Smiths Specialised Building Services Pty Ltd v Brisull Industries Pty Ltd (No.2)

[2021] NSWDC 373

District Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Smiths Specialised Building Services Pty Ltd v Brisull Industries Pty Ltd (No.2) [2021] NSWDC 373

Hearing dates:

On the papers

Date of orders:

03 August 2021

Decision date:

03 August 2021

Jurisdiction:

Civil

Before:

Abadee DCJ

Decision:

See paragraph 32

Catchwords:

COSTS – application by successful plaintiff for indemnity costs entirely, or alternatively on indemnity basis from date of Calderbank Offer – whether Calderbank Offer constituted a genuine compromise

Legislation Cited:

Nil

Cases Cited:

Leichhardt Municipal Council v Green [2004] NSWCA 341

Miwa Pty Ltd v Siantan Properties Pte Ltd (No.2) [2011] NSWCA 344

NRMA Insurance for Nominal Defendant v Al-Bayati (No 2) [2019] NSWCA 14

Seller v Jones [2014] NSWCA 19

Smiths Specialised Building Services Pty Ltd v Brisull Industries Pty Ltd [2021] NSWDC 331

Texts Cited:

Nil

Category:

Costs

Parties:

Smiths Specialised Building Services Pty Ltd (plaintiff/cross-defendant)
Brisull Industries Pty Ltd (defendant/cross-claimant)

Representation:

Counsel:
Mr D Birch for the plaintiff/cross-defendant
Mr M Galvin for the defendant/cross-claimant

Solicitors:
Malcolm Murray & Associates for the plaintiff/cross-defendant
DPR Legal for the defendant/cross-claimant

File Number(s):

2020/00126274

Publication restriction:

Nil

COSTS Judgment

Background

1. On 21 July 2021, I published my reasons for judgment in this matter^[1] and directed the plaintiff, the successful party, (“Smiths”) to bring in short minutes. Smiths had sought opportunity to apply for a special costs order.

   1. Smiths Specialised Building Services Pty Ltd v Brisull Industries Pty Ltd [2021] NSWDC 331

2. The parties are agreed as to the interest calculations on Smiths’ monetary judgment. The full judgment (including interest and filing fees) is $42,450.72. I note that if the sum appears small, the proceeding was only brought into this Court because of the application by the defendant/cross-claimant (“Brisull”) to transfer it into this Court after Smiths had filed its statement of claim in the Local Court.

Costs

3. The remaining issue in dispute concerns costs. What follows assumes familiarity with the reasons of the principal judgment.

4. Smiths seeks its costs of successfully defending Brisull’s cross-claim on an indemnity basis, either entirely, or alternatively, from 21 June 2021; the latter being on the basis of comparison between a settlement offer made to the cross-claimant in a Calderbank letter and the end result.

The Calderbank letter

5. On 21 June 2021, about three weeks before the commencement of the hearing, Smiths’ lawyers sent a letter to Brisull’s lawyers, that was expressed to be “without prejudice save as to costs”.

6. The gist of the letter was to make a settlement offer in the following terms:

1. Brisull pay Smiths the sum of $66,000 (the settlement sum);

2. The settlement sum be payable within 14 days; and

3. The proceedings be dismissed with no order as to costs.

7. The settlement sum was expressed to be in full and final settlement. It was made on an inclusive basis; and not only a sum for interest, but also for costs. This was made clear when, in the explanatory commentary that followed the indication of the terms of the offer, the author of the letter said that the settlement sum of $66,000 had been calculated by reference to Smiths’ calculation of its principal claim (then quantified as being $42,734.71) and its legal costs (which had been quantified as being $31,125.98 to the date of the offer). The settlement sum was expressed to be payable by reference to the total value of the debt claim and 75% of the costs incurred. Reference was made within the letter to Calderbank principles and Smiths’ intention to rely upon the letter should Brisull not obtain a more favourable order in the result than that which was offered.

8. The offer followed commentary on the parties’ respective prospects in the litigation. This started with the proposition that no coherent reason was advanced for why Smiths’ action in debt should not succeed. I do not accept that proposition. Brisull’s position was one of confession and avoidance: it relied upon its cross-claim to generate a monetary outcome which could be used to set up a defence of set-off. At any rate, Smiths’ short minutes do not seek an order that Brisull pay its costs of the statement of claim on an indemnity basis.

