Rail Corporation NSW v Leduva Pty Ltd - [2005] NSWSC 138

No judgment structure available for this case.

CITATION:
Rail Corporation New South Wales v Leduva Pty Ltd [2005] NSWSC 138

HEARING DATE(S): 23/02/05

JUDGMENT DATE :

4 March 2005

JUDGMENT OF:
Nicholas J

DECISION:
Defendant to pay Plaintiff's costs on indemnity basis; costs to be assessed and payable forthwith

CATCHWORDS:
Costs - costs on indemnity basis - costs of successful Plaintiff's interlocutory application for injunctive relief - order dissolved by consent prior to final hearing - whether Plaintiff entitled to recover indemnity costs pursuant to contractual indemnity provision - whether costs should be assessed and payable forthwith - general principles

LEGISLATION CITED:
Supreme Court Rules Pt 52A, r 9; Practice Note 100 para 23

CASES CITED:
Abigroup Limited v Sandtara Pty Limited [2002] NSWCA 45
Baltic Shipping Company v Dillon (1991) 22 NSWLR 1
Gomba Holdings Limited v Minories Finance (1993) Ch 171
Malvern Urban District Council v Malvern Link Gas Co. (1900) 83 LT 326

PARTIES:
Rail Corporation New South Wales - Plaintiff
Leduva Pty Ltd - Defendant

FILE NUMBER(S):
SC 4923/04

COUNSEL:
R J Carruthers - Plaintiff
R W Tregenza - Defendant

SOLICITORS:
Blake Dawson Waldron - Plaintiff
Cadmus Lawyers - Defendant

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Nicholas J

4 March 2005

4923/04 Rail Corporation New South Wales v Leduva Pty Ltd

JUDGMENT

1 His Honour: On 22 November 2004 I held that the order made on 6 September 2004 should continue until further order, and I dismissed Leduva’s notice of motion for an order that the injunction be dissolved. The question of costs of the interlocutory proceedings was not decided. I published my reasons on 30 November 2004.

2 On 2 February 2005 the injunction was dissolved by consent.

3 There remains for the future Railcorp’s claim for damages against Leduva. The matter has been referred to the Commercial List on 11 March 2005 for directions.

4 The present proceedings concern the outstanding question of costs of the interlocutory proceedings.

5 Railcorp seeks orders on several grounds that Leduva pay its costs to date on an indemnity basis and that such costs be payable forthwith. Leduva opposes the claim and itself seeks an order that costs be costs in the cause, alternatively, that each party pay its own costs.

Background

6 The background and circumstances which led to the commencement of the interlocutory proceedings are described in my judgment of 30 November 2004, and these reasons should be read with it. However, matters of particular relevance on the costs issue are the following.

7 The development deed made on 9 March 2004 (the deed) pursuant to which Railcorp consented to Leduva undertaking the development included the following provisions:

(b) all requirements and directions of Rail Party concerning safety within the Railway Corridor.

(vii) comply with all Rail Party directions; and

(viii) comply with the other requirements of this Deed.

(j) it will ensure that the Works are carried out with reasonable skill and care; and

8 Under the deed Railcorp’s costs were specifically provided for as follows:

“14.1(a) Developer must pay all of Rail Party’s Costs by the Due Date and otherwise in accordance with this clause”.

9 In the dictionary, Attachment C, the expression “Rail Party’s Costs” was defined to mean:

“… Rail Party’s Costs in carrying out its functions under this Deed, more fully described in Schedule 1 of this Deed”.

“Rail Party’s Costs in carrying out its functions under this Deed are as follows:

(a) Rail Party’s costs that would not have been incurred by Rail Party but for the Developer carrying out the Development;

(b) without limiting the generality of clause (a):

(i) Rail Party’s legal costs incurred in negotiating, preparing, and executing and enforcing this Deed”.

