The Owners - Units Plan No 1917 v Koundouris (No 3)
[2016] ACTSC 184
•26 July 2016
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | The Owners – Units Plan No 1917 v Koundouris (No 3) |
Citation: | [2016] ACTSC 184 |
| Hearing Date: Date last submissions received: | Determined on written submissions 18 July 2016 |
DecisionDate: | 26 July 2016 |
Before: | Mossop AsJ |
Decision: | The first defendant is to pay the plaintiff’s costs of the proceedings. |
Catchwords: | COSTS – Exercise of costs discretion under Court Procedures Rules 2006 (ACT), r 1721 – Costs will ordinarily follow the event – Whether apportionment of costs appropriate where plaintiff’s claim only partially successful – Multiple causes of action arising out of single set of facts – Effect of purported offer of compromise – Whether it operates as a Calderbank offer – Apportionment not appropriate – Costs follow the event – Position of second defendant controlled by first defendant or his family – No separate costs order in relation to second defendant |
Legislation Cited: | Court Procedures Act 2004 (ACT), s 5A Court Procedures Rules 2006 (ACT), rr 1002, 1721 |
Cases Cited: | Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 Hockey v Fairfax Media Publications Pty Ltd (No 2) (2015) 237 FCR 127 Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328 |
Parties: | The Owners – Units Plan No 1917 (Plaintiff) Michael Koundouris (First Defendant) Acro Pty Ltd (Second Defendant) |
Representation: | Counsel Mr G Shaw (Plaintiff) Mr B F Katekar (Defendants) |
| Solicitors Minter Ellison (Plaintiff) Trinity Law (Defendants) | |
File Number: | SC 817 of 2010 |
MOSSOP AsJ:
Introduction
I gave the judgment in this matter on 13 May 2016: The Owners – Units Plan No 1917 v Koundouris [2016] ACTSC 96. I gave a decision in relation to the awarding of interest and the making of final orders on 5 July 2016: The Owners – Units Plan No 1917 v Koundouris (No 2) [2016] ACTSC 151.
The plaintiff has now sought orders in relation to costs as follows:
(a)the first defendant pay the plaintiff’s costs of the proceedings on a party and party basis;
(b)no order as to costs in relation to the proceedings against the second defendant.
In contrast, the defendants submitted that in the light of their success on some issues and the making of an offer of settlement, the Court should make an apportionment of the costs between the issues in the trial and, or perhaps alternatively, that the plaintiff should pay the defendants’ costs after 23 June 2015 on an indemnity basis.
The costs question proceeded by way of written submissions in chief and in reply. Both plaintiff and defendants read an affidavit of a solicitor in relation to the question of costs. At the conclusion of their submissions in reply, the defendants invited the Court to permit an oral hearing in relation to costs in addition to the submissions that had already been exchanged. I declined to take up that invitation as, in my view, the issues in relation to costs and the submissions of the parties were comprehensively identified in the written material already filed.
Plaintiff’s submissions
The plaintiff submitted that the general rule is that costs follow the event and it is only appropriate to depart from that position in certain limited cases: r 1721 of the Court Procedures Rules 2006 (ACT) (CPR), Oshlack v Richmond River Council (1998) 193 CLR 72 at 97-98 (Oshlack). It submitted that in the light of the substantial judgment in its favour, the plaintiff should be regarded as the successful litigant.
The plaintiff accepted that the Court has a discretion under the CPR to apportion costs based on the outcome of particular issues in proceedings, but submitted that, having regard to what Refshauge J said in the Lewis v Chief Executive Department of Justice and Community Safety (No 2) [2014] ACTSC 196 at [26] (Lewis), such a course should only be adopted in a very limited class of case.
It submitted that this was not a case in which it was appropriate to separately analyse discrete issues for the purposes of the assessment of costs.
In relation to the position of the second defendant, the plaintiff submitted that no particular or discrete factual or legal arguments were advanced by the second defendant as distinct from those of the first defendant. As such, the second defendant was not required to expend any additional costs than those necessarily incurred by the first defendant in advancing its case.
Defendants’ submissions
The defendants did not disagree with the principles to be applied. They too made reference to the decisions in Oshlack and Lewis. They pointed to the summary of the authorities provided in Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 40-748 at 48, 136 where Toohey J summarised the effect of the authorities as follows:
1.Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v. Godfrey (1920) 2 K.B. 47.
2.Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v. Farquhar (1893) 1 Q.B. 564.
