Advanced National Services Pty Ltd v Daintree Contractors Pty Ltd

The Calderbank offers

That leaves for consideration the Calderbank offers of December 2018 and February 2019, respectively. Similar considerations apply to both.
I accept that the plaintiff received a judgment sum much less than the principal sum which it claimed for. I also accept that the amount offered respectively (in each Calderbank offer) was a genuine figure offered to compromise the claim.
Further, there is no reason to consider that ANS did not have sufficient time or information, at its disposal, in order to meaningfully consider the offers. ANS never made any complaint to such effect. DC had also served all the affidavit evidence it was proposing to rely upon, to enable ANS to evaluate the defence (such evaluation would have been further facilitated by the mediation which, by then, had occurred).
Further still, the terms of each were, subject to two qualifications, clear: ANS was to receive no further allowance beyond the settlement sum(s) offered (in each case), in terms of its costs and interest. The first qualification is that the terms of the Calderbank offers did not expressly deal with the matter of DC's cross-claim that was then on foot. I deal with the second qualification at paragraph 49 below.
Plainly, also, the judgment sum (for principal and interest) is much less than the settlement sum which it had been offered (in December 2018 and February 2019).
On balance, I am inclined to regard the settlement sums offered in each of the Calderbank offers as being reasonable.
But there are two further questions: 1. was the defendant's conduct in rejecting the offers unreasonable; and 2. (even if the answer to (a) is in the affirmative) whether the entirety of circumstances warrant departure from the general rule.
The starting point is that a fair reading of my reasons indicates that DC's success in reducing the quantum of the unpaid invoices turned upon my agreement with its contentions that (a) it was entitled to terminate the contractor agreement for ANS' breach of cl 4.5; and (b) on its proper construction, cl 4.5 meant that DC had no on-going obligation to meet ANS' invoices that were rendered on the basis of the use of sub-contracted labour.
From at least August 2018, if not much earlier (ie when it filed its Defence in September 2017) DC had put ANS on notice of the above contentions, upon which it ultimately succeeded.
But I reject, as too simplistic, the notion that simply because the judgment sum is for just under $50,000 (not inclusive of costs), the defendant should be regarded as the true 'victor' , or that it could be said that ANS had no real prospect of obtaining any better outcome, then that which was offered in each Calderbank offer.
As to the first of DC's contentions in this regard, firstly, it does not take into account the operation of the usual rule: that costs follow "the event". Ordinarily, the fact that the plaintiff obtained a monetary verdict would mean that it was entitled to its costs. The 'event', for the purposes of rules on costs, is not whether ANS bettered the settlement sum offered to it, which it rejected: DC had not openly and unconditionally acknowledged ANS' entitlement to a sum equal or greater to that which it obtained in the judgment (Gretton per Hodgson JA at [112]). Secondly, by 13 December 2018, ANS would have incurred substantial expense on account of its own legal costs incurred prior to the trial. This included the costs of its pleadings; the cost of preparing 10 affidavits and attending an unsuccessful mediation. To all intents and purposes, the case was ready to run to trial. If the ordinary rule of costs applied, ANS and its legal advisers would conceivably have doubted whether, once its pre-trial costs had been estimated, to that point, that amount, when added to the sum it eventually recovered on judgment, would or would not exceed the settlement sum offered pursuant to this Calderbank offer. ANS' debt claim was in the order of $370,000 (not including interest). Acceptance of the December 2018 Calderbank offer would have involved a discounting by ANS of what it perceived as its full value by approximately $150,000.
There was no evidence before me as to what ANS' estimated pre-trial costs were as at December 2018 or February 2019 (or DC's position for that matter), but by then, ANS had essentially completed its affidavit evidence and, subject to the intense phase of preparatory work usually performed just before the commencement of trial, it would have, by then, incurred a very large sum of legal expenditure, which, if the ordinary rule of costs applied, it could largely expect to recoup, by agreement or by assessment.
As to the second of DC's contentions, this is not a case where there was no real prospect that ANS could counter the points upon which DC succeeded in limiting its exposure on the debt claim: the application and effect of cl 4.5 of the Contractor Agreement. Although, in retrospect, the arguments (and evidence) that ANS marshalled were in my view rather weak, they were not hopeless; and they did raise some contestable factual lines of inquiry.
Further, another matter relevant to the reasonableness of ANS' rejection of the offers of compromise concerns the basis that DC used for calculating the settlement sums in the December 2018 and February 2019 settlement offers. This was not the same basis which led to the quantification of the judgment sum at trial. Had ANS put forward its calculations (which ultimately DC accepted) as to how the quantum could be calculated for the claim on the footing that cl 4.5 applied, then its case for arguing in favour of an indemnity costs would have been much more powerful. It did not do so.
Indeed, in this regard, there was some ambiguity in DC's approach to calculating its settlement sums in both Calderbank offers. In the Calderbank offer of 13 December 2018, the explanatory part of it emphasised that ANS could not succeed in recovering unpaid invoices because it breached the contractor agreement by using sub-contracted labour. But DC's calculations of the settlement sum in that Calderbank offer (which were thereafter adopted in the 3 February 2019 Calderbank offer) were approached on the footing that ANS should recover the difference between what DC had paid ANS and the aggregate amount of what ANS had paid all its workers' expenses, whether they were sourced from the labour of its own workforce, or otherwise. In short, DC's settlement sum calculations were based on a premise contrary (to some extent) to the multiple ways DC put its case at trial.
