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Parties: Ashell Homes Constructions Pty Ltd (Plaintiff) Jonathan Kobus (First Defendant) Amy Elleway (Second Defendant) Representation: Counsel B Buckland (Plaintiff) D Robens (Defendants)

Solicitors O’Connor Harris (Plaintiff) Harrington Hall (Defendants)

File Number: SC 45 of 2020

McWilliam AsJ

1. On 22 November 2022, judgment was delivered in relation to a building dispute involving competing claims by the parties against each other. The Court found that the plaintiff was entitled to $47,621.66 in damages for conversion and the defendants were entitled to $72,711.01 in damages for repudiation of a building contract. After set-off, this resulted in damages to be awarded to the defendants in the sum of $25,089.35 plus interest from the date proceedings were commenced, being 18 May 2020: Ashell Homes Constructions v Kobus [2022] ACTSC 323.

2. The parties were given the opportunity to be heard on costs before final orders were made and this judgment deals with that issue and the making of final orders. The judgment also deals with an application filed by the plaintiff after judgment was delivered, requesting to reopen the judgment for the purpose of further consideration and reasons for the finding in respect of the quantum of damages that accepted the sum claimed by the defendants at hearing as being the appropriate compensation payable to them. That matter will be addressed first.

The application to re-open the judgment and for the Court to provide further reasons

3. The plaintiff’s application filed 6 December 2022 sought that the Court further consider the finding that the defendants (counter-claimants) were entitled to damages for repudiation in the sum of $72,711.01. The plaintiff argued that the Court did not deal with the plaintiff’s arguments about why that amount should be reduced to zero. The plaintiff argued that because final orders had yet to be entered, there were two sources of power for the Court to give further contemplation to the issue: rr 1613(1) and 1401(7) of the Court Procedures Rules 2006 (Rules). Under those rules, respectively, the Court may amend or set aside an order before it has been filed, or alternatively, amend or revoke a direction. As no orders following the reasons for judgment had yet been made, the circumstances for the operation of those rules existed.

4. The defendants argued that there was no cause to reopen the judgment and that the reasons for the quantum found could be inferred as the Court accepting the defendants’ claim for common law damages in the sum they sought, after they had made reasonable concessions during the hearing.

Applicable principles

5. When a judgment is delivered, the Court has fulfilled its function and the litigation concludes. Having regard to the importance of finality in litigation, the jurisdiction to reopen a judgment is to be exercised with great caution and the circumstances in which a judgment which has been pronounced may be reopened are therefore extremely rare: Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 (Autodesk (No 2)) at 302-303; Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 (Wentworth) at 684. The exercise of the power has been described as an indulgence: State Rail Authority of New South Wales v Codelfa Construction Pty Ltd (1982) 150 CLR 29 (Codelfa) at 45-46.

6. There are specific circumstances when a Court has the power to revisit its reasons if appropriate to do so, even if orders have been entered. The jurisdiction is available where, without any blame and without any default on the part of the party, a party has not been heard: Codelfa at 45-46, Wentworth at 684. Other examples of where the exceptional step of reviewing or rehearing an issue include where the court has good reason to consider that in its earlier judgment, it has proceeded on a misapprehension as to the facts or the law: Autodesk (No 2) at 302. Those limited opportunities are also reflected, in part, in the rules to which the plaintiff drew the Court’s attention.

7. In light of the argument made by the plaintiff, it is appropriate to recall what was said in Whisprun Pty Ltd v Dixon [2003] HCA 48; 200 ALR 447 at [62]:

… A judge’s reasons are not required to mention every fact or argument relied on by the losing party as relevant to an issue. Judgments of trial judges would soon become longer than they already are if a judge’s failure to mention such facts and arguments would be evidence that he or she had not properly considered the losing party’s case.

