Built Qld Pty Ltd v Pro-Invest Australian Hospitality Opportunity

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - where defendant made formal offer to settle in accordance with Chapter 9, Part 5 of the Uniform Civil Procedure Rules - whether the plaintiff's offer meets the essential requirements for a valid offer under Chapter 9 Part 5 of the Uniform Civil Procedure Rules - whether the offer is a "complying offer" - where the offer was made to settle "all claims" by the Plaintiff and the Defendant - where the offer did not distinguish between the claim and counterclaim - where the offer required the parties to enter into a mutually acceptable deed of settlement and release reflecting the terms of the offer - where the offer did not specify a rate to calculate the interest component - where the offer specified a methodology to calculate the interest component

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - where defendant made formal offer to settle in accordance with Chapter 9, Part 5 of the Uniform Civil Procedure Rules - where "all in" offer amount in respect of claim and counterclaim - where offer did not distinguish between the claim and counterclaim - where single judgment amount - whether offer more favourable to plaintiff than judgment - where an offer also made pursuant to the principles of Calderbank v Calderbank - whether the plaintiff acted unreasonably in not accepting the Calderbank offer - whether the defendant's costs should be paid on an indemnity basis - whether defendant showed another order for costs appropriate

TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - INFORMAL OFFERS AND CALDERBANK LETTERS - UNREASONABLE REFUSAL OF OFFER - where defendant made an offer expressly stated to be made pursuant to the principles of Calderbank v Calderbank - where offer marked "without prejudice save as to costs" - whether offer more favourable to plaintiff than judgment - where the offer was an "all in" offer inclusive of costs and interest - where offer did not distinguish between the claim and counterclaim - where single judgment amount - where the offer foreshadowed an application for indemnity costs on the basis that the rejection of the offer was imprudent and/or unreasonable - whether the plaintiff acted unreasonably in not accepting the offer - whether the defendant's costs should be paid on an indemnity basis

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - GENERAL RULE: COSTS FOLLOW EVENT - GENERAL PRINCIPLES AND EXERCISE OF DISCRETION - whether the general rule that costs should follow the event should apply - whether another order for costs is appropriate in the circumstances

Civil Proceedings Act 2011 (Qld), s 58

Court Procedures Rules 2006 (ACT), s 21

Uniform Civil Procedure Rules 1999 (Qld), r 5, r 184, r 352, r 353, r 353(1), r 354, r 355, r 357, r 358, r 360, r 360(1), r 361, r 361(1), r 361(2), r 365, r 680, r 681, r 684, r 687, r 698, r 702, r 703, schedule 3

Supreme Court of Queensland Practice Direction Number 7 of 2013

AJ Lucas Drillings Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) [2010] VSCA 128

Alborn v Stephens [2010] QCA 58

Alves v Patel [2005] NSWSC 841

Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) v Hannell [2007] WASCA 158 (S)

Angelatos v Alternative Constructions Pty Ltd (unreported, Supreme Court of Victoria Full Court, #judge#, 30 November 1992)

AON Risk Services Australia Limited v Australian National University (2009) 239 CLR 175

Armstrong v Mitchell-Smith and Allianz Australia Insurance Limited (No 2) [2012] QSC 370

Australian Medica Innovations Pty Ltd v GO Medical industries Pty Ltd, Supreme Court of Western Australia (Wallwork J), 22 April 1996, BC9601613.

Avis v Mark Bain Constructions Pty Ltd (No 2) [2011] QSC 151

AVS Australian Venue Security Services Pty Ltd v Criminale (No 2) [2007] NSWCA 34

Badge Constructions Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6

Balnaves v Smith [2012] QSC 408

Barboza v Blundy & Ors [2021] QSC 82

Binaray Pty Ltd as Trustee for the Allen Family Trust v RAMS Financial Group Pty Limited [2019] QSC 280

BM Alliance Coal operations Pty Ltd v BGC Contracting Pty Ltd [2015] 1 Qd R 228; [2013] QCA 394

Brymount Pty Limited t/as Watson Toyota v Cummins (No 2) [2005] NSWCA 69

Built Qld Pty Ltd v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd [2021] QSC 224

Built Qld Pty Ltd v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd (No 2) [2021] QSC 301