3.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 party's 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 of law. Cretazzo v. Lombardi (1975) 13 S.A.S.R. 4 at p.12.
However, the defendants also pointed to the decisions in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 (Bowen) and Hockey v Fairfax Media Publications Pty Ltd (No 2) (2015) 237 FCR 127 (Hockey). In Bowen, Finkelstein and Gordon JJ said (at [3]-[5]):
[3] We think there is force in the argument that the appellant should not benefit from the usual rule that costs follow the event. For many years the traditional rule has been that the winner (once the winner is properly identified) is entitled to recover his costs of the trial. It sometimes happens that there is a departure from the traditional rule and the costs order takes account of the success of the parties on particular issues. But to date the award of costs on an issue by issue basis has only been accepted in limited cases and then only when the circumstances are exceptional.
[4] This approach is, if we may be permitted to say so, quite unfair. Its effect is that a winner is entitled to all of his costs even if he raises a plethora of issues on which he is unsuccessful.
[5] We do not believe there is any need to wait for a change in the Federal Court Rules to adopt an issue by issue approach here. Costs are in the Court’s discretion. Fairness should dictate how that discretion is to be exercised. So, if an issue by issue approach will produce a result that is fairer than the traditional rule, it should be applied. It is not suggested that such an approach requires a precise arithmetical apportionment of the costs as between the winner and loser of discrete issues. No doubt the assessment will often be rough and ready. But it will have the virtues of both fairness and reasonableness, which are often lacking in the application of the traditional rule.
In Hockey, White J said in relation to apportionment of costs (at [88]):
However, courts are now more ready to apportion the costs awarded to a party who succeeds in only some of the claims he or she brings. This may reflect the increasing factual and legal complexity of modern litigation and the multiplicity of factual and legal issues it entails, and the tendency of applicants to pursue multiple claims involving different factual enquiries in the one proceeding. It may also reflect an encouragement by the courts to applicants to exercise some discrimination in their selection of the claims they litigate. It is to be remembered that the inclusion of multiple causes of action in the one proceeding, even if based on a common substratum of fact, adds to the costs of the pleadings, interlocutory activity, preparation and presentation of the evidence at trial as well as of the trial itself. Nowadays, courts are particularly conscious of their role in attempting to control the cost of litigation.
The defendants made the following substantive points:
(a)The claim against the second defendant failed in its entirety and hence the second defendant should be awarded costs.
(b)The case against Mr Koundouris based on the warranties under the Building Act 1972 (ACT) and Building Act 2004 (ACT) succeeded on a basis that was not pleaded or argued.
(c)The plaintiff failed on a number of arguments at trial:
(i)it failed in its contention that the statutory warranties were continuing warranties for the five-year period after completion;
(ii)it failed in its application for an extension of the limitation period under s 40 of the Limitations Act 1985 (ACT), an issue to which almost all of the lay evidence was directed;
(iii)it failed in its contention that the defendants were negligent in constructing the building; and
(iv)it failed on its contention that the defendants were negligent and engaged in misleading and deceptive conduct in relation to the attempted repairs.
(d)The plaintiff succeeded only because the owners of units 8 and 10 obtained the benefit of fresh warranties from Mr Koundouris by operation of the Building Act 2004, a basis for liability which was never articulated by the plaintiff.
(e)The original report of the plaintiff’s quantity surveyor estimated a hypothetical cost of rectification in excess of $2 million. Six days prior to the start of the trial the actual costs were identified and this reduced the claimed amount to about $1.3 million. This also meant that the original reports of the quantity surveyors were largely obsolete and the costs incurred in preparing them wasted.
(f)The plaintiff only succeeded in obtaining a judgment of approximately 15% of the figure originally claimed.
(g)The evidence of all of the experts plus submissions of the building defects and quantum took up less than two days of the eight day trial.
(h)By letter dated 17 June 2015 the defendants offered to settle for $450,000 being $300,000 plus $150,000 for costs. The defendants contended that it was unreasonable for the plaintiff not to accept that offer. The plaintiff obtained judgment for no more than 10% higher than the figure and lost all its arguments for the reasons explained in the mediation position paper which was provided to it by the defendants.
The defendants therefore submitted that:
(a)costs should be awarded in favour of the second defendant;
(b)having regard to the issues on which the plaintiff failed, a fair apportionment of the costs should involve the plaintiff bearing a substantial proportion of the first defendant’s costs; and
(c)the plaintiff should pay the defendants’ costs after 23 June 2015 on an indemnity basis.
