AF Concrete Pumping Pty Ltd v Ryan & Ors

Judgment 1MEAGHER JA: The first respondent (Mr Ryan) was an employee and director of Reliance Pools Pty Ltd (Reliance Pools), which has been deregistered. Reliance Pool's workers compensation insurer, Employer's Mutual New South Wales Ltd (EML), is the second respondent in this appeal. 2Mr Ryan suffered a traumatic brain injury and injuries to his face and head on 15 July 2008 whilst engaged in the construction of a swimming pool on the seventh floor of a building in Brighton-le-Sands. Those injuries occurred when he was hit in the head by concrete ejected from a flexible hose. That hose was connected to a series of pipes which travelled from street level to the seventh floor. 3The principal contractor on the building site was Uno Constructions Pty Ltd (Uno). The appellant (AF Concrete) was the subcontractor engaged by Uno to pump concrete from a hopper at street level through those pipes to the seventh floor where it was to be sprayed to form the walls and floor of a swimming pool. Uno engaged Reliance Pools to construct that pool and Reliance Pools in turn engaged C&J Concrete Sprayers Pty Ltd (C&J Concrete) to undertake the concrete spraying. The third respondent, GIO General Ltd (GIO) is the liability insurer of C&J Concrete. Like Reliance Pools, C&J Concrete was deregistered and ceased to exist before the delivery of the judgment below. 4Mr Ryan, and another company of which he was the principal director (Reliance Pools International Pty Ltd), commenced proceedings for damages against AF Concrete and C&J Concrete. The claim by Reliance Pools International Pty Ltd was an action per quod servitium, for the loss of Mr Ryan's services. AF Concrete and GIO (representing C&J Concrete) each claimed contribution or an indemnity from the other. In addition, each cross-claimed for contribution or an indemnity from EML as insurer of Reliance Pools. Finally, EML cross-claimed against AF Concrete and C&J Concrete seeking to recover, under s 151Z(1)(d) of the Workers Compensation Act 1987 (NSW) (the 1987 Act), payments of workers compensation made to Mr Ryan. 5The primary judge (Adamson J), in a judgment delivered shortly after the conclusion of a nine day hearing, held that AF Concrete was negligent, that C&J Concrete and Reliance Pools were not negligent, and that there was no contributory negligence by Mr Ryan: Jeffrey Ryan v AF Concrete Pumping Pty Ltd [2013] NSWSC 113. Judgments were entered which reflected those conclusions on liability. They included judgment for Mr Ryan against AF Concrete in the sum of $2,438,405 and in favour of the second plaintiff in the sum of $200,000. 6The primary judge then heard argument as to the costs of the proceedings and made orders on 14 March 2013: Ryan v AF Concrete Pumping Pty Ltd (No 2) [2013] NSWSC 219.

The issues in the appeal 7AF Concrete appeals from the orders made in the principal judgment and three of the costs orders. Its appeal in relation to the former raises two questions. They are: (1)whether the primary judge erred in finding that Reliance Pools was not negligent (grounds 1, 2, 2A, 2B, 2C and 2D of the second amended notice of appeal). Those grounds spell out the consequences of a finding of negligence on the part of Mr Ryan's employer in relation to AF Concrete's defence to his claim and its cross-claims against Reliance Pools and C&J Concrete; and (2)whether the primary judge erred in finding that for the purposes of s 151H of the 1987 Act, Mr Ryan's degree of permanent impairment was 29% (grounds 3, 4 and 5). The question whether Mr Ryan's degree of permanent impairment was at least 15% is only relevant if there is a finding by this Court that Reliance Pools was negligent. 8The appeal concerning the costs judgment involves challenges to the exercise of the discretion as to costs (grounds 6, 7, 8 and 9). Mr Ryan and GIO were the beneficiaries of the costs orders which are challenged. It is conceded that AF Concrete requires leave to appeal against the costs orders made in GIO's favour. The granting of that leave is opposed. There is also a question as to whether AF Concrete requires leave to appeal against the costs order made in Mr Ryan's favour notwithstanding that there are other non-costs grounds of appeal pressed against him. 9It is convenient to deal with these issues in the order in which they appear above. Before doing so it is necessary to set out in a little more detail the facts concerning the circumstances in which Mr Ryan's accident occurred. They are not now controversial.

Relevant circumstances 10AF Concrete had a hopper at street level which was attached to a concrete pump driven by an air compressor. Concrete was delivered to the hopper by trucks. AF Concrete had constructed a line of 4 inch diameter fixed pipes joined with clamps which travelled up the stairwell of the building to the seventh floor. When undertaking the spraying exercise C&J Concrete attached a hose with a diameter of 2 inches to the last of those fixed pipes which ended at a point midway between the entrance to the stairwell on the seventh floor and the edge of the swimming pool. That hose was rubber and flexible. In order to spray concrete onto the walls and floor of the pool, a nozzle was fixed to the end of it. The nozzle was attached to an airline which delivered air from an air compressor on a C&J Concrete vehicle at ground level. Thus there were two air compressors at the site: one supplied by AF Concrete which was used to pump the concrete through the pipes to the seventh floor and the other supplied by C&J Concrete and used for the concrete spraying. 11In the morning of 15 July 2008 Mr Ryan was working on the seventh floor with two other employees of Reliance Pools, Mr Christian and Mr Du Plessis. Mr Christian was employed as a supervisor and was supervising the concreting of the pool with Mr Ryan (Black 1/280R). An employee of C&J Concrete, Mr Felton, had sprayed the walls and most of the floor of the pool with concrete. During that activity the managing director of C&J Concrete, Mr Poulianos, had operated the air compressor at ground level. 12Mr Felton had reached the stage where the walls, steps and benches of the pool had been formed and there was a small section of the floor which needed more concrete. Mr Felton unfastened the spray nozzle and disengaged the airline from that nozzle. Those items were then taken to ground level. Mr Felton then secured that end of the flexible hose with wire to the steel mesh formwork on the floor of the pool and covered it with a plywood board. Once he had secured that hose, the other end of which was still connected to the fixed pipe, he set about shaping the concrete steps of the pool. 13At this time it was anticipated by Mr Ryan and Mr Felton that AF Concrete would "blow" the concrete pipes from the ground level to clear them of concrete. The concrete which remained in the pipes would be used to finish the floor area of the pool and any surplus concrete would be shovelled into a bin and taken back to ground level. Once he had secured the end of the two inch flexible hose, Mr Felton said "We're ready for the blow out" (Black 1/439R). 14The process of blowing the pipes involved inserting a sponge ball in the pipes at ground level and forcing it through them by the use of compressed air. AF Concrete had two employees on the seventh floor. They were Mr Gillan and an employee named Scott, whose nickname was "Spud". Mr Gillan was in two-way radio communication with another AF Concrete employee, Mr Webb, who was on the ground floor. In the course of preparing to blow the pipes, Mr Webb experienced difficulty in moving the concrete using the AF Concrete air compressor. He asked Mr Poulianos whether he could use C&J Concrete's air compressor. Mr Poulianos agreed and his compressor was attached to AF Concrete's pump. Mr Poulianos then stood by and received instructions from Mr Webb as to when to turn that compressor on or off. 15At the same time Mr Gillan, on the seventh floor, detached the end of the two inch flexible hose which was fastened to the end of the fixed pipe and attached a flexible hose with a larger diameter, 3½ inches, which he had brought up from the ground level. The other end of that hose was left hanging over the edge of the pool. Mr Gillan was assisted in these activities by Spud. 16Mr Ryan saw the smaller diameter hose being disconnected and replaced. He also saw that the end of the larger diameter hose was hanging over the edge of the pool. On doing so, in Mr Ryan's words, he "made a beeline" to Mr Gillan as the only person from AF Concrete who he believed "had control to stop anything happening" (Black 1/135E-H). He followed him into the stairwell and recalled asking Mr Gillan, as he walked down the stairs, why he had untied the "secured and tied down line". He also recalled telling him that it was extremely dangerous to leave the pipe unsecured and saying that it "needed to be rectified". Mr Gillan responded that he was "trying to get the concrete moving again in the line" (Blue 1/212M-Q). Mr Ryan then left the stairwell and walked to the edge of the pool. His intention was to ensure that the hose was tied down again. He tilted his safety helmet back and looked into the pool. 17When the larger diameter hose was attached to the fixed pipes Spud approached Mr Felton, who was working in the pool, and handed the end of it to him. Mr Felton's response was immediate, emphatic and colourful. Leaving expletives aside he said: "There's no way I'm holding onto that. You'd better get some massive roidmuncher [that is, a "steroid freak"] up here to hold onto that, or tie it down, secure it properly." (Black 1/434J) 18As Mr Felton then described it, Spud looked "at me, kind of had a smirk on his face and walked off" (Black 1/434S). Mr Felton did not understand or believe that AF Concrete had started the process of blowing the pipes. He continued to cut and shape the edges of the concrete stairs. Within a minute or so he heard concrete coming through the hose and the hose started to move. 19At that point Mr Felton screamed "at everybody to move out of the way" (Black 1/435L) and then jumped on top of the hose to try and control it. This happened at about the same time as Mr Ryan had stopped and stood at the edge of the pool, having tilted his safety helmet back. Within an instant he heard another worker shouting "turn it off" and saw concrete burst out of the pipe "almost propelling the worker that was holding the pipe out of the pool" (Blue 1/212S-V). The hose then flicked around. The sponge ball, which had been inserted in the pipe, and concrete shrapnel struck Mr Ryan in the face (Blue 1/212V, 213C).