8. A separate collection of useful principles is also to be found in a decision of the Full Court of the Supreme Court of South Australia, Conroy's Smallgoods Pty Ltd & Anor V Channel Seven Adelaide Pty Ltd [2007] SASC 76, where it was stated (at [367]) after a discussion of some of the leading authorities in relation to a failure to give reasons:

• In his or her reasons, the trial judge does not have to deal with every item of evidence, every issue raised and every argument. • The judge should make findings of fact which are sufficient to support the conclusions which are ultimately reached. Where those findings depend upon demeanour of witnesses, the judge should indicate this plainly to be so, but at the same time he or she should strive to buttress any such findings by reference to objective features of the evidence or objective reasoning. • A trial judge is not obliged to trawl through the evidence and arguments advanced by the losing party and explain why it has been rejected. • However, if there is a body of evidence, or even the evidence of a single witness, advanced by a party on an important issue and a different body of evidence or different evidence given by a single witness by an opposing party, the trial judge should explain why one has been preferred over the other. • At the end of the day, the most important consideration is that the reader should not be left to speculate as to which of a number of possible "routes have been taken to the conclusion expressed": Hunter v Transport Accident Commission and Anor (supra) at 142 [35].

9. The reference in the last dot point was to Hunter v Transport Accident Commission [2005] VSCA 1; 43 MVR 130. It is one aspect of the wider basis for a judicial duty to give reasons, emphasised in Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 278 per McHugh JA, that “justice must not only be done but it must be seen to be done”.

10. I have also recently dealt with what will constitute adequate reasons in the context of an appeal from an adjudication in Nova Builders Pty Ltd v Civil & Civic Corporation Pty Ltd [2022] ACTSC 209, where the principles from a number of the leading authorities applicable to reasons of both judges and tribunals were collected at [90]-[94]. I referred at [167] to the requirement for adequate reasons to include an explanation of a necessary step to the final conclusion and the resolution of competing arguments (citing DL v The Queen [2018] HCA 26; 266 CLR 1 at [32]-[33]; AK v Western Australia [2008] HCA 8; 232 CLR 438 at [85]).

The appropriate course here

11. As I indicated to the parties at the hearing of the application, this was not a case where it could be said the issue was overlooked. The parties were heard on the quantum issue. The Court did not proceed on a misapprehension of a fact. Accordingly, there was no cause for rehearing or reconsidering the factual finding itself.

12. However, there were two matters that influenced my thinking as to whether any further reasons ought to be given for the finding on the quantum of damages payable for the plaintiff’s repudiation of contract that had been made.

13. The first was that the very fact of the plaintiff’s application suggests that it has been left wondering why its argument on the amount of damages to be awarded was rejected. Without further reasons being given, the plaintiff’s perception that its arguments were not heard properly may lead to a sense of injustice, and that is undesirable because justice must be seen to be done.

14. The second was that in the event of a successful appeal of the primary judgment for a failure to give reasons for the quantum finding, and absent any error in the finding itself, the usual remedy would be for remittal to the trial judge to provide those reasons. The plaintiff drew the Court’s attention to Consolidated Lawyers Ltd v Abu-Mahmoud [2016] NSWCA 4, where Macfarlan JA (with whom Bathurst CJ and Tobias AJA agreed) stated at [39]-[40] (emphasis added):

15. The appellants asserted on the appeal that although this argument had been put to the primary judge, his Honour had not addressed it. Assuming for the moment that this is correct, the appellants should, in my view, have applied to the primary judge pursuant to r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) to set aside or vary his Honour’s judgment on the ground that he had not dealt with a significant submission that they had made. That course was particularly appropriate in the present case because there had been a lengthy hearing before the primary judge involving detailed evidence and submissions and the allegedly overlooked point required findings of fact possibly involving questions of credit to be made. The submission (still assuming it was in fact made) was not one that could conveniently be dealt with on appeal in the absence of findings by the primary judge. 40. I do not suggest that parties must always approach a primary judge if it appears that the judge has overlooked a significant point in formulating the Court’s judgment. It is however a course that should be adopted in the absence of particular, valid, reasons for not doing so. The primary judge is almost always in a better position than an appellate court to decide an overlooked point and appellate courts are entitled to have the benefit of a primary judge’s views about matters in issue on appeal. The requirement in s 56 of the Civil Procedure Act 2005 (NSW) to have regard to the “just, quick and cheap resolution of the real issues in the proceedings” strongly supports the adoption of this course in the absence of particular reasons for the point being taken directly on appeal.