10 Relevant to the costs issue are a number of matters described more fully in the judgment. The Work Methods Statement contains the agreed procedure with which Leduva was required to comply in respect of excavation, shoring, piling and other matters. These requirements were designed to ensure that the new building placed no load on the tunnel, thus avoiding the need for an assessment of loading on the tunnel. The CP1 and CP2 piles were to be built to specified depths, and Leduva was required to comply with a certification procedure in respect of each.

11 The following passages from the judgment are also relevant:

33. In support of the continuation of the injunction Railcorp submitted that the parties had agreed on a system of certification to provide it with reliable assurance that the piles were of the specified depth so as to avoid the risk of danger to the tunnel and to the travelling public, and that it is entitled to have such assurance before construction resumes. It was put that the injunction should continue until Leduva demonstrates to Railcorp’s reasonable satisfaction that the piles are of the required depth and/or that the construction of the building will not put the tunnel or the public at risk.

34. Railcorp submits that by reason of its failure to comply with the certification requirements of the WMS Leduva has placed it in a state of uncertainty as to the depths of the piles, and has left it without the assurance it undertook to provide.
…
36. In the circumstances it claims that the order should continue until Leduva satisfies it by reliable certification or by expert assessment that there are no reasonable grounds for apprehension that the tunnel is at risk …
…
44. It is accepted that Railcorp ought not rely upon the certificates and was without the assurance which Leduva agreed to provide. Further, without proceeding to any finding, it is fair to treat with considerable misgiving Mr Ryan’s evidence with regard to the preparation and contents of both sets of certificates, and to the measurements and estimates he made of the depths of the piles.

45. Railcorp claims continuation of the order on the ground that Leduva in breach of the deed and WMS failed to provide any certification for the CP1 piles, and any certification in compliance with the WMS for the CP2 piles.
…
48. On the evidence it is plain that an underlying assumption of the contract pursuant to the deed and the WMS is that in order to safeguard the tunnel it is necessary for the building load to be supported by the CP1 piles to a depth or RL7.0 m and by the CP2 piles to a depth of RL1.0 m. The parties proceeded on the basis that Leduva would provide Railcorp with accurate information as to the depth (and other matters) of the piles so as to satisfy it that the building load would not put the tunnel at risk. At this interlocutory stage it is not for the court to decide whether failure to fulfil these requirements would, in fact, put the tunnel at risk. However, at present Railcorp has demonstrated a serious question to be tried that such would be the consequence of failure.

12 There was in evidence the affidavits of 23 February 2005 of the engineers Mr John Hilton and Mr Christian Bodner which were in similar terms. They included their report of 15 November 2004 to which I referred in the judgment (paras 34, 53). It also included their reports of 2 and 21 February 2005 which were made after consideration of the report of Sinclair Knight Mertz of 14 December 2004 and recent information concerning the tunnel. In the report of 2 February 2005 they stated their opinion that “… the net load transferred to the tunnel by the Leduva Development piles designated CP1 and CP2 will be negligible, and accordingly, any risk of harm to the tunnel as a result of the application of this negligible load is so small that it may be disregarded”.

13 In reliance upon this opinion Railcorp consented to the dissolution of the injunction on 2 February 2005. The report of 21 February 2005 confirmed this opinion.

14 The report of Sinclair Knight Mertz of 14 December 2004 was also in evidence. The conclusions included the following:

“9. The sonic pile tests while not carried out on all of the piles, but because of the high percent of passes, suggests that those piles not tested are more than likely to be at or below the tunnel invert. It is also noted that the target design depth of the piles was RL 1m and the tunnel foundation level is at RL 3m, 2m above the design pile toe level.

10. In assessing risk to the tunnel the individual analyses, e.g., FEA, low lateral earth pressure, rock wedge analysis, nothing structurally wrong with the tunnel, load transfer from piles to strip footings and finally the sonic testing of the piles taken individually demonstrate that there is limited risk to the tunnel. Taken collectively the risk to the tunnel must be considered extremely low”.

15 Counsel for Leduva, Mr R. W. Tregenza, acknowledged (T p 33) that on the information known to the parties at the time the interlocutory proceedings were reasonably brought. He also acknowledged (T p 45) that if it was found that Railcorp in instituting the proceedings was carrying out its functions under the deed Railcorp would not have incurred these costs but for Leduva carrying out the development.