Primary judge's reasoning 20The primary judge first addressed the question whether AF Concrete was negligent. Her Honour found at [44]: "When compressed air is applied to concrete within a pipe, it is foreseeable that the concrete will be emitted at high speed from the end of the pipe. The risk of the concrete coming into contact with someone and causing injury was not insignificant. Where there is a flexible hose through which concrete particles and compressed air will pass it is foreseeable that the flexible hose will whip around violently unless it is adequately secured. The risk of fast-moving concrete projectiles being emitted from the end of the flexible hose and injuring someone is significant unless the flexible hose is secured and people are cleared from the area immediately surrounding the hose." 21Her Honour found that the precautions which a reasonable person in AF Concrete's position would have taken included securing the end of the flexible hose before commencing the blowing operation and ensuring that nobody was in the immediate vicinity of the area around the end of the hose before commencing that operation: 46, (3). Having regard to her Honour's later observations at [59] and [60], the reference to the "immediate vicinity of the area around the end of the hose" is to the area in front of the end of the discharge pipe assuming, if that pipe was not the fixed pipe, that the end of it had been properly secured. If the end was not secured, the process of blowing was so dangerous that it should not have been undertaken in any event: [60]. Her Honour pointed out (at [51]) that AF Concrete's witnesses effectively conceded that it had been negligent and on the seventh day of the hearing AF Concrete admitted that it had breached its duty of care (although it still did not admit liability). 22As her Honour observed, there was no reason in principle why Mr Ryan, a director of Reliance Pools, who was also an employee of the company could not recover damages for breach of its duty of care as his employer: Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; 217 CLR 424 at [49]-[50]. 23The primary judge's finding that there was no negligence on the part of Reliance Pools is at [69]: "I have found the negligence which caused the accident was a casual act of negligence by the employees of AF Concrete. In my view, there was no negligence on the part of Reliance Pools. The defendants have failed to prove that there is any action that Reliance Pools could reasonably have taken to reduce the risk to the plaintiff that ensued. Nor have they proved any relevant omission on the part of Reliance Pools to take reasonable care to provide the plaintiff with a safe system of work. The case that it was negligent for any of the relevant employers, Reliance Pools, AF Concrete or C&J, to permit their employees to be present on the 7th floor when the concrete was being blown has not, for reasons already given, been made out." 24The casual acts of negligence of AF Concrete to which the primary judge is referring were failing to secure the end of the 3½ inch diameter flexible hose before commencing the blowing operation and failing to ensure that there were no persons in the immediate vicinity of the area around the end of that hose before that operation was commenced: [46], [47], [50].

AF Concrete's argument 25AF Concrete, by its written and oral submissions, made three arguments. First, it submitted that Reliance Pools owed a duty to Mr Ryan "to supervise and control the site" and that Mr Christian, in his supervisory capacity, was negligent in failing to do so. Secondly, it was submitted that Reliance Pools failed to provide a safe system of work for its employees because the system of work which had been implemented did not ensure that the pipeline was secure before concrete was poured out of the pipe and failed to keep workers away from the discharge end of the pipe whilst it was under pressure. Thirdly, it was submitted that Mr Ryan's injury was caused by AF Concrete's negligence as an independent contractor and that this involved a breach of the duty which Reliance Pools owed to its employees to ensure that reasonable care was taken by itself, its employees and its independent contractors, for the safety of its employees. In support of this proposition, reference was made to Leighton Contractors Pty Ltd v Fox [2009] HCA 35; 240 CLR 1.