Calderbank v Calderbank [1975] 3 All ER 333

Cameron v Nominal Defendant (2001) 1 Qd R 476; [2000] QCA 137

Campbell v Northern Territory of Australia (No 4) [2021] FCA 1413

Chambers v Brice [2014] QSC 52

Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2020] QSC 1

Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd & Anor [2016] QCA 130

Dover Beach Pty Ltd v Geftine Pty Ltd [2008] VSCA 248

Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602

Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322

Evans Shire Council v Richardson (No 2) [2006] NSWCA 61

Evans v Braddock (No 2) [2015] NSWSC 518

Farmer v Hoban [1919] HCA 13; (1919) 26 CLR 183

Godin v Godin [2004] WASCA 186

Hadgelias Holdings and Waight v Seirlis [2014] QCA 325

HAP2 Pty Ltd v Bankier [2020] QCA 152

Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435

J & D Rigging Pty Ltd v Agripower Australia Limited [2014] QCA 23

Jones v Bradley (No 2) [2003] NSWCA 258

Kane Constructions Pty Ltd v Sopov (No. 2) [2005] VSC 492

Keeley v Horton [2016] QCA 253

Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245; (2002) 27 WAR 287

Lamac Developments Pty Ltd v Devaugh Pty Ltd [2001] WASC 298

Leichhardt Municipal Council v Green [2004] NSWCA 341

LNC Harper Davidson Pty Ltd t/as Allansons (WA) v Keywest Building Co Pty Ltd (unreported, Supreme Court of Western Australia, Kennedy J, 13 July 1988)

Mackinnon v Petersen (unreported, Supreme Court of New South Wales, Cole J, 19 April 1989)

Masters v Cameron (1954) 91 CLR 3535

McBride v ASK Funding Ltd [2013] QCA 130

McKay v Armstrong & Anor [2020] QDC 146

Megerditchian v Khatachadourian [2020] NSWSC 112

Mickelberg & Others v The State of Western Australia & Others [2007] WASC 140 (S)

Mr Green Pty Ltd v Broadbeach Bowls & Community Club Inc (No 2) [2018] QDC 65

Porter v Lachlan Shire Council (No 2) [2006] NSWCA 252

Preti v Sahara Tours Pty Ltd [2008] NTCA 2

Rival Nominees Pty Ltd v Craig Davis Constructions Pty Ltd (unreported, Supreme Court of Victoria Full Court, Starke ACJ, Crockett and McGarvie JJ, 26 June 1981)

Rooney (Litigation Guardian of) v Gray 53 OR (3d) 685, 198 DLR (4th) 1; 2001 CanLII 24064

Seven Network Ltd and Anor v News Ltd and Ors [2007] FCA 1489; [2007] 244 ALR 374

SHA Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd (No 2) [2020] QSC 323

Shaw v Jarldorn (1999) 76 SASR 28

Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97

SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323

Southwell v Staite (No 2) [2019] ACTSC 83

Speets Investment Pty Ltd v Bencol Pty Ltd (No 2) [2021] QCA 39

Stewart v Atco Controls Pty Ltd [No 2] [2014] HCA 31; (2014) 252 CLR 331

Taske v Occupation & Medical Innovations Ltd [2007] QSC 147

Tremco Pty Ltd v Thomson [2018] QDC 109

White v Director of Housing [2003] VSC 124

Wiggins Island Coal Export Terminal Pty Ltd v Civil Mining & Construction Pty Ltd [2021] QCA 8

• [1] On 3 September 2021 I published reasons in respect of the various claims in the claim and counterclaim.[1] On 19 November 2021 I published further reasons dealing with the outstanding issues for calculating the final judgment, including interest.[2]
• [2] The issue of costs remained outstanding. The parties requested a timetable for delivery of further material and submissions in respect of costs.
• [3] On 26 November 2021, final judgment and directions were made as follows:

"THE JUDGMENT OF THE COURT IS THAT the Defendant pay to the Plaintiff the amount of $459,354.38, plus interest in the amount of $209,307.30.

1. By 4.00 pm on 2 December 2021, the Plaintiff is to file and serve its written outline of submissions on costs, together with any material upon which it wishes to rely.

2. By 4.00 pm on 16 December 2021, the defendant is to file and serve its written outline of submissions on costs, together with any material upon which it wishes to rely.

3. By 4.00 pm on 23 December 2021, the Plaintiff is to file and serve its written outline of submissions on costs in reply, together with any material upon which it wishes to rely.

4. The matter be listed for oral hearing in respect of costs on a date to be fixed."

• [4] The parties submitted that it was necessary for there to be further oral submissions in respect of costs in the particular circumstances of this matter. Due to the availability of Counsel and the Court vacation period, the matter was listed on Thursday 24 February 2022 for oral submissions.
• [5] These reasons use the defined terms set out in the reasons published on 3 September 2021, unless indicated otherwise.

• [6] The plaintiff submits that the defendant should pay the plaintiff's costs of the proceeding on the basis that there is no reason to depart from the usual rule that costs follow the event.
• [7] The defendant seeks to rely on a formal offer made under the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) and/or, an offer made pursuant to the principles in Calderbank v Calderbank[3] (Calderbank offer). The plaintiff submits that these offers do not provide a basis to depart from the usual rule.
• [8] Further, the plaintiff submits that there is not a sufficient basis in this case to apportion cost on an "issues" basis. However, if the Court is satisfied that is an appropriate course, then the plaintiff contends that only a modest discount of approximately 25 per cent would be reflective of the outcome.
• [9] The defendant relies on two offers:

(a) A formal offer made under r 353, Chapter 9, Part 5 of the UCPR on 21 June 2018 to settle all claims in the proceeding by payment of $1,850,000, plus interest pursuant to the Civil Proceedings Act 2011 (Qld) (Civil Proceedings Act) calculated from 11 August 2016 and payment of costs on a standard basis to be agreed or assessed (defendant's UCPR offer).

