Rail Corp v Fluor Australia

[2009] NSWSC 414

CITATION:	Rail Corp v Fluor Australia [2009] NSWSC 414
HEARING DATE(S):	17 February 2009
JURISDICTION:	Equity Technology & Construction List
JUDGMENT OF:	McDougall J at 1
EX TEMPORE JUDGMENT DATE:	17 February 2009
DECISION:	See paragraphs [52] to [54] of the judgment.
CATCHWORDS:	JUDGMENTS AND ORDERS – Interest on judgment – calculation of “appropriate settlement sum” where offer of compromise has been made – whether third party offers can be used conjunctively to invoke statutory limitation on interest. - COSTS – Costs of interlocutory application – whether costs should be apportioned where successful issues split between parties. - COSTS – Interest on costs – factors to be considered where determining which party has had the benefit of funds during proceedings.
LEGISLATION CITED:	Civil Procedure Act 2005
CATEGORY:	Consequential orders
CASES CITED:	Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 Joseph Lahoud & Anor v Victor Lahoud v Ors [2006] NSWSC 126 Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 Waters v P C Henderson (Australia) Pty Ltd (6 July 1994, unreported; BC 9404952)
PARTIES:	Rail Corporation of New South Wales (Plaintiff) Fluor Australia Pty Ltd (First Defendant) Alpcross Pty Limited (Second Defendant)
FILE NUMBER(S):	SC 55015/07
COUNSEL:	M R Elliott (Plaintiff) E C Muston (Defendant)
SOLICITORS:	Blake Dawson Lawyers (Plaintiff) Wotton & Kearney Lawyers (First Defendant) Goldrick Farrell Mullan (Second Defendant)

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

McDOUGALL J

17 February 2009 (ex tempore – revised 17 February 2009)

55015/07 RAIL CORPORATION NEW SOUTH WALES v FLUOR AUSTRALIA PTY LIMITED & ANOR

JUDGMENT

1 HIS HONOUR: I gave judgment in these proceedings on 19 December 2008 [2008] NSWSC 1348. In those reasons I dealt with the real issues for decision as identified by the parties and concluded that RailCorp was entitled to succeed as to part but not all of its claim. It is convenient to mention at this point that at [138] and [320] of my reasons I stated RailCorp's entitlement in the sum of $590,940 exclusive of interest. That was an error. It is clear, and the parties are agreed, that the correct figure is $579,558 (assuming that my reasons for rejecting the remaining portion of RailCorp's claim are correct). I do not think that it is necessary to do more than record the error, since no judgment has yet been entered and there is nothing to amend under the slip rule. Specifically, I do not think that there is any need to go to the trouble of withdrawing and restating the relevant paragraphs of my reasons.

2 The parties are in dispute as to RailCorp's entitlement to interest and as to costs. Underlying those disputes are offers of settlement that have been made, although in relation to costs there is a separate issue relating to the question on which RailCorp failed, and another relating to interest on costs.

3 I do not propose to restate either the complex commercial arrangements (or the terms of the complex agreements) or the relevant factual matters that were set out at unfortunate length in my earlier reasons. It is sufficient to note at present that:

(1) On 18 June 2008 the first excess layer insurer, QBE, offered RailCorp $486,845.42 characterised as "being on [RailCorp's] case the extent to which [RailCorp's] losses extended into the first excess layer.”

(2) On 20 June 2008, the defendants (Fluor and Alpcross) between them offered, or more accurately reinstated "an inclusive offer of $1.5 million in full and final settlement of" RailCorp's claim against those defendants. That offer was said to be in addition to the amount offered by QBE, and to be "subject to execution of detailed terms in a release". I interrupt the narrative to say that no point is taken today as to this last mentioned condition.

(3) On 1 October 2008, the defendants offered settlement "in the amount of $1.75 million all inclusive in full and final settlement of the matter". Once again, that was said to be exclusive of "any amount payable by QBE". There is no evidence that the QBE offer had been withdrawn. There is nothing in the QBE offer to suggest that the time for its acceptance was in some way limited, or that it would lapse if not accepted within a particular time.

(4) On 7 October 2008, the defendants made what appears to have been an oral offer of $2.5 million "all inclusive and subject to [RailCorp] providing the usual release". That offer was also said to be "in full and final settlement" of RailCorp's claim. However, unlike the earlier offers, the sum offered was inclusive of the amount offered by QBE.

