Bannister & Hunter v Transition Resort Holdings

Supreme Court of NSW|2014-08-12|Before: McDougall J

Judgment 1HIS HONOUR: The plaintiff (BH) agreed to provide design and project management services to the defendant (Transition) for a proposed residential subdivision to be undertaken by transition at Fern Bay, north of Newcastle. Each party claimed that the other was in breach of that contract. BH claimed for unpaid fees. Transition, disputing that it owed all the fees claimed, said in addition that it suffered damage because BH's services were provided negligently and in breach of contract.

The proceedings to date 2I gave judgment on 20 December 2013: Bannister and Hunter v Transition Resort Holdings (No.3) [2013] NSWSC 1943. I concluded in substance that: (1) BH was entitled to recover the fees claimed by it together with interest; and (2) Transition had made good most, but not all, of its claims for damages. 3I quantified Transition's damages, for all but one of the heads of claim on which it succeeded, in amounts totalling $565,521.00. The parties agree that there is an arithmetical error in my calculations, and that, for those heads of damage and on my conclusions, the arithmetically correct total is $667,021.00. 4However, I came to the view that the evidence was not sufficient to enable me to quantify the largest single item of damages claimed by Transition. That claim related to what the parties called, as did I in my earlier reasons, VENM. The acronym denotes "Virgin Excavated Natural Material". It refers to a layer of fill that was used to cap and grade the surface of the site. I found that the VENM layer did not comply with the specification, because it contained numerous oversized particles. 5For the reasons that I gave at [294] to [301], I took the view that the parties should attempt to agree on the method of rectification and the cost. Against the possibility (which, having regard to the way the litigation was conducted, could more accurately be described as "the probability") that the parties could not agree, I said that I would refer those questions out. 6For convenience, I set out those paragraphs of my earlier reasons: [294] The evidence is lamentably imprecise on this point. The basic method of rectification would appear to require that the VENM layer be ripped up, crushed and relaid. [295] Mr Mostyn suggested that it might be possible to put up with the deficiencies in the fill, and to measure damages by the incremental cost of utilising heavier earthmoving equipment for the installation of services. [296] As an alternative, Mr Mostyn suggested that if the fill did require ripping up and crushing, it should be screened so that only oversized material was re-crushed. As he pointed out, if the oversized material comprised 15% of the whole (and he did not accept that the photographs showed this), then 85% of the fill need not be crushed. Mr Shirley appeared to accept that it would only be the oversized material that should be crushed. [297] Mr Shirley gave evidence, although extremely imprecise, as to cost. His view (that the cost of ripping up, crushing and relaying would be about $28.00 per tonne) was based apparently on inquiries made of contractors, supplemented by reference to standard construction costs guide. Without being disrespectful to Mr Shirley, I do not have any confidence in his estimate based on those (principally) unspecified and untested sources. Nor does that evidence deal with the matter referred to in the previous paragraph, or its cost consequences. [298] When I deal with the next and last issue, I conclude that Transition is entitled to recover the reasonable costs of rectification notwithstanding that it has sold the site and appears to have no ongoing interest in its development. That means that it will be necessary for the cost of rectification to be ascertained in some way. [299] Towards the end of submissions, I proposed to Counsel that if matters got this far, I would be inclined (if the parties could not agree on a figure for the cost of rectification) to refer out the questions of how the defects should be rectified and what would be the cost. I said that if I did take this course, it would be necessary to consider the question of the costs of the reference, given that all issues (including all issues of damages) had set down for hearing in court. [300] Mr Weinberger accepted the proposition that there should be a reference out in the circumstances that have arisen. Mr Windsor did not appear to oppose this course. [301] Accordingly, the course that I shall take in respect of the costs of rectification is to stand the matter over so that the parties can attempt to agree on a figure, and to refer the relevant questions out if they cannot. 7The parties could not agree. Accordingly, the issue summarised at [299] was referred out to Mr Steven Goldstein of Counsel as referee. 8The order for reference was made on 18 February 2014. The question referred to Mr Goldstein was: What is the nature, extent and cost of the works required to rectify the bulk earthworks on the land at [title description inserted] arising out of the breach of contract by [BH], as set out in [the relevant paragraphs of my earlier reasons]? 9By agreement, and to rectify what the parties saw as being some lack of precision, that question was varied on 30 April 2014 so as to insert after the word "earthworks" the words "so as to bring the VENM layer into conformity with the specification". For convenience, I repeat the question with that change: What is the nature, extent and cost of the works required to rectify the bulk earthworks, so as to bring the VENM layer into conformity with the specification, on the land at [title description inserted] arising out of the breach of contract by [BH], as set out in [the relevant paragraphs of my earlier reasons]? 10Mr Goldstein reported, with commendable efficiency, on 27 June 2014. It is apparent from his report that the parties' experts had agreed on the method of rectification, and on the cost, in each case on the assumption that the whole of the VENM layer was to be brought into conformity with the specification. As is apparent both from the report and from the outline submissions (including the statements of findings of fact and law for which each contended - UCPR r 20.20(5)), the real issue was whether the cost of rectification should be limited to what BH called the "Undeveloped Portion" of the site, or whether, as Transition contended, it should relate to the whole of the site. 11Mr Goldstein concluded that he was bound, both by my reasons and by the nature of the question referred, to conclude that the cost should be for rectification of the whole site. On that basis, he concluded (as the parties' experts agreed) that the cost would be $2,104,112.00.