(b) A Calderbank offer made on 21 June 2018 to pay the sum of $2,250,000 (inclusive of any interest and costs) to settle the entirety of the proceeding (defendant's Calderbank offer).

• [10] The defendant submits that the appropriate costs orders are as follows:

(a) The plaintiff pay the defendant's costs on the indemnity basis from the date of the Calderbank offer;

(b) Alternatively:

(i) the plaintiff pay the defendant's costs in respect of the plaintiff's claim on the standard basis from the date of the formal offer;

(ii) the plaintiff pay the defendant's costs in respect of the counterclaim on the indemnity basis from the date of the formal offer.

(c) further in the alternative, the plaintiff pay the defendant's costs on the standard basis from the date of the offers.

• [11] As to costs up until 21 June 2018, the date of the offers, the defendant submits that:

(a) The plaintiff should pay a "fair portion" of the defendant's costs, suggested at 50 per cent.

(b) Alternatively, there should be no order as to costs.

• [12] If the Court finds that neither offer is effective, the defendant submits that the plaintiff should pay a portion of the defendant's costs in the proceedings, with 50 per cent being reasonable. Alternatively, there should be no order as to costs.

• [13] At the hearing on 24 February 2022 the defendant sought to rely on the unredacted affidavit of Anthony Ursino sworn 16 December 2021. As the plaintiff objected to some of the material in the affidavit, the filed affidavit redacted the parts that were subject to the objection.
• [14] The affidavit sought to put into evidence by the unredacted affidavit of Mr Ursino:

(a) an offer made by the plaintiff under the UCPR on 14 June 2018, by an email attaching a letter sent from Clayton Utz, the solicitors for the plaintiff to Jones Day, the then solicitors of the defendant (plaintiff's UCPR offer).

(b) An email from Ms Leeks of Jones Day to Mr Ursino of the defendant dated 15 June 2018 stating the amount that Ms Walton of Clayton Utz had informed Ms Leeks of Jones Day "[the plaintiff is] prepared to agree costs at" (June Costs Figure).

• [15] The defendant sought to tender this evidence:

(a) As part of the course of "without prejudice save as to costs" correspondence between the parties. The plaintiff's UCPR offer was made a week prior to the defendant's UCPR offer and the defendant's Calderbank offer.

(b) As a business record of the defendant recording the statement of the costs amount that the plaintiff was "prepared to agree".

• [16] At the costs hearing I ruled that the unredacted affidavit was admissible and the unredacted affidavit was marked Exhibit 1.
• [17] The defendant then sought leave to the extent necessary to cross-examine Mr Dale Brackin, the partner on the record for the plaintiff.
• [18] Mr Brackin had provided an affidavit in respect of the costs application which exhibited the defendant's UCPR offer, the defendant's Calderbank offer and a table showing analysis of the witness statements and expert reports to identify the percentage of the documents relevant to the Mechanical Variation.
• [19] The defendant did not give notice that Mr Brackin was required for cross-examination but Mr Brackin was in Court at the hearing. The defendant did not want to cross-examine Mr Brackin about the contents of his affidavit, but sought leave, to the extent necessary, to question him about the June Costs Figure. This was particularly so as the plaintiff had objected to the evidence as to the June Costs Figure on the basis that it was hearsay.
• [20] This course was objected to by Counsel for the plaintiff. The hearing was adjourned for an hour and a half to provide Mr Brackin the opportunity to review the file maintained by Clayton Utz in respect of these proceedings.
• [21] At the resumed hearing, I granted leave to the extent necessary to allow Mr Brackin to be cross-examined in respect of the June Costs Figure.
• [22] Mr Brackin's evidence included as follows:

(a) In May and June 2018, Mr Brackin was the partner at Clayton Utz in charge of the file in respect of this proceeding.[4]

(b) He was aware of the UCPR offer made by the plaintiff as contained in the letter dated 14 June 2018.[5]

(c) Ms Walton was a solicitor who acted under Mr Brackin's supervision at the time.[6]

(d) Mr Brackin was aware that Ms Walton sought instructions from the plaintiff.[7]

(e) The total actual costs incurred by the plaintiff at the time were not ascertained from the Clayton Utz billing system.[8]

(f) The $550,000 June Costs Figure was not based on Clayton Utz's actual billed costs, but was a commercial figure.[9]

(g) Mr Brackin did not believe that the $550,000 would have been approximately 60 per cent of the actual costs incurred at that time.[10]

(h) Mr Brackin could not say whether the plaintiff's costs of the proceeding at that time (approximately one year into the litigation) were in excess of $1 million.[11]

• [23] Mr Samuel Speechley, a solicitor with Thomson Geer for the defendant, also swore an affidavit exhibiting the defendant's UCPR offer, the defendant's Calderbank offer and the notice of defective works dated 11 August 2016 (which had been admitted in evidence at the trial: PRO.017.001.2806).
• [24] Mr Sam Lenz, also a solicitor with Thomson Geer, affirmed an affidavit as to analysis that he had undertaken of the pleadings, written closing submissions and the transcript. Exhibited to the affidavit is a spreadsheet recording the result of the analysis.

