Redmond v Masterton Canberra Pty Limited
[2016] ACTSC 242
•26 August 2016
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Redmond v Masterton Canberra Pty Limited |
Citation: | [2016] ACTSC 242 |
Hearing Date: | 9 May 2016 |
DecisionDate: | 26 August 2016 |
Before: | Mossop AsJ |
Decision: | The plaintiffs have leave to discontinue the proceedings. There is no order as to costs of the proceedings. |
Catchwords: | COSTS – Exercise of costs discretion under Court Procedures Rules 2006 (ACT), rr 1706 and 1163 – Whether there should be any order for costs in favour of either party where substantive proceedings discontinued – Default rule under r 1163(1) that costs paid by discontinuing party – Not appropriate to decide merits of the case in order to resolve issue of costs – Default rule may be departed from where settlement occurs as a result of an agreement not involving surrender by either party – Neither party acted unreasonably in relation to the dispute – No order as to costs |
Legislation Cited: | Court Procedures Rules 2006 (ACT), rr 1706, 1163 |
Cases Cited: | Fordyce v Fordham (2006) 67 NSWLR 497 Graham H Roberts Pty Ltd v Maurbeth Investments Pty Ltd (1974) 1 NSWLR 93 Rural and General Insurance Broking Pty Ltd v Australian Prudential Regulation Authority (2009) 231 FLR 199 |
Parties: | Michael James Redmond (First Plaintiff) Laura Kate Keogh (Second Plaintiff) Masterton Canberra Pty Limited (Defendant) |
Representation: | Counsel T Crispin (Plaintiffs) S Robertson (Defendant) |
| Solicitors Concorde Legal (Plaintiffs) Wotton & Kearney (Defendant) | |
File Number: | SC 301 of 2015 |
Mossop AsJ:
Procedural background
The plaintiffs and the defendant entered into a standard form building contract for the construction of a single residential dwelling in the suburb of Crace. The total construction price identified in the contract was $296,826. The contract date was 17 February 2014.
Under the contract the plaintiffs were required to pay the contract sum progressively in accordance with a progress claim schedule. Construction of the dwelling commenced in about November 2014 after the contract was “validated” by the plaintiffs on 22 September 2014.
On 18 March 2015 the defendant issued the plaintiffs with a progress claim described as the “Fix Out progress claim”. The amount of the claim was $65,029. The progress claim was not paid by the plaintiffs until 8 March 2016. At about this time the parties were in dispute because, as a result of delays in the commencement of the building work, some previously selected tiles had become unavailable and the defendant contended that the plaintiffs were liable for the increased costs of the tiles subsequently selected as well as a change in the colour of the vanity so as to match the newly selected tiles. The defendant ceased work on the building during the period from about 2 April 2015 until 8 March 2016.
There was extensive correspondence between the parties. It is apparent that the issue about the tiles and the vanity were only one of a number of areas of dissatisfaction on the part of the plaintiffs, which had arisen as a result of delays with the project and difficulties in communication with representatives of the defendant. There were offers and counter offers of settlement. Both sides were prepared to adjust their positions, but not sufficiently to resolve the issues between them.
The plaintiff commenced proceedings on 27 August 2015. The statement of claim identified that the plaintiffs claimed a mandatory injunction requiring the defendants to complete construction of the property or in the alternative “damages in equity”. The facts pleaded in the statement of claim were a series of representations in relation to fees, completion of the building project, in slab heating, selection of cabinetry and tiles and fencing of the building site. While reference was made to the existence of a contract between the parties in paragraph 2 of the statement of claim, nothing else in the pleading was dependent upon the existence or the terms of that contract. This might be considered an unusual approach having regard to the fact that the principal relationship between the parties was a contractual one and, as a result of the non-payment of the progress claim, there was an entitlement on the part of the builder to suspend work under the contract.
No defence to the claim had been filed.
