Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2]
[2015] VSCA 123
•28 May 2015
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2012 0185
| PROTEC PACIFIC PTY LTD (ACN 009 534 552) | Appellant |
| v | |
| STEULER SERVICES GmbH & Co KG [No 2] | Respondent |
S APCI 2012 0186
| BHP BILLITON OLYMPIC DAM CORPORATION PTY LTD (ACN 007 835 761) | Appellant |
| v | |
| STEULER SERVICES GmbH & Co KG [No 2] | Respondent |
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| JUDGES: | TATE, SANTAMARIA and KYROU JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | Written submissions |
| DATE OF JUDGMENT: | 28 May 2015 |
| MEDIUM NEUTRAL CITATION: | [2015] VSCA 123 |
| JUDGMENTS APPEALED FROM: | BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH [No 3] [2012] VSC 414 (Habersberger J) |
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COSTS – Leave to appeal against costs order – Trial below split into two stages – Whether trial judge erred in not awarding costs of the first hearing in favour of parties successful in the first hearing who failed overall – Whether issues dominant or separable – Effect of reversal of such findings on appeal – Calderbank offers – Whether any error in exercise of judge’s discretion in awarding indemnity costs – Leave to appeal refused.
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| APPEARANCES: | Counsel | Solicitors |
| No appearances. The Court considered the written submissions filed by the parties. | ||
TATE JA
SANTAMARIA JA
KYROU JA:
Introduction and summary
On 17 December 2014 this Court delivered reasons for judgment in two appeals, one brought by Protec Pacific Pty Ltd (‘Protec’) and the other by BHP Billiton Olympic Dam Corporation Pty Ltd (‘BHP’) against Steuler Services GmbH & Co KG (‘Steuler’): Protec Pacific v Steuler Services; BHP Billiton Olympic Dam Corporation v Steuler Services[1] (‘the principal judgment’). The Court dismissed both appeals and upheld some of the contentions brought by Steuler. We reserved the questions of the costs of the proceedings below and the costs of the appeals.
[1][2014] VSCA 338.
Protec and BHP both seek leave to appeal the costs orders made by the judge below. Leave is required by s 17A(1)(b) of the Supreme Court Act 1986.
For the reasons that follow, we would refuse leave to appeal the costs orders below.
The principal judgment
We adopt the definitions used in the principal judgment.[2] With respect to the BHP appeal, the principal claim relied upon by BHP was that Steuler had engaged in misleading or deceptive conduct in breach of s 52 of the TPA by making a representation to WMC[3] and to Protec, namely, that Bekaplast HDPE was suitable for use as a long term containment liner for concrete tanks forming part of the solvent extraction plant at a copper and uranium mine, the Olympic Dam, in Roxby Downs, South Australia (‘the third representation’). This Court held that Steuler did not make the third representation to WMC or to Protec.[4] It held that, even if the third representation had been made, any reliance upon it by WMC would have been meagre. WMC had already decided to use HDPE after years of feasibility and scoping studies carried out with the assistance of consultants. In any event, the third representation was not misleading or deceptive as it was not established that the Bekaplast HDPE was unsuitable. It was not established that the Bekaplast HDPE had failed within 12 months of the CuSX trains and the USX trains going into service and nor was it demonstrated that the Bekaplast HDPE had failed by the time of the second fire on 21 October 2001. Further, WMC had not established that the Bekaplast HDPE was likely to fail prematurely. WMC was thus unable to prove that it was worse off by using the Bekaplast HDPE than it would have been in alternative circumstances. It had to replace the lining as a result of the second fire in any event. It could not prove any loss.
[2]For the purpose of making these reasons easier to follow, on occasion we have preferred not to use a defined term. This judgment assumes familiarity with the principal judgment.
[3]As explained in the principal judgment, in 1997, at the time of the alleged misleading or deceptive conduct, the mine was owned by WMC (Olympic Dam Corporation) Pty Ltd (‘WMC’), a subsidiary of a large public company, Western Mining Corporation Ltd. In 2005, after the transactions in issue had been concluded, WMC became a subsidiary of BHP Billiton Ltd, and was re-named BHP Billiton Olympic Dam Corporation Pty Ltd. A reference to ‘BHP’ is to be taken to include a reference to ‘WMC’ and vice-versa; we refer to WMC separately from BHP where relevant.
[4]Principal judgment, [222]; see [107]–[225].
In this conclusion, that WMC was unable to prove that it was worse off, the Court upheld the judge below who had determined that, although he found that the third representation had been made to WMC (and to Protec) and was relied upon by WMC,[5] WMC was unable to prove any loss. The judge concluded that the third representation had been made to WMC, and relied upon by WMC, in a judgment delivered after what was described as ‘the liability hearing’[6] or ‘the first hearing’. However, he concluded, after a second hearing that addressed causation, loss or damage, and quantum, that WMC was unable to prove its loss.[7] He ordered that BHP pay Steuler’s costs of the proceedings.[8] He also concluded that BHP had acted unreasonably in failing to accept two relevant settlement offers, the sixth settlement offer and the seventh settlement offer[9] and that Steuler was entitled to indemnity costs from the date on which the sixth settlement offer expired.[10]
[5]BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH [2009] VSC 322 (‘R1’).