Relevant principles 26The general principles by reference to which an employer's breach of duty is to be determined are not controversial. They were stated by the Court in Czatyrko v Edith Cowan University [2005] HCA 14; 214 ALR 349 at [12]: "An employer owes a non-delegable duty of care to its employees to take reasonable care to avoid exposing them to unnecessary risks of injury. If there is a real risk of an injury to an employee in the performance of a task in a workplace, the employer must take reasonable care to avoid the risk by devising a method of operation for the performance of the task that eliminates the risk, or by the provision of adequate safeguards. The employer must take into account the possibility of thoughtlessness, or inadvertence, or carelessness, particularly in a case of repetitive work." [Footnotes omitted] 27In this case Reliance Pools' employees were engaged in activities undertaken in conjunction with the activities of others including another subcontractor of Uno, AF Concrete. The principles which apply in such circumstances are explained by Brennan J in Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1; 160 CLR 16 at 47-48. In Leighton Contractors Pty Ltd at [21], having referred to those principles, the Court addressed the circumstances in which an employer may be liable to its employee where negligent conduct of its independent contractor has occasioned injury to that employee: "An employer owes a personal, non-delegable, duty of care to its employees requiring that reasonable care is taken. This is a more stringent obligation than a duty to take reasonable care to avoid foreseeable risk of injury to a person to whom a duty is owed. While an employer is not vicariously liable for the negligent conduct of an independent contractor, it may incur liability where the negligent conduct occasions injury to its employee. This is because it will have failed to discharge the special duty that it owes to its employees to ensure that reasonable care be taken, whether by itself, its employees or its independent contractors, for the safety of its injured employee." [Footnotes omitted] 28Contrary to the proposition underlying AF Concrete's third argument, the references to "independent contractor" in this passage are to an independent contractor of the employer whose liability is in question. That appears from the language of the passage and from a consideration of the relevant principles. The duty of the employer is a personal or non-delegable duty to exercise reasonable care to provide to its employees adequate plant and equipment, a safe place of work and a safe system of work. If the discharge of any part of that duty is delegated to an employee or independent contractor, the employer remains liable if either is negligent in the performance of that delegated function. That is so even if the employer exercised reasonable care when engaging the relevant employee or contractor. For that reason, the position of the employer is as described by Mason J (as he then was) in Kondis v State Transport Authority [1984] HCA 61; 154 CLR 672 at 681: "So it is said that the employer in order to discharge his general duty of care for the safety of his employees must ensure that reasonable care and skill is exercised in relevant respects." 29If, as was the case in Kondis, an employee as part of the duties of his employment assists an independent contractor of the employer to undertake a particular task, and does so under its supervision and control, the employer's non-delegable duty to provide a safe system of work extends to the performance of that task. If the contractor fails to adopt a safe system of work, the employer is liable for that failure. As Mason J held in Kondis (at 688), that is "not on a vicarious basis, but because [the contractor's] omission to adopt a safe system is a breach of [the employer's] duty". 30It may be, as was also the case in Kondis, that the work accident was the result of "casual negligence" on the part of the contractor. However, as Mason J observed (at 688), the fact that the contractor's negligence might be characterised in that way would not inhibit the conclusion that there was also a breach of the employer's duty to provide a safe system of work. That would be so if the contractor's failure to adopt such a system meant that the employer did not provide such a system. The point is explained by Giles JA in Elliott v Bickerstaff [1999] NSWCA 453; 48 NSWLR 214 at [75]: "The language [of delegation] can mislead. In both situations the duty of care is owed by the [employer], and the duty of care is not delegated. The performance can be and is delegated. The effect of a non-delegable duty of care is that the person owing the duty of care is under a more stringent duty of care, a duty of care which can not be fulfilled by exercising reasonable care in entrusting performance to a competent third party. The duty of care requires that the person ensure that the third party exercises reasonable care, in the sense that the person is liable if the third party does not exercise reasonable care."

Decision 31The operation which Reliance Pools undertook was that of constructing the pool on the seventh floor. AF Concrete was engaged by Uno, the principal contractor on the building site, to undertake the task of pumping the concrete to that floor. Reliance Pools was not engaged by Uno or anyone else to pump concrete. The position as between Reliance Pools and AF Concrete was that each had contracted to perform operations which were interdependent and required some interaction between them. AF Concrete's task was to pump the concrete to the seventh floor where it could be sprayed by Reliance Pools' subcontractor, C&J Concrete. When that task was completed, AF Concrete had to undertake and complete the pipeline blow out and cleaning operation. In the performance of those activities there was some need for communication between AF Concrete and Reliance Pools so that each understood what the other was doing or required. 32AF Concrete's case accepted that it had responsibility for the operations of concrete pumping and pipeline blow out and cleaning. It did not suggest that as a matter of contract or arrangement Reliance Pools had any supervisory power over, or responsibility for, AF Concrete's performance of those operations. In these circumstances, Reliance Pools' duty to its own employees was to take reasonable care to avoid exposing them to unnecessary risks of injury. In discharging that duty, it had to take into account the possibility of carelessness on the part of employees of AF Concrete in the performance of their tasks, if that carelessness involved or created the risk of injury to Reliance Pools' employees. 33The present case is not one in which Reliance Pools' employees were working under the supervision and control of AF Concrete. In such a case it could have been said that the latter's failure to adopt a safe system under which that work was performed was also a breach by Reliance Pools of its duty to provide a safe system of work. 34In oral argument AF Concrete primarily relied upon the first argument outlined in [24] above. It was said that Mr Christian was negligent in seeing that the end of the 3½ inch diameter hose had not been secured and not clearing the pool area or making sure that the end of the hose was secured. It was not controversial that each of those things should have been done before the pipeline blow out and cleaning operation commenced. The evidence of the expert called in Mr Ryan's case, Mr Verma, was that before commencing those operations "normal procedure" required that the free end of the hose be secured and fitted with a trap basket at its end. It also required that the blow out operation not commence until everybody had been cleared from the area in front of the discharge end of the pipe, as secured. 35The difficulty for this argument is that the evidence established that Mr Ryan and Mr Christian were supervising the concreting of the pool and that Mr Ryan had seen that the end of the hose had not been secured and immediately taken steps to do something about it. That evidence was that he recognised the situation as being "dangerous" and ran to Mr Gillan who had the walkie-talkie and whom he regarded, correctly, as the employee of AF Concrete who had "control to stop anything happening". When he spoke to him inside the stairwell Mr Ryan told Mr Gillan that the untied hose was extremely dangerous and that this needed to be rectified. Because he did not get an answer that indicated Mr Gillan understood that he had done something dangerous, Mr Ryan returned to the edge of the pool with the intention of securing the end of the pipe. It was at that point that concrete started to come through the hose and the hose started to move. Mr Ryan's actions were entirely reasonable. Indeed, there was nothing more that Mr Ryan could have done to secure the end of the hose in the time available to him. Nor could Mr Christian have reasonably been expected to do anything more than Mr Ryan did to obviate the danger. 36The alternative action which it is said the exercise of reasonable care required Reliance Pools to take was to clear the pool area. Mr Ryan did not clear that area before he followed Mr Gillan into the stairwell because he did not consider that there was any risk that the line would be blown out whilst the end of the pipe was not secured. As he explained in evidence (Black 1/134P-S): "Once a line is disconnected and left hanging over the pool as much as the words 'we're no longer going to blow out the line', that mere action of leaving a disconnected pipe hanging over the edge would have communicated to everyone in the pool they're not going to blow out the pool because it was inconceivable for someone to leave the line disconnected and still be blowing it out. It doesn't make sense, so in its mere action would have communicated that the line wasn't being blown out" 37Mr Feldon of C&J Concrete, who was working in the pool, obviously was proceeding on the same basis. After he had told Spud that he was not going to hold onto the end of the hose, he continued on the task of cutting and shaping the concrete steps of the pool. 38That evidence did not support a finding that in the events as they presented to Mr Ryan, a reasonable person in his position would have sought to clear the pool area against the possibility that AF Concrete would do something which he was entitled to regard as "inconceivable". The same reasoning applies to Mr Christian. 39Addressing then the three arguments made by AF Concrete: as to the first, Reliance Pools, by Mr Ryan, discharged the duty of care which it owed to its employees to monitor the activities of AF Concrete so as to guard against the consequences of carelessness on its part in the performance of its operations. In discharging that duty, Mr Ryan was not required to take the precaution of clearing Reliance Pools' employees and subcontractors from the area as soon as he saw the replacement hose hanging over the edge of the pool. 40As to the second, Reliance Pools was not required to devise or control the system of work adopted by AF Concrete. Nor was it in a position to do so. As to the third, AF Concrete was not a subcontractor of Reliance Pools and the latter's employees were not working under a system of work devised by AF Concrete or subject to its supervision. For that reason, any failure on the part of AF Concrete to adopt a safe system of work was not a breach of Reliance Pools' duty of care for the safety of its own employees.

