Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited

Chen v Karandonis [2002] NSWCA 412 Colgate-Palmolive v Cussons Pty Limited (1993) 46 FCR 225 Commonwealth of Australia v Ryan (No 2) [2002] NSWCA 386 DSE (Holdings) Pty Limited v Intertan Inc [2004] FCA 1251; 51 ACSR 555 Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited (1988) 81 ALR 397 CASES CITED: Harrison v Schipp [2001] NSWCA 13 Ingot Capital Investments Pty Limited v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206 Intertan Inc v DSE (Holdings) Pty Limited [2005] FCAFC 54 Leichhardt Municipal Council v Green [2004] NSWCA 341 Re Wilcox; Ex parte Venture Industries Pty Limited (No 2) (1996) 72 FCR 151 Rosniak v Government Insurance Office (1997) 41 NSWLR 608

PARTIES: Baulderstone Hornibrook Engineering Pty Limited Gordian Runoff Limited

SOLICITORS: Appellant: Freehills Respondent: Corrs Chambers Westgarth

LOWER COURT JURISDICTION: Supreme Court - Equity Division

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40316/2006

ALLSOP P BEAZLEY JA CAMPBELL JA

12 February 2009 BAULDERSTONE HORNIBROOK ENGINEERING PTY LIMITED v GORDIAN RUNOFF LIMITED (NO 2) Costs Judgment 1 ALLSOP P: On 9 October 2008 the Court made an order dismissing the appeal with costs: [2008] NSWCA 243 (the "principal judgment"). This is a motion by Gordian to vary the order for costs. (I will use the same abbreviations as used in the principal judgment.) 2 The orders sought by Gordian are as follows:

1. The appellant pay the first respondent's costs of the appeal on an indemnity basis.

2. Alternatively, the appellant pay the first respondent's costs of the appeal: (a) incurred up to 13 November 2007 on an ordinary basis, as agreed or assessed; (b) incurred after 13 November 2007 on an indemnity basis.

3. Alternatively, the appellant pay the first respondent's costs of the appeal: (a) incurred up to 1 June 2008 on an ordinary basis, as agreed or assessed; (b) incurred after 1 June 2008 on an indemnity basis. 3 Gordian seeks these orders on two bases:

(a) that the appeal was manifestly devoid of any merit and BHE should have known that it had no real prospects of success; and

