Stone v Chappel (No. 2) - [2016] SASC 88

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
STONE & ANOR v CHAPPEL & ORS (NO. 2)
[2016] SASC 88
Judgment of The Honourable Justice Stanley
23 June 2016
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - OTHER CASES - FAILURE IN PORTION OF A CASE
DAMAGES - GENERAL PRINCIPLES - RECOVERY OF COSTS
This is an application for costs.
On 4 March 2016 judgment was given in favour of the plaintiffs against the defendant and awarded damages in the sum of $81,046.98.
The dispute between the parties concerned the construction of the shell of an apartment on the top floor of a building in a retirement village constructed and managed by the defendants. Central to the dispute was the failure of the defendants to construct the apartment to a ceiling height of 2,700 mm. The plaintiffs’ claim relied on a number of causes of action. The resolution to the dispute was fragmented. Part of the dispute was referred to an expert for determination conducted by Stephen Walsh QC. Part of it was settled pre-trial on 13 April 2015 by the defendants paying the plaintiffs the sum of $160,892 in respect of what was called the “base price deduction claim”.
Neither the base price deduction claim nor the issues determine by Mr Walsh concerned the ceiling height.
Each of the parties claims an entitlement to the costs of the action.
Held:
1. It is appropriate in the exercise of the court’s discretion to make an award of costs on a broad-axe basis, informed by balancing consideration of the issues decided, who succeeded or failed on those issues, and some consideration of the amount of the court’s time and resources that was occupied in hearing and determining those discrete issues, recognising the difficulties of precision in such consideration, given the evidence frequently was relevant to more than a single, discrete issue (at [13]).
2. The plaintiffs should not be deprived of an entitlement to costs on the basis of the application of Supreme Court (Civil) Rules 2006 r 263(2)(g) (at [16]).
3. The plaintiffs should not be deprived of costs by reason of the Calderbank offers (at [17]).
4. The defendants to pay the plaintiffs one-third of the costs of the action on a party/party basis, save and except for the costs of the expert determination which is to be decided by Mr Walsh, and the costs order of Master Norman made on 21 September 2011 (at [22]).
Supreme Court Act 1935 (SA) s 40(1); Supreme Court (Civil) Rules 2006 r 263(1)-(2), referred to.
A, DC v Prince Alfred College Inc (No. 2) [2016] SASCFC 27, considered.

STONE & ANOR v CHAPPEL & ORS (NO. 2)
[2016] SASC 88
Civil
STANLEY J:
Introduction

This is an application for costs.
On 4 March 2016 I gave judgment in favour of the plaintiffs against the defendant and awarded damages in the sum of $81,046.98.
The dispute between the parties concerned the construction of the shell of an apartment on the top floor of a building in a retirement village constructed and managed by the defendants. Central to the dispute was the failure of the defendants to construct the apartment to a ceiling height of 2,700 mm. The plaintiffs’ claim relied on a number of causes of action. The resolution to the dispute was fragmented. Part of the dispute was referred to an expert for determination conducted by Stephen Walsh QC. Part of it was settled pre-trial on 13 April 2015 by the defendants paying the plaintiffs the sum of $160,892 in respect of what was called the “base price deduction claim”.
Neither the base price deduction claim nor the issues determined by Mr Walsh concerned the ceiling height.
Each of the parties claims an entitlement to the costs of the action. The matter is complicated.
Applicable principles
Section 40(1) of the Supreme Court Act 1935 (SA) confers on the court the power to order costs in civil proceedings. In addition, 6SCR make provision for an award of costs. 6SCR 263(1) provides that, as a general rule, costs follow the event. That general rule is subject to specific rules to the contrary and to prescribed exceptions, only one of which is relevant to this case.[1] This Court recently considered the principles applicable to the exercise of the court’s discretion in awarding costs in A, DC v Prince Alfred College Inc (No. 2).[2]The Court said:[3]
[1] 6SCR 263(2)(g).
[2] [2016] SASCFC 27.
[3] [2016] SASCFC 27 at [5] – [13].