Whether there was error in the finding that the degree of permanent impairment was 29%

Relevance of this issue in the appeal 41The primary judge held that Mr Ryan's degree of permanent impairment was 29%. Whether it was at least 15% is only relevant if Reliance Pools was negligent. What follows, then, does not strictly arise because of my conclusion on that question. If Reliance Pools was negligent, Mr Ryan's degree of permanent impairment is relevant to the amount of the contribution that may be recovered from it as a joint tortfeasor, the amount of damages which may be recovered by Mr Ryan from AF Concrete and the amount of the indemnity which may be recovered by EML, as Reliance Pools' workers compensation insurer, from AF Concrete under s 151Z(1) of the 1987 Act. 42The amount of the contribution which may be recovered from the employer as a joint tortfeasor is, by s 151Z(2)(d), to be assessed in accordance with the provisions of Division 3 of Part 5 of the 1987 Act. Section 151H(1) provides that no damages may be awarded against the employer unless the injury results in a degree of permanent impairment of at least 15%. Therefore, if Mr Ryan's degree of permanent impairment is assessed at less than 15%, the amount of contribution that AF Concrete could recover from Reliance Pools is nil. 43The amount by which the damages recoverable by Mr Ryan from AF Concrete are to be reduced in accordance with s 151Z(2)(c) is determined by the amount of contribution recoverable under s 151Z(2)(d). That is the amount by which the contribution which AF Concrete would be entitled to recover from the negligent employer (but for the modifications to the worker's common law remedies made by Part 5 of the 1987 Act) exceeds the amount of contribution recoverable in accordance with s 151Z(2)(d). If the amount of contribution is nil because of the application of s 151H, Mr Ryan's damages recoverable from AF Concrete were to be reduced by the full amount of the contribution to which it would have been entitled as against Reliance Pools, but for the application of Part 5. 44The degree of impairment also affects the calculation of the amount of the indemnity to which the workers compensation insurer is entitled under s 151Z(1)(d). By s 151Z(2)(e)(i) the amount that may be recovered is the amount by which the workers compensation paid exceeds the amount of contribution recoverable from the employer assessed in accordance with s 151Z(2)(d). If that amount was nil the full amount of the compensation paid by the insurer is recoverable under s 151Z(1)(d). 45This analysis shows that it was in AF Concrete's interest and the interest of EML, as the workers compensation insurer, that if Reliance Pools was found to have been negligent, Mr Ryan's degree of permanent impairment was assessed at less than 15%. That matter is of significance in this case because of the late service of evidence by Mr Ryan.

The expert evidence 46The degree of Mr Ryan's whole person impairment was the subject of a difference of opinion between Dr Teychenné, a neurologist, and Dr Rowe, a neuropsychologist. Each was called in Mr Ryan's case. Dr Teychenné in his second report dated 9 September 2012 assessed his impairment at 29% (Blue 1/366-367). In his second report dated 15 September 2009 Dr Rowe assessed the degree of impairment at 12%. In cross-examination that overall percentage was corrected to 13% (Black 238E). 47The difficulty at trial arose because Dr Teychenné's second report assessing impairment at 29% was only served upon EML a week prior to the hearing. That being the position, the proceedings below, were, as the primary judge notes at [186], conducted on the basis that the finding as to whole person impairment was only binding as between Mr Ryan and AF Concrete and not in relation to the issues arising on AF Concrete's cross-claim for contribution against Reliance Pools or to EML's cross-claim to an indemnity from AF Concrete under s 151Z(1)(d). 48In his second report, Dr Rowe said that his assessment of impairment did not reflect Mr Ryan's true loss of capacity, given the high-level occupation and skills he was practising prior to his injury when compared to his present capacity. He explained why in his earlier report dated 20 June 2009 (Blue 1/278): "37. Mr Ryan's significant neuropsychological deficits and neurophysiological (EEG) abnormalities indicate that he is still afflicted with the effects of an ongoing brain injury despite an eight month recovery period. ... 44. In real terms and relative to his prior level of functioning he has been measured as showing approximately a fifty to ninety percentile drop in his cognitive performance across a broad range of neuropsychological measures. This reflects a drop in his intellectual capacity from the top ten percent of the population to the bottom one to fifty percent of the population. 45. He now also struggles to work a four hour day on three days per week and therefore he has experienced an eighty to eighty-five percent drop in his workplace capacity compared to his previous level of functioning."

Primary judge's reasoning 49Because Mr Ryan made no claim for work injury damages against his employer the provisions for the assessment of the degree of his permanent impairment in Part 7 (Medical assessment) of Chapter 7 of the Workplace Injury Management and Workers Compensation Act 1998 (NSW) (the WIM Act) were not engaged. The consequence was that the Court had to make that assessment itself according to the principles established by Part 7 but without the benefits provided and constraints imposed by the procedural mechanisms contained in it: see Izzard v Dunbier Marine Products (NSW) Pty Ltd [2012] NSWCA 132 at [34], [41] (Basten JA), [116]-[121] (Macfarlan JA) and [141]-[148] (Barrett JA). 50As Barrett JA observed, when the Court is considering the 15% impairment threshold it must proceed without a Part 7 Medical assessment and therefore without the assistance of the conclusive presumptions that such an assessment creates through s 326 of the WIM Act. His Honour added, relevantly for the present case: "[147] But it does not follow that the court will ignore Part 7. On the contrary, it will pay close attention to Part 7 and, in obedience to s 151H(4), give effect to the Part 7 principles concerning quantification, even though the Part 7 quantification mechanisms are not available. The court must thus, for example, pay attention to the Part 7 provision (s 322(1)) that requires assessment of the degree of permanent impairment to be made in accordance with the WorkCover Guidelines. It will have regard to those guidelines in deciding whether, in the 'trial within a trial' of hypothetical proceedings between worker and employer in which there was a Part 7 medical assessment, the necessary minimum 15% impairment would have been proved on the balance of probabilities." 51The primary judge proceeded in accordance with these principles: [181]. Having referred to the evidence of Dr Teychenné and Dr Rowe, her Honour concluded: "[184] Although I considered Dr Rowe to be expert in his field of neuropsychology and I have accepted his evidence in other respects, I prefer the evidence of Dr Teychenne on the assessment of the degree of permanent impairment. Dr Teychenne has been a consultant neurologist for about 30 years and is, accordingly, highly experienced. He has substantial expertise in diagnosing, assessing and treating cognitive impairment. He is an accredited assessor of whole person impairment and accordingly is entrusted with the task of performing such assessments when the task is actual rather than, as here, hypothetical." 52Dr Teychenné's assessment, which describes itself as a whole person impairment assessment, is directed only to Mr Ryan's cognitive impairment. Dr Harrison, an orthopaedic surgeon, considered that Mr Ryan also suffered 2% impairment as a result of a separate injury to his shoulder. Dr Rowe took that assessment into account in his overall assessment of 12% which, as I have noted above, he later adjusted to 13%. Preferring the evidence of Dr Teychenné, her Honour concluded that Mr Ryan "suffered a whole person impairment of 29%": [186]. The primary judge did not adjust that assessment to take account of Dr Harrison's separate assessment (cf WIM Act, s 322(3)).