The first directions hearing was adjourned until 9 November 2015. On that date the matter was referred for mediation on 29 February 2016 and consent orders were made consistent with that referral. On 25 November 2015 the plaintiffs filed an application in proceeding seeking an interim injunction requiring the defendants to complete construction of the residence or alternatively an order for specific performance of that contract. That application was referred to me and came before me on 7 December 2015. On that date the defendant indicated that it would file an application in proceeding seeking summary judgment and I made directions permitting any such application and the plaintiffs’ application to be heard on 3 March 2016.
Fortunately the mediation between the parties was fruitful. The parties entered a deed of release. The parties agreed to resolve the proceedings on the basis that the defendant pay the sum of $30,000 to the owners and that the owners agreed to make the progress claim payment of $65,029. The builder agreed to complete the construction of the building under the contract. The parties abandoned or released each other from various other potential claims. The plaintiffs agreed to apply for leave to discontinue the proceedings and the defendant consented to that discontinuance. Clause 17A of the deed provided that nothing in the deed prevented any party from making any application or submission in relation to the orders, if any, which should be made with respect to the costs of the proceedings. Thus it appears that the parties, quite sensibly, settled the substance of the dispute while quarantining for determination by the Court an issue which might have proved a stumbling block to the settlement of the case.
As a result of the early settlement I vacated the hearing listed for 3 March 2016 and made directions permitting the issue in relation to costs to be argued on 9 May 2016.
The issue
In the light of the settlement agreement, the giving of leave to the plaintiffs to discontinue is uncontroversial. The issue that arises is whether there should be any order for costs in favour of either party in circumstances where the substantive proceedings are to be discontinued. The plaintiffs sought an order that the defendant pay their costs of the proceedings on a party and party basis. The defendant’s position was that no order should be made, with the effect that the plaintiffs would pay the defendants costs pursuant to r 1163 of the Court Procedures Rules 2006 (ACT) (CPR).
Ruling on evidence
The defendant objected to the reading of two substantial affidavits of the plaintiffs. The objection was on the basis that the affidavits had been prepared for the purposes of the plaintiffs’ application for a mandatory injunction and went to the merits of the case rather than being directed only to the question of costs. I deferred my ruling on the admissibility of those affidavits. I will admit the whole of those affidavits. While it is clearly undesirable to read such affidavits on an application for costs because it invites a descent into the underlying merits of the dispute, such undesirability does not render them in admissible. The merits of the dispute can be relevant to the question of costs and that is one of the aspects of the plaintiffs’ argument in the present case.
Power to make orders for costs
The Court has jurisdiction to make orders for costs even in circumstances where proceedings have settled. Rule 1706 of the CPR provides:
1706 Costs—if unnecessary to continue proceeding
(1)If, for any reason, it becomes unnecessary to continue a proceeding other than for deciding who is to pay the costs of the proceeding, any party to the proceeding may apply to the court for an order for the costs.
NotePt 6.2 (Applications in proceedings) applies to an application for an order under this rule.
(2) The court may make the order it considers just.
Rule 1163 provides:
1163 Costs of discontinuance or withdrawal
(1) A party who discontinues or withdraws is liable to pay—
(a)the costs of the party to whom the discontinuance or withdrawal relates up to when the notice of discontinuance or withdrawal is served on the party; and
(b)the costs of another party or parties caused by the discontinuance or withdrawal up to when the notice of discontinuance or withdrawal is served on the party.
(2)If a party discontinues or withdraws with the court’s leave, the court may make the order for costs it considers appropriate.
NotePt 6.2 (Applications in proceedings) applies to an application for an order under this rule.
Plaintiffs’ submissions
Counsel for the plaintiffs identified three arguments in support of a departure from r 1163 and the making of an order for party and party costs in favour of the plaintiffs.
First, in the light of the terms of the deed of release, the plaintiffs were successful in their claim. The statement of claim dated 27 August 2015 sought:
(a)the granting of a mandatory injunction requiring completion of construction of the plaintiffs’ home; and
(b)equitable damages.
