Unley Property Development Pty Ltd v Lelio Bibbo Pty Ltd - [2005] SADC 92

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
UNLEY PROPERTY DEVELOPMENT PTY LTD v LELIO BIBBO PTY LTD
Judgment of His Honour Judge Lee
25 July 2005
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE
Appeal from decision of Master to refuse application for indemnity costs following discontinuance of proceedings – proceedings concerned aspects of construction of shopping centre at Hilton – plaintiff/respondent maintained proceedings pending outcome of a related arbitration – whether plaintiff/respondent’s conduct warranted departure from general rule that costs be paid on party and party basis – appeal dismissed.
Colgate Palmolive Co & Anor v Cussons Pty Ltd (1993) 118 ALR 248; Thompson Land Ltd v Lendlease Shopping Centre Development Pty Ltd [2000] VSC 140; State Government Insurance Commission v Lane & Anor (1997) 68 SASR 257; Duke Group Ltd (in liq) v Pilmer & Ors (No 8) (1998) SASC 6699, considered.

UNLEY PROPERTY DEVELOPMENT PTY LTD v LELIO BIBBO PTY LTD
[2005] SADC 92

This is an appeal from the decision of a Master. The decision was to refuse the appellant’s application for indemnity costs following the respondent’s discontinuance of proceedings in which the respondent was plaintiff and the appellant was defendant.
The proceedings, and a related arbitration, have an extensive history, but in the following background I will refer only to matters that are directly relevant to the appeal.
The proceedings and the arbitration arose from the development in and from 1996 by Prizac Developments Pty Ltd (“Prizac”) of a shopping centre at Hilton in accordance with specifications supplied by Woolworths Supermarkets. Woolworths was to be the major tenant. Prizac engaged the respondent (“Unley Property”) as the builder. The appellant (“Bibbo”) was engaged to provide engineering services to the project. There was doubt for some time whether Bibbo was engaged by Prizac or Unley Property. As the arbitrator was later to observe, the contract “evolved”. In the course of construction, a dispute arose with respect to three issues. The first concerned the method by which ceilings were suspended from purlins (“the suspension issue”). The second concerned the bracing of ceilings and bulkheads to prevent lateral movement in the event of an earthquake (“the bracing issue”). The third concerned the strength of concrete in the floor and ramp of the storage area and the loading dock bay (“the back of house issue”).
Unley Property commenced the proceedings against Bibbo in the Magistrates Court on 8 June 1999, and Prizac in pursuance of its contract with Unley Property initiated the arbitration against Unley Property on 31 August 1999. The proceedings were concerned at that time with the back of house issue, and the arbitration was concerned following amendments to the claim with that and with the other issues as well. The amendments resulted in Prizac’s claim in the arbitration being increased from $30,000 to $370,000.
On 19 January 2000, on the application of Unley Property, and with the consent of the solicitor for Bibbo, a magistrate ordered that the then issue in the proceedings, namely the back of house issue, be referred to the arbitrator. Thereafter a number of preliminary conferences were held before the arbitrator.
The proceedings were transferred to this Court on 11 February 2000. By amendments to its statement of claim on 8 June 2000, Unley Property added the suspension and bracing issues for determination. Reflecting the fact that the back of house issue had already been referred to the arbitrator, the document was described in the heading as a third party statement of claim.
On 31 August 2000, the arbitrator ordered that the proceedings between Prizac and Unley Property and the proceedings between Unley Property and Bibbo be consolidated and heard at the same time.
On 10 November 2000, the referral to the arbitrator was set aside by a judge of this court on Bibbo’s application. A judge of the Supreme Court then refused Unley Property’s application for leave to appeal.
After a hearing between 16 November 2000 and 5 December 2000, the arbitrator delivered his findings on 25 January 2001. He resolved the first and second issues against Prizac and in favour of Unley Property. He referred to the expert opinions of a Mr Woodside for Prizac and a Mr Goldfinch for Unley Property. He found that the construction of the ceilings and bulkheads was adequate. He concluded that the contract between Prizac and Unley Property was a construction only contract, and that Bibbo was engaged by Prizac and not by Unley Property. As for the back of house issue, he found that Bibbo had failed to specify the appropriate concrete strength, and ordered that Prizac reimburse Unley Property for the money that it had spent in rectifying the defects.