[6]Although this was described as ‘the liability hearing’ this was not entirely accurate; see [17] below.
[7]BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH[No 2] [2011] VSC 659 (‘R2’).
[8]BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH[No 3] [2012] VSC 414 (‘R3’). The terms of the costs orders made by the judge are set out at [36]–[37] below.
[9]See [25]–[26] below.
[10]R3 [120].
With respect to the Protec appeal, the principal challenge was to the judge’s finding that Protec had not established that a settlement it had entered into with WMC for $15 million was reasonable. In the principal judgment the Court held that:
(1) as Protec had not adduced evidence to establish that it had assessed the legal merits of WMC’s claim against it or how the settlement amount of $15 million was arrived at, the judge had correctly found that Protec had not demonstrated that the settlement amount was reasonable;
(2) the judge had correctly concluded that the OSS Agreement did not include a warranty by Protec about the suitability of the Bekaplast HDPE.
As Protec had been unsuccessful in the proceedings it brought at trial, the judge below ordered Protec to pay BHP’s costs.
In the BHP appeal, the proposed grounds of appeal in respect of costs are as follows:
His Honour erred in finding that the liability hearing was not a clearly dominant or separable issue upon which WMC and Protec were successful; R3 [28], [44]–[51]. In the exercise of his discretion, his Honour should have made an order that Steuler pay WMC’s cost of the liability hearing.
His Honour erred in finding that the appellant [BHP] acted unreasonably in failing to accept the Sixth Settlement Offer; (R3 [97]–[110]) and the Seventh Offer (R3 [111]–[119]) and was therefore liable to pay the respondent’s [Steuler’s] costs on an indemnity basis after 10 April 2008.[11]
[11]Notice of Appeal dated 26 September 2012, grounds 15 and 16 (emphasis in original).
In the Protec appeal, the proposed grounds of appeal in respect of costs are as follows:
His Honour erred in finding that the liability hearing was not a clearly dominant or separable issue upon which Protec was successful; R3 [28], [44]–[51]; and failing to order that Steuler pay Protec’s cost of the liability hearing.
His Honour erred in finding that the appellant [Protec] acted unreasonably in failing to accept the Sixth Settlement Offer; (R3 [97]–[110]) and the Seventh Offer (R3 [111]–[119]) and was therefore liable to pay the respondent’s [Steuler’s] costs on an indemnity basis after 10 April 2008.[12]
[12]Amended Notice of Appeal dated 28 February 2014, grounds 6 and 7 (emphasis in original).
After the principal judgment was delivered, the parties were given time to consider the Court’s reasons to determine if a further hearing on the issue of costs was necessary or if they could reach agreement on costs. In the absence of a relevant agreement, the parties now ask that the Court consider the applications for leave to appeal against the costs orders made below and, should leave be granted, determine the substance of the costs appeals on the basis of the written submissions already filed and without the need for further appearances.
The history of the proceedings below
The claim involving BHP arose out of a counterclaim to a proceeding originally brought by Protec against WMC in June 2000 seeking in excess of $2.1 million for work performed in installing the HDPE lining system (including the Bekaplast HDPE liner) at the mine (‘the WMC proceeding’).[13] Steuler did not become a party to this proceeding until December 2001, when it was joined by WMC as the second defendant to its counterclaim. An allegation of unsuitability of the Bekaplast HDPE was introduced by an amendment to the counterclaim in June 2002.
[13]Proceeding No 5797 of 2000.
An attempt to settle the WMC proceeding was made between Protec and WMC in July 2006. This was conditional on Protec obtaining leave to serve out of time a proceeding[14] filed by it in April 2004 claiming damages for negligent misstatement against Steuler. Leave was refused and the 2006 settlement failed.
[14]Proceeding No 5724 of 2004.
On 31 May 2007 WMC, Protec and Smith entered into a new deed of settlement pursuant to which Protec consented to judgment being entered against it in the sum of $15 million (the ‘Final Deed’).[15] Relevantly, under the Final Deed, Protec agreed to issue proceedings against Steuler, such proceedings to be conducted by WMC and by solicitors and counsel nominated by WMC. In consideration of the settlement of the litigation, WMC agreed to pay all costs of the proceedings against Steuler and to indemnify Protec, Smith and Protec’s employees against any award of costs made against them in favour of Steuler. Protec agreed that any amount of damages, costs and interest awarded to it in the new proceedings against Steuler would be applied in satisfaction of the judgment sum of $15 million. Protec agreed to give WMC a charge and WMC agreed to return to Protec a bank guarantee dated 23 May 2002 in the sum of $175,865.08. The return was not contingent upon any payment by Protec to WMC.