• [25] Rule 681 of the UCPR provides that the usual rule is that costs follow the event. The plaintiff contends that it was ultimately successful and it was necessary for the plaintiff to bring the proceedings to secure payment of any amount.
• [26] Further, the defendant had called on the security provided by the plaintiff. The plaintiff further points to the fact that the defendant was not entitled to the full amount of that security, even on its counterclaim.
• [27] The plaintiff acknowledges that it was not successful on all arguments. However, the plaintiff submits that the usual rule is not affected by whether a party has succeeded on all arguments. In this regard, the plaintiff relies upon the comments of Muir JA, with whom Holmes JA (as her Honour then was) and Daubney J agreeing, in Alborn v Stephens.[12] At [8], his Honour states:

"A party which has not been entirely successful is not inevitably or even, perhaps, normally deprived of some of its costs." (footnotes omitted)

• [28] The plaintiff contends that this is particularly the case given the nature of this matter, being a construction dispute. By way of an example, in support of this contention, the plaintiff refers to the decision of Mackinnon v Petersen[13] where Cole J was considering costs in respect of an arbitration involving 57 separate claims. The plaintiff was ultimately unsuccessful in 34 of those 57 claims. In that case, Cole J stated:[14]

"... In litigation involving the construction industry, it is common for there to be a sum claimed which is comprised of a multitude of smaller sums. Each constituent ingredient normally requires some separate consideration at the hearing to a limited extent. Frequently, reasons of a judge or arbitrator isolate a separate finding in respect of the constituent claims. However, in truth, the matter in dispute between a proprietor and a contractor is the ultimate sum due from one to the other. Particularly is that so at the conclusion of a construction contract.

In my view, as a general rule, it is wrong in concept to regard litigation in the construction industry in which a sum claimed compromises a multitude of claims requiring resolution, as being a series of separate and distinct claims each of which should attract separate consideration in relation to costs. Normally the general rule will apply. Of course, there may be cases in which a particular item, issue or aspect of a litigation is so dominant or separable that, in the exercise of a judicial discretion, it will be appropriate to award costs to a party successful on that issue although unsuccessful overall, or to decline to award that the successful party overall the costs of that issue. However, in the usual case where the parties are concerned with the amount of money payable by the owner to the builder, or vice versa, and resolution of that issue involves the determination of many separate issues, claims or aspects of liability, the normal approach should be to regard the party who obtains a verdict as being successful in the litigation and entitled to its costs. The real dispute between parties in such circumstances is not the entitlement in relation to each of a multitude of claims, but the overall entitlement or obligation of one party from or to the other."

• [29] This reasoning has been more recently cited with approval in Mickelberg & Others v The State of Western Australia & Others.[15] The plaintiff identifies that consistent opinions are also expressed in Hudson's Building and Construction Contract,[16] Commercial Arbitration[17] and Construction Law.[18]
• [30] The plaintiff also submits that the general principle and reasoning of Cole J has also been adopted and applied in other cases. This includes cases at the appellate level.[19]
• [31] At a more general level, the plaintiff also contends that whilst it is ultimately a matter for the exercise of the Court's discretion, it should not be "a matter of course" that there is apportioning of costs where a successful party has been unsuccessful in respect of certain discreet issues.
• [32] It is submitted that an apportioning approach would add to further uncertainty and complexity in the outcome of litigation. Further, it is contended that this would derogate from the prospect of settlement and oblige the Court to hear lengthy and frequent arguments in relation to costs.
• [33] The plaintiff also refers and relies on the decision in Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) v Hannell,[20] where the Court recognised:

"The power to adjust an order for costs by reference to particular issues upon which the generally successful party has failed, is properly exercised only where there are discrete and severable issues upon which the generally successful party has failed, and which have added to the cost of the proceedings in a significant and readily discernible way."

• [34] The plaintiff points to the particular circumstances of this case as follows:

(a) The numerous issues and evidence in this case are not easily disentangled.

(b) Several witnesses gave evidence relevant to both the claim and counterclaim.

(c) Whilst the Mechanical Variation claim constituted a significant part of the plaintiff's monetary claim, it did not "ultimately consume a disproportionate amount of trial time and resources".

(d) The plaintiff brought 22 claims of which the Mechanical Variation was one.

(e) The defendant brought 23 individual counterclaims.

(f) The majority of these claims were addressed by witnesses, including cross-examination, and were addressed in written and oral submissions.