Unley Property obtained a stay of the proceedings on 8 February 2001 pending the outcome of an appeal by Prizac against the arbitrator’s findings. Then, on 30 May 2001, Unley Property’s solicitors wrote to Bibbo’s solicitors and said, amongst other things:
Given that the “Third Party” proceedings are currently stayed pending the outcome of Prizac Developments Pty Ltd’s appeal and misconduct proceedings, they are causing no prejudice to your client and it is premature for any strike-out application whilst Prizac Development’s appeal and misconduct proceedings remain on foot. To the extent that Prizac Development’s claims in the arbitration have any merit (which is denied), it is entirely proper for our client to maintain that your client is liable for contribution in respect of the same, on the grounds set out above.
On 3 July 2002, the Master continued the stay for reasons which included the following:
Whilst Mr O’Sullivan acknowledges that his client has not suffered a loss, there remains a possibility that it will suffer a loss in the future. Through no fault of the plaintiff, proceedings are still on foot which will affect this issue. Other than in relation to costs, which are compensable, the defendant has not put any evidence before the court of additional prejudice which it will suffer by reason of a continuation of the stay, despite it having had the opportunity to put such evidence before the court. In all the circumstances therefore, I have come to the conclusion that it is appropriate for the stay to remain and I so order.
Stays of a counterclaim were ordered as well, but I need not mention the detail. After Prizac’s appeal was resolved, partly by agreement and partly by dismissal, Unley Property discontinued the proceedings on 27 September 2002.
In support of its application for indemnity costs before the Master, Bibbo contended that, since the contract between Prizac and Unley Property was a construction only contract with no responsibility on Unley Property to carry out any design work, as long as Unley Property followed specifications, or any approved variation of specifications, Prizac could never have had a claim against it, and so Unley Property could never have had any corresponding claim against Bibbo. At the very least, Bibbo contended, Unley Property should have deferred consideration of proceedings against Bibbo until the outcome of the arbitration was known.
Some of the authorities on indemnity costs were reviewed by the Master in his reasons, including Colgate Palmolive Co & Anor v Cussons Pty Ltd (1993) 118 ALR 248 at 257. The ordinary rule is that costs be paid on a party and party basis unless the circumstances warrant a departure from the usual course. Such circumstances would include making allegations of fraud knowing them to be false, misconduct causing loss of time to the Court and other parties, the commencing or continuing of proceedings for an ulterior motive or in wilful disregard of known facts or clearly established law, the making of allegations which ought never to have been made, the undue prolongation of proceedings by groundless contentions, and an imprudent refusal of an offer to compromise. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.
Colgate Palmolive has often been cited with approval in South Australia: see, for example, State Government Insurance Commission v Lane & Anor (1997) 68 SASR 257 at 265 and Duke Group Ltd (in liq) v Pilmer & Ors (No 8) (1998) SASC 6699.
The Master also referred to authorities, including Thompson Land Ltd v Lendlease Shopping Centre Development Pty Ltd [2000] VSC 140, which show that the wisdom of hindsight should not be allowed to overwhelm the circumstances in which the Court considers whether there should be a departure from the ordinary rule.
In order to determine whether Unley Property’s conduct meets the test for indemnity costs, I need to go back to its statement of claim filed on 8 June 2000, and to compare relevant allegations in the document with the information that was in its possession at that time.
The general thrust of the statement of claim was that Bibbo owed a duty of care to Unley Properties “as the consulting engineer for the project”, notwithstanding that Bibbo’s contract was with Prizac. A focus of some of the allegations of negligence was upon Bibbo’s attendance at the site in February or March 1998. I will quote relevant paragraphs:
22. In or about February or March 1998 Bibbo, pursuant to its engagement by Prizac and in its capacity as Prizac’s consulting engineer for the project, provided oral instructions to Unley Property Development in relation to the construction and bracing of the bulkheads.
