty Ltd v Head, Transport for Victoria (Costs).[24]
[24] (2021) 64 VR 200 at [4] – [11].
19Justice John Dixon recently stated the principles applicable to an award of indemnity costs in Banksia Securities Ltd v Insurance House Pty Ltd (Costs) as follows:[25]
“(a) Costs are to be assessed on a standard basis unless the circumstances of the case justify a departure from the usual course.
(b) The making of an indemnity costs order is in the unlimited discretion of the court, with such discretion to be exercised judicially and not unreasonably.
(c) The court may order indemnity costs where the circumstances warrant departing from the usual rule that costs be payable on a standard basis, including conduct that bears a ‘sufficient or unusual feature’ or some ‘relevant delinquency’.”
[25] Ibid at [5] referring to Banksia Securities Ltd v Insurance House Pty Ltd (Costs) [2020] VSC 234 at [15].
20Justice John Dixon went on to say:[26]
“[t]he court may order indemnity costs in cases where a party, properly advised, knew or should have known that it had no chance of success and has persisted with its claim”.
[26] [2020] VSC 234 at [15].
21Justice Woodward in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd[27] further considered, with respect the category of unmeritorious cases, jurisdiction to award indemnity costs. His Honour considered indemnity costs were enlivened if the litigant had an ulterior motive for the litigation, and that an ulterior motive would be presumed if the litigant should have known there was no chance of success.[28] He explained:
“I believe that it is appropriate to consider awarding … ‘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 of the known facts or the clearly established law.” [29]
[27] (1988) 81 ALR 397 at [401] (“Fountain Selected Meats”).
[28] Ibid.
[29] (1988) 81 ALR 397 at [401].
22In J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2),[30] Justice French did not consider it necessary to find that the proceeding had been commenced or continued for an ulterior motive to exist or that there was wilful disregard of the known facts or the clearly established laws. He said that the discretion to award indemnity costs could be enlivened if, “for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case” (emphasis added).[31]
[30] (1993) 46 IR 301.
[31] Ibid at [303].
23The Victorian Court of Appeal cited Justice French’s statement with approval in Macedon Ranges Shire Council v Thompson.[32] The Court of Appeal confirmed that that the discretion to make a special costs order may be enlivened if a litigant presses a case that, on proper consideration, should have been seen as hopeless. However, the Court of Appeal stated that the Court may not be inclined to make such an order if the litigant did not recognise that its case was without merit.[33] In each case, the Court must have regard to:[34]
“The litigant’s conduct against the facts then known or which ought to have been known, the inquiries that the litigant ought reasonably to have made and the legal advice which the litigant ought reasonably to have obtained”.
[32] [2009] VSCA 209 at [15] per Redlich JA and Beach AJA.
[33] Ibid.
[34] Ibid.
24Justice Riordan in Winslow Constructors Pty Ltd v Head, Transport for Victoria (Costs)[35] summarised the principles to be applied in considering an application for indemnity costs on the basis of an unmeritorious claim as follows:
“(a) The fact that a litigant filed or maintained a proceeding which has no, or substantially no prospect of success, does not of itself enliven the jurisdiction to award indemnity costs.
(b)The jurisdiction is enlivened if the litigant knew or should have known, on proper consideration, that the case was hopeless.
(c) The Court may decline to exercise its discretion if the litigant did not in fact recognise that the case was hopeless.” [36]
[35] (2021) 64 VR 200 at [11].
[36] Ibid.
25The Builder relies on the email from its solicitor dated 3 September 2024 as the basis for the application for indemnity costs. The email relevantly claims the following:
(a) The Builder was successful on all issues;
(b) The Owners’ defence and counterclaim was without merit;
(c) The Owners did not prove the most basic elements of their case, despite several attempts at repleading their case, including during trial;
(d) The Owners placed reliance on Mr Laycock’s reports who accepted that, when proper regard was had to the definition of “lock-up stage”, the Builder had achieved it;
(e) The Court found that 5% of the incomplete works described by Mr Benjamin Wood did not prevent the Builder from achieving lock-up;
(f) Properly advised, the Owners should have known that they had no chance of success; and
(g) It must be presumed that the Owners persisted with their defence for an ulterior motive, or because of some wilful disregard of the known facts or clearly established law per Fountain Selected Meats.[37]
[37] Fountain Selected Meats at [401] per Justice Woodward.