The principles governing the exercise of the costs discretion are well established. The Court exercises a judicial discretion with respect to costs in which the general rule is that costs ordinarily follow the event unless there are special circumstances justifying another order.[4] In more recent times, courts more readily modify the general rule recognising that the interests of justice sometimes require a reduction in the costs that would otherwise have been awarded to a successful party when that party has failed on particular disputed questions of fact or law.[5] In Ruddock v Vardalis (No 2),[6] Black CJ and French J summarised the principles as follows:[7]
[4]    GT Corporation Pty Ltd v Amare Safety Pty Ltd [2008] VSC 296 at [31].
[5]    Cretazzo v Lombardi (1975) 13 SASR 4 at 12.
[6] (2001) 115 FCR 229.
[7] (2001) 115 FCR 229 at [11]. See also Cretazzo v Lombardi (1975) 13 SASR 4 at 12 per Bray CJ; GT Corporation Pty Ltd v Amare Safety Pty Ltd [2008] VSC 297 at [31] per Robsen J.
Within the general discretion of the courts to award costs it is accepted by decisions in both Australian and English jurisdictions that:
·Ordinarily costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order.
·Where a litigant has succeeded only upon a portion of the claim, the circumstances may make it reasonable that the litigant bear the expense of litigating that portion upon which he or she has failed.
·A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other parties' costs of them. In this sense “issue” does not mean a precise issue in the technical pleading sense but any disputed question of fact or law.
The modification of the ordinary rule to reflect the way in which particular issues in the litigation are determined is a response to those ‘cases in which issues are raised which unduly extend the time and expense of litigation’.[8]
In Victoria and Master Builders Association of Victoria[9] Ormiston JA explained that in an era of high cost litigation it had become necessary to more often allocate costs according to success on particular issue because ‘regrettably there are many cases in which issues are raised which unduly extend the time and expense of litigation’. Those observations were echoed in Mickelberg v Western Australia[10] by Newens J who referred also to ‘the burdens imposed on the public resources of the Court’ by parties pursuing claims on which they are ultimately not successful.
Just as parties must make a cost benefit and risk analysis decision on whether to bring an action at all, so too must decisions be made about which claims to include within an action. Parties should not be encouraged to add to a claim which has sufficient prospects, in itself, to justify the bringing of an action other claims, of doubtful merit, on the assumption that the costs of pursuing the latter claims will be recovered because of success on the good claim.
In adversarial litigation the parties and their legal advisors carry the primary responsibility for ensuring the cost-effectiveness of litigation because they have a particular knowledge and understanding of the controversy, and the available evidence, which the court cannot know because of legal professional privilege.
It is therefore the responsibility of the legal profession to actively consider the affect of adding doubtful claims, or mounting defences to good claims without any foundation for doing so, on the efficient resolution of the proceedings. In accordance with that duty legal practitioners must give advice on the relative merits of the possible claims and defences and on the cost and time implications of pursuing those claims so that the litigant is in a position to give informed instructions on how to conduct the proceedings.
The authorities to which we have referred make it clear that the rule does not only apply to a ‘precise issue in the technical pleading sense’ but extends to any substantial disputed question of fact or law. There is of course a limit to the dissection of an action which is practicably possible.
On the other hand, the court should not be overly parsimonious in the award of costs to a plaintiff who has won a judgment against a wrongdoer who has denied liability on all of the grounds of the plaintiff’s claim.
There can be no precision in the balancing of the tension between the ordinary rule and its qualification. Much will depend on the extent to which the costs of the litigation of the separate issues can easily be separated out and on the reasonableness of the forensic decision of the successful party to pursue, not only the claims on which he or she succeeded, but also those claims on which he or she failed.
[8]    Victoria v Master Builders Association of Victoria (Unreported, Victorian Court of Appeal, 15 December 1994) (Ormiston JA); see also Mickelberg v Western Australia [2007] WASC 140 at [30]-[35] (Newnes J) referring to “the need for greater economy and efficiency in the conduct of litigation”.
[9]    (Unreported, Victorian Court of Appeal, 15 December 1994).
[10] [2007] WASC 140 at 30-35.