[15]R1 [16].
As a consequence of the settlement between Protec and WMC, consent judgment was entered against Protec in the WMC proceeding.[16] The only outstanding issue was WMC’s counterclaim against Steuler. WMC became, in effect, the plaintiff in the proceedings and the title and name were amended accordingly.[17] As WMC had become a subsidiary of BHP Billiton Ltd in 2005, BHP became the named plaintiff.
[16]Proceeding No 5797 of 2000.
[17]R3 [4].
Protec commenced its proceeding against Steuler on 16 July 2007, (the ‘Protec proceeding’)[18] alleging that it entered into the OSS Agreement with WMC in reliance upon representations made by Steuler to Protec, including the third representation. Protec alleged that as a result of the misleading and deceptive representations and/or negligence of Steuler, it suffered loss, namely its liability to WMC for $15 million.
[18]Proceeding No 7268 of 2007. The judge referred to this as ‘the 2007 proceeding’.
The trial of both the WMC proceeding and the Protec proceeding commenced on 31 March 2008. At that stage the pleaded claim by WMC against Steuler was for loss and damage totalling $27.78 million. On 12 May 2008, over a month after the first hearing had begun, the judge ordered that the trial be split ‘in effect, between liability and quantum’.[19] He said that he
did so as a result of problems with the state of the evidence about the quantum of WMC's claim and Steuler's readiness to deal with further evidence filed at a late stage by WMC, and as a result of concerns that the trial would last much longer than the estimated three months.[20]
[19]R3 [8].
[20]Ibid; R1 [23].
As noted in the principal judgment, although the judge referred to the split trial as being in effect between liability and quantum, this is not entirely accurate as the issues of causation and loss, essential elements of the cause of action relied upon and the relief sought, were not determined until the second hearing.[21]
[21]Principal judgment, [75], n 88; see also [694]–[701].
At the conclusion of the ‘liability hearing’ the judge held that
in reliance on misleading and deceptive representations by Steuler, WMC and Protec had entered into the On-Site Service Agreement (‘OSS Agreement’) with each other concerning the installation of Steuler's HDPE lining system and that those representations were made negligently in breach of Steuler's duty of care to WMC and Protec.[22]
[22]R3 [9].
WMC subsequently amended its pleading in the WMC proceeding so that by the start of the second hearing on 15 June 2010 the claim faced by Steuler was for $13.7 million, together with interest. The amount claimed was reduced again at the close of final submissions to $13.2 million and interest.[23] The claim by Protec in the Protec proceeding remained at $15 million plus interest.
[23]R3 [11].
Following the second hearing, the judge concluded, as indicated above,[24] that in the WMC proceeding, WMC had not made out its claim that it had suffered loss or damage by Steuler’s conduct in contravention of s 52 of the TPA, or as a result of Steuler's negligence. He found that WMC had not established what it would have done had it not been misled by Steuler and, because of the supervening event of the second fire, any alternative lining would have had to be replaced in any event by a fire retardant and conductive lining. The judge went on to consider what the quantum of WMC's claim would be in the event that his finding against WMC was wrong, and assessed WMC’s loss and damage to be about $6.07 million. Interest would have been about 120 per cent of that amount (or $7.28 million), subject to any argument that interest should not be awarded for the whole of the interlocutory period of six and a quarter years.[25]
[24]See [5] above.
[25]R3 [13].
In relation to the Protec proceeding, as indicated above,[26] the judge concluded, after the second hearing, that Protec's claim failed because it did not prove that the settlement sum of $15 million was reasonable. [27] This was because no evidence was led from Protec's legal advisers about the course of negotiations, the reasoning that led to the settlement, or the matters that were taken into account in deciding to settle.
[26]See [6] above.
[27]R2 [233]–[234].
The costs judgment below
BHP and Protec submitted, before the judge, that there was a wide discretion to award costs to produce a fair and just result in circumstances where a case involves multiple issues and one issue, or a group of issues, has been clearly dominant or separable. They submitted that the modern approach leaves it open for the judge to take a pragmatic stance on the question of costs and to make an order apportioning costs in order to do justice between the parties. BHP had submitted that the first hearing had dealt with Steuler’s liability as a discrete issue and WMC and Protec had succeeded in establishing that Steuler had engaged in misleading or deceptive conduct. BHP urged the judge to take a pragmatic approach and exercise his discretion to award costs against Steuler in respect of the first hearing (at least from the date of Steuler’s joinder), notwithstanding the final outcome in the proceeding.