The issues

16 Counsel for Railcorp, Mr R. J. Carruthers argued that the order for indemnity costs was justified on the ground that under the deed it was entitled to such costs, and in the exercise of its discretion the court should give effect to that entitlement. Alternatively he argued that on discretionary grounds Leduva’s conduct in failing to comply with the certification procedure obliged Railcorp to institute proceedings which otherwise would have been unnecessary and was such as to justify the order.

17 In order to determine the scope of Railcorp’s entitlement to costs under the deed it is necessary to consider the relevant provisions. By cl 14.1(a) Leduva has agreed to pay all of Railcorp’s costs.

18 The meaning of the expression “Rail Party’s Costs” is defined to mean “… Rail Party’s Costs in carrying out its functions under this Deed, more fully described in Schedule 1 of this Deed”.

19 Schedule 1 provides:

“Rail Party’s Costs in carrying out its functions under this Deed are as follows:

(a) Rail Party’s costs that would not have been incurred by Rail Party but for the Developer carrying out the Development;

(b) without limiting the generality of clause (a):

(i) Rail Party’s legal costs incurred in negotiating, preparing, and executing and enforcing this Deed”.

20 In my opinion Sch 1 is to be understood as specifying the costs which, for the purposes of the deed, fall within the expression “Rail Party’s Costs in carrying out its functions under this Deed”. The plain language of the Schedule demonstrates the intention of the parties to describe the categories of costs for which Leduva is liable under cl 14.1(a). It is also plain that it was not intended that entitlement to costs within these categories should be conditional on Railcorp demonstrating that such costs in a particular case were referable to the carrying out of its functions under the deed. The scheme of the dictionary and the Schedule, read together with cl 14.1(a), is that the expression “Rail Party’s Costs in carrying out its functions under this Deed” is to be understood in a global sense and to mean the costs specified in sub paras (a) and (b). Read in context it seems to me the definition was drafted in this way so as to reflect the commercial intention and purpose of the contract that Leduva should be liable unconditionally for Railcorp’s costs once they are shown to fall within these categories.

21 Mr Carruthers submitted that Railcorp’s costs in the interlocutory proceedings fall within sub para (a) of Sch 1, being costs which would not have been incurred but for Leduva carrying out the development. Furthermore, he puts that upon its proper construction the effect of cl 14.1(a) provides for a full indemnity. He submitted that the adoption of the “but for” test in sub para (a) and the use of the word “all” in cl 14.1(a) demonstrates in the clearest possible way the intention of the parties that Railcorp should be unscathed by, and fully indemnified for, costs in relation to the carrying out of the development. He relied upon cases in which similar provisions were considered e.g.: Malvern Urban District Council v Malvern Link Gas Co. (1900) 83 LT 326; Abigroup Limited v Sandtara Pty Limited [2002] NSWCA 45.

22 Mr Tregenza did not contend for a different construction. His submission was (T p 45) that the respondent was not entitled to costs under the deed because the institution and conduct of the proceedings could not be described as carrying out its functions under it. As I have held that entitlement to costs is established once they are shown to be within Sch 1 and do not depend upon proof that they were incurred in carrying out functions under the deed, the submission must be rejected.

23 Mr Tregenza also submitted that Railcorp’s costs were outside the terms of sub cl (b)(i) of Sch 1 in that they were not incurred by way of enforcing the deed within the meaning of this provision. It was put that, properly construed, Railcorp’s entitlement to costs incurred in enforcing the deed was conditional upon it proving entitlement to final relief. In my opinion the submission should not be accepted. There is no basis for incorporating in sub cl (b)(i) the qualification asserted. The word “enforce” is ordinarily understood to mean “compel obedience to” (Macquarie Dictionary, Third Edition). The act of enforcing is unqualified in the sub clause. The institution and conduct of the interlocutory proceedings were necessitated by Leduva’s failure to comply with its obligations under the deed. There could be no doubt, and I find, that these costs are within the terms of sub cl (b)(i) being Railcorp’s legal costs incurred in enforcing the deed.