AF Concrete's argument 53AF Concrete submits that the primary judge erred in relying upon the evidence of Dr Teychenné because his assessment was not carried out in accordance with the relevant WorkCover guidelines. Section 322(1) of the WIM Act requires that the assessment be made in accordance with those guidelines as in force at the time the assessment is made. To understand that argument, it is necessary to refer to the specific provisions with which it is said Dr Teychenné's assessment does not comply. 54The relevant guidelines are the WorkCover Guides for the evaluation of permanent impairment applying to assessments occurring on or after 6 February 2009. Those guidelines are based on the American Medical Association's Guides to the Evaluation of Permanent Impairment, 5th ed (AMA 5). Where the WorkCover Guides differ from AMA 5, the former are to be used and prevail in the event of inconsistency. 55Clause 1.13 is significant. It provides: "The WorkCover Guides are meant to assist suitably qualified and experienced medical specialists to assess levels of permanent impairment. They are not meant to provide a 'recipe approach' to the assessment of permanent impairment. Medical specialists are required to exercise their clinical judgment in determining diagnosis, whether the original condition has resulted in an impairment and whether the impairment is permanent. The degree of permanent impairment that results from the injury must be determined using the tables, graphs and methodology given in the WorkCover Guides and AMA 5..." 56Where the Guides specify more than one method of assessment, the assessor is directed to use the method that produces the highest degree of permanent impairment. 57Chapter 5 of the WorkCover Guides deals with the assessment of permanent impairment of the nervous system. It states that AMA 5, Chapter 13, applies to the assessment of permanent impairment of the nervous system subject to the modifications noted in Chapter 5 of the WorkCover Guides. Clause 5.4 provides that for the purpose of the Guides, cerebral impairments should be evaluated and combined as follows: " ● consciousness and awareness ● mental status, cognition and highest integrative function ● aphasia and communication disorders ● emotional and behavioural impairments." 58Relevantly in the present context, cl 5.8 provides that in evaluating impairments in the second and fourth of these combinations, the "assessor should make ratings of mental status impairments and emotional and behavioural impairments" based on clinical assessment and the results of neuropsychometric testing. It also states that: "Clinical assessment should indicate at least one of the following: ● significant medically verified abnormalities in initial post-injury Glasgow Coma Scale score ● significant duration of post-traumatic amnesia ● significant intracranial pathology on CT scan or MRI." 59AMA 5 contains criteria for rating cerebral impairments. The criteria address each of the combinations of cerebral impairment described in cl 5.4 of the Guides. For each, the criteria divide the rating of impairment into four classes, with the degree of impairment increasing from class 1 to class 4. In relation to impairment within the second category (mental status, cognition and highest integrative function), class 1 is 1%-14% impairment of the whole person, class 2 is 15%-29%, class 3 is 30%-49% and class 4 is 50%-70%. For each category of impairment, examples are given of the clinical symptoms and condition of a person within each of the four classes. In relation to the second category, s 13.3d of AMA 5 notes that the evaluation criteria are based on "the amount of interference with the ability to perform activities of daily living". That section describes the Clinical Dementia Rating (CDR) as a useful clinical tool for evaluating mental status and cognitive impairment. That rating takes six areas of function (memory, orientation, judgment and problem solving, home and hobbies, community affairs, and personal care) and requires that the person being assessed be given a score in each area of 0 (none), 0.5 (questionable) or 1 (mild). Of those areas of function, memory is treated as the primary category, the others being secondary. The maximum overall CDR score is 3. That combined score for the six areas is determined treating memory as the primary determinant. A combined CDR score of 1 produces an impairment rating in class 2. 60AF Concrete makes two specific submissions. First, it is said that when assessing Mr Ryan's mental status, cognition and highest integrative function using the CDR categories, Dr Teychenné did not ascribe a score to each category in order to assess his combined CDR score. The second is that Dr Teychenné could not have been satisfied, when assessing the second and fourth of the categories of cerebral impairment, that a clinical assessment and neuropsychometric testing indicated that at least one of the matters required by cl 5.8 of the Guides was satisfied.