9. The remainder of the commentary in the Calderbank letter centred upon the weaknesses of Brisull’s cross-claim, which prompted the epithet that it was ‘fundamentally misconceived’. Argument was made that the contentious term raised by Brisull – that Smiths would pay its subcontractors the same rates reflected in payments made by Brisull to Smiths – was not an express term and would not be accepted as an implied term and, even if such term was found, Brisull did not suffer any loss. It was also said that Brisull’s separate claim of defective works was not the subject of admissible evidence.

Parties’ submissions

Application for indemnity costs in their entirety

10. Smiths cites as one instance where an order for indemnity costs is raised, a delinquency in a party in bringing or defending a claim which it knows, or should have known, had no chance of success^[2] .

    2. Seller v Jones [2014] NSWCA 19 at [58]

11. Smiths argues that Brisull’s circumstances fall into this category. Even if the evidence of its witness, Mr Britt, was accepted, it did not sustain the express term of the contract Brisull propounded. Even if the term existed, Brisull did not suffer loss. During the hearing, it was said that Brisull agitated claims for loss which it was not permitted to do. Smiths also says that Brisull’s claim was contrived to avoid the debt.

12. Brisull argued that its cross-claim was not misconceived. It simply failed on the evidence ultimately accepted by the Court as being contrary to the facts asserted.

13. Smiths’ application that Brisull pay the costs of successfully defending the latter’s cross-claim in their entirety is ambitious. As to its point about the absence of evidence to sustain Brisull’s propounded term of the contract, if Brisull’s prospects in relation to the cross-claim were so poor, or manifestly untenable, it might have been expected that the cross-defendant would move for summary disposal of the claim; which it did not do. If it did not do so after service of the cross-claim, it was in a position to do so after Mr Britt’s primary affidavit had been served (on 3 December 2020).

14. As to its point about Brisull’s inability to prove that it suffered loss from the breach of the contentious term it propounded, it is plainly correct that this was the result determined by the Court. However, as the analysis at [105]-[114] of my reasons indicate, Brisull’s argument was not doomed to fail. There were issues of mixed fact and law considered by the Court in reaching the conclusion that it did. Merely because a party in contested commercial litigation succeeds in a court accepting its contention does not mean that it was delinquent for the opposing party to raise a contrary contention.

15. As to its point about whether Brisull agitated heads of loss contrary to what it was allowed to do on the pleadings, from the beginning ^[3] to the end of the hearing, the parties were in dispute about what fell within the cross-claim. Ultimately, however, the Court determined that there was no material difference in the treatment of each suggested head; however nuanced the arguments were. In this way, the differences in the way that the arguments ran did not materially add to the costs of defending the cross-claim.

    3. 13 July 2021, T 4-11

16. The application for indemnity costs in their entirety is refused.

Application based on refusal of a Calderbank letter

17. Smiths referred to the two basic considerations which courts take into account when considering whether an order for indemnity costs should be made on the basis of a refusal by the offeree to accept terms of settlement in a Calderbank offer: (a) whether there was a genuine offer of compromise; and (b) whether it was unreasonable for the offeree not to accept it^[4] .

    4. Miwa Pty Ltd v Siantan Properties Pte Ltd (No.2) [2011] NSWCA 344 at [8].

18. As to the former consideration, Smiths argues that the settlement terms offered in the Calderbank offer involved it foregoing 25% of its costs, then incurred, and also the costs which it would incur if the matter proceeded to a 3 day hearing.

19. As to the latter consideration, Smiths alludes to the offer being made approximately 3 weeks prior to the hearing; at which point the parties were positioned to properly assess their prospects (without undue disruption in preparing for the hearing itself) and was open for 2 weeks. It argues that the consequence of the offer not being accepted was Smiths incurring costs which were proportionately high, given the value of Smiths’ debt claim. Further, the Calderbank offer anticipated findings that the Court ultimately made; there was no ambiguity in the terms; and Smiths had foreshadowed its intention to rely upon the offer on the question of costs if it defeated the cross-claim.

20. Brisull argues that the offer did not amount to a proper Calderbank letter. There was no genuine compromise in that nothing was, substantially, given away by Smiths: all that was being offered to Brisull was that which Smiths would achieve if it had capitulated on liability and the costs question fell to be determined by a costs assessor. It was therefore not unreasonable for Brisull to reject it.