(b) that BHE acted unreasonably in not accepting two offers made by Gordian to dispose of the appeal by compromise. 4 The first basis ([3 (a)] above) was supported by reference, in part, to the well-known line of cases to the effect that a party should pay costs on an indemnity or a solicitor and client basis when it appears that an action (here an appeal) has been commenced or continued in circumstances where the moving party, properly advised, should have known that it had no chance of success: Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited (1988) 81 ALR 397 at 401, applied in Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 615-616 (Mason P, with whom Clarke JA agreed, and with which statement of principle Meagher JA did not disagree, though he dissented on the order for indemnity costs); Harrison v Schipp [2001] NSWCA 13 at [138] (Giles JA, with whom Handley JA agreed and Fitzgerald JA relevantly agreed); Commonwealth of Australia v Ryan (No 2) [2002] NSWCA 386 at [6] (Beazley, Giles and Hodgson JJA); Chen v Karandonis [2002] NSWCA 412 at [110] (Beazley JA, with whom Heydon and Hodgson JJA agreed); Colgate-Palmolive v Cussons Pty Limited (1993) 46 FCR 225 at 232-234 (Sheppard J in his helpful summary of the structure of the principles); and Re Wilcox; Ex parte Venture Industries Pty Limited (No 2) (1996) 72 FCR 151 at 156-157. 5 Three things need be borne in mind in a judgment such as this on costs: the desirability of avoiding unnecessary recitation of cases (abounding as they are in this area); the desirability of not restating, in different terms, approaches to the broad discretion that have been well settled; and the desirability of dealing with the arguments without over-elaboration, if this is possible. 6 The written submissions of Gordian recite what is said to be sufficient delinquency in the approach and arguments of BHE to justify the award of indemnity costs. It was submitted that the facts as found by the primary judge inevitably led to the conclusion that the appeal must fail. 7 It is unproductive to recite the detail of the arguments supporting the first basis put forward. They largely follow the sequence and reflect the pattern of argument which prevailed for the insurers in the principal judgment. 8 I do not think, however, that these considerations warrant the conclusion that the arguments of BHE on appeal were so lacking in merit that any lawyer would have necessarily advised one way. In this context, it is important to recall that the primary judge had not dealt with the argument that ultimately failed on appeal. 9 The arguments put by BHE were not, in my view, so lacking in merit as to warrant an award of indemnity costs. 10 I should say that the basis for awarding costs on an indemnity basis in DSE (Holdings) Pty Limited v Intertan Inc [2004] FCA 1251; 51 ACSR 555 at [35]-[40] (upheld on appeal: Intertan Inc v DSE (Holdings) Pty Limited [2005] FCAFC 54) was particular to that case. In that case, I took the view that although the points run by the appellant at the trial had not been imprudently or unreasonably taken, nevertheless the appellant had engaged in litigious "trench warfare" taking every point in the teeth of honest commercial commonsense. I said the following at [36] in the context of a 12 day case that could have been a three day case with certain reasonable concessions and a degree of openness about the evidence: "… if people want to fight trench warfare in commercial litigation and if people want to fight a case about rectification and common understanding and construction of contracts and not lay out reasonably frankly the evidence that is central to that then they should pay the full costs of a 12-day trial." 11 Here, on the appeal, BHE trimmed its arguments responsibly. The appeal took five days, but that length of time was required to argue and develop both the unsuccessful appellate arguments and the successful responsive arguments. 12 The first basis for the motion fails. 13 The second basis of the motion comprised two "Calderbank" offers sent by Gordian's solicitors on 13 November 2007 and 1 June 2008. The offers were not, and were not said to be, offers under the Rules. 14 The letter of 13 November 2007 proposed that that both the appeal and notice of contention be dismissed with no order as to costs, together with the release of the arrangements that had been made for security as to costs. 15 The offer was rejected. BHE (through its solicitors) did not accept the proposition that the letter of 13 November 2007 was a genuine offer of compromise. 16 The letter of (Sunday) 1 June 2008 (the day before the commencement of the appeal) set out, in short form, some reasons why the appeal would fail. It repeated the offer made in the letter of 13 November 2007 and also put forward a monetary compromise of the costs order for the trial. (The primary judge had ordered that BHE pay 30% of Gordian's costs on an indemnity basis and the balance on the usual basis.) 17 Gordian submitted that these were genuine offers and BHE was acting unreasonably in refusing them. 18 It is unnecessary and undesirable to restate, in any detail, the principles and public policy underlying Calderbank offers. Parties to litigation are expected to act reasonably in the running, and the resolution by compromise, of litigation. Stubborness, intransigence and unrealistic and unreasonable expectations and demands can lead to unnecessary and unreasonable demands on scarce public resources. Just as parties are obliged to exhibit co-operation and openness in the conduct of litigation (see the principal judgment at [160]-[170] and Ingot Capital Investments Pty Limited v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206 at [421]) they are obliged not to act unreasonably in the consideration and dealing with settlement offers. 19 BHE submitted that the offers were not genuine in that they were made only to trigger the costs sanctions. Reference was made to Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] and [39]. The relevant question is: was each letter a genuine attempt to reach a negotiated settlement? I am not prepared to conclude that each was otherwise than a genuine attempt to resolve the matter. In one sense, each was a demand to capitulate, but by the time of each of these letters a very large body of costs had been incurred. An offer to forego them was real. (I should not be taken to conclude that size of costs offered to be foregone is the only basis upon which an offer like this in a so-called "walk away" offer would be genuine.) There are now many authorities on genuineness of offers. All these are fact and circumstance specific to the case and the parties. The offer need only be, or be part of, a genuine attempt to reach a negotiated settlement. It has not been demonstrated that this was not a genuine offer. 20 Was it unreasonable for BHE to reject the offers? In my view, no. 21 I will not repeat either my reasons in the principal judgment or my reasons in respect of the first basis. It is sufficient to say that though BHE's arguments were wrong, they were not unarguable. In terms of assessing a "walk away" offer this is an important consideration. This is especially so in an appeal for a large amount of money of significant importance to the balance sheet of BHE. 22 Many of the cases which deal with the question of the genuineness of the offer and the reasonableness of the response to the offer focus on the difference (often in percentage terms) between the offer and the result. (See the very helpful, if I may say so, paper "Calderbank offers" delivered by Beazley JA to the Australian Lawyers' Alliance in March 2008 to be found on the Supreme Court's website under the link "Speeches".) Resort to events after the offer such as how the case was fought and the result are not irrelevant. It should be recognised, however, that it is the assessment of the reasonableness of the response of the offeree at the time the offer is made that is the question for resolution. Light may be thrown on this by later events and the outcome. These matters are not determinative, however, as they can be in an assessment of an offer under the Rules. The issue is whether at the time, looking forward, the decisions of BHE to reject the offers were unreasonable. In my view, they were not. 23 I would dismiss the motion with costs. 24 BEAZLEY JA: I agree with Allsop P. 25 CAMPBELL JA: I agree with Allsop P.

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