• [35] Ultimately, the plaintiff submits that there is not sufficient reason in this case to deprive the plaintiff of part of its cost because of its failure to succeed in all aspects of its claim (even one with a large monetary value).
• [36] Again, the plaintiff stresses that it was required to bring the proceeding to compel payment from the defendant of amounts owing to the plaintiff. In the circumstances, the plaintiff submits that the appropriate order as to costs is that the defendant pay the plaintiff's costs of the proceeding, to be assessed on the standard basis.
• [37] If the Court considers it appropriate to apportion costs in relation to discreet issues, the plaintiff submits that a discount should be applied in the order of 25 per cent. This recognises that some of the expert evidence was directed more exclusively towards the Mechanical Variation but also recognises that the lay evidence occupied the majority of the evidence before the Court.
• [38] Further, this also recognises that the exercise of the Court's discretion is not a task "coloured by mathematical precision". In these circumstances, it is submitted that a fair and reasonable discount in the order of 25 per cent of the proceeding as a "matter of impression" would be appropriate. In the alternative, the plaintiff submits that the appropriate order is that the defendant pay the plaintiff's costs of the proceeding to be assessed on the standard basis and then reduced by 25 per cent.
• [39] In respect of the defendant's UCPR offer, the plaintiff identifies a number of difficulties with it operating as contended for by the defendant.
• [40] First, the formal offer does not distinguish between the amount offered to settle the claim and the amount offered to settle the counterclaim. It is an offer of a single amount to settle both the claim and counterclaim.
• [41] The plaintiff submits that the offer could not be wholly understood, due to the failure to identify the part of the offer purported to relate to the claim and the part purported to relate to the counterclaim.
• [42] The plaintiff accepts the offer meets the requirements of r 353 of the UCPR. However, the difficulty arises as a result of the application of r 361 (offer by defendant) or r 360 (offer by plaintiff). Each of those rules sets out what the Court is to consider in respect of an offer and further, to compare whether the offer made was "no less favourable" under r 360 or "more favourable" under r 361.

"2. The Plaintiff and Defendant will enter into a mutually acceptable deed of settlement and release reflecting the terms in this Offer to Settle."

• [46] Whilst the condition refers to the deed "reflecting the terms" in the offer, the offer, to be capable of acceptance, needed the parties to agree on a "mutually acceptable" form of document. It is submitted that this is a further impediment to a comparison between the offer and the outcome of the proceeding.
• [47] The plaintiff also points to the inclusion in the formal offer of interest "pursuant to the Civil Proceedings Act 2011 (Qld)". The plaintiff submits that component is necessarily within the discretion of the Court as there is no defined interest rate. Accordingly, the interest component of the offer is inherently uncertain.
• [48] As a result of the combination of these factors, the plaintiff submits that the defendant's UCPR offer cannot have any relevant cost consequence.
• [49] Similarly, the plaintiff contends that the defendant's Calderbank offer has no relevance to the determination of costs in the proceeding.
• [50] The plaintiff relies on the following factors:

(a) It was not unreasonable for the plaintiff to reject the offer at the time it was made as:

(i) significant changes were made to the defendant's counterclaim after the offer was made;

(ii) the defendant had not quantified its counterclaim but sought only rectification of alleged defects or unquantified damages for failure to rectify;

(iii) the reasons the defendant contended that the Mechanical Variation was not a variation were different at the time of the offer compared to the reasons relied upon by the defendant at trial;

(iv) it was reasonable for the plaintiff to seek to have the Court determine its entitlement in respect of the Mechanical Variation.

(b) The offer did not distinguish between amounts in respect of the claim or in respect of the counterclaim.

(c) The offer was said to be inclusive of costs and interest.

• [51] The reasonableness or otherwise of the refusal to accept a Calderbank offer must be considered by reference to the situation at the time the offer was made.[22]
• [52] The correct approach is consideration of the strength and weaknesses of each party's case at the time the offer was made.
• [53] The plaintiff points to the differences between the amended defence and counterclaim as at 16 February 2018 (2018 Defence and Counterclaim) which was operative at the time of the Calderbank offer and the third amended defence and counterclaim dated 12 August 2020 which was operative at the time of the trial (Trial Defence and Counterclaim).
• [54] Further, it is contended that at the time of the defendant's Calderbank offer, the plaintiff did not know what quantum the defendant claimed in its counterclaim. The plaintiff submits that the defendant ultimately abandoned close to 80 per cent of the defects that it alleged against the plaintiff at the time the Calderbank offer was made. This was in comparison to the statement in the Calderbank offer that the plaintiff would be liable for 100 per cent of those rectification costs.
• [55] In relation to the Mechanical Variation, the plaintiff points out that significant changes were made to the basis for the defendant's denial of the plaintiff's claim in respect of the Mechanical Variation after the defendant's Calderbank offer was made. Again, it is submitted that this goes to the reasonableness of the plaintiff in rejecting the offer as the plaintiff submits the point upon which the defendant ultimately succeeded was not pleaded at the time the Calderbank offer was made.
• [56] The plaintiff submits that the determination of the Mechanical Variation claim was "finely balanced" and turned on a number of factors including whether extrinsic evidence was admitted into evidence regarding the alternate proposal and also whether "mode control" was a performance requirement of the tender drawings and specifications.
• [57] The Calderbank offer was an "all inclusive" offer dealing with the claim and counterclaim legal fees and interest. The offer did not particularise the sum for each of these component parts.
• [58] The plaintiff contends that the "all inclusive" Calderbank offer means that it is impossible to undertake a proper assessment of the claim and the other aspects.