21. In reply, Smiths argues that in an ‘all or nothing’ case, the only room for compromise may be in relation to costs. Further, even if an offer amounts to an invitation to capitulate, that may be legitimate, to enliven the court discretion to award costs, where a party’s case lacks “a colour of substance”[5] .

    5. NRMA Insurance for Nominal Defendant v Al-Bayati (No 2) [2019] NSWCA 14 at [5]

Consideration

22. Smiths did not serve any offer of compromise under Court rules; such that it could rely upon what, in effect, was a presumptive entitlement to costs. Its submissions recognise that it must persuade the Court that Brisull’s rejection of the Calderbank letter was “unreasonable” in all the circumstances of the case^[6] . It is well-established that the discretion is unlikely to be enlivened where the point of the Calderbank letter is to trigger costs sanctions ^[7] .

    6. Leichhardt Municipal Council v Green [2004] NSWCA 341 (‘Leichhardt MC’) at [19]

    7. Leichhardt MC at [39]

23. In Leach v Nominal Defendant (No.2) [2014] NSWCA 391, McColl JA (Gleeson JA and Sackville AJA agreeing) observed (at [42]) that whether there was a real element of compromise is determined objectively according to the circumstances of the particular case at the time the offer was made, rather than with the benefit of hindsight.

24. There are circumstances where, for example, a walk-away offer is made at a reasonable time into a proceeding where, say, a defendant (or cross-defendant), having incurred substantial costs, offers to the plaintiff the result that each party bears their own costs and, in such way, has been shown to have foregone an amount that has substantial value. This was not however a ‘walk away’ offer. This offer required Brisull to pay a large proportion of Smiths’ costs up to the date when the offer was made.

25. An offer to forego future costs could not, of itself, found a basis for a genuine offer of compromise. If it did, it would always generate an entitlement in a successful party who has served a Calderbank letter since the successful party would always argue that had the earlier offer been accepted, it would have spared the unsuccessful party of any liability to pay the successful party’s future costs from the date of the offer.

26. I do not consider that what was being offered as at the date of the Calderbank letter represented, objectively, a genuine compromise; but rather represented a demand that Brisull capitulate. As at the date of the offer, what Smiths was offering to forego was 25% of its past costs incurred. No evidence was adduced from an independent costs consultant as to the likely recovery of costs on a contested assessment but in my own experience, it would be touch and go whether, had Brisull accepted the offer there and then, that Smiths would have been entitled to 75% of its costs. Further, the offer was calculated in a fashion which ascribed no value to Brisull’s cross-claim which, if it had succeeded on the main claim (the express term proposed by Brisull, as distinct from the claim for defective works) would likely have exceeded Smiths’ debt claim and, by operation of set-off, effectively extinguished it.

27. As to its point that this was an ‘all or nothing case’ on liability, contrary to Smiths’ contention, that is a factor which points against the imposition of a costs order on an indemnity basis, rather than pointing towards it.

28. As to its point that Smiths claim lacked “colour of substance”, as I indicated earlier, at no stage did Smiths apply for the summary disposal of the cross-claim. That omission can be taken to reflect recognition, on Smiths’ part, that Brisull’s cross-claim was at least arguable and thus had some prospects of success. In short, that it had some value.

29. As indicated, to the extent that the offer indicated that Brisull would not be liable for Smiths’ costs in defending the cross-claim from the date of the offer, this is not sufficient to amount to a genuine compromise.

30. This being so, the Court is not inclined to exercise its discretion to make a special costs order.

31. Brisull should pay Smiths’ costs of the cross-claim on the ordinary basis.

Orders

32. The Court orders:

1. Judgment for the plaintiff in the amount of $42,450.72.

2. The defendant pay the plaintiff’s costs of the plaintiff’s claim as agreed or assessed.

3. The cross-claimant pay the cross-defendant’s costs of the cross-claim on the ordinary basis as agreed or assessed.

4. The orders in (2) and (3) are subject to the plaintiff/cross-defendant not being entitled to its costs of its application for indemnity costs and the plaintiff is to pay the defendant/cross-claimant's costs of that application.

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Endnotes

Amendments

03 August 2021 - Typographical error

Decision last updated: 03 August 2021