The judge rejected this argument. Instead, he accepted Steuler’s submission that the first hearing did not deal with a ‘dominant’ issue or group of issues, noting:
[E]stablishing breach is not a more ‘dominant’ issue than proving loss or damage where, as here, loss or damage is an essential ingredient to the causes of action relied on. Unless a plaintiff can prove loss or damage it matters not that it may have been able to establish other necessary elements of its cause of action. It is an equally important element.[28]
[28]R3 [44].
Steuler also sought to persuade the judge to award costs in its favour with respect to both the WMC and Protec proceedings on an indemnity (or solicitor and client) basis. Steuler argued that indemnity costs were warranted because in the WMC proceeding WMC knew its case was fundamentally flawed in that it could not prove the damage claimed, and in the Protec proceeding Protec was not proposing to lead any evidence from its legal representatives about the settlement. The judge rejected those submissions. He went on to consider the implications for an award of costs of seven settlement offers made between 2004 and 2009. Only two of those attempts at compromise remain relevant: one made on 27 March 2008 (‘the sixth settlement offer’), four days before the commencement of the first hearing, and one on 23 December 2009 (‘the seventh settlement offer’).[29] They were both Calderbank offers.[30]
[29]Principal judgment, [97]–[98].
[30]Calderbank v Calderbank [1976] Fam 93.
The sixth settlement offer was an offer to settle both the WMC proceeding and the Protec proceeding by paying WMC and Protec $2 million inclusive of interest within 14 days after acceptance of the offer, plus WMC's party and party costs of the WMC proceeding and Protec's party and party costs of the Protec proceeding, including in each case any reserved costs.[31] The offer was open for acceptance for 14 days after receipt of the letter.
[31]R3 [97].
The seventh settlement offer was an offer to settle both the WMC and the Protec proceedings for the sum of $6 million ‘all in’.[32] This offer remained open until 20 January 2010.
[32]R3 [111].
The judge analysed the effect of the sixth and seventh settlement offers bearing in mind the principles laid down in Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority [No 2].[33] In referring to the sixth settlement offer the judge said:
Reference was made to Calderbank and a subsequent authority and to producing the letter on the question of costs and seeking an order for indemnity costs from the date of the letter if the offer was not accepted and WMC and Protec did not achieve a better result at the hearing. There also was an explanation of why Steuler maintained that WMC's prospects of success were poor. Reference was made to ‘the detailed information’ about Steuler's defence to the plaintiffs' claims set out in Steuler's pleadings and witness statements. It was said that this information showed that the plaintiffs' claims had either ‘no value, or alternatively a value substantially less than the Settlement Amount’.[34]
[33](2005) 13 VR 435 (‘Hazeldene’).
[34]R3 [97].
The judge held that WMC and Protec acted unreasonably in not accepting the sixth settlement offer, critically because by the time of the offer ‘WMC and Protec should have appreciated the problems they faced in proving they suffered loss and damage in the trial due to commence in four days’ time.’[35] As we remarked above,[36] the judge did not direct the split of the trial until over a month into the first hearing and the issue of loss or damage had not yet been separated from the other issues for trial. This meant that as at the time of the receipt of the sixth settlement offer, WMC and Protec should have contemplated the need to prove loss or damage imminently.
[35]R3 [110].
[36]See [16] above.
By the time of the sixth settlement offer WMC should have filed and served all of its witness statements[37] and it knew that Steuler’s case included an attack on WMC’s inability to prove loss or damage.[38] WMC was therefore in a position to consider the sixth settlement offer, and assess the risks it faced, and its likely prospects of success, knowing that it would need to satisfy all the elements of the causes of action in order ultimately to succeed against Steuler. In the judge’s view, this was not looking at WMC’s conduct with the benefit of hindsight; rather, this was recognising that WMC had been engaged in a risk assessment with the relevant information to hand.[39]
[37]R3 [101].
[38]Ibid.
[39]Ibid.
The judge also found that Protec knew that, notwithstanding the need to satisfy the Court that the $15 million settlement was reasonable, it would not call evidence from its legal advisers about it.[40] He agreed with a further submission of Steuler’s that it was evident that by the time of the sixth settlement offer WMC was aware of the difficulties it faced. Steuler had submitted that ‘it should be inferred that the making of the Deeds of Settlement with Protec and the commencement of the 2007 proceeding by Protec, in effect on behalf of WMC, were “a clever attempt” by WMC to seek a valid pathway to recovery of damages in circumstances where it had realised that it probably could not do so in its own proceeding’.[41] WMC had submitted that the only reason for the commencement of the Protec proceeding was that Protec had an advantage over WMC in that there was a contractual relationship between Protec and Steuler which was absent between WMC and Steuler. The judge concluded that the commencement of the Protec proceeding revealed that WMC understood it had difficulties in its own claim:
[I]t seems to me that the fact that WMC procured Protec to issue the 2007 proceeding when no additional damages were sought to be recovered against Steuler was a recognition by WMC that it faced difficulties in successfully recovering damages from Steuler.[42]
[40]Ibid.