26In my view, the Owners’ defence at trial was refined in closing submissions and was weak but arguable on the basis of the principles set out in Cardona v Brown.[38] They contended that:
(a) lock-up should give some element of security in the lock-up stage per the reasoning in Cardona.[39] In their view, the home must be completely enclosed. The Owners asserted that the missing tiles around the steel beam were not insignificant. They referred to Cardona and said that it was not secure, and it was an incomplete item of lock-up. This was a question of degree and a matter of evidence at trial;
(b) similarly, that the temporary window was not secure and was not compliant with the requirements of lock-up stage per the principles set out in Cardona;
(c) it was proper for them to test the proposition of whether there was a logical distinction between the statutory definition and what the Builder decides to do and the different sequencing in different projects such as the missing brickwork, flashings, brick piers, temporary door, missing roof tiles, and it was a matter for the Court to determine on the evidence before it if it was a matter of practice and not completion issue; and
(d) whether lock-up stage has been completed is a matter that turns on the facts and the testing of the evidence as to whether the outstanding matters were in fact trivial and did not constitute a breach, whether there was a reasonable explanation as to why they were missing and/or that it was impossible or impractical for those items to be installed at the time the invoice was issued.
[38] (2012) 35 VR 538 at [85] (“Cardona”).
[39] Cardona at [85].
27Although the Owners gave evidence that they refused to pay the Builder’s payment claim as they still wanted compensation, they wanted to sort out the Victorian Building Authority complaint and they did not trust the Builder. Whilst this position was misconceived, it does not derogate from the fact that the arguments made in closing submissions and in reliance on the principles set out in Cardona[40] were not groundless contentions and were consistent with clearly established law.
[40] Ibid.
28It is further noted that, on the evidence before the Court at trial, that if the Owners had pleaded a cause of action founded relying on defective works instead of a repudiation cause of action as part of its defence and counterclaim, that it was common ground amongst the experts that there were defective works present. However, this did not impact the validity of reaching lock up stage and issuing the payment claim. Further, there was no admissible evidence as to the quantum to rectify the defects. Such a claim could have resulted in a defence of set-off and had good prospects of success.
29The Owners submit that the Builder abandoned its damages claim (essentially a loss of profits claim) by its amended statement of claim dated 12 June 2024 that they suffered “prejudice”. The removal of this claim decreased the quantum sought against the Owners. It is, therefore, not clear how the Owners “suffered prejudice” by the Builder abandoning this claim prior to the hearing and none is identified by them.
30The inclusion of the quantum meruit claim was a belts and braces pleading in case the Court found no contractual right to payment had accrued. The Builder was seeking restitution for work done before termination; however, the claim was limited to the contract price. The evidence in respect of this issue was from the Builder’s director and the SJE. The Offer was put on the basis that if it was accepted, the Owners could have avoided the further cost and expense by reason of the amendment to include an alternate claim of quantum meruit.
31I accept that the proper exercise of the Court’s discretion is to order indemnity costs where a party commences or continues an action in circumstances where, properly advised, they should have known that they had no chance of success. The authorities indicate that an award of indemnity costs is given in exceptional circumstances.[41] The circumstances of the present case do not warrant the Court departing from its usual course given the Owners’ arguments in closing submissions about the scope of Cardona.[42] In light of all the circumstances, the Court’s discretion will not be exercised to depart from the usual order for costs as there are no special or unusual features or special circumstances to elevate the award for costs other than on a standard basis.
[41] Leichhardt Municipal Council v Green[2004] NSWCA 341 at [45] per Santow JA; Colgate-Palmolive Co & Anor v CussonsPty Ltd (1993) 46 FCR 225 at [233] per Sheppard J.
[42]Cardona.
32For the foregoing reasons, the answer is no.
Was the Owners’ rejection of the Offer unreasonable?
33For the reasons set out below, the answer in respect of the Offer is yes.
34The mere refusal of an offer does not automatically mean that the Court should make an order for costs on an indemnity basis where the ultimate result is less favourable than that contained in the offer.[43]
[43] Hazeldene’s Chicken Farm at [18]-[20].
35I accept the Builder’s submissions that the Offer was more favourable than the judgment entered. However, the principles are that there must be some unreasonableness in the refusal to accept.[44]
[44] Hobartville Stud Pty Ltd v Union Insurance Co Ltd [2004] FCA 1600 per Crennan J at [6].
36The Offer was a genuine offer to compromise, and it was not an invitation to capitulate by offering to accept the sum of $160,000.00, inclusive of costs and interest within 30 days after execution of a deed of settlement. The offer was open for acceptance until 4.00pm on 3 June 2024. The Owners did not respond to the Offer.