• [60] The defendant's ultimate position is that both the Calderbank offer and the UCPR offer are operative and that these displace the usual rule in respect of costs.
• [61] In respect of the defendant's UCPR offer, the defendant submits that the three criticisms made by the plaintiff are misconceived.
• [62] First, in respect of the formal offer being "all up", the defendant contends that the difficulty in undertaking the comparison exercise required by rr 360 and 361 UCPR, as identified in the Wiggins Island Coal Export Terminal Pty Ltd case, does not arise here.
• [63] The defendant submits that r 184 UCPR is a procedural mechanism for achieving a judgment for the "balance amount" where sums are awarded in both the claim and counterclaim. It is irrelevant in this case. Here, a single judgment amount was awarded.
• [64] In respect of the second issue raised by the plaintiff regarding the absence of a defined interest rate, the defendant submits that this does not preclude or impede the ability to compare the offer with the judgment obtained.
• [65] The defendant submits that the acceptance of the offer in no way involves an exercise of the Court's discretion. The offer was sufficiently certain as to the rate of interest to be applied. Even if there was some uncertainty, that uncertainty is not material in the circumstances of this case.
• [66] The offer refers to interest pursuant to the Civil Proceedings Act. The relevant section is s 58 which is the only referrable section. This section confers power on the Court to award interest at a rate that the Court considers appropriate. The Supreme Court has published Practice Direction Number 7 of 2013 which expressly links the interest rate under s 58 to the default judgment rate. That is, the rate of interest which the Court considers to be appropriate is that calculated under the Practice Direction.
• [67] The defendant also relies on the convention or practice for interest to be calculated under of the in accordance with Practice Direction Number 7 of 2013 when awarding statutory interest.

(a) identifies in the letter that it is a Calderbank offer.

(b) sets out the orders that the defendant would seek should the matter proceed to judgment.

(c) states that the defendant would be relying on the letter to seek indemnity costs on the ground that the failure to accept the offer was imprudent and/or unreasonable.

(d) indicates a time for acceptance, consistent with the applicable statutory regime for making settlement offers. The offer was open for 14 days.

(e) states the reasons why the offer should be accepted, including the highlighted weaknesses of the plaintiff's case.

• [79] The defendant submits that the plaintiff does not expressly contend that the offer did not meet the requirements to be a valid Calderbank offer. Rather, the defendant characterises the plaintiff's position as being a submission that it is impossible to undertake the comparison exercise as it is an "all up" offer.
• [80] The defendant contends that there is no definitive rule in the authorities that an offer of an all-inclusive sum does not constitute a Calderbank offer or could not, in an appropriate case, be taken into account in considering whether indemnity costs should be awarded.
• [81] The defendant refers to, and specifically relies upon, the reasoning of Beazley JA in Elite Protective Personnel Pty Ltd v Salmon.[24]
• [82] The defendant accepts that an all-inclusive offer may inform the reasonableness or otherwise of the party's rejection of the Calderbank offer. However, the defendant submits that difficulties in undertaking that exercise should not be overstated. In this regard, reference is made to the judgment of Basten JA in Elite Protective Personnel Pty Ltd v Salmon.
• [83] In respect of the rejection of a Calderbank offer, the test of reasonableness applies and the assessment of reasonableness is to be undertaken at the time of the offer.
• [84] The cases do not set out an exhaustive list of relevant factors to be considered in every case. However, the authorities do helpfully identify some of the factors which may be relevant.
• [85] The defendant's Calderbank offer was to resolve the entire action, that is, both the claim and the counterclaim. Acceptance of the offer would have provided the plaintiff with the sum of $2,250,000 but also concluded the disputes regarding the defects at that time.
• [86] The defendant identifies that as at 21 June 2018:

(a) The plaintiff's claim was quantified at $5,257,165.22.[25]

(b) Of that amount, $4,060,284.03 comprised the Mechanical Variation claim including GST and including delayed damages of $2,473,250.03 plus the sum of $1,587,032 for its repayment of liquidated damages claim.[26]

(c) The balance amount was $1,196,881.19.[27]

(d) The defendant's counterclaim at the time was principally a claim for specific performance requiring rectification of the defective work or damages in lieu.