At trial, it will be recalled, DC contended, based upon a construction of cl 4.5 of the agreement that I accepted, that it could only be liable for further payment for ANS' invoices in relation to ANS own workers; not subcontractors or other franchisees. That position was not clearly telegraphed in DC's Calderbank offers. Although the offers were both made, without prejudice and, avowedly for commercial purposes, it is arguable that a reasonable party in ANS' position might have been encouraged, by DC's expressed mode of calculation, to think that there was a real and substantial prospect that, should ANS reject each Calderbank offer, DC might approach questions of quantum at the trial consistently with its calculations expressed in the Calderbank offers; and not as it eventually did, at trial (although, at trial, DC relied upon several possible ways of calculating quantum).
In the circumstances, which I regard as finely balanced, I am not persuaded that DC's rejection of each Calderbank offer was so unreasonable as to justify an order for indemnity costs from the date the offers expired.
If I am wrong, however, that would not automatically lead to acceptance of DC's application for indemnity costs. As Hodgson JA (with whom Mason P and Beazley JA agreed, on this point) said in Gretton (at [120]-[122]), there are a range of costs outcomes that can follow from the situation where a successful plaintiff rejects a defendant's Calderbank offer and receives less, in the judgment sum than the settlement sum offered. There are several further additional considerations, and here they run both ways.
First, ANS was responsible for a large amount of costs by the way it ran its Defence to ANS' claim. It took issue with the plaintiff's mode of proving its claim; it invited the Court to look behind the invoices to determine whether work had been performed; it sought to justify termination of the contractor agreement on various other grounds other than the ground I regarded as being justified; and it brought a cross-claim. It failed on all of these issues. All of them involved a dense factual inquiry and certainly prolonged the litigation, in time and cost, beyond what its limited 'success' would have warranted.
Further, although ANS did not specifically seek an order for costs following on from the dismissal of DC's cross-claim, that claim was used by DC as a defence of set-off against ANS' principal claim. As will be apparent from my treatment of DC's cross-claim in the principal reasons (see, in particular [215]-[257]) the factual and evidentiary scope of that claim was a very substantial part of the overall proceeding. Moreover, by that cross-claim, DC raised additional separate or discrete issues, in comparison to DC's other defences to ANS' claim. For the purposes of this application, I propose to treat the costs relevant to the adjudication of DC's cross- claim as being subsumed within the dispute as to the costs of ANS' proceeding against DC.
Secondly, there were a range of potential outcomes as to how much ANS would recover for its unpaid invoices, all predicated upon the different ways that DC resisted the claim. DC's written submissions at trial set out a cascading series of issues addressed to each potential outcome. I note, by way of comparison, that the prospect that a plaintiff may achieve multiple different outcomes was a factor militating against the order for indemnity costs in Gretton.
Thirdly, DC could have, but did not, make a 'rules' offer; which confers a presumptive, or conditional entitlement to costs if the terms of the offer are no less favourable to the offeror than the terms of the judgment. No such presumption attends the costs consequences of serving Calderbank offers.
Fourthly, I agree with DC's submission that ANS did not seriously engage with DC for the compromise of the litigation. It appears to have been irrevocably committed to a view of clause 4.5 which I have found to be erroneous. It took the risky course that its view, in that respect, would not be upheld by the Court. Further, it took that view in spite of DC emphasising what I have ultimately found to be the correct position as to the application and construction of cl 4.5 in the Calderbank offer in December 2018. It may be true, as ANS says, that had the trial simply been reduced to argument as to the application and construction of cl 4.5 of the Contractor Agreement it would have been over in half a day, but, if that be so, then ANS must take a significant share of the responsibility for the case being so prolonged.
Fifthly, and related to the last point, I am also conscious that, in circumstances where as here, a defendant has made a prima facie reasonable and genuine offer of settlement (whatever its mode of calculation) there are good public policy reasons for the Court to exercise its discretion in a way that would acknowledge the expectation in the offeror that it benefit from making the offer of settlement if the result that its opponent receives is no more favourable than what was offered. As I have mentioned, this consideration may have lesser force in Calderbank offers, than in rules offers, but it remains a relevant consideration in DC's favour.
Sixthly, having regard to the last two points, it would be unfair to DC that there not be some qualification to the usual rule, such that DC is liable to paying all of ANS' costs; even after having served the Calderbank offers and even after it had flagged the point upon which it succeeded, at trial, in significantly limiting its liability to pay ANS' invoices. That would mean, in effect, that it would receive no benefit from serving a genuine and reasonable offer of settlement against its opponent who, I have found, was less than engaged in attempts to compromise the litigation.
I consider that in all of the circumstances, both parties are jointly responsible for the costs incurred at the trial. I determine that it is appropriate that a qualification to the costs ought to be made, but rather than costs being awarded on an indemnity basis, or alternatively, an order for one side on the ordinary basis, from the date that the December 2018 Calderbank offer expired, the parties should bear their own costs of the trial and the imminent preparation for it.
For these reasons, I make the following orders: 1 Judgment for the plaintiff for the sum of $47,660. 2 The defendant's cross-claim is dismissed. 3 The defendant is to pay the plaintiff's costs on the ordinary basis until 3 January 2019. 4 The parties are thereafter to bear their own costs of the proceeding.

At a glance

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Decision date

Before

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Judgment (8 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (8)