Consideration and conclusion
Overall observations
The parties have correctly identified the relevant principles. Those principles, both in relation to costs and apportionment of costs, are summarised in the judgment of Refshauge J in Lewis at [13]-[32]. The statements in Bowen and Hockey, which recognise that the modern concern to contain the costs of litigation might make a court more willing to apportion costs, emphasise that the costs discretion is a broad one which must be exercised to achieve a fair outcome in the context of the particular circumstances of the case. In exercising the discretion, courts must necessarily have regard to the principles articulated in legislative provisions such as s 5A of the Court Procedures Act 2004 (ACT).
The essential issues are:
(a)whether having regard to the plaintiff’s lack of success on some issues, it is appropriate to engage in an apportionment of the costs to be recovered by the plaintiff and, if so, what a fair apportionment of the costs is; and
(b)what, if any, effect should be given to the making of the offer of settlement in the letter dated 17 June 2015.
Apportionment
There are three preliminary points to make. First, notwithstanding the defendants’ submissions, it is important to remember that the plaintiff has succeeded in establishing the liability of the first defendant to pay damages arising out of his failure to comply with the statutory warranties imposed upon him. The defendants did not make any admissions and contested the existence of breaches of those warranties.
Second, although a variety of different causes of action were pleaded, they were all targeted at achieving compensation for losses incurred by reason of the first defendant’s failure to properly construct the Lagani building. It was not a case where a variety of disparate causes of action with different underlying factual substrata were pleaded and pursued at trial.
Third, there were two areas of particular difficulty from the plaintiff’s point of view in the running of this case, both of which were driven by the delay by the plaintiff or unit owners in commencing proceedings. The first was whether or not the plaintiff could establish that it had a cause of action which was brought within time. That depended upon the interpretation of the warranty provisions under the Building Act 1972 and the Building Act 2004. As will be apparent from the divergent submissions made by the parties, and by the conclusion ultimately reached in my principal judgment, this was an issue of particular difficulty in relation to which there was little guidance from any earlier cases. The second issue of particular difficulty was the operation of the extension of time provision provided for in s 40 of the Limitations Act. It appears that this case was the first case in which the section has been applied. It was thus an area where it was only possible to apply by analogy those authorities dealing with similar provisions operating in relation to proceedings for personal injury.
Fourth, while the amount recovered was substantially less than the amount contended for by the plaintiff, that was because of the operation of limitation provisions rather than any substantial failure on the part of the plaintiff to establish the damages claimed. The plaintiff established that it had incurred remedial expenses of $1,068,397 (see the principal judgment at [609]), but was only able to recover a proportion of that because the claims of many of the unit owners were statute barred.
In the context of these general observations, I am not satisfied that this is a case where there should be a separate apportionment on an issue by issue basis. It appears to me to be one in which, although the plaintiff has only recovered part of what was claimed and has failed on some issues, it has nevertheless, in substance, succeeded. It is not a case where it can be said that the defendants actually won: cf Oshlack at [70]. I do not consider that a particular issue can be identified as having been inappropriately or unreasonably raised by the plaintiff. It is thus not a case where the costs discretion needs to be exercised so as to encourage plaintiffs to exercise greater discrimination in the selection of the claims they litigate: Hockey at [88].
The plaintiff has been forced to bring proceedings to achieve an outcome over the continued opposition of the defendants. Although clearly there was some time at the trial that related to the discrete issues raised by the application for an extension of time, those issues were not so dominant or separable that they should be treated separately in exercising the discretion in relation to costs (cf Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328 at 330-331). I do not consider that it is appropriate to make any apportionment to take into account the change in the manner by which the plaintiff proposed to establish its damages, shifting from estimates of remediation costs to actual expenditure. That change did not fall outside the scope of the kind of refinement to a case which, although not ideal, often occurs in the lead up to a contested hearing.
I reach my conclusion that no apportionment is appropriate conscious of the modern emphasis on controlling costs. However, the unfortunate reality of commercial litigation is that costs of the proceedings often, without unreasonable conduct, become a significant or the dominant component of the amount recoverable in the proceedings. That unfortunate reality emphasises the importance of properly drafted settlement offers in protecting the position of parties in such proceedings. It is to that issue which I now turn.
Letter of 17 June 2015
Plainly enough, the defendants could have protected their position in relation to costs by making an offer of compromise under the CPR or by making a reasonable offer of settlement of the proceedings.