Decision 61Dr Teychenné assessed the impairment of Mr Ryan's "mental status, cognition and highest integrative function" as "mild" with a CDR score of 1 which in s 13.3 of AMA 5 placed him in Class 2 with a range of impairment of 15%-29%. His assessment was that Mr Ryan was at the top end of that range with an impairment of 29% (Blue 1/366; Black 1/207H-Q). In relation to that assessment Dr Teychenné said: "I concluded the whole-person impairment based on the cognitive finding and the AMA V. That has got nothing to do with the degree of Glasgow Coma Scale recorded at the time it might have been recorded on the patient. It has got nothing to do with comparing old with new. This is a classic brain injury, and it is the traumatic brain injury that results in cognitive impairment. In traumatic brain injury, Glasgow Coma Scales are not as sensitive, and if they are recorded some time later, they may well be close to normal. But that does not exclude classic brain injury." (Black 208R-V) 62Dr Teychenné maintained in cross-examination that in arriving at this assessment he considered AMA 5. He said: "I go to [my] calculations, I go to each category, I see where he fits and give a score" (Black 215H). In arriving at a combined CDR score of 1, Dr Teychenné gave Mr Ryan a score for memory deficit of 1 (Black 216Y), for home and hobbies of 1 (Black 217K) and for judgment and problem solving of 1 (Black 217M). He continued: "Q. Isn't it the case that once you give the CDR scores, you then have to add all the scores up? A. Yes, but they are major and minor. Q. And there is a complicated way that you actually add them all up to come to a total? A. Yes, but you go mainly on the major complications, major. Q. What was the total that you came to when you added up your scores? A. Well, I didn't actually add up the scores to come to that total. Q. Isn't that what - I know you don't like the guide, but isn't that what you are supposed to do under the guide? A. Basically I consider this patient really should have gone at a higher than a CDR score of 1." (Black 217Q-X) 63Dr Teychenné in his second report recorded: "Moderate memory loss more marked for recent events. Defect interferes with everyday activities. Moderate difficulty in handling problems, similarities and differences. Mild but definite impairment of function at home. More complicated hobbies and interests abandoned." (Blue 1/366) 64In that report Dr Teychenné justified his assessment of Mr Ryan's impairment as being at the top end of the range for Class 2 (15%-29% impairment) as follows: "This patient's specific cognitive deficits have resulted in a marked decline in his cognitive ability from his previous high intellectual performance. Specifically, he has deficits in executive function, memory, concentration which affect other cognitive functions such as visual-spatial function and visual-motor function. As such, these specific defects have caused a significant decline in his ability to function at a higher executive level. I would therefore award him the maximum impairment of 29%." (Blue 1/366-367) 65This evidence shows that Dr Teychenné did undertake his assessment in accordance with the WorkCover Guides. Ultimately he was required to make a clinical judgment as to the degree of permanent impairment. When evaluating mental status and cognitive impairment he used the CDR criteria and, taking account of his scores for memory and the other categories of impairment and treating memory as the primary category, he scored Mr Ryan as having an overall CDR score of 1 and accordingly as being within class 2. He then exercised his clinical judgment in assessing that Mr Ryan was at the high end of that impairment range. That being the evidence, the primary judge was justified in being satisfied that Dr Teychenné had formed his assessment in accordance with the methodology given in the Guides. For this reason the appellant's first argument must be rejected. 66The appellant's second argument, developed orally, was that Dr Teychenné had not addressed whether his clinical assessment of Mr Ryan indicated that at least one of the three matters referred to in cl 5.8 of the Guides was satisfied (see [58] above). It must be noted at the outset that such a proposition was never squarely put to Dr Teychenné. However, his evidence provided a sound basis for concluding that his assessment was that at least one of those requirements was satisfied. That was also the evidence of Dr Rowe. 67In the course of his cross-examination, Dr Teychenné expressed caution about the use of a Glasgow Coma Scale score, from a test conducted 20 minutes or so after the accident, as an indicator that Mr Ryan did not have a traumatic brain injury or cognitive defect (Black 1/212J). He rejected the proposition that there had been no significant duration of post-traumatic amnesia. What he regarded as significant was that Mr Ryan was reported as having lost consciousness for up to five minutes and thought to be dead, indicating that he was deeply unconscious (Black 1/206R, 212N). In relation to the third factor in cl 5.8, Dr Teychenné said that 50% of traumatic brain injuries involve diffuse external injury which is microscopic and too small to be picked up by a CT scan or MRI (Black 1/212Y). At the conclusion of the questioning directed to this subject Dr Teychenné said that "this patient did qualify in my opinion." (Black 1/213Q). 68These assessments and Dr Teychenné's conclusion are not materially different from those of Dr Rowe. He recorded that the clinical notes indicated that Mr Ryan reported memory loss and loss of consciousness which suggested that his initial Glasgow Coma Scale score for a period following the impact "would have been relatively low". He also considered that Mr Ryan's neurophysiological testing showed significant electroencephalogram (EEG) abnormalities consistent with brain pathology and findings in other brain injured patients and a pattern of significant cognitive deficits consistent with that found in traumatic brain injury. In those circumstances Dr Rowe's clinical assessment was that at least two of the matters referred to in cl 5.8 were satisfied (Blue 1/288T-289F; Black 1/242M). In cross-examination Dr Rowe also accepted that, to use his language, "strictly" or "technically" speaking none of the three matters might have been satisfied. He pointed out, however, that whilst "generally speaking, if [practitioners] don't have those three factors, you would not complete a calculation of cerebral impairment" (Black 243X), there were other tests or assessments which "quite a few assessors" look at when considering whether there is evidence consistent with traumatic brain injury. That evidence included neurophysiological abnormalities detected on EEG testing or Positron Emission Tomography (PET) or Single-Photon Emission Computerised Tomography (SPECT) scans. 69In its terms cl 5.8 relevantly provides that a clinical assessment "should" indicate significant intercranial pathology on CT scan or MRI. That language is used in what are described as "guidelines" intended to "assist suitably qualified and experienced medical specialists" when exercising their clinical judgment. Section 322(1) requires that the assessment be made in accordance with those guidelines. Clause 1.13 also makes clear that the guidelines are not meant to provide a "recipe approach" to the assessment process. In this case the clinical assessment of both of the specialists was that there was evidence of significant intercranial pathology consistent with traumatic brain injury and that it was appropriate to proceed on the basis of that evidence, notwithstanding that it was not shown on a CT scan or MRI. In my view that assessment was in accordance with the guidelines. EEG testing which the expert specialists regarded as reliable showed the presence of the required pathology and there was a satisfactory explanation as to why it would not have been picked up by a CT scan or MRI. In the circumstances, the appellant's second argument also must be rejected.

Whether there was error in the exercise of the discretion as to costs 70The primary judge made the following orders as to costs: "(1) Order [AF Concrete] to pay [Mr Ryan and his company's] costs on the ordinary basis up to 26 November 2012 and thereafter on an indemnity basis. (2) Order [AF Concrete] to pay [GIO's] costs of the proceedings on an indemnity basis. ... (4) Order [AF Concrete] to pay EML's costs of [AF Concrete's] cross-claim against EML and EML's cross-claim against [AF Concrete]. (5) Order [AF Concrete] to pay the costs of [GIO] in relation to EML's unsuccessful cross-claim against it. (6) Order [GIO] to pay the costs of EML in relation to [GIO's] cross-claim against EML but [GIO] is entitled to be indemnified by [AF Concrete] in relation to those costs." 71There are four grounds of appeal relating to costs. They are grounds 6, 7, 8 and 9 of the second amended notice of appeal. Grounds 6, 8 and 9 relate to orders 2, 6 and 1 respectively. Ground 7 does not identify or describe the costs order to which it relates or any costs order made by the primary judge. AF Concrete's written and oral submissions only addressed the challenges to orders 1, 2 and 6 made by grounds 9, 6 and 8. That being the position, the only grounds that can be regarded as pressed are grounds 6, 8 and 9. 72It is accepted that AF Concrete requires leave to appeal from orders 2 and 6, each of which is in whole or part an order made in GIO's favour. That leave is required by s 101(2)(c) of the Supreme Court Act 1970 (NSW). The question whether leave was also required to appeal against order 1 made in favour of Mr Ryan was not raised or argued. Whether an appeal which includes substantive grounds as well as grounds relating to costs is an appeal "as to costs only" within s 101(2)(c) is the subject of conflicting decisions in other intermediate courts of appeal. A number of those decisions are referred to by Campbell JA in C G Maloney Pty Ltd v Noon [2011] NSWCA 397 at [104]. I propose to adopt the course that his Honour adopted in that case. I will address each of the grounds of appeal and in that context consider whether the interests of justice require that leave be granted. 73There emerged in oral argument a question as to the scope and subject matter of order 2. The parties accept that the "proceedings" referred to include the proceedings on the cross-claims. It follows that GIO's "costs" include those incurred in prosecuting its cross-claim against AF Concrete and defending AF Concrete's cross-claim against it. They ought also include its costs incurred in prosecuting its cross-claim against EML and defending EML's cross-claim against it. However, GIO's costs of defending EML's cross-claim are also dealt with by order 5, and not on an indemnity basis. No attention was addressed to this order in the oral argument and it is not challenged on appeal. Argument in relation to ground 6 proceeded on the basis that order 2 covers, as its language suggests, all of GIO's costs including those which would otherwise fall within order 5. Accordingly, I propose to address the challenge to order 2 understood in that way.