The remaining issues 12Transition moves for adoption of the report, judgment (both pursuant to my earlier reasons and in consequence of the adoption of the report) and costs (including a special costs order). BH accepts that it follows from my earlier reasons (and the arithmetical correction to which I have referred) that Transition is entitled to damages in the corrected sum referred to at [3] above. However, it contends that the report should be varied so that the damages for the cost of rectification of the VENM layer should be limited to the cost of rectification of the Undeveloped Portion. 13There are several distinct issues as to costs. I will set those out later in these reasons.

Adoption of the report 14It is apparent that the question dividing the parties, as to adoption of the report, is whether damages for the cost of rectification of the VENM layer should be assessed in respect of the whole of the VENM layer or in respect of the Undeveloped Portion only. Transition submits that this issue was decided, in its favour, by my earlier reasons. 15BH refers to the (undisputed) facts that: (1) Transition had sold the site to another developer; (2) no rectification work has ever been done, before or after that sale, to bring the VENM layer into conformity with the specification; (3) the purchaser of the site has developed it so that 90% of it comprised residential lots (on some of which houses have been constructed), roads, and other services; (4) rectification of the developed portion of the site cannot and will never be undertaken by anyone; and (5) in any event, it may be inferred that rectification of the remaining 10% of the site will never be undertaken by anyone. 16The position taken by BH reflected its position at trial. Transition had sold the site before the hearing. BH contended that the fact of sale, coupled with the absence of any agreement between Transition and the purchaser that Transition would undertake rectification of the VENM layer and the absence of any evidence that the sale price had been diminished by the state of the VENM layer, meant that "cost of rectification" damages should not be allowed. I dealt with that submission at [302] to [345] and concluded, at the last-mentioned paragraph, "that the fact of sale does not preclude Transition from receiving damages based on the cost of rectification of the defects in the VENM layer". 17The additional facts, that the purchaser has developed the land and that 90% of it has now been given over to residential lots, roads, and other services, does not seem to me to add anything. On the evidence at trial, it was open to infer (more accurately, "obvious") that Transition would never rectify the VENM layer and that there was no agreement in place between it and the purchaser in relation to rectification. 18In substance, it seems to me, BH sought to reargue before the referee a question - namely, the applicability of the "Bellgrove" measure of damages (Bellgrove v Eldridge (1954) 90 CLR 613) in the events that had happened - that had been argued at trial, and dealt with in my reasons. I do not accept that the additional facts, relating to the extent to which the purchaser has developed the land, added anything relevant to the debate, or provided any justification for reopening the debate. 19Further, not content with a second bite at the cherry, BH has sought to reargue the issue again, on the question of adoption. 20To my mind, the referee was correct to conclude, on the basis of my reasons, that the question referred to him required him to assess damages for the cost of rectification of the VENM layer across the entire site. 21The conclusion to which I came on the Bellgrove question may be right, or it may be wrong. Nonetheless, unless and until it is set aside on appeal, it is dispositive of that issue between the parties. And, being in that sense dispositive, it decided the basis on which damages for which rectification on the VENM layer be assessed. 22Accordingly, I do not accept BH's challenge to the adoption of the report. It follows that Mr Goldstein's report should be adopted.