[41]R3 [102].
[42]R3 [102].
In applying the Hazeldene principles, the judge emphasised that a proper comparison requires an examination not simply of the quantum of the claim but also of the likely amount to be recovered, the likely interest and costs, as well as prospects of success:
[T]he comparison is not just between what WMC thought its claim was worth and what was being offered. The correct analysis is to consider the likely amount recoverable, including interest and costs, if successful; the likely prospects of success; the amount of the offer and the likely amount of costs to be paid if totally unsuccessful.[43]
[43]R3 [104].
After analysing all of those factors and the terms of the offer, the judge formed the view that it could not be said that the offer was not a serious one involving a genuine and fair compromise.[44] In particular, the judge did not accept the submission that the offer amounted to no more than a proposal to pay the costs of WMC and Protec as at 25 March 2008, said to be $3.57 million as at that date. He noted that the offer would mean that WMC would receive $2 million towards its claim. He allowed about $3.18 million for WMC and Protec’s costs to that date (after deducting $383,000 for costs incurred before Steuler had been joined) and assumed party and party costs at between one half to three quarters of this amount ($1.59 million to $2.39 million).[45] Steuler’s offer therefore amounted to between $3.59 million to $4.39 million, an amount that meant ‘there was something over and above the total actual costs, albeit a relatively small amount’.[46]
[44]Ibid.
[45]R3 [105].
[46]Ibid.
The judge also considered that even if WMC had ultimately succeeded in establishing loss or damage, its claim inclusive of party and party costs and interest to March 2008 would have amounted to $12.9 million, so that an offer of $2 million plus about $2.1 million in costs represented nearly 32 per cent of that total. The rejection of that offer was unreasonable.[47]
[47]R3 [106].
With respect to the seventh settlement offer, the judge rejected a submission by WMC and Protec that by the date of this offer they were ‘objectively entitled to believe that their prospects of success at the quantum hearing were reasonable’,[48] given that Steuler had failed in the first hearing. Instead, he held that WMC knew or should have known that it had real difficulties in proving that it suffered loss or damage as a result of Steuler’s conduct.[49] Protec should also have appreciated that if it did not propose to call its legal advisers then it ran the risk of not proving the reasonableness of its settlement with WMC.[50] He considered that WMC and Protec approached their assessment of the seventh settlement offer in the same misconceived way they had approached the sixth settlement offer.[51] In his view the offer of $6 million was a substantial one and ‘was far better than the possible final outcome if WMC could not overcome the basic problem affecting its damages claim.’[52] WMC and Protec acted unreasonably in not accepting this offer.
[48]R3 [115].
[49]R3 [116].
[50]Ibid.
[51]R3 [117]. See [31] above.
[52]Ibid.
Ultimately, the judge ordered that BHP and Protec should pay Steuler’s party and party costs up until the last day for acceptance of the Sixth Settlement Offer (10 April 2008) and thereafter on an indemnity basis.
More precisely, in the WMC proceeding he ordered that:
1.There be judgment for the defendant [Steuler] against the plaintiff [BHP].
2. The plaintiff [BHP] pay the defendant’s [Steuler’s] costs of the proceeding, including any reserved costs, such costs to be taxed, in default of agreement, on a party and party basis up to and including 10 April 2008 and thereafter on an indemnity basis.
In the Protec proceeding he ordered that:
1. There be judgment for the defendant [Steuler] against the plaintiff [Protec].
2. The plaintiff [Protec] and BHP Billiton Olympic Dam Corporation Pty Ltd pay the defendant’s [Steuler’s] costs of the proceeding, including any reserved costs, such costs to be taxed, in default of agreement, on a party and party basis up to and including 10 April 2008 and thereafter on an indemnity basis.
The application for leave to appeal on costs
(a) Presumption in favour of judge’s exercise of discretion
BHP and Protec acknowledge that the Court of Appeal may only interfere with a judge’s discretion in ordering costs where there is strong reason to do so. As Callaway JA stated in Hanlon v Brookes,[53] the test is not whether this Court ‘should have exercised the discretion in the same way as his Honour but whether there was or were a ground or grounds on which he could reasonably do so’.[54] There is a strong presumption in favour of the correctness of the exercise of a judge’s discretion at first instance which can only be displaced where this Court is satisfied that ‘some error had been made in exercising the discretion’.[55] The test governing the erroneous exercise of discretion, including the discretion to award costs, was famously stated in House v The King[56] as follows:
If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.[57]
[53](1997) 15 ACLC 1626 (with whom Ormiston and Batt JJA agreed).
[54]Ibid 1632.
[55]House v The King (1936) 55 CLR 499, 505.