24 Furthermore, although it is unnecessary for entitlement to recover these costs that it be shown they were incurred in carrying out a function under the deed, in this case it is clear that they were so incurred. In my opinion Railcorp, in taking proceedings to enforce the deed, was carrying out its functions under the deed within the meaning of the definition. Clause 32.2 demonstrates that it was within the contemplation of the parties that such proceedings may include proceedings for urgent injunctive relief.

25 Mr Carruthers’ submissions as to the construction of the costs provisions should be accepted. Clause 14.1(a) read with Sch 1 is wide and general in its terms, and there is no rational basis for reading it down. It is entirely consistent with the underlying intention of the parties as reflected in the terms of the deed as a whole that Railcorp should bear no costs by reason of the carrying out of the development. Accordingly, I find that under the deed Railcorp is entitled to recover from Leduva all of its costs of the interlocutory proceedings, that is to say it is entitled to payment on an indemnity basis.

26 Mr Carruthers further submits that, although it must always be a matter for discretion, where there is a contractual entitlement to indemnity costs it is usually appropriate to exercise the discretion by making an order which gives effect to it. He relied on Gomba Holdings Limited v Minories Finance (1993) Ch 171 in which the court said (p 194) that ordinarily the court’s discretion as to costs should be exercised so as to reflect the contractual right.

27 This approach was approved in Abigroup in which Stein, JA said (para 9):

“It is, of course, correct that a court is not bound to give effect to any extra curial contract as to costs when exercising its discretion to award costs. It does not follow, however, that the discretion takes over from the contract and the exercise of discretion against giving effect to the contract precludes enforcement of the contract as to costs … agreements as to costs are common practice and perfectly valid and enforceable … The contractual right simply stands independently of the curial power and order”.

28 It was submitted that in the circumstances of this case there was no reason why the court should not exercise its discretion in the ordinary way and make an order for costs which fully reflects Railcorp’s entitlement under the deed.

29 Mr Tregenza submitted that a relevant factor to take into account against making such an order was that Leduva had not reasonably provoked Railcorp to bring the proceedings (T p 30). An additional and overlapping factor was that had Railcorp made enquiries as to the state of the tunnel it would have discovered what is now known from the reports of 14 December 2004 and 2 and 21 February 2005, namely that there was no real threat to the tunnel. The thrust of the submission seems to be that in all the circumstances the reason for the institution and conduct of the proceedings should not be attributed to Leduva’s conduct in failing to comply with the certification procedure and, in any event, the proceedings may have been avoided had further enquiries been made.

30 In my opinion the submission is without substance and must be rejected. It fails to take into account the situation which was the basis for the order made on 6 September and continued on 8 September 2004. It also fails to take into account the basis upon which the proceedings were fought before me. These are sufficiently described in the judgment and it is unnecessary to recite them here.

31 As the passages from the judgment referred to above show, it was by reason of the accepted failure to provide reliable certification that Railcorp was deprived of the assurance as to safety to which it was entitled. Construction had rendered the piles substantially inaccessible for testing purposes. Leduva accepted, as it must, that on the information available to the parties it was reasonable to bring the proceedings to stop this work.

32 In my view the evidence as to the state of the tunnel which resulted in the dissolution of the injunction provides no support for an argument against the form of the costs order sought.

33 Having regard to all of the circumstances which gave rise to these proceedings, including the issues litigated in them, I find that no basis has been established which justifies departure from the ordinary rule. I have also taken into account the observation of Gleeson, CJ in Baltic Shipping Company v Dillon (1991) 22 NSWLR 1 at p 9C:

“The general policy of the law is that people should honour their contracts. That policy forms part of our idea of what is just”.

34 In my opinion the justice of the case requires that the discretion should be exercised to reflect the contractual entitlement of Railcorp to indemnity costs, and I propose to order accordingly.