PARTICULARS OF INSTRUCTIONS
22.1.In or about February or March 1998 Unley Property Development discovered an inconsistency between the provisions of the Woolworths 96 Series Construction Summary and an attribute of the particular Woolworths premises being constructed by Unley Property Development which inconsistency was associated with the location of the services situated above the ceiling;
22.2.In or about February or March 1998 Bibbo’s director Mr Lelio Bibbo, pursuant to Bibbo’s engagement by Prizac as the consulting engineer in relation to the project and at the oral request of Palyaris, attended the Site and (whilst providing instructions in relation to the maters set out in paragraph 22.1 above) gave instructions to Palyaris and Unley Property Development’s subcontract ceiling fixer, Karnell, in relation to the manner in which the bulkheads should be constructed and braced;
22.3.Bibbo’s instructions, given orally to Palyaris and Karnell on Site, was that to strengthen the bulkheads, hanging rods should be installed and hoop iron should be screwed to the web of the purlins and to the ceiling stud (the “Bibbo instructions”);
22.4.The Bibbo instructions was referred orally by Palyaris to each of Wright and McLoughlin (individually) on Site shortly after the instruction was given by Bibbo, and both Wright and McLoughlin at that time orally confirmed Unley Property Development should proceed in accordance with the Bibbo instruction;
22.5.Unley Property Development by its subcontractor Karnell, installed the hanging rods and hoop iron referred to in paragraph 22.3 above in accordance with the Bibbo instructions.
….
25. To the extent:
25.1.that the Arbitrator finds the suspended ceilings and bulkheads were not properly braced and the suspended ceilings were not properly fixed;
25.2.the Arbitrator finds Unley Property Development liable in respect of the Ceilings and Bulkheads Claim;
Unley Property Development claims an indemnity or in the alternative contribution from Bibbo on the basis that such liability was occasioned by Bibbo’s negligence.
PARTICULARS OF NEGLIGENCE
Bibbo was negligent in that:
….
25.3.It observed the method of ceiling construction being used by Unley Property Development in the early stages of the construction of the suspended ceilings but failed to:
25.3.1instruct Unley Property Development to cease fixing the suspended ceilings in accordance with the construction methods being used by Unley Property Development;
25.3.2instruct Unley Property Development to rectify any non-compliance with the Woolworths specifications or the Earthquake Code;
25.3.3instruct Unley Property Development to begin to install the suspended ceilings in accordance with the Woolworths specification and the Earthquake Code.
25.3.4inform Unley Property Development that the method of fixing and bracing of the suspended ceilings did not comply with the provisions of the Earthquake Code.
25.4.To the extent that the Bibbo instructions referred to in paragraph 22.3 above did not result in the bulkheads being adequately braced, those instructions were not of a standard reasonably required of a consulting engineer in the circumstances and therefore were negligent.
For the information that was in Unley Property’s possession at that time, I go to a statement dated 16 November 2000 of John Palyaris, a director of Unley Property. The statement was used by Unley Property in the arbitration. In paragraphs 5.5.1 and 5.5.2, Mr Palyaris said that the ceiling system was a USG Interiors system, whereby the ceiling was clipped to flanges of purlins rather than fixed by screws to purlin webs as required by the Woolworths specifications, but that the departure from the Woolworths specifications was authorised by Mr Wright at a site meeting in about February 1998. Notwithstanding their length, paragraphs 5.5.3, 5.6 and 5.7 need to be quoted in full:
5.5.3In relation to the construction and installation of the bulkheads, some departures from the Woolworths specifications were required as a result of a discrepancy between the Woolworths 96 Series Construction Summary and the Woolworths premises being constructed by the Company which discrepancy was associated with the location of the services situated above the ceiling. About half way through the construction of the bulkheads which would have been in or about February or March 1998 Prizac Development Pty Ltd’s Consulting engineer’s (Lelio Bibbo Pty Ltd) advice was sought by me in relation to these departures and at my request Mr Lelio Bibbo attended at site and orally gave advice in relation to the hanging of the bulkheads, specifically in relation to the above departures. Mr Lelio Bibbo’s advice was that, in order to strengthen the hanging of the bulkheads, hoop iron and brackets to be installed in accordance with the procedures set out in paragraph 10 of Mr Karnell’s witness statement in this matter. I then referred this advice to Mr Colin Wright and Mr McLoughlin who authorised the Company to proceed in accordance with Mr Bibbo’s advice. I then instructed Mr Karnell to proceed in accordance with Mr Bibbo’s advice. This advice was given by Lelio Bibbo Pty Ltd in its capacity as Prizac Development Pty Ltd’s consulting engineer for the project and the Company did not engage Lelio Bibbo Pty Ltd directly for the purposes of the provision of this advice or any other advice or services supplied by Lelio Bibbo Pty Ltd in relation to the project.