[56](1936) 55 CLR 499.
[57]Ibid 505.
Alternatively, the result of the decision may be so unreasonable or plainly unjust that it can be inferred that there has been a failure by the judge properly to exercise the discretion.[58]
[58]Ibid. This is often described as the last category in Housev The King. See also Australian Coal and Shale Employees’ Federation v Commonwealth (1953) 94 CLR 621, 627.
Steuler also relies on the remarks of Callaway JA in Hanlon v Brookes to support the proposition that the threshold for granting leave is high. His Honour’s remarks were cited by Batt JA in Etna v Arif,[59] who further referred to statements by Priestley JA in Wentworth v Rogers [No 3][60] that costs questions may only be allowed to be further litigated if a Court of Appeal ‘thinks there is some good reason, over and above the Court’s own opinion of what would have been the best costs order in the particular circumstances’.[61] Steuler also emphasises that Callaway JA went on to say in Hanlon v Brookes that he refused leave to appeal because he was not satisfied that the trial judge’s costs order ‘could not possibly be right’.[62] Steuler submits that leave should be refused.
[59][1999] 2 VR 353, 378 [67] (with whom Charles and Callaway JJA agreed).
[60](1986) 6 NSWLR 642.
[61]Ibid 651.
[62]Hanlon v Brookes (1997) 15 ACLC 1626, 1632.
BHP and Protec argue that the judge applied the wrong test when he held that the issues raised in the first hearing were not dominant or separable. In relation to the judge’s findings about the sixth and seventh settlement offers, BHP and Protec accept that the judge correctly set out the principles in his reasons but submit that he erred in his application of principle.
(b) Separate costs order for the first hearing
BHP and Protec say that the judge applied the wrong test when he rejected their submissions that the finding in the first hearing that Steuler had engaged in a contravention of the TPA, or had been negligent, in making the third representation, was a clearly dominant or separable issue justifying the award of costs of that hearing in their favour. They had conceded that Steuler should have its costs of the second hearing and in oral submissions before the judge had contended that the appropriate outcome would be that there be no order for costs arising in either proceeding.[63] They submit that the judge erred in concluding that breach was not a more dominant issue than proving loss or damage.[64] They rely upon observations of the New South Wales Court of Appeal in Elite Protective Personnel Pty Ltd v Salmon [No 2]:[65]
Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which the appellant was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed …[66]
[63]R3 [16].
[64]R3 [44].
[65][2007] NSWCA 373 (Beazley, McColl and Basten JJA).
[66]Ibid [6] (emphasis added) (citations omitted). See also Spotless Group Limited v Premier Building and Consulting Pty Ltd [2008] VSCA 115, [14].
The problem for BHP and Protec is that, on appeal, the finding that Steuler had engaged in a contravention of the TPA by making the third representation, or was negligent in doing so, was reversed. As mentioned above, in the principal judgment this Court found that Steuler did not make the third representation.[67] Thus, the primary foundation upon which BHP and Protec sought to challenge the orders of the judge below has been eliminated. In this context, it is irrelevant whether Steuler’s having engaged in conduct in contravention of the TPA was a dominant or separable issue. The question has been resolved on appeal adversely to BHP and Protec. Thus, even if it were a dominant or separable issue, and even if the judge mischaracterised it because he failed to appreciate its dominance, the issue has ultimately been determined in favour of Steuler. It follows that, in accordance with the rule that costs follow the event, which rule BHP and Protec sought to rely upon in the first of their grounds of appeal on costs, Steuler should be awarded a costs order in its favour. Conversely, BHP and Protec should be subject to an adverse costs order on that issue. As Steuler was also successful on the issue of loss and damage, there is no need to distinguish between the costs that should be awarded on the issues arising from the first hearing and those that arose from the second hearing. With respect to the proceedings below Steuler was, and is, entitled to a comprehensive award of costs in its favour.
[67]See [4] above.
When an appeal is allowed, in the ordinary course of events, the costs order below is set aside and the successful appellant is awarded costs in both the appellate court and in the court below.[68] As Professor Dal Pont observes, ‘the reason is that, when an appeal is allowed and the trial judge’s costs order is reversed, “it is usually demonstrable that the party in the court below should have won, and that the order for costs should therefore have been in his favour.”’[69] This is precisely the case here.
[68]Examples include the orders made as a result of the successful appeal in Urban Renewal Authority Victoria v Obeid [2013] VSCA 371 and A Woodley Osteopathic Services Pty Ltd v TAC [2014] VSCA 124.
[69]G E Dal Pont, Law of Costs (LexisNexis Butterworths, 3rd ed, 2013) 681 [20.12] quoting Leggatt LJ in Kuwait Airways Corp v Iraqi Airways Co [No 2] [1995] 1 All ER 790, 792.