16. Here, the plaintiff has raised what it considers to be a failure to deal with a significant submission made, and a lack of explanation, (a) before the trial judge and (b) at the earliest opportunity, which in this case includes before final orders are made.

17. Having done so, if the plaintiff were to be turned away and forced to seek that relief via an appeal, only to be returned to stand before the trial judge for the purpose of being given the very reasons it is now seeking, with all the time and money that involves to obtain such a result, that would not promote the procedural objectives set out in s 5A(2) of the Court Procedures Act 2004, which include the efficient use of judicial resources, efficient disposal of a court’s overall caseload, and resolution of the litigation at a cost proportionate to the importance and complexity of the matter in dispute.

18. As the Court is not yet functus officio, the procedural course that best promotes the efficient and proportionate resolution of the dispute and finality of litigation in the longer term by dealing with what might otherwise be a sense of injustice and a potential cause for complaint on appeal is simply to explain why the defendants’ claimed quantum was accepted without dissection or reduction, rather than the approach for which the plaintiff contended during the substantive hearing.

Reasons for rejecting the plaintiff’s approach to quantum on damages for repudiation of contract

18. That necessitates a brief return to what was argued at trial. The defendants’ counter-claim, which landed at the figure of $72,711.01, was said to be the cost to them of completing the two townhouses that they had originally engaged the plaintiff to build for them, being the sum they said they incurred over and above the original contract price of $1,050,000. The claim was based on invoices for the work that was completed primarily by a builder who the defendants subsequently contracted to complete the project. The defendants contended that was the amount sought as damages “to place the defendants in the position they would be in had the plaintiff completed in accordance with the Contract terms”.

19. The plaintiff argued that the defendants had suffered no loss, once the whole of the evidence was examined, and that in fact the defendants “saved over $27,000 by terminating the contract”. Without setting out every challenge, the general approach taken by the plaintiff was to engage in what the defendants described as a line-by-line assessment of every invoice tendered on the claim for damages to see whether there were parts of the figure claimed by the defendants that were outside the scope of the initial contract, arguing that those amounts should be excluded from the damages to be awarded.

20. Examples of the challenges made by the plaintiff included:

(a) Part of the compensation claimed was for carpets, installation of flooring (internal and external), and some ceilings being finished in pressed tin. The plaintiff argued that such items were not part of the original contract.

(b) An invoice the subsequent builder issued was said to be ambiguous as to how much work was devoted to internal wall finishings that were not part of the original contract. The plaintiff argued that by reason of the ambiguity, at least half, if not the entirety of the amount of the invoice should be excluded.

(c) The plaintiff argued that work that was performed by the first defendant himself in relation to the waterproofing of a deck, for which compensation had been claimed, should be excluded.

(d) The plaintiff argued that the purchase of front doors should be excluded, because they were bought “after practical completion” had been “achieved” presumably submitting that they were not properly part of the contract.

(e) The defendants sought compensation for the carpentry required to rectify some doors. The plaintiff argued that because the actual invoice which had been referred to by date was not put into evidence by inadvertence, the court would not accept that the work was done at the price claimed.

21. The parties’ arguments proceeded from the correct starting principal, but neither really grappled with what it meant for the compensation to be awarded in this case. The principle that applies is that specified in Robinson v Harman [1848] 1 Ex 850; 154 ER 363, 365 (Robinson):

[The party sustaining loss by reason of breach of contract] is, so far as money can do it, to be placed in the same situation … as if the contract had been performed.

22. This principle was applied in Bellgrove v Eldridge [1954] HCA 36; 90 CLR 613 (Bellgrove), where the High Court dealt with a defective building work case. The contract specified concrete in certain proportions of metal, sand and cement. The builder used concrete mixed in different portions of lime, sand and cement which was found to be a very substantial departure from the specifications. Such a departure resulted in grave instability in the building. The High Court held at 617-618 (emphasis added):

In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. … her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract. … th …the rule is, we think, correctly stated in Hudson on Building Contracts, 7 ed. (1946), p 343: “the measure of the damages recoverable by the building owner for the breach of a building contract is, … the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach.” …the necessary remedial work may call for the removal or demolition of a more or less substantial part of the building. … There may well be cases where the only practicable method of producing conformity with plans and specifications is by demolishing the whole of the building and erecting another in its place.