• [87] The defendant submits that the likelihood was that the defects would be rectified by the defendant and it would be a claim for damages in lieu. Accordingly, it was likely that the counterclaim would be set off against any sum recovered.
• [88] The defendant ultimately contends that it was unreasonable for the plaintiff to reject the "all inclusive" sum of $2,250,000 given the difficulties confronting its Mechanical Variation claim.
• [89] While it is accepted that the outcome of the Mechanical Variation claim was not a "foregone conclusion", it is submitted that the plaintiff ought to have been alive to the weaknesses of the arguments concerning the Mechanical Variation. The defendant also points to the detailed matters set out in the defendant's Calderbank offer itself, in addition to the defendant's defence as at that time, which were available to assist the plaintiff in evaluating the relevant risks with the plaintiff's own claim.
• [90] In respect of the submissions made by the plaintiff as to the differences in pleadings at the time of the offer and trial, the defendant submits that these are irrelevant to the consideration of whether it was reasonable to reject the offer. It is recognised that indemnity costs are sometimes refused on the basis that the offeror has won an entirely different case. That is not the position here.
• [91] In this regard, the defendant points to the core question being whether the Mechanical Services System had to meet the performance requirements under the Contract. This was always the central issue in the proceeding including at the date of the defendant's Calderbank offer. It is submitted that the changes made to paragraph 8 of the defence between the offer and trial did not depart from that core issue.
• [92] Further, the changes to the pleading did not prevent the plaintiff from making an informed assessment of the strength and weaknesses of its own claim.
• [93] At the date of the offer, the defendant had denied the allegations in paragraph 7 of the statement of claim, asserted the air-conditioning system installed was defective, asserted that the system was defective for the reasons set out in the defect notices of 11 August, 16 August and 17 September 2016, further asserted that the system was required under the Contract to provide independent heating and cooling but did not do so, and that the defect notices were not a direction to undertake a variation.

• [107] In reply, the plaintiff points to the statements of Holmes CJ in Wiggins Island Coal Export Terminal Pty Ltd v Civil Mining & Construction Pty Ltd in respect of an offer not quantifying components for a claim and counterclaim where there is a judgment for a "net amount" and notes that the other two members of the Court did not agree with this statement.
• [108] Brown J agreed with Holmes CJ subject to two caveats. One being, her Honour did not decide whether an offer can be properly served by a defendant under r 353 UCPR to settle an entire proceeding without quantifying the claim and counterclaim separately, as discussed by the Chief Justice at [42] of her Honour's reasons.
• [109] Further, Philippides JA at [83] agreed with the caveat expressed by Brown J.
• [110] Accordingly, this issue is not settled at Court of Appeal level.
• [111] In this case, the plaintiff contends that the task of the Court does not change even if there is a judgment for a single amount. The Court is still required to compare the amount awarded to the plaintiff and the defendant for their respective success on the claim and counterclaim and compare that relative success to the offer made. Here, it is submitted it cannot be shown that either r 360 or r 361 have been engaged.
• [112] In respect of the defendant's Calderbank offer, the plaintiff accepts that there is no dispute between the parties that the relevant question in relation to the defendant's Calderbank offer is whether it was reasonable for the plaintiff to reject the offer.
• [113] The plaintiff contends that, in considering the position of the parties at the time the offer was made, the 2018 Defence and Counterclaim was silent about the basis upon which it was asserted that it was a contractual requirement that the plaintiff provide an air-conditioning system that provided independent heating and cooling. Further, it is contended that the counterclaim proceeded on a different basis to that which was ultimately pursued at trial.
• [114] Further, it is contended that the amended defence and counterclaim filed on 16 February 2018 was almost entirely recast in respect of the defects claim.
• [115] In respect of the Calderbank offer being an "all up" offer, the plaintiff submits that there is a very real difficulty of ascertaining what the recoverable costs were at the time of the offer. This is exacerbated by the inclusion of interest as well as costs.

Agreed position - pleaded amounts at time of offer and trial and amounts reflected in judgment amount

• [116] In the course of oral submissions, the parties were asked to prepare and agree a table:

(a) setting out the amounts claimed at the time of the defendant's UCPR offer and the defendant's Calderbank offer (21 June 2018); and

(b) setting out:

(i) the amounts claimed at the trial; and

(ii) the amounts determined in the reasons for judgment, and reflected in the final judgment amount.

• [117] The parties completed the tables which are set out at Annexures A and B. It is agreed between the parties, except for:

(a) how the security amount is to be incorporated into the table; and

(b) the total figures for the claim and counterclaim (in light of the disagreement about the treatment of the security amount).

• [118] The tables reproduced at Annexures A and B note these areas of disagreement.

• [119] The relevant rules in the UCPR include:

(a) Chapter 9 Part 5 Offer to Settle: r 353 (if offer available), r 354 (Time for making offer), r 355 (Withdrawal or end of offer), r 357 (Disclosure of offer), r 358 (Acceptance of offer), r 360 (Costs if offer by plaintiff), r 361 (Costs if offer by defendant) and r 365 (Failure to comply with offer).