4 Each of the defendants’ three offers was said to be written, made "on the usual Calderbank basis". Each offer limited the time for its acceptance. The first offer was open for acceptance for 14 days from 20 June 2008. The second offer was open for acceptance until 5.00 pm on 2 October 2008 (the day after it was made). The third offer was open for acceptance until 5.00 pm on 8 October 2008 (the day after it was made orally and the day when it was confirmed in writing).

5 None of the offers was accepted.

6 In terms of the claim for interest, the making of the offers raises for decision a question under s 100 (4) of the Civil Procedure Act 2005. In terms of the claim for costs, the offers raise the usual questions associated with the reasonableness (or otherwise) of a plaintiff's failure to accept an offer.

7 In each case, there is an underlying question of fact: whether RailCorp beat the offer. It is to that question that I first turn.

8 It appears to be common ground that as at about 20 June 2008, the amount of RailCorp’s entitlement (having regard to my conclusions on the question of liability and taking into account interest on the sum of $579,558) was $979,205.96. I should point out that the evidence on this point is in fact expressed in terms that interest is calculated up until 4 July 2008 - the expiry of the offer - so that the figure would be somewhat less as at 20 June 2008. Nothing turns on this.

9 It is also important, for the purposes only of today's arguments, that RailCorp had incurred solicitor and client costs as at 4 July 2008 of at least $1,070,406.38. At this point, it is necessary to note that those costs are costs incurred only from the time that RailCorp’s present solicitors, Blake Dawson, commenced to act for it.

10 For some time previously, RailCorp had been represented by another firm of solicitors, PWC Legal. There is no evidence of the amount of costs paid by RailCorp to PWC Legal, but it is clear that some, and probably substantial, costs were incurred.

11 The starting point for the argument for the defendants, in terms of interest on the judgment sum, is that the amount offered on 20 June 2008 was "an appropriate settlement sum" in terms of CPA s 100 (4), (5). For convenience I set out those subsections:

(4) In any proceedings for damages, the court may not order the payment of interest under this section in respect of the period from when an appropriate settlement sum was offered (or first offered) by the defendant unless the special circumstances of the case warrant the making of such an order.
(5) For the purposes of subsection (4), appropriate settlement sum means a sum offered in settlement of proceedings in which the amount for which judgment is given (including interest accrued up to and including the date of the offer) does not exceed the sum offered by more than 10 per cent.

12 The defendants submit that the relevant offer is not just the amount of $1.5 million offered by them, but also the amount of $486,845.42 offered by QBE. Thus, the defendants submit, for the purposes of s 100 (5), the amount to which comparison is to be made is the total, namely, $1,986,845.42.

13 I am not certain that the starting point of the defendants' submissions is correct. Section 100 (4) speaks of “an appropriate settlement sum ... offered (or first offered) by the defendant".

14 That seems to me to focus attention on a defendant's assessment of its own liability, and an offer made by that defendant. It does not seem to me to require consideration to be paid to any source of recoupment that a plaintiff may have other than from the particular defendant.

15 In the circumstances of this case, bearing in mind that there was no defence raised of proportionate liability, RailCorp would have been entitled to recover judgment against each defendant for the full amount of its claim as determined by the Court. The only restriction on RailCorp would have been as to enforcement of the judgment: so as to prevent double recovery. If RailCorp received payment from QBE of the amount of $486,845.42, that would undoubtedly go in reduction of its entitlements under the hypothetical judgment to which I am referring, because in the circumstances of this case QBE effectively insured all relevant parties. But it does not follow from this that the defendants were entitled as it were to piggy-back off the amount offered by QBE so as to bring into play, for the purposes of calculation of the appropriate settlement sum, the amount offered by QBE.

16 For those reasons alone, I think, the defendants' submissions must fail. That is because there is no basis for concluding that if the appropriate settlement sum is (as on the proper construction of s 100 (4) I think it should be) the amount of $1.5 million, RailCorp has not bettered that by at least ten percent.

17 However, and in case my views on the question of construction are wrong, I will turn to the questions of fact. The defendants submit, in essence, that their inclusive offer (including the amount offered by QBE) is to be compared to the amount of principal and interest as at 20 June or 4 July 2008 ($979,205.96 as at the latter date) together with the amount of costs incurred since Blake Dawson began to act ($1,076,406.38).