5.6About half way through the construction of the suspended ceilings, Mr Bibbo, whilst on site for another reason, noted that the Woolworths specifications required the suspended ceiling to be screwed to the purlin webs, rather than clipped to the flanges of the purlins as was being done by the Company. At this time about one half of the hangers for the ceiling system had been installed. I said to Mr Bibbo that I knew this, but that Mr Wright had approved the use of the USG Interiors Systems and the fixing of the ceiling system to the flanges of the purlins rather than the purlin webs. Mr Lelio Bibbo did not take further issue with the fixing of the suspended ceilings, but said that he would not provide a certificate in relation to the ceilings and I should try to obtain one from another engineer. The Company’s ceiling contractor, Mr Karnell, was also on site at this time but I cannot recall whether he was privy to the conversation between myself and Mr Lelio Bibbo. I cannot remember Mr Joe Piteo being present, but I have spoken with him recently and he suggested that he was also present at this time.
5.7After the completion of the project Mr Wright requested a copy of an engineer’s certificate in relation to the ceiling system. I told him that Lelio Bibbo Pty Ltd had refused to provide a certificate but I would seek the same from another engineer. Later, Mr Wright telephoned me in relation to this engineer’s certificate and I said that the Company had not obtained the same but that I could provide him with a manufacturer’s warranty. I therefore obtained and provided to Mr Wright the warranty described in paragraph 5.2 above. As a result of the use of the word “Contractor” in paragraph 21.10.3 of the Woolworths Construction Summary 1996 Series, I thought that the Company had to provide an engineer’s certificate in relation to the ceiling system. I have since received advice from my solicitors to the effect that given that the Woolworths Construction Summary 1996 Series assumed a Design and Construct Contract and the Company’s contract with Prizac Development Pty Ltd was a Construction Only contract, it is not the Company’s responsibility to provide such a certificate.
Notwithstanding the submissions of counsel for Bibbo to the contrary, it seems to me that there is a correspondence in some respects at least between the allegations in the statement of claim and the statement of Palyaris. The allegations and the statement both give rise to the question whether Bibbo’s attendances at the site in February or March 1998 as consulting engineer for the project, and the conversations with Palyaris at that time, created in Bibbo a duty of care to Unley Property to act beyond a mere refusal to certify the works. That remained a live question until the arbitrator delivered his findings in January 2001 to the effect that the works were structurally sound. Having commenced the proceedings in June 1999, obtained a reference to the arbitrator in January 2000, and amended its statement of claim in June 2000, Unley Property doubtless anticipated that all three issues would be resolved in the context of the arbitration. When, however, the referral to the arbitrator was set aside in November 2000, that had the effect of removing Bibbo as a party to the arbitration. In those circumstances, Unley Property acted reasonably in my view in maintaining the proceedings on foot until the outcome of the arbitration was known, and the processes of appeal had come to an end. In other words, I am unable to find in the position that Unley Property took to the time of its discontinuance of the proceedings any misconduct, or ulterior motive, or wilful disregard of known facts, or the making of unsustainable or groundless contentions, or the existence of any other circumstance that would justify a departure from the ordinary rule that costs be paid on a party and party basis.
The appeal is dismissed.