23. The High Court held that what was compensable as the extent of the building owner’s loss was the work required to achieve conformity and the cost of the work, together with “any appropriate consequential damages”. The qualification added (at 618-619) was that the work must be necessary and reasonable:

We … think that the building owner’s right to undertake remedial works at the expense of a builder is not subject to any limit other than is to be found in the expressions “necessary” and “reasonable”, … a building owner [has] the right to demolish a structure which, though satisfactory as a structure of a particular type, is quite different in character from that called for by the contract. Many examples may, of course, be given of remedial work, which though necessary to produce conformity would not constitute a reasonable method of dealing with the situation and in such cases the true measure of the building owner’s loss will be the diminution in value, if any, produced by the departure from the plans and specifications or by the defective workmanship or materials. As to what remedial work is both “necessary” and “reasonable” in any particular case is a question of fact. But the question whether demolition and re-erection is a reasonable method of remedying defects does not arise when defective foundations seriously threaten the stability of a house and when the threat can be removed only by such a course. ...

24. Passing reference was made to Bellgrove during the hearing, but no party dealt with the consequences of its application for the facts of the case here. Importantly, in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; 236 CLR 272, the High Court (French CJ, Gummow, Heydon, Crennan and Kiefel JJ) stated at [13] that damages for breach of contract are intended to put the injured party in “the same situation” as if the contract had been performed and not “as good a financial position”.

25. In the present case, the approach for which the plaintiff contended was rejected because it overlooked that the obligation was to put the defendants in the same situation as if the contract had been performed. The plaintiff assumed that the quantum of damages to be awarded was limited to the same items and work that was included in the original contract which was done by the subsequent builder, without taking any account of the compensation that was recoverable to rectify the structural departures from the contract and for which no rectification was now possible absent demolition.

26. What was required to remedy the injury to the defendants was not just an amount compensating them for the cost of completing the contract (at greater expense), but an amount compensating them for the failure to construct the townhouses in accordance with the approved plans ‘so far as money can do it’. In that regard, it is relevant that the defendants’ intention was to live in one of the townhouses and that the environmental performance of what was constructed was important to them.

27. The foundation slab in particular was a structural departure that remains, to this day, not in accordance with what the contractual engineering plans specified. Ms Elleway’s evidence, which was accepted, was as follows:

[the slab] was not in accordance with the approved plans that we had originally agreed to. But without knocking the house down, we could not do anything other than bring the house into compliance. And at that point in time, the only way of bringing the house into compliance was to rely on Mr Cobanov's relationship with his friend, the engineer, …, because no other engineer was going to touch it. Our engineers, who we had employed and paid to provide the engineering for the house were not going to re-certify engineering and slab design that they had not approved, and which the ACT Government had not approved. And so at that point in time, the only way I could bring my house back into compliance was to maintain the relationship with [the plaintiff].

28. Ms Elleway went on to say that the plans were made compliant, but she did not have “the building or the build quality” that she had contracted for. When she was sitting in the witness box years later, she was still dealing with regulatory action in relation to the issues which were the subject of the stop work notice (which included the non-compliant slab and footings). She did engage an independent structural engineer to attend the property but (absent demolition), the structural engineer was unable to assess and confirm the structural stability of the slab and footings.

29. The importance of the slab being constructed in a certain manner was because of the product being used. The structural insulated panels required a construction in accordance with the original plans because that affected their environmental performance.

30. Overall, the defendants may have managed to achieve the completion of two built townhouses, but they were not the townhouses that possessed the original optimum design for the function or performance of the structural insulated panels. They are not the product for which the defendants had contracted.

31. On the application of the authorities and the facts found, the $72,711.01 amount sought by the defendants similarly did not take account of the fact that the injured parties were prima facie entitled to damages representing the cost of rectification of the work so that it achieved conformity with the contract, along with any appropriate consequential damages, not just damages for the completion of the contract after breach.