The principal judgment has had the effect that Steuler ought to have been successful on the issue of contravention below and ought to have received an order in its favour for costs below. In the circumstances, the award of costs that was made by the judge in favour of Steuler took a global view of the issues raised in the proceedings and should not now be disturbed.
As we foreshadowed in the principal judgment, [70] in both the BHP appeal and in the Protec appeal the first ground of appeal with respect to costs has become redundant.[71] It should be rejected.
[70]Principal judgment, [737].
[71]That is, ground 15 in the BHP appeal and ground 6 in the Protec appeal.
(c) Effect of not accepting the Sixth or Seventh Settlement Offers
BHP and Protec submit that, in relation to the sixth settlement offer, the judge erred because there was no objective reason for WMC to be negative about its prospects of success given that it had executed the Final Deed with Protec and obtained Protec’s co-operation in the WMC proceeding. WMC had also filed a claims quantification report which verified that the cost of replacing the HDPE liner with a suitable one made of fibre reinforced polymer (‘FRP’) would be $17.35 million. WMC and Protec had also filed reports from expert witnesses which had led them to be confident that there would be a finding that the HDPE liner was not fit for purpose and this entitled them to expect to recover the cost of its supply ($1.157 million) and of its installation ($3.529 million).[72] In those circumstances, they submit that the onus lay on Steuler to demonstrate that at the time the sixth settlement offer was made the rejection of the offer was unreasonable. Moreover, by the time the sixth settlement offer was made, their party and party costs were considerable after what they describe as a ‘tortured interlocutory history, including various unsuccessful attempts by Steuler to strike out the [WMC] proceeding and to seek summary judgment of the [Protec] proceeding.’[73] Further, BHP and Protec submit, even though the likely interest payment on any judgment would have been significant, the judge failed to take that into account when he assessed the offer of $2 million, including interest, as a substantial offer. The judge was also influenced by what they characterise as an irrelevant consideration when he noted that it was not until five weeks into the first hearing that he directed that the trial proceed in two stages.
[72]R2 [61].
[73]BHP and Protec Outline of Submissions on Costs (Arising from Reasons for Judgment on Costs R3) dated 22 April 2014, [17(b)].
BHP and Protec submit that the judge also erred in his assessment of their rejection of the seventh settlement offer. This was made when BHP and Protec had the benefit of the judge’s reasons from the first hearing in which he had made findings against Steuler and had ‘noted certain factors in favour of the reasonableness of the settlement … between WMC and Protec …’.[74] The judge’s observation that both WMC and Protec should have appreciated that they faced real difficulties was against the weight of this ‘objective evidence’. The costs incurred by BHP and Protec had risen to some $5.609 million and interest was running on any award of damages at about 11 per cent per annum. The second hearing was still some months away and Steuler advanced no reasoning in its Calderbank letter that ‘was objectively likely to shake the appellants’ confidence in the expectation of a successful outcome at the conclusion of the case’.[75] Given those factors, BHP and Protec submit that the offer of $6 million ‘all in’ was little more than an offer to pay costs and not a serious offer because it fell well short of involving a real and genuine element of compromise.
[74]Ibid [18(a)].
[75]Ibid [18(c)].
In response, Steuler submits that the judge was extremely well placed to deal with the issue of costs given his case management of the pre-trial process in the three years leading to the first hearing, including deciding several interlocutory matters, as well as his role as the trial judge over two lengthy hearings, the first over 54 days in 2008, and the second hearing over 16 days in 2010. Steuler argues that it is clear that the judge gave full consideration to the parties’ submissions, following which he delivered detailed reasons, and it could not be said that there are any grounds to show that he ‘could not possibly be right’ in the exercise of his discretion.[76] Moreover, Steuler submits that BHP and Protec continue to adopt the erroneous approach they used before the judge in seeking to justify their assessment of the sixth and seventh settlement offers; that is, they fail to move beyond a mere comparison of what they thought the claim was worth, on the one hand, and what was being offered on each occasion, on the other hand, without factoring in the prospects of success and the likely costs they would be obliged to pay if unsuccessful. Had they applied the correct multi-factorial approach, they would have needed to take account of the risk that they might have recovered nothing and compared that to the offer of $2 million plus costs, and the offer of $6 million ‘all in’, respectively. In particular, Steuler points to the judge’s finding that WMC knew or should have known that it had difficulties in working out how to establish its loss or damage, a matter emphasised, Steuler maintains, by the various attempts WMC made to formulate its pleaded claim for loss or damage.[77] It also points to the judge’s finding that Protec knew that it risked not being able to satisfy the judge about the reasonableness of the settlement with WMC given it did not plan to call its legal advisers as witnesses in circumstances where the legitimacy of its reliance on the settlement sum of $15 million was being vigorously disputed.[78] We agree.
[76]Hanlon v Brookes (1997) 15 ACLC 1626, 1632 (Callaway JA). See [40] above.