Costs order 1 (ground 9) 74The primary judge ordered that AF Concrete pay Mr Ryan's costs from 26 November 2012 on an indemnity basis applying the principles in Calderbank v Calderbank [1976] Fam 93. Those principles justify a Court in taking into account, on an application for indemnity costs, the non-acceptance of an offer which makes clear that the fact of its non-acceptance may be deployed as a basis for seeking such a special costs order: Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; 84 NSWLR 311 at [43], [46], [47], [57]-[60]; Stewart v Atco Controls Pty Ltd (in liq) (No 2) [2014] HCA 31. 75Mr Ryan and the corporate plaintiff submitted before the primary judge that AF Concrete's refusal to accept an offer said to have been made on 2 November 2012 was unreasonable and justified the making of an order that it pay their costs on an indemnity basis from 26 November 2012, the last date on which that offer was open. The primary judge accepted that argument: [2013] NSWSC 219 at [10], [12], [17]. AF Concrete contends that in doing so the primary judge erred in two respects. First, there was no settlement offer made to it which was capable of being accepted so as to give rise to a binding settlement. Secondly, the offer relied upon did not describe itself as a Calderbank offer or otherwise indicate that the fact of its non-acceptance might be deployed as a basis for seeking a special costs order. 76The correspondence said to constitute the making of the Calderbank offer consisted of three letters. The first, dated 25 October 2012, was from GIO's solicitors to Mr Ryan's solicitors. It was expressed to be "without prejudice save as to costs" and referred to an earlier telephone conversation. It continued (Orange 101): "We understand that your clients would agree to settle their claim for $1,625,000 inclusive of costs, workers compensation paid to date and the interim payment. We ask you to confirm by return that your clients would agree to settle their claim on this basis and the period of time for which they would be prepared to do so." 77That letter invited an indication from Mr Ryan and the corporate plaintiff as to whether they were prepared to settle "their claim" against AF Concrete and GIO on the basis previously indicated. Mr Ryan's solicitors responded on 29 October 2012 in the following terms (Orange 102): "We confirm that our clients agree to accept $1,625,000 inclusive of costs and workers compensation payments made and the interim payment in settlement of their claim. Our Client's are prepared to agree to such a settlement for 28 days from the date of this letter." 78That letter was expressed to be "without prejudice". Although it indicated the basis upon which the plaintiffs were prepared to settle their claim against both defendants, the letter was not addressed to both defendants and was not in its terms an offer to settle made to them, either jointly or severally. 79Nor was it understood by the solicitors for GIO to be such an offer. On 2 November 2012 they wrote to the solicitors for AF Concrete enclosing copies of the letters dated 25 and 29 October 2012. That letter was expressed to be "without prejudice save as to costs". It continued (Orange 103): "It is apparent from the correspondence that the plaintiffs will agree to settle their claim for $1,625,000 inclusive of costs, workers compensation paid to date and the interim payment and that they are prepared to settle for this amount until 26 November 2012. Our client offers to make a contribution of 36% to a settlement of the plaintiff's claim $1,625,000 inclusive of costs, workers compensation paid to date and the interim payment. The offer will remain open for acceptance until 26 November 2012." 80That letter was not an offer by the plaintiffs to AF Concrete, or to AF Concrete and GIO jointly, to settle their claim for the amount indicated in the letter of 29 October 2012. Nor was it an offer by the plaintiffs to settle on the basis that AF Concrete make a contribution of 64% to such a settlement with them. In its terms the letter was an offer by GIO to AF Concrete to agree to contribute in the respective proportions 36% and 64% to a settlement with the plaintiffs on the terms set out in the letter of 29 October 2012. The acceptance of that offer would not have resulted in the overall settlement of the proceedings without there being a further communication of a joint offer to the plaintiffs on the terms of the earlier letter and the acceptance of that offer. 81It follows that the primary judge erred in proceeding upon the basis that there had been a settlement offer by the plaintiffs to AF Concrete which was capable of acceptance and that "AF Concrete's non-acceptance of [that] offer was unreasonable in all the circumstances": [2013] NSWSC 219 at [15]. There was no non-acceptance of any offer which could be taken into account in accordance with the principles in Calderbank v Calderbank. Ground 9 should be upheld. As between Mr Ryan and AF Concrete, the former did not seek to justify the order for indemnity costs on any other basis. Therefore, order 1 made by the primary judge should be varied so as to provide for payment of the plaintiffs' costs assessed on the ordinary basis.