Position of the parties
It is common ground between the parties that in the circumstances of this case it is appropriate for the court to exercise its costs discretion to make an award of costs based on the respective success and failure of each of the parties in relation to specific issues in the action. The parties are in dispute, however, as to how the court should identify those issues and whether the court should consider that one party or another succeeded or failed in relation to that issue.
In the end, the plaintiffs seek an order for 75 per cent of their costs on a party/party basis certified fit for counsel including:
1.the costs of the expert determination of Mr Walsh (or, in the alternative, that Mr Walsh determine the question of costs of the hearing before him);
2.the costs of the pre-action disclosure application before Master Norman; and
3.the costs of the action generally (including the costs associated with those matters identified in schedule A of the third statement of claim).[11]
[11] The claim for costs identified in Schedule A of the third Statement of Claim was deleted in the fourth Statement of Claim. Accordingly, I do not consider it.
The defendants submit that the court should order costs on the following bases:
1.the defendants pay the plaintiffs the costs of and incidental to the interest claim, and the fire inspection fee claim, in a sum to be taxed or agreed;
2.the plaintiffs pay the defendants the remaining costs of and incidental to the action, including but not limited to:
(i)     the ceiling damages claim; and
(ii)    the base price claim
in a sum to be agreed or taxed.
3.in the alternative, an order that:
(i)     the defendants pay to the plaintiffs 25 per cent of their costs of and incidental to the action, in a sum to be agreed or taxed;
(ii)    the plaintiffs pay to the defendants 75 per cent of their costs of and incidental to the action, in a sum to be agreed or taxed.
For example, the plaintiffs submit that they succeeded at trial on the ceiling height issue on the basis of the court’s finding that the failure to construct the shell to provide a ceiling height of 2,700 mm was in breach of contract and that an award of damages must follow, albeit that they did not succeed in recovering an award of damages based on the costs of rectification. The plaintiffs submit they also succeeded in their claim for interest and on their argument as to completion, however, they failed on their claim for misleading and deceptive conduct. Nonetheless, they submit that the evidence on this latter issue had much in common with the contractual claim. On the other hand, the defendants submit that there were three issues at trial, namely, what they describe as the “ceiling damages claim”, being an award of substantial damages to rebuild the ceiling to the required height; the base price claim, being a claim for substantial damages for allegedly being misled into paying an excessive “base price”; and residual claims, being the alternative claim for damages based on loss of amenity; a claim for interest for premature payment; and a fire inspection fee claim.
The defendants submit that while the plaintiffs were successful in establishing a technical breach of contract, the court declined to award damages for the relief sought for the two major claims, and that putting to one side the expert determination of Mr Walsh, the plaintiffs succeeded at trial only in respect of the residual claims, and then only to the extent of $66,751. They submit that the plaintiffs failed to better the threshold of $120,000 in damages prescribed by 6SCR 263(2)(g). Further, they submit that the plaintiffs rejected an offer made by way of a Calderbank letter on 29 October 2014 in the sum of $200,000.
Consideration
In my view, first, it is appropriate to award costs in this matter on the basis that the plaintiffs have not been wholly successful in their action and the defendants have succeeded on some issues in the litigation.
Second, I consider it is appropriate in the exercise of the court’s discretion to make an award of costs on a broad-axe basis, informed by balancing consideration of the issues decided, who succeeded or failed on those issues, and some consideration of the amount of the court’s time and resources that was occupied in hearing and determining those discrete issues, recognising the difficulties of precision in such consideration, given the evidence frequently was relevant to more than a single, discrete issue.
Third, the costs of the expert determination must be decided by Mr Walsh. This follows from the terms of clause 1 to Schedule C of the expert determination deed[12] which modified r 13 of the Expert Determination Rules in Schedule B to the deed by providing:
13.1 The Parties’ costs for the Expert Determination shall be determined as follows:
13.1.1the Expert’s fees are to be initially born equally between the Parties;
13.1.2Once the Expert has made his determination the Parties agree that the Expert may make orders at his discretion that the costs of the Matters for Expert Determination be awarded to or against either party in which event the costs of the Matters for Expert Determination be:
a.determined, as to liability, by the Expert;
b.in the event the Parties cannot agree the quantum thereof the Parties agree that those costs be adjudicated on by the Court in the normal course in the Proceedings in accordance with the Supreme Court (Civil) Rules 2013.