[77]R3 [6], [7], [8], [10], [11].
[78]R3 [116].
We consider that there is no basis for granting leave to appeal in relation to the indemnity costs orders. As we noted,[79] BHP and Protec acknowledge that the judge correctly set out in his reasons the relevant principles for assessing whether the rejection of an offer was reasonable in the circumstances. In our view, the judge’s approach[80] as to how the sixth and seventh settlement offers should have been assessed properly reflects, in the circumstances, the need for BHP and Protec to have identified the relevant risks. They ought to have considered not only the best-case scenario of succeeding, but also estimated the risk of failing at trial and therefore not recovering damages in circumstances where they would need to bear their own costs while exposed to a costs order against them. Although BHP and Protec argue that the objective evidence justified their confidence, their submissions focus on matters such as the cost of installing the replacement FRP liner,[81] their own legal costs incurred to date and interest they might receive as potentially payable on any judgment sum. Their submissions on costs make no reference to grappling with the argument that the second fire was an intervening event which broke the chain of causation; nor do they make any allowance, as part of the rational assessment of the sixth or seventh settlement offer, of the risk of failing in their claim, for example, because of the intervening effect of the second fire.
[79]See [41] above.
[80]See [31] above.
[81]This claim was subsequently not pursued: R2 [11], R3 [10].
With respect to the sixth settlement offer, the judge was well aware, when he described it as ‘a substantial offer’, that ultimately the amount offered ($2 million plus party and party costs) might cover no more than the actual costs incurred by WMC.[82] It follows that it would not reflect likely interest payable on any judgment. Indeed, the complaint that the judge ignored the interest to which WMC might have been entitled, if successful, reflects the form of reasoning of which the judge was critical, namely, that the offer was compared to an entitlement that would flow if WMC was wholly successful rather than a comparison which included a consideration of the circumstance WMC might face if it failed in its claim and its consequent exposure.
[82]R3 [104].
Moreover, the fact that no direction to split the trial was made for over a month after the first hearing began was not an irrelevant consideration. It was indeed relevant, for the reasons explained above,[83] that when the sixth settlement offer was received, WMC ought to have contemplated that it would be obliged to make out its case on loss or damage with practically no further opportunity for preparation. It could not have anticipated that there would be a further delay on that issue. Therefore, it ought to have been apparent to it at that time that its difficulties in proving its loss or damage were considerable. In our view, the judge was correct to take that consideration into account.
[83]See [28] above.
We remarked that BHP and Protec complain that Steuler did not provide information in the Calderbank letters about why they were not entitled to be confident of succeeding. However, they could be in no doubt concerning Steuler’s position in relation to loss or damage given Steuler’s highly detailed and lengthy defence to counterclaim which squarely raised the issue of the Bekaplast HDPE liner needing to be replaced anyway because it was not non-conductive and flammable and it had been damaged by the second fire in any event.[84] As Redlich J observed in Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd:[85]
Any attempt to prescribe the reasoning which must accompany [a Calderbank] offer should be resisted. Whether there is a need for the offeror to descend to specificity as to why the offer should be accepted must depend upon a consideration of all of the circumstances existing at the time of the offer. The extent to which the weakness of a party’s position is exposed through the pleadings, affidavits and the various communications between the parties during the course of the litigation may bear upon the significance of the absence of specificity in the informal offer.[86]
[84]‘Amended Defence of the Second Defendant by Counterclaim to the Third Amended Counterclaim served by the Plaintiff by Counterclaim dated 5 June 2006’, dated 28 May 2007, [28A].
[85][2004] VSC 351.
[86]Ibid [87]. This was cited with approval in Hazeldene (2005) 13 VR 435, 442 [27].
Similarly, in the Protec proceeding it was clear from Steuler’s pleading that there was a dispute about whether the settlement reached between WMC and Protec by the execution of the Final Deed was reasonable in that it was not based on any reasonable analysis as to Protec’s liability or the quantum of any claim it faced, but rather upon the insufficiency of Protec’s assets to satisfy any judgment entered against it.[87]
[87]The plea in [12A] appeared in the original defence and counterclaim dated 21 September 2007.
We consider that BHP and Protec have been unable to establish that the judge erred. It could not be concluded that the judge ‘could not possibly be right’.[88] On the contrary, we consider that the judge had proper grounds on which he could reasonably exercise his discretion in the way he did and he did not apply the wrong test, nor did he ignore relevant considerations or take into account irrelevant considerations.
[88]Hanlon v Brookes (1997) 15 ACLR 1626, 1632.
Conclusion
Leave to appeal the orders made for costs should be refused.
We will hear the parties on the question of the costs of the appeals and, in particular, why costs should not follow the event; that is, why the Court should not make an order that BHP, and Protec, pay Steuler’s costs of their respective appeals.
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