Consequences of adoption; interest 23I turn to the question of quantification of damages. 24On 12 February 2014, I directed entry of judgment for BH on its claim against Transition for the unpaid fees and interest. I directed entry of judgment for Transition on its cross-claim against BH "for damages to be assessed". No monetary judgment has in fact been entered, either for BH or for Transition (not surprisingly, in the case of the latter's cross-claim). It follows, contrary to Mr Weinberger's submission, that Transition should not have pre-judgment interest on the earlier quantified aspect of its cross-claim (for $667,021.00, after correcting my arithmetical error) up until 12 February 2014 and post-judgment interest thereafter. 25To my mind, the simplest way to deal with this is to direct that the judgments be entered at the date of delivery of these reasons, with interest on the amounts claimed (in the case of damages for rectification of the VENM layer, only from the date of the report, since that is the date at which those damages were assessed) and for those judgments to be set off. I accept, as Mr Muston of Counsel submitted for BH, that it is not appropriate to give Transition interest up until judgment at an earlier time, and interest on a judgment sum (itself comprising a substantial amount of interest) thereafter. 26The parties should work out the monetary consequences of that process.

Costs: the reference out 27I turn to the question of costs. Leaving aside the costs of the reference, and the question of a special order as to costs, the overall position is that Transition succeeded. BH accepts that, leaving aside the two qualifications to which I have referred, costs should follow the event. Once the judgments are set off, the event will be that Transition succeeds. 28Transition accepts that it should pay the costs of the reference, but with qualifications. Those qualifications are that the costs payable should exclude those which would have been payable in any event, and that BH should not "have its costs to the extent they were incurred for the purpose of seeking to collaterally attack the Court's finding that Transition is entitled to rectification costs". 29The starting point is that the reference was necessary only because BH had not adduced evidence at trial quantifying its damages for rectification of the VENM layer. For reasons that I gave, and which I will not repeat, I concluded that the evidence was insufficient to support even an educated guess as to the cost of rectification. That view has been fortified by the evidence given to, and acted on by, the referee. Thus, as I indicated in the course of argument at the trial, the reference out was at Transition's risk as to costs. It was for that reason that, at [354] of my earlier reasons, I reserved expressly the question of costs of the reference. 30If matters went no further, I would order BH to pay Transition's costs of the hearing, excluding the costs of the reference; Transition to pay BH's costs of the reference; and costs to be set off. 31It may be correct to say, as Mr Weinberger submitted, that some of the costs incurred with respect to the reference would have been incurred at trial in any event, because they related to quantifying the cost of rectification. However, I am not satisfied that the full cost of adducing that evidence on a "stand-alone" basis, for the purposes of the reference, would have been incurred had that question been addressed as one of the numerous questions canvassed in the very substantial amount of expert evidence given at trial. On the contrary, I think that the cost of adducing the evidence specifically for the purposes of the reference must have exceeded very substantially the incremental cost of doing so as part of the expert evidence adduced at the trial. 32Since the necessity for the reference arose entirely from Transition's failure to deal with this matter appropriately in its evidence in chief (or at all), I do not think that a carve-out of "costs which would have been incurred in any event" is justified. 33Transition's second point does have substance. As the referee's report and its supporting documents show, the parties' experts agreed on the method of rectification and the costs thereof, on the assumption that those costs should relate to rectification of the whole site. The actual hearing before the referee, and the issues that he was required to decide, related only to BH's attempt to reargue matters that had been decided in my earlier reasons. 34In short, there has been a substantial expenditure of costs, in relation to the reference, for two reasons. One reason is the failure of Transition to deal with the matter, as it should have done, at trial. The other is BH's insistence on rearguing matters that, as the referee concluded and I have said, were effectively decided by my earlier reasons. 35In the circumstances, sufficient justice, as to the costs of the reference, is done by making no order as to those costs, to the intent that: (1) each party should pay one-half of the referee's costs, and indemnify the other to the extent that it may have overpaid; and (2) otherwise, each party should bear its own costs of the reference.