The letter 17 June 2015 was labelled “Without prejudice save as to costs”. It provided:
This is an offer of compromise made pursuant to Part 2.10 of the Court Procedures Rules. This offer is made without admission of liability for the purpose of the commercial resolution of the entirety of these proceedings.
The defendants propose that the matter be disposed of with the following orders:
1. The proceedings are dismissed.
2. The defendants are to pay the plaintiff the amount of $300,000 within 28 days.
3. The Defendants are to pay the plaintiff the amount of $150,000 in costs within 28 days.
4 No other order as to costs.
The letter stated that the offer was open until 23 June 2015. It asserted that the plaintiff should have sufficient information to assess the offer within the time required and referred to the defendant’s position paper of 5 June 2015.
In their submissions, the defendants did not contend that this letter was effective as an offer of compromise under the CPR. They were correct not to do so. One of the purposes of the offer of compromise regime is to make it easier for solicitors to draft offers which have predictable costs consequences by specifying what must be and what must not be included in such an offer. Notwithstanding the clear guidance provided by the CPR, the letter of 17 June 2015 does not meet the requirements of r 1002.
An offer must identify the proposed orders for the disposal of the claim including, if a monetary judgment is proposed, the amount of the judgment: r 1002(2)(a). The orders proposed in the letter of 17 June 2015 do not do this. So far as court orders are concerned, it makes no sense to, on the one hand, make an order that the proceedings “are dismissed” and then, on the other hand, make an order that the defendants pay the plaintiff $300,000. The orders suggested in the letter are the equivalent of contradictory judgments: “Judgment for the defendants against the plaintiff” and “Judgment for the plaintiff against the defendants in the sum of $300,000”. If it is desired to ensure that a judgment does not get entered against a party and yet money is paid, such gymnastics may be performed in other settlement offers or agreements, but they are not orders which the Court can make and hence cannot be effective in an offer of compromise.
An offer may not include an amount for costs or state that it is inclusive of costs: r 1002(c). The offer in the letter specifies that the amount payable in relation to costs is $150,000 and that there be “No other order as to costs”. That is clearly contrary to r 1002(c). It is obvious that the intention of the regime (other than in the circumstances contemplated by r 1002(3)) is to ensure that offers are put on a plus costs basis, eliminating any uncertainty as to what is being offered and whether or not it is ultimately bettered by the judgment given.
The defendant does, however, rely upon the letter as a Calderbank offer. There is authority from the New South Wales Court of Appeal that unless the offeror indicates an intention that the offer is to operate as a Calderbank offer in the alternative to any effect that it might have as an offer of compromise, then it should not be treated as such an offer: Old v McInnis and Hodgkinson [2011] NSWCA 410 at [107] (Old). Particularly in circumstances where the ACT rules in relation to offers of compromise are based, with some notable exceptions, upon the New South Wales rules, it would generally be appropriate to follow a decision of the New South Wales Court of Appeal as to their operation. However, I confess to finding persuasive the reasoning of Beazley JA, dissenting on that point, that, having regard to the breadth of the costs discretion, an offer of compromise which was ineffective as such cannot be ignored for the purposes of exercising that discretion. In the present case it is not necessary to resolve the question posed by the differing approaches in Old, as it was not an issue upon which the parties made submissions and it is possible to determine this application on the basis most favourable to the defendants, namely, that the offer can be treated as an offer relevant to the question of costs.
Neither party undertook an analysis of the amount awarded for interest so as to demonstrate what would have been the quantum of the judgment, including interest, had it been given as at the date of the offer. Exhibit 25 shows that the interest attributable to the period from 1 July 2015 until 7 June 2016 was $18,933.39. Thus, had judgment consistent with the reasons I gave in the principal judgment been entered on 30 June 2015, it would have been approximately $309,220.
There are three reasons why I do not consider that the making and non-acceptance of the defendants’ offer provides an appropriate reason to depart from the usual order as to costs.
First, I am not satisfied that the plaintiff acted unreasonably in failing to accept this offer or that the existence of the offer provides a reason for departing from the usual order in relation to costs. The substantive amount offered is less than that which was recovered by the plaintiff and less than that would have been awarded to the plaintiff as at the date of the offer. As a consequence, the defendants have not established the threshold point that they offered more than the plaintiff has recovered. Even if the threshold point had been passed, it would have been difficult for the defendants to establish that the plaintiff’s refusal of the offer was unreasonable. As I have pointed out above, there was greater than usual uncertainty in relation to the operation of key statutory provisions of significance for the plaintiff’s claim. Had the offered amount only modestly exceeded that which was ultimately recovered, I would had to take into account that uncertainty in assessing whether or not the position adopted by the plaintiff was unreasonable in the sense required to warrant a departure from the usual rule.