The plaintiff contended that the terms of settlement represented success in so far as the claim was concerned because they required payment of $30,000 and an agreement to complete the construction within 40 working-days of the execution of the deed.
Second, counsel for the plaintiffs contended that the plaintiffs had no other option than to commence proceedings because the dispute between the parties had become intractable.
Third, counsel contended that the plaintiffs had made offers of settlement that were more advantageous to the defendant than the ultimate settlement. Correspondence between the parties was tendered (Exhibit 2). Counsel for the plaintiffs pointed to two separate letters where more favourable offers to the defendant had been made. The first was a letter dated 12 May 2015 in which the plaintiffs’ solicitor proposed that the additional costs for tiling and cabinetry be deferred until the final payment. The letter did, however, contemplate that a “proposed settlement offer” would be forwarded subsequently. That led to an offer on 25 May 2015 to settle the matter on the payment to them of $35,000. The second was a letter dated 13 July 2015 containing an offer to settle for the sum for $30,000, waiver of the reselection costs, completion of the build within two months and some assurances. There was no provision about the costs.
Counsel for the plaintiffs submitted that the approach adopted by McHugh J in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-625 (Lai Qin) was not appropriate because this was a case “where one side has so clearly been successful”.
In submissions-in-reply counsel contended that building work had never been suspended due to non-payment of the progress claim, because it had been suspended the day before the progress claim was due for payment as a result of a dispute over whether or not the plaintiffs would pay the increased costs arising from the unavailability of their selected tiles and their desire to change the colour of the vanity to be installed in the bathroom.
Defendant’s submissions
In summary the position adopted by the defendant was that it was not appropriate to undertake the kind of granular analysis in which the plaintiff invited the Court to engage, but rather to start with the terms of the CPR, in particular r 1163, which would require the plaintiffs to pay the defendant’s costs. If the plaintiff was able to demonstrate that there was a proper basis for departing from that rule then it was appropriate to adopt the Lai Qin approach.
Before such an order could be made, the Court would need to be satisfied that it should exercise its discretion to displace the “default” position in r 1163(1) that the discontinuing party pay the other parties’ costs. Counsel for the defendant contended that the correct approach to be adopted was set out in Penfold J’s decision in Rural and General Insurance Broking Pty Ltd v Australian Prudential Regulation Authority (2009) 231 FLR 199 at [82] (Rural and General). He contended, however, that contrary to what was said at [45], the Court “may” rather than “must” make an order for costs. As a consequence it was open to the Court to simply do nothing and let r 1163 operate. He also submitted that it was not correct to state, as her Honour did (at [75]), that the relevant New South Wales rules set up a presumption as opposed to a default order: Fordyce v Fordham (2006) 67 NSWLR 497 at [84].
Counsel referred to Lai Qin and in particular those statements to the effect that it was not appropriate to attempt to try a hypothetical action between the parties, but instead that the Court must form a view on the reasonableness of the pursuit and defence of the action: Lai Qin at 624-625.
Counsel submitted that although, because of the settlement, it was not necessary to deal with the defendant’s application for summary judgment, it was nevertheless possible to discern that the plaintiffs’ pleaded case was not reasonably arguable as a matter of law. In support of this submission he made a number of points:
(a)First, there was no logical pleaded connection between the allegations of unconscionability arising from representations and the pleaded relief, namely a mandatory injunction requiring the defendant to complete construction of the property. There was, for example, nothing pleaded to create an estoppel against the defendant relying upon its power to suspend work as a result of non-payment of progress claims.
(b)Second, he submitted that insofar as the claimed belief of a mandatory injunction could be interpreted as an application for specific performance, the authorities were against the availability of such relief. While recognising that there was no absolute rule, he pointed to the statement of Helsham J in Graham H Roberts Pty Ltd v Maurbeth Investments Pty Ltd (1974) 1 NSWLR 93 at 105 that it would not be proper for a judge of first instance in New South Wales to assert that an ordinary building contract is properly the subject of a decree for specific performance.