Indemnity costs 36I turn to the application for a special order as to costs. 37It is common ground that Transition made four offers to settle: (1) an offer of compromise made on 27 September 2013 (about six weeks before the commencement of the trial) to settle the claim and the cross-claim by judgment in its favour for $3 million; (2) an offer made on 11 February 2014 (a week before the order for reference out was made), to settle the claim and cross-claim for an amount of little under $3 million (presumably, on the basis of a judgment in its favour) together with costs on the ordinary basis; (3) an offer made on 17 April 2014 (four weeks before the date then fixed for the commencement of the hearing on the reference) to settle the claim for rectification costs in the sum of $2 million, on the basis that each party paid its own costs of the reference; and (4) an offer made on 23 May 2014, (a little under two weeks before the rescheduled commencement of the hearing on the reference), to settle the claim for rectification costs in the sum of $1,750,000.00, on the basis that each party paid its own costs of the reference. 38The first offer was made not only by offer of compromise under UCPR r 20.26, but also "in accordance with the principles enunciated... in Calderbank v Calderbank [1976] Fam 93". 39For reasons best known to Transition and its legal advisers, but consistent with the way in which the case for Transition had been conducted in some respects, the Court was not provided with the offer of compromise. Fortunately, that does not matter. BH accepts that, if I were to conclude that the referee's report should be adopted, one consequence is that the amount recoverable by Transition will exceed the amount offered, so that the consequences of non-acceptance prescribed by UCPR r 42.13 should follow. 40It is thus necessary to do no more in respect of the second, third and fourth offers than to note that they were made "without prejudice save as to costs (or "save as to costs of the Reference hearing"), and were clearly intended to and did evoke the Calderbank principle. Conclusion on costs 41It follows that: (1) BH should pay Transition's costs of the proceedings (save for costs in respect of the reference, as to which there should be no order as to costs); and (2) the costs so payable should be assessed on the ordinary basis up until 27 September 2013 and on the indemnity basis thereafter.

Orders 42I make the following orders: (1) Order that the report of Mr Steven Goldstein as referee dated 27 June 2014 be adopted. (2) Direct the parties to bring in, within 7 days, a form of judgment in accordance with [25], [26] above. (3) Subject to orders (4) to (6), order the plaintiff/first cross-defendant to pay the defendant/cross-claimant's costs of the proceedings including the first cross-claim. (4) Order that the costs so payable exclude all costs of and incidental to the reference out. (5) Order the plaintiff/first cross-defendant and the defendant/cross-claimant to pay equally the costs of the referee, and each to indemnify the other to the extent that it may have overpaid its one-half share; (6) Otherwise, make no order as to the costs of the reference, to the intent that each of the plaintiff/first cross-defendant and the defendant/cross-claimant shall pay its own costs thereof. (7) Order that costs payable by the plaintiff/first cross-defendant to the defendant/cross-claimant be assessed on the ordinary basis up until 27 September 2013 and on the indemnity basis thereafter. (8) Direct that the exhibits be handed out. (9) Reserve liberty to apply, in respect of the judgment to be entered in favour of the defendant/cross-claimant pursuant to these orders and the Court's earlier reasons, on 7 day's notice.

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: 14 August 2014

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