18 They submit that, in assessing the value of the inclusive offer to RailCorp, allowance must be made only for the costs recoverable by RailCorp on the ordinary basis, and not to its solicitor and client costs. I think that this is correct. It is common knowledge that on an assessment of costs on the ordinary basis, an amount less than the full solicitor and client costs properly charged will be recoverable. The Court is often treated to estimates of the order of two thirds or 75 percent or in optimistic cases, 80 percent. There is no direct evidence in the present case of what sort of reduction ought to be made on this hypothetical assessment, and I am not sure that the Court can take judicial knowledge of percentages or figures referred to in other cases.

19 Nonetheless, Mr Muston of Counsel for the defendants submits that the Court need only conclude that the costs incurred by RailCorp would be reduced by at least $68,766 before the settlement sum offered can be seen to be "appropriate". I think that I would be prepared to draw that inference if required. However, the difficulty with the submission is that it ignores the costs charged by PWC Legal during the time when that firm was acting for RailCorp. There is no evidence of the amount of those costs, let alone of the extent to which they would be recoverable on an assessment on the ordinary basis. All that can be known is that the PWC Legal acted for a considerable period of time, during which a substantial amount of work was no doubt undertaken, so that the Court could infer that the costs properly charged by that firm would not have been insignificant.

20 Thus, even if the amount to be evaluated is the combined amount of $1,986,845.42, there is no evidence of the amount of RailCorp's costs on the ordinary basis as at 20 June or 4 July, 2008. There is, thus, no factual basis on which the Court can reach the conclusion for which s 100 (4) calls, namely, whether the offer was an appropriate one.

21 I should note that each party referred me to the judgment of Basten JA in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322. His Honour referred to the question of quantification of the true value, or net value, of an inclusive Calderbank offer at [144]. He said that:

“There is no reason based on policy or principle which would preclude a defendant relying on such an offer only when it is said to be exclusive of costs. Such an inclusive offer would not cause the plaintiff embarrassment; its value will be that amount remaining to him or her after deducting costs already incurred, which the plaintiff's lawyer should be readily able to quantify".

22 In this case it is correct to say that RailCorp’s legal advisers should have been in a position to perform a reasonably accurate and realistic quantification of the net value of the offer within the 14 days left available for its consideration. Thus, I think, the mere fact that the offer was inclusive does not raise a particular difficulty.

23 However, Basten JA continued:

“The disadvantage of an inclusive offer lies with the defendant if the matter proceeds to judgment. Where the judgment is equal to or above the inclusive figure, the defendant will have failed to better its own offer. However, if the judgment is below the offer there may be uncertainty because the offer included an unquantified element for costs incurred up to the time when it lapsed or was rejected. No doubt the figure for costs incurred to that time by the plaintiff could be resolved by some form of assessment, but if the calculation of the damages component is not clearly seen to provide a figure above the judgment, then the interests of justice will usually not be served by incurring further expense in assessing the costs element of an offer and the plaintiff would be entitled to his or her costs ... ".

24 Of course, as I have said, that case was concerned with a Calderbank offer and His Honour was speaking in the context of assessment of the worth of the offer for the purposes of determining whether some special order for costs should be made. Nonetheless the difficulties to which His Honour pointed are, in my view, applicable by analogy in carrying out the exercise for which s 100 (4) calls. Were it necessary to do so, I would conclude that those difficulties of themselves could be held to amount to a "special circumstance" to negate the prima facie effect of s 100 (4). However, it is not necessary to express a concluded view on this. It is sufficient to say, as I have said, that on the evidence I am not satisfied that the subsection is engaged.

25 There were other issues raised in relation to the first offer. One was that the reasons given to persuade RailCorp to accept it were all reasons on which, at the final hearing, the defendants failed. The issue on which the defendants succeeded - relating to the settlement with SRA - was not referred to. Another problem raised related to the 14-day period limited by the offer.

26 Again, although those matters might be thought to be more relevant to the question of indemnity costs, it seems to me that they are also capable of being regarded as relevant in relation to the question of "special circumstances". The first of those matters - relating to the reasons - has considerable substance. The second - relating to the time for acceptance - does not. It seems to me, in relation to the second matter, that experienced commercial parties in the position of RailCorp, should have been able to evaluate both the worth and the legal merits of the offer within the time limited for its acceptance.