(c)Third, insofar as the claim sought “damages in equity”, counsel for the defendant submitted that insofar as what was sought was Lord Cairns’ Act damages, those damages were available to be granted in addition to or in lieu of specific performance and the general rules applicable to such a claim for relief would apply.
(d)If what was meant was not “damages”, but compensation, then no basis for the award of equitable compensation had been laid in the pleadings which raised questions of equitable estoppel.
For those reasons the defendant submitted that, at the very least, the plaintiffs’ pleading was liable to be struck out and that was a significant factor that weighed against the plaintiffs’ submission that they should receive the costs of the proceedings.
Next the defendant submitted that this was clearly not a case in which the defendant had “surrendered”. Instead, the settlement was the result of negotiation. The expenses identified by the plaintiffs for the purposes of the mediation amounted to $33,384. The ultimate settlement was for $30,000. The amount identified included amounts which could not have been recoverable.
The defendant contended that it did not matter that in some items of correspondence the defendant did not expressly rely upon the failure by the plaintiffs to pay the relevant progress payment. Counsel submitted that the same approach should be taken in such a situation as to the approach taken upon termination of a contract, namely, that the party is entitled to rely upon any available ground. He submitted that the power to suspend work under cl 22 of the contract was not conditional upon the giving of notice of any such suspension, although notice was required to be given. He submitted that, having regard to the correspondence in July 2015, the failure to pay the progress claim was clearly an issue “in play”.
Counsel for the defendant submitted that it was clear both from the terms of the settlement deed and from the circumstances in which it was agreed upon, deposedto in the affidavit of the defendant’s solicitor, that it was a “highly negotiated document”. In those circumstances the defendant submitted that having regard to the variety of matters dealt with in the settlement deed it was not possible to say any more than that the parties had agreed to settle the matter. It was not possible to say that one party had abandoned the proceedings or given up and hence that there was no basis on which to displace the default rule with respect to costs.
The defendant submitted that when assessing reasonableness it was relevant to have regard to the claims and offers made by the parties disclosed in the exhibit to the affidavit of the defendant’s solicitor. Counsel for the defendant highlighted:
(a)that the plaintiffs’ claim was in excess of $152,000 in February 2015;
(b)the fact that the plaintiffs’ offers to settle in May, June and July 2015 did not expressly involve an offer to pay the outstanding payment claim;
(c)that the plaintiffs appear to have incurred a “wholly disproportionate amount of costs” on the proceedings having regard to their settlement offer made shortly prior to the mediation of $40,000 plus $80,000 costs. In contrast he submitted that the approach of the defendant was simply that of wishing “to get on with the job, pay the money and move on”.
He further submitted that the case was one which “should not have seen the inside of a courtroom generally” and was one where the defendant took steps to settle the matter on a commercial basis.
Finally he submitted that it was not a case in which the plaintiff was compelled to commence proceedings and that the history of offers and counter offers prior to the commencement of proceedings of claims indicated genuine attempts by both sides to resolve the dispute.
Consideration
In Lai Qin at 624-625, McHugh J said that:
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. ...
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 % of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.
(Footnotes omitted.)
In Rural & General Penfold J summarised the authorities as follows:
82. The legal principles discussed above can be summarised for present purposes as follows:
(a)The costs discretion to be exercised under r 1163(2) where a party is given leave to discontinue is at large, but must be exercised judicially.
(b)There is no presumption that under r 1163(2) costs will be awarded to one or other party. There is no entitlement to costs against the discontinuing party arising simply because in some cases it may be preferable in the interests of finality to enter judgment against the party rather than giving leave to discontinue.