32. It was perhaps to their credit that the defendants did not seek the extensive rectification works that would have put them in truly the same position as if the contract had been performed. As they did not do so, arguments about proportionality, or what was necessary and reasonable, did not arise. The approach taken by the defendants was a pragmatic one.

33. However, having so limited their claim, the proper compensation which would have placed the defendants in the same situation as they would have been in (had the contract been performed) extended at least to the amount claimed. The evidence as to what was properly recoverable, not just to complete the townhouses under the contract, but to achieve conformity with the original contract, was lacking. I formed the view that the invoiced amounts to complete and partially rectify were plainly recoverable, and that any sums claimed that were for inclusions not originally specified in the contract might have also been characterised as monies toward rectification of the structural departures that the defendants were presently stuck with, and partly to diminution in amenity.

34. That is why the plaintiff’s arguments about the specific items in the invoices fell away. The expenses that were claimed were well below the compensation to which the defendants were probably entitled, the full amount of which they did not seek. This was not a situation where a credit for betterment was required.

35. Given the difficulties in assessing quantum, which necessitated a broad-brush approach, I accepted the sum claimed by the defendants as being a reasonable estimate of the measure of their damage, mindful of the obligation of the Court to do the best it can to assess and award damages where there has been an actual loss. I did so because I was confident, indeed certain, that the true measure of the defendants’ compensation exceeded their claim.

Interest

36. Interest on $25,089.35 from 18 May 2020 to the date of the making of orders, at the rates set out in Schedule 2 to the Court Procedures Rules 2006 (ACT), is $2798.18.

Costs

37. In light of the Court declining to revisit the actual finding, as opposed to providing reasons for the finding made, the plaintiff sought an order that each party pay their own costs, having regard to the element of mixed success.

38. The defendants sought to rely on two documents which they said were offers of compromise, arguing that it was unreasonable for the plaintiff to reject the offer contained in each of the documents and that as a result, the plaintiff ought to pay indemnity costs. In this regard, the defendants relied on principles deriving from Calderbank v Calderbank [1975] 3 All ER 333 (Calderbank).

Is there any basis for an award of indemnity costs?

39. In Southwell v Staite (No 2) [2019] ACTSC 83, I discussed the necessary requirements for the Court to find that an offer could properly be described as a Calderbank offer, and when an effective Calderbank offer might give rise to an entitlement to indemnity costs, at [8]-[17]:

What constitutes a Calderbank offer? 8. Principles relevant to Calderbank offers are set out in a number of decisions of Refshauge J, including Pires v DibbsBarker Canberra Pty Limited [2014] ACTSC 283 at [97] and Financial Integrity Pty Ltd v Farmer (No 4) [2014] ACTSC 145 at [24]- [46]. The criteria that I consider when determining whether a letter constitutes a Calderbank offer are as follows: (a) The letter must be either an open letter or marked “without prejudice save as to costs” and thus be able to be tendered at any hearing or an application for costs; (b) The offer in the letter must be a genuine compromise; (c) The offer must be in clear and unambiguous terms and be a final offer, not subject to any further negotiation; (d) The letter must state expressly that, if the offer is not accepted, then a special order, such as for indemnity costs, will be sought. 9. An effective offer may be made before an action commences: Ofria v Cameron (No 2) [2008] NSWCA 242 at [27]. How is the Court’s discretion to be exercised? 10. A common approach to applications of this kind is to ask two questions (Miwa Properties Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]; Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 at [10]; Tuggeranong Town Centre Pty Ltd v Brenda Hungerford Pty Limited (No 3) [2017] ACTSC 301; 325 FLR 436 at [281] and the case there-cited): (a) Was there was a genuine offer of compromise? (b) Was it was unreasonable for the offeree not to accept it? 11. As a matter of principle, the Court’s discretion is not confined to considering only offers made exclusive of costs. An offer may be made “inclusive of costs”, and accepted as a genuine assessable compromise: DSE (Holdings) Pty Ltd v Intertan Inc [2004] FCA 1251; 51 ACSR 555 at 557 and [12]-[13]; Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [5] per Beazley JA (as her Honour then was), at [135] per Basten JA. 12. However, the question is whether the offer is made in terms that enable the offeree to give proper consideration to it: Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 (Monie) at [13]. An offer made inclusive of costs may create difficulties if the Court is not readily able to determine the various components of an offer, so as to assess whether it was unreasonable not to accept it. 13. This led Refshauge J to the view that the costs component should ordinarily be isolated in a way that makes it clear and capable of proper assessment without a taxation or formal assessment of costs: Hillman v Box (No 5) [2014] ACTSC 150 at [30]. What constitutes an unreasonable rejection of an offer? 14. If it is found that a Calderbank offer was properly made, and that it was a genuine offer of compromise, the Court then asks whether the rejection of an offer was unreasonable in the circumstances. 15. The mere fact that an offer was made but not accepted does not result in an award of indemnity costs. The party seeking the order for indemnity costs bears the onus of establishing the entitlement to an award of indemnity costs based on the rejection of an offer of compromise being unreasonable: see Kemp v Ryan [2011] ACTSC 42 at [18] and Vizovitis v Ryan (No 2) [2014] ACTSC 301 at [17], each relying on Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]. See also the detailed discussion in Evans v Braddock (No 2) [2015] NSWSC 518 at [49]. 16. An offer to compromise involves an assessment, both by the offeror and the offeree, of the prospects of success of the claim, together with an assessment of the damages that may be awarded. So far as an offeree is concerned, that party must have available sufficient material to enable that assessment to be made: Monie at [9]. 17. Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) VR 435 contains a non-exhaustive list of relevant factors relevant to assessing whether it was unreasonable to reject an offer at [25], including: (a) the stage of the proceedings at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise made; (d) the offeree’s prospects of success, assessed at the date the offer was made; (e) the clarity with which the terms of the offer were expressed; and (f) whether the offer foreshadowed an application for indemnity costs in the event the offer was rejected.

40. More recently in Anderson v Canaccord Genuity Financial Ltd (No 2) [2022] NSWSC 649, and having referred to the above matters in Hazeldene’s Chicken, Ward CJ in Eq said at [26]:

26 Factors that have been found to be relevant in determining whether the rejection of a Calderbank offer was not unreasonable, and tending against such finding, have included: all relevant evidence not having been served at the time of the offer (Vale v Eggins (No 2) [2007] NSWCA 12 at [22] per Beazley JA, as her Excellency then was, with whom McColl JA agreed); the full parameters of the dispute remaining uncertain at the time of the offer (Precision Products (NSW) Pty Ltd v Hawkesbury City Council (2008) 74 NSWLR 102; [2008] NSWCA 278 at [192] per Allsop P, as his Honour then was, Beazley JA, as Her Excellency then was, and McColl JA agreeing); the offeror’s case changing after the making of the offer (South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (South Eastern Sydney Area Health Service) at [85] per Hunt AJA, Mason P and McColl JA agreeing); the inclusion of conditions in the offer (Magenta Nominees Pty Ltd v Richard Ellis (WA) Pty Ltd (FCAFC, Spender J, French J (then sitting in the Federal Court) and Lee J, 29 August 1995, unrep); and the issues in dispute in the proceedings being complex (MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236; [1996] FCA 862 at 242D per Lindgren J).

41. The defendants relied on two different documents. Each will be considered in turn. The first was an email sent by the defendants to the plaintiff on 22 December 2018 which attached a letter, which was the subject of discussion in the primary judgment (at [25] and [26]).

42. Counsel for the defendants somewhat curiously sought to persuade the Court that the communication terminating the contract and seeking to come to a resolution about how to manage the completion of the building project, with no reference to any contemplated future litigation at all, was an effective Calderbank offer.

43. It is unnecessary to set out the contents of the document in its entirety here. The only ‘offer’ that was made was not an offer to compromise any legal claim. It was a proposal about the consequences of termination as follows:

I propose the following: 1. I will engage a quantity surveyor/building expert to audit the site as contemporaneously as possible in the new year. This will be for the purposes of fairly and reasonably agreeing what work has been undertaken to a requisite standard by you during the course of the contract to date. 2. engage a new builder to complete the works as per the original approved plans and fixed priced contract with you. 3. complete a reconci[l]iation of monies owed to all parties under the contract at the conclusion of 1 and 2.