Second, while offers which are made on a plus costs basis cannot be excluded from consideration when determining a question of costs (Meyer v Cool Chilli Pty Ltd (No 2) [2015] ACTSC 372 at [11]), it is not possible to reach the conclusion that the proposed order or payment in relation to costs was equivalent or more favourable to an order for party and party costs to which the plaintiff would otherwise be entitled. Rather, the evidence is consistent with the plaintiff’s costs substantially exceeding that which was offered in the defendants’ letter. The evidence of Mr Shaw, the plaintiff’s solicitor, is that as at 29 May 2015, shortly before the date of the offer, the plaintiff had incurred legal costs of $631,985.39 inclusive of GST. Clearly that is a gross figure which has not been adjusted to take into account the costs recoverable on a party and party basis. Further, it does not take into account the effect of the costs orders made against the plaintiff in one of the substantial interlocutory applications in 2014. However, this evidence makes it impossible for me to be satisfied that the offer made was equivalent to or more favourable than the effect of making an order in favour of the plaintiff on a party and party basis as at that date. Reinforcing that conclusion is that at the point in 2014 at which the defendants made their application for security for their costs, the evidence led by the defendants as to costs incurred and to be incurred led me to conclude that the defendants’ party and party costs for the whole of the proceedings (which would be likely to be substantially less than those of the plaintiff) would be $246,000 to $324,000: see The Owners – Units Plan No 1917 v Koundouris & Anor [2014] ACTSC 269 at [116].
Third, the offer itself is not certain. Because of the contradictory nature of the proposed orders, it is not an offer which could be given effect by entry of those orders. Being unable to be implemented by the making of court orders alone, the offer does not specify how the settlement would be implemented. It is likely that there would need to be a deed executed by the parties, but nothing at all is said about that. Whether the proposed offer was to be implemented by the making of court orders or by way of a deed between the parties, it was also unclear, in the light of the terms of the letter, what was proposed in relation to the existing costs orders between the parties. That is because the offer did not expressly deal with whether or not existing costs orders were to be discharged. Those costs orders related to substantial interlocutory hearings. It is likely that the drafter of the offer intended that the existing orders were to be discharged. That is what is impliedly suggested by the reference to “No other order as to costs”. However, mere implied suggestion is insufficient to discharge existing costs orders or to constitute an offer certain enough to give rise to costs consequences for a party that failed to accept it.
The position of the second defendant
In relation to the position of the second defendant, that is an entity controlled throughout the relevant period by members of the first defendant’s family. The first defendant himself was a director of the second defendant from May 2005 and the sole director from February 2015: see Exhibit 9.
Clearly, the plaintiff was completely unsuccessful in relation to the claims that it made against the second defendant. The third cause of action pleaded by the plaintiff was a claim against both defendants alleging negligence in relation to the investigation and rectification of defects. The fifth cause of action was a claim against the second defendant which repeated the claim made against the first defendant in the fourth cause of action. The plaintiff alleged in the fifth cause of action that the representations alleged for the purposes of the fourth cause of action were, because of the relationship between the first and second defendant, made by the second defendant. Therefore the claims involving the second defendant did not expand the factual or legal scope of proceedings beyond the claims made in relation to the first defendant.
The defendants were jointly represented and the involvement of the second defendant is unlikely to have significantly increased the costs involved in defending the proceedings. Having regard to the uncertainties surrounding the operation of the statutory warranties, the joinder of the second defendant was reasonable.
In these circumstances, I consider that there should be no separate order as to costs and that the first defendant should be ordered to pay the plaintiff’s costs of the whole of the proceedings. This has the effect that the first defendant will bear the costs of the plaintiff’s proceeding in so far as it was against the second defendant. I consider this to be a preferable order than an order which seeks, artificially, to apportion the separate costs associated with the joinder of the second defendant in circumstances where that is likely to increase the complexity of the taxation and fails to appropriately reflect the fact that the proceedings were defended jointly in the interests of both defendants.
Order
For these reasons I am satisfied that the plaintiff should have its costs of the proceedings on a party and party basis.
The order of the Court is:
1. The first defendant is to pay the plaintiff’s costs of the proceedings.
| I certify that the preceding forty [40] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop. Associate: Date: 26 July 2016 |
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