(c) In the exercise of the costs discretion, it is appropriate to have regard to:
(i)whether the behaviour of each party was reasonable until the point when discontinuance was sought; and
(ii)whether seeking to discontinue reflects a surrender by the discontinuing party in a hopeless case or a supervening event or other change in external circumstances that has rendered the action “futile” or pointless.
(d)In relation to the reasonableness of a party’s behaviour, the matters that may be relevant include (but are not limited to), those set out in the following list (extracted from Oshlack (see [59] above) and Edwards Madigan (quoted at [61] above):
(i) whether a party has “by its lax conduct effectively invite[d] the litigation”;
(ii) whether either party has unnecessarily protracted the proceedings;
(iii)whether the successful party has succeeded on a point not argued before a lower court;
(iv)whether a party has prosecuted the matter solely to increase the costs recoverable;
(v)whether a party has obtained only the relief previously offered by another party in settlement offers;
(vi)whether a discontinuing plaintiff had “an arguable case” against the other party;
(vii)whether the “complexity, duration or expense of the litigation could have been reduced if either party had taken a different view of the case”.
(e) In relation to the reason for seeking to discontinue:
(i)a surrender will usually leave the surrendering party to pay the other party’s costs; and
(ii)discontinuance for futility will sometimes mean that no costs order is made.
I accept the defendant’s submissions that under r 1163 the Court “may” rather than “must” make an order and that r 1163 provides a default rule rather than a presumption.
In my view, in the present case the appropriate costs order is that there be no order as to costs of the proceedings. It is not a case where the default rule in r 1163(1) should apply or a case in which a costs order should be made in favour of the plaintiffs. That is for the following reasons:
(a)The parties reached an accommodation permitting settlement of the substance of the dispute and reserved to the Court issues in relation to costs. It is not appropriate to decide the merits of the proceedings in order to resolve the question of costs.
(b)It may be appropriate to depart from the default rule in r 1163 where the settlement has come about as a result of an agreement between the parties not involving “surrender” by either party.
(c)As a result of the settlement, the plaintiffs did achieve payment of an amount to them. That had the effect of compensating them for various costs incurred by reason of representations alleged to have been made to them by the defendant.
(d)For the reasons identified in the defendant’s submissions (summarised at [24] above) the plaintiffs’ case, as it had been pleaded, had significant difficulties and it is likely that, had the matter not been settled, the plaintiffs’ claim would have been struck out (even if an opportunity would most likely have been given to re-plead it).
(e)The initial dispute between the parties had a very modest contractual genesis, namely, a dispute over less than $3000, even if it came against the background of delays with the construction project and a variety of other complaints by the plaintiffs as a result of their dealings with representatives of the defendant.
(f)The conduct of the parties in attempting to resolve their differences before and after the commencement of proceedings does not, in the light of the ultimate settlement, demonstrate that either side was acting unreasonably in relation to the dispute.
Costs of the application
In relation to the costs of the application for costs, counsel for the defendant submitted that, if his client was not required to pay the plaintiffs’ costs, then the plaintiffs should pay the costs of the application for costs on an indemnity or solicitor and client basis. The defendant tendered correspondence in which it had offered to settle the question of costs on the basis that each party paid their own costs. He submitted that the plaintiffs acted unreasonably in continuing the application for costs. The plaintiff submitted that the costs of the application should be dealt with in the same way as the costs of the proceedings generally.
The making and non-acceptance of an offer such as that made by the defendant would usually provide a basis for a costs order in favour of the offering party. However, having regard to the settlement of the dispute and the express reservation in the deed of release of the entitlement of a party to make any application or submission in relation to costs, I do not consider that this is an appropriate case in which to give costs consequences to the non-acceptance of what was clearly a reasonable offer by the defendant.
Orders
The orders of the Court are:
1. The plaintiffs have leave to discontinue the proceedings.
2. There is no order as to costs of the proceedings.
| I certify that the preceding thirty-eight [38] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop. Associate: Date: 26 August 2016 |
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