44. It suffices to record that the contents of the email did not meet any of the criteria set out above. On no view could the email and letter be described as a final offer not subject to further negotiation, such that if accepted, the plaintiff could have been confident of no subsequent litigation. On the contrary, the letter attached to the email expressly stated that the defendants reserved all legal rights. There was no reference to Calderbank or even an implied reference such as to give rise to the expression of any intention to rely upon the letter on the question of costs in any subsequent litigation.

45. The defendant argued that the letter proposed a way forward, which was similar to what had eventually occurred, and that the defendants were shown to have acted reasonably. As was explained during the hearing, the assessment for the court when deciding whether to award indemnity costs is not whether one party has conducted itself reasonably, but whether any party has conducted the proceedings unreasonably. Establishing the former does not establish the latter.

46. As to the second document, it was in a different category. It was sent on 14 April 2020, after proceedings seeking an extension of a caveat had been commenced by the plaintiff. It was headed “without prejudice save as to costs”. It included an express reference to the offer being made in accordance with the Calderbank principles and an intention to rely upon the contents of the offer on the question of costs. The terms of the offer were as follows:

47. The parties execute a Deed to enable a walking-away from proceedings; 2. Parties bear their own costs; 3. Parties will take no further action in relation to the matter.

48. It can be seen that the offer was clear and represented a genuine compromise, and I accept that it was an effective Calderbank offer designed to bring the dispute to a close.

49. But what precisely was the dispute? At the time of the offer, neither the claim nor the defence and counter-claim had been filed. The contents of the defendants’ letter disclose that the plaintiff had sought payment, including on the basis of conversion. In response, the defendants contemplated a claim for rectification of non-compliant work and breaches by the plaintiff prior to termination by reason of repudiation in the amount of $161,304.56 and costs to achieve completion of $155,776.28. Such a claim was eventually filed on 7 July 2020 and it can be seen that the basis for the calculations matched what was set out in the letter of offer.

50. The plaintiff argued that the assessment of the defendants’ prospects of success on the proceeding at the time the offer was made was a highly relevant factor to the reasonableness or otherwise of the plaintiff’s rejection of the offer.

51. The defendants argued that even though the contents of the letter of offer did not set the allegations in more detail, the plaintiff knew:

(a) there was non-compliance with the plans and that the footings had not been put in as required.

(b) the raft footings were not tied to the slab, and

(c) that the structural steel to support the first floor had not been put in (initially).

51. Accordingly, the defendants submitted that the plaintiff was in a position to properly assess the offer, because it knew the facts that were the substance of their claim.

52. I accept that the rejection of an offer of settlement made before pleadings are filed can, in some circumstances, be unreasonable. This is not one of those occasions. Due to the lack of any pleadings, the full parameters of the dispute between the parties were obviously uncertain as at the date of the offer. The issues in dispute were also factually and legally complex. The complaints about defective workmanship and denial of any claim in conversion rose no higher than unsubstantiated allegations.

53. Even with the “knowledge” of the non-compliances set out above, this case involved factual complexities that required careful resolution, such that I am unable to find that the plaintiff should have evaluated the offer based on any knowledge the defendants would succeed on a yet to be pleaded claim made for repudiation. Had the conduct about which the plaintiff “knew” been found to be a breach, but not a repudiation, the success of the counter-claim may have been very different.

54. For these reasons, while it is clearly unfortunate that the plaintiff failed to accept the offer which would have avoided the subsequent litigation, its conduct in so doing at the time was not unreasonable and I decline to order indemnity costs against it. What is the appropriate costs order on the ordinary basis?

55. That leaves consideration of what costs order should be made, having regard to the compensatory nature of such an order and the guiding principle that costs will usually follow the event.

56. The following principles were set out in Clarkson Williams Partners Pty Ltd v Vaughan (No 2) [2016] ACTCA 8 at [10] (emphasis added):

[10] In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38], the NSW Court of Appeal summarised the principles governing the making of orders for costs where the successful party has not succeeded on all issues:

• Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed.