37In my view, the Owners did act unreasonably in rejecting the Offer in circumstances where:
(a) the proceeding had been on foot for over 11 months, the proceeding was (as at the stage the Offer was made) listed for trial on 12 August 2024. The proceeding was well advanced, discovery had occurred, and the parties had conducted a private mediation;
(b) the period of 18 days after service for consideration of the offer was reasonable. The allegations made in the proceeding were not conceptually complex, were (or ought to have been) well understood by the Owners and the Owners were able to assess their position in an informed and considered manner with the assistance of the legal representative;
(c) the offer of $160,000.00 including costs and interest represented a genuine and fair compromise of the proceeding where the Builder’s claim at that stage totalled $169,750.00 plus interest in the sum of $51,596.49 pursuant to the contract plus its costs. This was significant and represented a genuine and fair compromise. The only measure of success that the Owners could have had as in relation to potentially reducing the interest rate under the contract from 15% per annum from 8 May 2022 to interest under statute from either that date or the date of commencement of the proceedings in the rate of 10% per annum. Such costs are disproportionate as understood under the Civil Procedure Act 2010 (Vic);
(d) the Offer set out the reasons why the Owners’ prospects of success on each ground were poor including as follows:
(i)the Owners repudiated the contract by failing to pay the Builder’s lock up stage invoice;
(ii)the Builder was at all material times ready, willing and able to complete its obligations under the contract;
(iii)the Owners were in substantial breach of the contract;
(iv)the Builder gave the Owners a Notice of Intention to Terminate and gave notice of its intention to terminate if the breach was not remedied in 10 days;
(v)the Builder terminated the contract and/or accepted the Owner’s repudiation;
(vi)the Owners are not entitled to recover damages for losses referred to in their counterclaim; and
(vii)the Owners relied on the expert report of Mr Laycock which does not warrant non-payment of the progress claim as it does not identify any defects properly understood; the identified items were incomplete works that the Builder would have completed in the ordinary course of works and did not support the allegation that the works had not reached lock up stage.
(e) the terms of the offer were clear; and
(f) the consequences of not accepting the Offer were foreshadowed.
38The Owners claim that the Offer does not materially deal with the merits of their counterclaim in a meaningful way. The Offer sets out the basis for why the prospects of success on their defence and counterclaim were poor. It was also conceded at trial that if the Owners lost on their defence, then their counterclaim would fall away as it was couched in terms of the Builder wrongfully terminated the Contract. Given there was no merit in the defence, the Builder was not liable to the Owners for the delay damages and consequential loss and damage sought in the counterclaim.
39Although the New South Wales Court of Appeal affirmed the view that Calderbank offers should be expressed on a “plus costs” basis in Elite but despite a long line of authority, the majority (Beazley P and Basten JA with McColl JA dissenting) stated in that decision that an Offer inclusive of costs may, in appropriate circumstances, give rise to an order for indemnity costs. President Beazley commented in Elite as follows:
“I do not agree that an offer which is inclusive of costs cannot ever be the basis upon which the court exercises its discretion to award indemnity costs. The award of indemnity costs involves the exercise of [the court’s] discretion. The application of an overarching ‘rule’ or ‘principle’ that only offers exclusive of costs could ground a favourable exercise of the court’s discretion and operate as a fetter on that discretion by introducing a rigidity to the making of so-called Calderbank offers which has no basis in principle.”[45]
[45]Elite at [5].
40Elite[46] does consider the difficulty in making an all-inclusive offer in that the Court may not be able to readily discern whether or not it was reasonable for the offeree to accept the offer and it may be difficult for the Court to assess whether the offer was equal to or better than the result received at a contested hearing. However, it is not always the case that Calderbank[47] offers should always drafted on a costs-exclusive basis.
[46] Ibid.
[47]Calderbank.
41In the present case it does not lie in the mouth of the Owners, who were represented by solicitors, to say that they did not know how much interest under the contract or under the statute was at the time of making the Offer. It is a simple calculation, and an interest rate calculator is readily available on the internet[48]. The different scenarios included the following:
(a) 15% under the contract from 8 May 2022 (the date of the invoice) to 16 May 2024 (the date of the Offer) in the sum of $51,596.49;
(b) 10% under the Penalty Interest Rates Act 1983 (Vic) from 8 May 2022 (the date of the invoice) to 16 May 2024 (the date of the Offer) in the sum of $34,397.66; or
(c) 10% under the Penalty Interest Rates Act 1983 (Vic) from 29 June 2023 (the date of issue) to 16 May 2024 (the date of the Offer) in the sum of $19,439.86.
[48]
42In the present case, the claim was for a sum certain pursuant to a written instrument, here, the invoice within the meaning of s58 of the Supreme Court Act 1958 (Vic). Interest therefore runs from the time when demand for payment was made, being 8 May 2022.
43I further accept the Builder’s position that whatever the parties’ costs were at the time of the Offer, whatever those costs might have been on taxation is beside the point – it was a significant compromise by the Builder to bear its own costs and forgo interest. The Owners knew how much their legal spend was at the date of the Offer On the above analysis and would understand that the Builder was willing to forgo an approximate range of $70,000.00 - $100,000.00 on its claim, not a reduction of only $9,000.00 on its claim as asserted by the Owners in their submissions. This contention mischaracterises the Offer made by the Builder and the statement of claim always sought interest as part of the relief under clause 31 of the Contract, alternatively, under statute.