[12] Exhibit P12.
Fourth, the costs of the pre-action disclosure application before Master Norman was decided by him on 21 September 2011. The issue as to the costs of that application was decided by Master Norman. That matter is functus officio. I would not interfere with that order.
Fifth, I do not consider that the plaintiffs are to be deprived of an entitlement to costs on the basis of the application of 6SCR 263(2)(g). At the time the action was instituted the prescribed threshold was $75,000. The damages awarded exceeded that sum. In any event, the base price deduction claim was settled for a sum of $160,892 shortly before trial.
Sixth, neither do I consider the plaintiffs should be deprived of costs by reason of Calderbank offers. An offer was made on 29 October 2014 in the sum of $200,000. However, when properly analysed, that represented an offer of $25,000 for the ceiling height which is less than the award ultimately obtained under that head of damages.
Accordingly, I turn to the question of the proper basis upon which to make a broad-axe assessment as to the costs of the action.
I consider that the trial focussed on the following issues:
1.Was the ceiling height a contractual term?
2.Did the contract permit some variation to the nominated ceiling height of 2,700 mm based on tolerances?
3.If so, what was the extent of the tolerance permitted?
4.Did the defendants breach a contractual term as to ceiling height?
5.Did the defendants engage in misleading and deceptive conduct in representing that the ceiling would be constructed to a height of 2,700 mm?
6.Did the defendants engage in misleading and deceptive conduct in relation to the calculation of the base price?
7.What was the proper meaning of the term “completed” in the contract?
8.Was the building work completed within the terms of the contract?
9.As a result, did the plaintiffs pay instalments earlier or later than they were obliged to do so pursuant to the contract?
10.Were the plaintiffs entitled to damages assessed on the basis of the costs of rectifying the ceiling height or on some other, and if so, what, measure?
11.Were the plaintiffs entitled to damages for the fire inspection fee?
The plaintiffs succeeded on the issues described in [19.1], [19.4], [19.7], [19.8], [19.9] and [19.11]. The defendants succeeded on the issues described in [19.2], [19.3], [19.5], [19.6] and [19.10]. At trial the evidence in relation to issues [19.1], [19.2], [19.3], [19.4] and [19.5] substantially overlapped given the evidence as to the contract and the surrounding circumstances. That evidence occupied considerable time. That included some evidence from experts in relation to issue [19.3], however, the time occupied in relation to issues [19.2] and [19.3] was less than the time taken in hearing the evidence in relation to issues [19.1], [19.4] and [19.5]. Of course, while the plaintiffs succeeded on issues [19.1] and [19.4], the defendants succeeded on issue [19.5]. Considerable time also was devoted to issue [19.6]. Issue [19.7] was a question of construction of the contract. It occupied little time. Some time was taken in hearing evidence in relation to issues [19.8] and [19.9]. There was substantial evidence in relation to the costs of rectification. At trial there was very little evidence led in relation to issue [19.11].
All in all, my impression is that the time and resources occupied by the issues on which the plaintiffs succeeded broadly equates to the time and resources occupied by the issues on which the defendants succeeded. Further, in my view, the misleading and deceptive conduct claim in relation to the base price was misconceived and the claim for damages based on the costs of rectification had no reasonable prospect of success. Nonetheless, the plaintiffs were successful on the action. Ultimately, they would not have had to undertake the proceedings if the defendants had not denied liability in relation to the ceiling height claim. On the other hand, they pursued an unrealistic award of damages. Balancing these considerations, I consider justice will be done by awarding the plaintiffs one-third of their costs of the action on a party/party basis.
Conclusion
I would order the defendants to pay the plaintiffs one-third of the costs of the action on a party/party basis, save and except for the costs of the expert determination which is to be decided by Mr Walsh, and the costs order of Master Norman made on 21 September 2011.