• In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument. A similar approach is adopted on appeal.

• If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue.

• Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed.

• A separable issue can relate to “any disputed question of fact or law” before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter.

• Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation.

57. What constitutes the “event” here, is not straightforward, because the plaintiff succeeded on the conversion claim, and the defendants succeeded on their counter-claim, although not in the sum originally claimed. Further, to the extent that the plaintiff was successful, the cause of action on which it succeeded occupied only a minor part of the proceeding overall. The question that occupied the bulk of the proceeding, whether that be addressed by reference to hearing time, evidence, or submissions, was the question of whether the plaintiff repudiated the contract. On that issue and on the counter-claim, the defendants were clearly the successful parties.

58. In that regard, cases such as Priestley v Priestley (No 2) [2016] NSWSC 1259 (Priestley) are of assistance. White J (as his Honour then was) traced through the history of the discretionary power as to costs from the perspective of the “frame of reference” by which success is to be judged (at [10]), stating at [49] (emphasis added):

With some hesitation I think that the picture that emerges from the course of authority is that what is the relevant event for the purposes of the rule is primarily to be determined by reference to the outcome of the litigation and whether or not the plaintiff has obtained judgment in his favour and that that is so even if the defendant has defeated some claims and has succeeded on others, or has succeeded on some issues. I think that emerges from the history of the rule where even though the event was capable of referring to particular issues such that the defendant might be entitled to costs referable to the issues upon which he succeeded, nonetheless, a plaintiff who obtained judgment was entitled to his general costs of the proceedings. I think that also clearly appears from what was decided in Mount Bruce Mining, and although a different formulation was adopted by Gleeson JA in Sze Tu v Lowe, his Honour did not express dissent from what had previously been said.

59. His Honour had earlier stated at [40] (emphasis added):

The costs order in favour of a successful party can be ameliorated to reflect that party's failure on particular issues even though the successful party did not act unreasonably in raising or defending those issues (Permanent Trustee Australia v FAI General Insurance Co (Supreme Court of New South Wales, Hodgson CJ in EQ, 3 June 1998, unreported); Short v Crawley (No 40) [2008] NSWSC 1302 at [32]; Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423).

60. Consistent with those principles, r 1705(1) of the Rules expressly states that the Court “may make an order for costs in relation to a particular issue in, or a particular part of, a proceeding”. Rule 1705(2) provides that the Court may effectively apportion costs by declaring what percentage of the costs of the proceeding is attributable to the issue or the part of the proceeding to which the order relates.

61. Ordinarily, I would have considered that a partially successful plaintiff should not be deprived of the entirety of its costs. Here however, the counter-claim overlapped completely with the defence of the primary debt claim made by the plaintiff. It would not be just to order the defendants to pay any of the plaintiff’s costs where after set-off, judgment will be entered in their favour. Ultimately, as discussed in Priestley, that is the reference point for the outcome of the litigation.

62. Accordingly, I have decided that an order that the plaintiff pay 75% of the defendants’ costs of the proceeding on the ordinary basis up to the date of judgment achieves the compensatory objective that most closely reflects the outcome for each party, with such apportionment intended to reflect the defendants’ failure on a particular issue, that being the conversion claim.

63. Finally, and to avoid any further dispute about it in the event that costs are not agreed and have to be assessed, the costs order to be made at the conclusion of the trial does not directly or impliedly vacate any earlier costs order made in favour of any party at an earlier stage of the proceeding.

Conclusion

64. The orders of the Court are as follows:

(1) Judgment is entered for the defendants in the sum of $25,089.35 plus interest in the sum of $2,798.18.

(2) The Registrar General is to remove Caveat no. 3032521 from the title of the land identified as Unit 4, Block 27 Section 37 Chifley in the Australian Capital Territory.

(3) The plaintiff is to do all things necessary to facilitate the removal of the caveat pursuant to order 2. (4) The plaintiff is to pay 75% of the defendants’ costs of the proceeding up to 22 November 2022.

(5) The parties are to pay their own costs from 22 November 2022.

I certify that the preceding sixty-four [64] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam.

Associate: Aislinn Grimley

Date: 21 December 2022