Costs order 2 (ground 6) 82Order 2 requires that AF Concrete pay all of GIO's costs, including those of successfully defending the plaintiffs' claim. It was submitted on behalf of GIO that this order is not a Sanderson order. Strictly speaking that is correct although the subject matter of the order includes costs which might have been the subject of one or other of the orders commonly referred to as a Bullock or Sanderson order. 83Order 2 was made in exercise of the power given by s 98(1) of the Civil Procedure Act 2005 (NSW). As the Court said in Wentworth v Attorney-General (NSW) [1984] HCA 70; 154 CLR 518 at 528 of the equivalent power in s 76(1) of the Supreme Court Act 1970 (NSW), that power confers "a wide discretion on the Court to decide whether any and which party to proceedings shall pay costs to another party". Obviously, that discretion must be exercised "judicially in accordance with established principle and factors directly connected with the litigation" (per McHugh J in Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at 96). 84The primary judge addressed GIO's application that AF Concrete pay its costs of the "entire proceedings on an indemnity basis" in two stages. First, she considered whether an order should be made that AF Concrete pay GIO's costs of successfully defending the plaintiffs' claim: [2013] NSWSC 219 at [18]. The making of such an order in relation to those costs does not appear to have been opposed. As Leeming JA noted in St George Bank - A Division of Westpac Banking Corporation v Jin [2013] NSWCA 306 at [16] by reference to Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176 at [15], such an order may be made in circumstances where there is "some conduct on the part of the unsuccessful defendant which would make it fair to impose liability on it for the costs of the successful defendant". The relevant principles are referred to by Gibbs CJ in Gould v Vaggelas [1984] HCA 68; 157 CLR 215 at 229-230 and Campbell JA in ACQ v Cook (No 2) [2008] NSWCA 306 at [32]-[43]. 85Her Honour then addressed GIO's broader application that AF Concrete pay all of GIO's costs on an indemnity basis on the ground that it had been guilty of "plainly unreasonable conduct" which led to the joinder of C&J Concrete (GIO) in the proceedings. In response to that application, AF Concrete did not oppose a more limited order that it pay on an indemnity basis GIO's costs of the cross-claims between them which were incurred after 26 November 2012 because of its refusal of GIO's offer to contribute 36% to a settlement: [2013] NSWSC 219 at [19]-[21]. 86The primary judge accepted GIO's broader application. In the course of doing so, her Honour made the following findings: "[31] In all the circumstances I infer that AF Concrete was aware from the investigation it had done of the claim that its employee was responsible for substituting the flexible hose and for not securing it before commencing the blowing operation. I cannot detect any basis for the proposition on which AF Concrete relied in its defence, its cross-claim or its cross-examination that these acts were done by C&J. Furthermore, Mr Webb accepted that securing the flexible hose was 'basic' to the process of cleaning the line and that it was a 'mistake' that it was not done. ... [32] Both Mr Webb and Mr Gillan effectively admitted the primary facts that made AF Concrete liable. In these circumstances, and in the light of my finding above that AF Concrete must have known that their evidence would be to that effect, AF Concrete's denial of liability was unreasonable and its maintenance of the first defence was conduct that warrants an order for costs on a higher basis." 87The reference in [31] to the "investigation" is to an investigation undertaken by AF Concrete's workers compensation insurer following the accident in July 2008: [2013] NSWSC 219 at [30]. The plaintiffs' proceedings were commenced in December 2010 against AF Concrete and C&J Concrete. In the circumstances it was reasonable to infer, as her Honour must be taken to have done, that the investigation occurred before the plaintiffs' proceedings were commenced. AF Concrete's first defence, filed in November 2011, denied the plaintiffs' allegation that it had caused the pipe to be blown without securing it to the swimming pool floor and without first warning Mr Ryan that that was to occur (Red 4R). By its amended defence filed in July 2012, AF Concrete alleged that C&J Concrete had failed to secure the pipes and, over its objection, caused them to be blown (Red 30X). At the same time AF Concrete filed its cross-claim against C&J Concrete repeating that allegation and also alleging that an employee of C&J Concrete was negligent in failing to turn the air compressor off when instructed to do so (Red 47-48). 88In these circumstances, her Honour concluded: "[41] In my view, it was unreasonable of AF Concrete both not to admit liability and to maintain its cross-claim against C&J. Its conduct substantially prolonged the hearing. Its forensic decisions were not informed by what it must have known about the conduct of its employees. For these reasons it was appropriate to order that it be liable for C&J's costs of the whole proceedings on an indemnity basis. [42] The lack of probative evidence against both EML and C&J should have the effect, in my view, that AF Concrete is liable for EML's costs, even in so far as they arise from C&J's cross-claim against EML. Neither EML, nor C&J ought, in my view, to have been parties to these proceedings because of the lack of arguable case against either of them. In my view, AF Concrete ought be liable for their costs on the bases identified in the orders." 89AF Concrete did not submit that in reaching the conclusion in [41] her Honour erred in principle or took into account factors which were not relevant to the exercise of the discretion. Those principles require particular attention to the conduct of the party against whom the order is sought which occurs in connection with the relevant litigation. That conduct must be such as to warrant a departure from the general rule that costs be paid on 'party and party' basis. Such conduct has been held to include the making of allegations that should never be made and the commencing of proceedings in disregard of known facts: see Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234; Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 615-616 (Mason P); and Degmam Pty Ltd (In Liq) v Wright (No 2) [1983] 2 NSWLR 354 at 358 in which false allegations of fact were made. In the judgment of Gaudron and Gummow JJ in Oshlack v Richmond River Council at [44], Degmam is given as an example of a case "involving some relevant delinquency on the part of the unsuccessful party". 90AF Concrete's argument that her Honour's exercise of discretion miscarried had two strands. Its principal submission was that the circumstances did not justify the making of an order that required AF Concrete to pay GIO's costs on an indemnity basis from the outset. It was pointed out that the proceedings had been "on foot" for 20 months before its amended defence, which made positive allegations against C&J Concrete, was filed in July 2012. The plaintiffs had commenced the proceedings against C&J Concrete without any encouragement from it. If there was any conduct which justified the making of a special costs order, it did not occur until the trial when the relevant witnesses admitted the primary facts that made AF Concrete liable. In oral argument this point was summarised as follows (Tcpt 23/05/14, p 29): "Whatever arose at the hearing in relation to the forensic decisions, the refusal to admit liability and all of those matters, can be accommodated by a draconian costs order of some kind, but not one for the whole of the proceedings, is our point." 91The second argument, which was made by its written submissions, was that any Bullock or Sanderson order made against AF Concrete could only be made in respect of the costs which the plaintiffs were or would otherwise be liable to pay to GIO. GIO could not have obtained an order against the plaintiffs that they pay its costs on an indemnity basis. That being the position, it was said that any Sanderson order should have been limited to costs assessed on that basis. 92This last argument mistakes the basis on which the order for indemnity costs was made. Her Honour found that AF Concrete acted unreasonably in not admitting liability and maintaining its cross-claims against GIO and EML in circumstances where there was a "lack of arguable case against either of them": [41], [42]. Assuming those findings were justified, there was no error of principle in making the broader order sought by GIO on the basis of AF Concrete's conduct, as distinct from any conduct of the plaintiffs. Although it was not argued before the primary judge, the same conduct may have entitled the plaintiffs and EML to a special costs order as against AF Concrete. 93AF Concrete's primary submission also must be rejected in the light of her Honour's findings. Although in oral argument it was said that the primary judge's finding at [31] was challenged, no such challenge was made by any ground of appeal and no written or oral argument was made in support of such a challenge. Those findings included that AF Concrete should, from the outset, have admitted liability for Mr Ryan's injuries. Had that occurred it would have been unnecessary for C&J Concrete to have been joined in the proceedings. The primary judge's discretion did not miscarry and for that reason leave to appeal on ground 9 should be refused.

Costs order 6 (ground 8) 94The primary judge also ordered that GIO was entitled to be indemnified by AF Concrete in relation to its liability to pay the costs of EML in relation to GIO's cross-claim against it. Her Honour's reasons for making that order are set out in [42]. That exercise of discretion was based upon the findings that AF Concrete acted unreasonably in not admitting liability and maintaining its cross-claim against C&J Concrete. AF Concrete's argument in support of this ground was that there was no evidence to support any conclusion that it took any steps to encourage GIO to join EML. That argument misses the point. The primary judge concluded that but for AF Concrete's unreasonable conduct in relation to the admitting of liability and conduct of its defence of the proceedings, GIO would not have been a party to the proceedings at all. Leave to appeal on ground 8 also should be refused.

Conclusion 95AF Concrete has been unsuccessful on its appeal except with respect to the costs order involving Mr Ryan. Some allowance should be made in relation to the costs of the appeal to reflect its success on that issue which did not occupy any significant time at the final hearing. An appropriate allowance is to reduce the costs of the first respondent for which it is otherwise liable by 10%. 96To give effect to these conclusions, the following orders should be made: (1)Grant leave to the appellant to appeal from costs order 1 made on 14 March 2013. (3)Appeal allowed in part. (4)Set aside order 1 made on 14 March 2013. (5)Order the first defendant (appellant) to pay the costs of the first respondent and Reliance Pools International Pty Ltd of the proceedings before the primary judge. (6)Appeal otherwise dismissed. (7)Dismiss the appellant's summons seeking leave to appeal as against the third respondent. (8)Appellant pay 90% of the costs of the first respondent of the appeal. (9)Appellant pay the costs of the second and third respondents of the appeal and of the third respondent of the summons seeking leave to appeal. 97LEEMING JA: I agree with Meagher JA. 98SACKVILLE AJA: I agree with Meagher JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 October 2014