27 In the context of interest, I do not think that a great deal needs to be said about the second and third offers. The second offer is affected by the problem that an assessment of its value requires consideration of the QBE offer; no such problem affects the third offer. Both offers are subject to the problem that there is no basis on which the Court can assess whether they were "appropriate" having regard to the likely amount of RailCorp's recoverable costs at the times they were made.

28 Further, in relation to both offers, I note that they were open for acceptance for very limited periods of time. In the case of the second offer, it was made less than a week before the commencement of the hearing. In the case of the third offer, it was made after the first day of hearing and confirmed on the second day of hearing. I do not think it was unreasonable for RailCorp at that stage to be devoting its energies to the preparation and running of its case, and I do not see that RailCorp could possibly be said to have been acting in any way unreasonably by refusing to allow its attention to be diverted by the offers. To the extent that it is necessary to do so, in terms of s 100 (4) I would regard those matters as special circumstances.

29 Having expressed those conclusions, it is unnecessary to deal in any detail with the costs argument insofar as it is based on the Calderbank offer. The reasons that I have given on the questions of fact, and on what might be called the discretionary considerations relating to reasonableness, are equally applicable.

30 Thus, I conclude, the defendants have not made good their claim for relief under s 100 (4) or for any special order in relation to costs.

31 That leaves two other issues apart from interest. One relates to the question of the issue on which RailCorp failed - its settlement with SRA. The other relates to a recent payment tendered by the defendants.

32 In dollar terms, the great bulk of RailCorp's case related to an amount of approximately $5.2 million paid by it to indemnify SRA for losses incurred by SRA consequent upon the derailment. I concluded at [78] and following of my earlier Reasons that RailCorp had not made good this aspect of the case, because it had not shown that the settlement, viewed objectively, was reasonable: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603.

33 The defendants submitted that any costs payable by them to the plaintiffs should exclude all costs referable to this issue. For the plaintiffs, Mr Elliott of Counsel, submitted that no such order should be made.

34 Mr Elliott relied on the statement by Mahoney JA in Waters v P C Henderson (Australia) Pty Ltd (6 July 1994, unreported; BC 9404952). In that case, Mahoney JA said at BC 5 that the general principal was that where proceedings involve multiple issues, and a defendant succeeds on some issues but fails on others, nonetheless the plaintiff should normally have its costs of the proceedings:

“unless a particular issue or group of issues is clearly dominant or separable".

35 His Honour said that in general terms it was not appropriate for the Court, in exercising its discretion as to costs, to undertake a detailed analysis “to attempt to determine which issues were won by particular parties, to what extent they were won, and what was the amount of time spent on each of the issues so as to apportion costs accordingly".

36 Accepting as I do that this is a statement of the general principle, nonetheless, as the statement recognises, it may be departed from in particular cases. That is frequently done where, to repeat his Honour’s words “a particular issue or group of issues is clearly dominant or separable".

37 In this case, there was a large number of issues. Those issues included complex issues of fact and law. Obviously enough, the issue of principle relating to the settlement with SRA was one of those issues.

38 I do not think that it is proper to regard it as a dominant issue, except insofar as (on the conclusions to which I came) it was the determining issue in relation to the great monetary bulk of RailCorp's claim. Further, I do not think it correct to regard it as a separable issue except in that limited sense.

39 A carving-out of costs of the kind for which the defendants contended would be unjust to RailCorp because underlying the SRA issue were the fundamental questions of liability - how the derailment occurred, why it occurred and by reason of whose fault it occurred. Those questions were equally applicable to that claim. At the most, I think, it might be possible to identify evidence relevant only to the quantification of the claim by SRA.

40 Mr Muston submitted that the Court could undertake an exercise of reducing RailCorp's costs by some percentage. In principle, that could be done. However, although the issue was very significant in terms of its monetary amount, my recollection is that it was insignificant in terms of the time devoted to it both in the course of evidence and in the course of submissions. Thus, I think, any percentage reduction in the amount of costs would be totally unjustified.

41 As I have said, there was some evidence that was referable only to the RailCorp issue. In exercising the discretion given in respect to costs, I think that the interests of justice would be served sufficiently if the costs otherwise payable by the defendants to RailCorp did not include the costs of and incidental to the preparation of that evidence, namely, the evidence reflected in the affidavits of Messrs John Brophy and Andrew Thomas.