44I therefore reject the Owners’ submission that they resist the claim for indemnity cost from 16 May 2024 on the basis that the Offer was made inclusive of costs. Their written submissions indicate that they only viewed the Offer as a $9,000.00 reduction on a total of $169,000.00 which was not the case at all. The Offer clearly stated that the $160,000.00 was in “full and final resolution of the dispute” which is understood to be “all inclusive”. It was unreasonable for them to hold this view, and the Offer did not cloud whether the Offer was ultimately beaten at trial.
45I accept the Builder’s contention that not having the benefit of the SJE at the time of the Offer does not provide an excuse for failing to accept the Offer. I accept the Builder’s submissions that the Owner’s defence was founded on their own expert report from Mr Laycock. Applying the proper test for achieving lock up, the Owners, properly advised on the statutory and contractual definition, should have realised that the Builder had achieved lock up. Mr Laycock impermissibly included internal services such as electrical, plumbing or mechanical services and further relied on defects as a basis for his view that lock-up stage had not been achieved.
46In closing submissions, the Owners’ solicitor advocate properly conceded the point and focussed on the principles set out in Cardona[49] and confined the arguments to the seven matters set out in the assessment of the SJE report. However, even with the provision of the SJE report on 22 July 2024, the Owners did not concede their claim or offer to resolve it.
[49]Cardona.
47The Owners were in possession of the Builder’s report made by Mr Jaswinder Singh of Jim’s Building Inspections, who inspected the works on 6 April 2022. In his report, he opined that lock-up stage had been completed. The Offer set out the reasons why the defence and counterclaim would fail which are consistent with the Court’s ultimate findings, that is, that Mr Laycock’s report did not identify anything that warranted the Owners not paying the payment claim, instead it supported the allegation that the Builder had completed lock up stage and the incomplete works would have been completed by the Builder in the ordinary course of the works.
48The Owners failed on all issues and should have known that would be the result after the provision of the Offer which set out the reasons why the prospects of success of the Owners’ defence and counterclaim were poor.
49The Owners were granted leave to amend their counterclaim at trial, but this did not impact the considerations of the Offer. The amendments were required to properly plead the elements of the repudiation claim that was always part of the Owner’s case.
50I rely on the principles set out in BHP Billiton[50] set out above and, in particular, the public policy considerations of promoting settlement and reducing litigation costs. Litigation entails significant time and cost commitments from parties. If the Owners had been defending significant sums, the potential upside in continuing on with litigation might have justified the rejection of the Offer. In the present case, the Owners’ rejected the $160,000.00 all in offer, in which the only success could have been a difference in outcome on the interest calculation. That is:
(a) If the progress claim became payable under the Contract, interest accrues from 8 May 2022 at 15% per annum; or
(b) If the sum recoverable is on the non-contractual basis, interest accrues pursuant to statute, which is 10% per annum either from 8 May 2022 or the date of commencement of the proceeding, being 29 June 2023.
[50]BHP Billiton.
51Significant costs were expended by the parties in order for the Owners to pursue the balance of the interest claim, and its counterclaim, which required success on everything: all their defences and the counterclaim. This is not commercially or economically reasonable. The range of the interest on the different scenarios was $32,156.63 to $17,198.93 at the time of the Offer. The Owners ought to have taken into account the significant litigation risks in running an action such as the present one, and there was no basis for their view that they had a higher chance of success across the entire proceeding as set out in the Offer, and most importantly, its “repudiation” counterclaim which was tied to their defence.
Should the Owners pay the Builder’s costs of the proceeding on a standard basis up to 15 May 2024 and, thereafter, on an indemnity basis?
52For the foregoing reasons, the answer is yes.
Conclusion
53The Owners ought to pay the Builder’s costs of and incidental to the proceeding (including reserved costs) to be taxed in default of agreement on a standard basis in respect of costs incurred up to and including 15 May 2024, and, thereafter, on an indemnity basis.
Orders
54For the reasons set out above, the orders are as follows:
(a) There is judgment for the plaintiff.
(b) The defendants pay the plaintiff the sum of $231,434.09, comprising:
(i)The claim in the amount of $169,750.00; and
(ii)Interest in the sum of $61,684.09 (calculated from 8 May 2022 to the date of judgment).
(c) The counterclaim is dismissed.
(d) The defendants pay the plaintiff’s costs of and incidental to the proceeding, including reserved costs, to be taxed in default of agreement on the standard basis in respect of costs incurred up to and including 15 May 2024, and thereafter on an indemnity basis.
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Certificate
I certify that these 22 pages are a true copy of the judgment of Her Honour Judge Burchell delivered on 8 October 2024.
Dated: 8 October 2024
Alexandria Peck
Associate to Her Honour Judge Burchell
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