35 Railcorp also seeks an order pursuant to Pt 52A, r 9 that its costs be assessed and paid forthwith. In this division of the court the normal rule is that costs ordered in interlocutory matters are not payable until the conclusion of the proceedings unless the court otherwise orders. However, the rule confers a wide discretion to order the immediate assessment and payment of costs in appropriate circumstances, examples of which are found in the cases referred to in Ritchie’s Supreme Court Procedure, para 52A.9.2.

36 According to Practice Note 100 para 23 the normal rule does not apply to proceedings in the Commercial List and the Technology and Construction List. It provides that, unless otherwise ordered, a party in whose favour an order for costs is made may proceed to assessment of such costs forthwith.

37 In the exercise of discretion in these proceedings it is relevant to take into account that the decision to order costs in favour of Railcorp relates to a discrete question, and that the final resolution of the remaining issues between the parties is unlikely to take place, as experience shows, without a long delay.

38 It is also relevant that the proceedings have been transferred to, and henceforth will be conducted in, the Commercial List thus attracting the application of Practice Note 100. As the interlocutory proceedings involved issues of the kind ordinarily litigated in the Commercial List the fact that they were heard in the Equity Division should not be a disentitling factor and, in this respect, it is appropriate to adopt the approach taken in similar circumstances by Austin, J in ASIC v Rich [2003] NSWSC 297 para 86 that substance should triumph over form.

39 An additional relevant factor is that under the deed the parties have agreed upon a scheme whereby Railcorp’s costs would be paid promptly. Railcorp is entitled to payment of its costs within 30 days of the date of its invoice (cl 14.1(a) and definition of “Due Date”). If the amount invoiced is not paid on the due date cl 34 entitles Railcorp to appropriate from the performance bond lodged by Leduva the amount owing 30 days after written demand for its payment. With regard to the principles in Gomba and Abigroup to which I have referred (paras 26, 27) it is proper in the exercise of discretion under Pt 52A, r 9(1) to give due weight to Railcorp’s contractual entitlement to payment of its costs without delay.

40 In the circumstances I hold that this is an appropriate case in which to order that costs be assessed and paid forthwith.

Orders

41 (1) The Defendant is ordered to pay the Plaintiff’s costs of the proceedings for injunctive relief on an indemnity base which, for the avoidance of doubt, include the Plaintiff’s costs of and incidental to the Defendant’s notice of motion filed 27 October 2004.

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Citations

Rail Corporation NSW v Leduva Pty Ltd [2005] NSWSC 138

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CITATION:	Rail Corporation New South Wales v Leduva Pty Ltd [2005] NSWSC 138
HEARING DATE(S):	23/02/05
JUDGMENT DATE :	4 March 2005
JUDGMENT OF:	Nicholas J
DECISION:	Defendant to pay Plaintiff's costs on indemnity basis; costs to be assessed and payable forthwith

CATCHWORDS:	Costs - costs on indemnity basis - costs of successful Plaintiff's interlocutory application for injunctive relief - order dissolved by consent prior to final hearing - whether Plaintiff entitled to recover indemnity costs pursuant to contractual indemnity provision - whether costs should be assessed and payable forthwith - general principles
LEGISLATION CITED:	Supreme Court Rules Pt 52A, r 9; Practice Note 100 para 23
CASES CITED:	Abigroup Limited v Sandtara Pty Limited [2002] NSWCA 45 Baltic Shipping Company v Dillon (1991) 22 NSWLR 1 Gomba Holdings Limited v Minories Finance (1993) Ch 171 Malvern Urban District Council v Malvern Link Gas Co. (1900) 83 LT 326
PARTIES:	Rail Corporation New South Wales - Plaintiff Leduva Pty Ltd - Defendant
FILE NUMBER(S):	SC 4923/04
COUNSEL:	R J Carruthers - Plaintiff R W Tregenza - Defendant
SOLICITORS:	Blake Dawson Waldron - Plaintiff Cadmus Lawyers - Defendant