42 As to recent payment: the evidence showed that the defendants had offered the amount of $880,940 on 30 January 2009, and had sent to RailCorp solicitors a cheque in that amount on that day. That cheque was said to be

“In respect of ... the principal judgment sum of $579,558; and ... $301,382 in respect of interest".

43 The letter under cover of which the cheque was sent noted that interest was "a matter that will need to be further ventilated".

44 RailCorp's solicitors replied on 10 February 2009 seeking clarification of the basis on which the judgment sum was offered; and in particular, clarification that the fact that it was offered in satisfaction firstly of the agreed principal amount would not preclude any further claim for interest. Two days later, on 12 February 2009, that clarification was given. The defendants acknowledge that:

"insofar as [the Court] determines that the interest payable on the judgment sum is greater than $301,382 then Fluor will pay the difference to RailCorp. Conversely, in the event that [the Court] determines that the interest payable on the judgment sum is less than $301,382 then RailCorp will have to refund the difference to Fluor".

45 I think it is fair to say that the basis on which the sum was tendered on 30 January 2009 may well have precluded any claim for interest after that date on the judgment sum. Thus, I think that the concerns raised by RailCorp's solicitors were appropriate. Equally, I think, it is fair to say that those concerns were answered (in a practical if not in a legal sense) by 12 February 2009.

46 In the circumstances, the effect of the tender really falls to be assessed only as at 12 February 2009. I have great difficulty in seeing what injustice is caused to either party by ignoring the effect of the tender for the period of five days in question, to today’s date. In particular, having regard to the circumstance that the cheque was not banked, so that the defendants (or their insurers) have not been deprived of the use of the money in question and the plaintiff has not had the benefit of the use of the money in question, I do not think that there is any basis for curtailing the period for which interest should run.

47 That leaves for determination the claim by RailCorp for interest on the costs. There is no doubt that the Court has the power to order interest on costs, and there appears to be no doubt (at least for today's purposes) as to the basis on which that discretion should be exercised. CPA s 101(4) authorises the Court to order interest on costs.

48 Mr Elliott relied on the decision of Campbell J in Joseph Lahoud & Anor v Victor Lahoud and Ors [2006] NSWSC 126 at [78] and following.

49 Campbell J set out the relevant principles at [82] and [83]. His Honour said that:

(1) there was no requirement for the circumstances of the case to be out of the ordinary before an order was made for the payment of interest on costs.

(2) to the extent to which successful plaintiffs were out of pocket because they had paid costs and disbursements along the way "it is appropriate that the compensation which is recognised in the Court's order for costs take into account" that factor.

(3) where the parties conduct businesses, so that the party out of pocket has not had the use of money which it could have put towards its business purposes and the party in pocket (if there is such a phrase) has had that benefit, it was once again appropriate to recognise the disparity by the award of interest.

50 In this case, each of the parties is a commercial enterprise carrying on business. It is clear from the facts in the case that insurers are involved. The application of the principles stated by Campbell J in Lahoud seem to me to lead inevitably to the conclusion that the discretion to order interest on costs should be exercised in favour of RailCorp in this case.

51 I should note that for some time, perhaps by oversight, the debate as to interest proceeded on the basis that it was sought only on the costs paid by RailCorp since Blake Dawson undertook the conduct of the proceedings on its behalf. However, Mr Elliott made it plain that the claim for interest reflected all expenses and extended to all costs incurred by RailCorp to the extent that they might be allowed by agreement or assessment. Mr Muston did not submit that the order sought was inappropriate simply because the costs extended to those incurred before Blake Dawson began to act.

52 The parties have agreed on a range of figures, including the figure for interest that is payable if (as has happened) I conclude that RailCorp is entitled to interest up until today's date.

53 In the circumstances, with an appropriate modification to take account of what I have said as to the affidavit evidence of Messrs Brophy and Thomas, I propose to make orders in accordance with the Short Minutes of Order submitted on behalf of RailCorp. I will also correct the typographical error in the second line of paragraph 1 of those draft orders so that the principal amount is (as has been agreed) $579,558.

54 I give judgment and make orders in accordance with paragraphs 1 to 3 as amended of the Short Minutes of Order initialled by me and dated today's date.

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