(b) Chapter 17A Part 2 Costs of Proceeding: r 680 (Entitlement to recover costs), r 681 (General rule about costs), r 684 (Costs of question or part of a proceeding), r 687 (Assessed costs to be paid unless court orders otherwise), r 698 (Reserved costs), r 702 (Standard basis of assessment) and r 703 (Indemnity basis of assessment).

• [120] All of these rules will not be set out in full in these reasons, but will be referred to as necessary.
• [121] Rule 681 provides the starting point in respect of the consideration of costs. Rule 681 UCPR states:

"(1) Costs of a proceeding, including an application in a proceeding, are in the discretion of the court but follow the event, unless the court orders otherwise.

(2) Subrule (1) applies unless these rules provide otherwise."

• [122] The "rules provide otherwise" in rules 360 and 361 UCPR.
• [123] Rule 360 UCPR states as follows:

(a) the plaintiff makes an offer that is not accepted by the defendant and the plaintiff obtains an order no less favourable than the offer; and

(b) the court is satisfied that the plaintiff was at all material times willing and able to carry out what was proposed in the offer;

the court must order the defendant to pay the plaintiff's costs calculated on the indemnity basis unless the defendant shows another order for costs is appropriate in the circumstances.

• [124] Rule 361 UCPR relevantly states as follows:

(a) the defendant makes an offer that is not accepted by the plaintiff and the plaintiff does not obtain an order that is more favourable to the plaintiff than the offer; and

(b) the court is satisfied that the defendant was at all material times willing and able to carry out what was proposed in the offer.

(2) Unless a party shows another order for costs is appropriate in the circumstances, the court must -

(a) order the defendant to pay the plaintiff's costs, calculated on the standard basis, up to and including the day of service of the offer; and

(b) order the plaintiff to pay the defendant's costs, calculated on the standard basis, after the day of service of the offer.

• [125] As a result of the operation of these rules, costs are in the Court's discretion unless the Court must make the order required by the UCPR (or another order is shown to be appropriate). The Court may exercise its discretion if neither r 360 or r 361 UCPR apply.[28]
• [126] The first step to be considered is whether the defendant's UCPR offer enlivens r 360 or r 361 UCPR.

Does the defendant's UCPR offer enliven r 360 and/or r 361 UCPR?

• [127] It is necessary to consider the requirements of Chapter 9 Part 5 UCPR in relation to offers to settle in more detail.
• [128] The defendant's UCPR offer was made "to fully and finally settle the claims made against [the defendant] by the Plaintiff and the counterclaims made by the Defendant against the Plaintiff" on the terms set out in the offer.
• [129] Rule 353 UCPR states:

"(1) A party to a proceeding may serve on another party to the proceeding an offer to settle 1 or more of the claims in the proceeding on the conditions specified in the offer.

(3) An offer must be in writing and must contain a statement that it is made under this part."

• [130] "Proceeding" is defined in r 352 UCPR as follows:

(b) in which the court has made an order under rule 14 ordering the proceeding to continue as it started by claim; or

(c) started by originating application if an order or direction has been made for pleadings, or other documents defining the issues, to be filed and served."

• [131] Given the definition of "proceeding" there has been a debate as to how the offers to settle regime applies where there are multiple claims, such as here where there is a claim and counterclaim.
• [132] A counterclaim is not a "proceeding" within the definition in r 352. The Court of Appeal considered this issue in Wiggins Island Coal Export Terminal Pty Ltd v Civil Mining & Construction Pty Ltd.[29] Holmes CJ, with whom Philippides JA and Brown J agreed, concluded:

"[27] A counterclaim does not meet the definition of 'proceeding' in r 352 because .... the reference in that rule to 'a proceeding' is to the proceeding as a whole as commenced by the plaintiff's claim or application. Correspondingly, r 353 does not contemplate a counterclaim or third party notice as constituting proceedings of themselves for the purposes of that rule. In my view, a counterclaim or third party proceeding meets the Supreme Court of Queensland Act definition of proceeding as extending to "an incidental proceeding in the course of ... a proceeding". It is an incident of the principal proceeding as commenced by the plaintiff's claim, in that it flows from it. But the 'proceeding' in the expression 'claims in the proceeding' is the principal proceeding as commenced by the plaintiff's claim (or application)."

• [133] It is then necessary to consider the meaning of "claims" in r 353 UCPR. The dictionary in Schedule 3 of the UCPR includes a definition of "claim" as follows:

1 A claim is a document under chapter 2, part 3 starting a proceeding.

2 If the court orders a proceeding started by application to continue as a claim, the application is also a claim for these rules."

• [134] In Wiggins Island Coal Export Terminal Pty Ltd v Civil Mining & Construction Pty Ltd, Holmes CJ, with whom Philippides JA and Brown J agreed, also considered this issue and concluded:

"[28] What are the relevant "claims" in that proceeding? Neither party now contends that the definition of 'claim' in the Dictionary ... is applicable to r 353. There are a number of instances in the [UCPR] in which the context indicates that the Dictionary definition of "claim" is not applicable. So, for example, in the rules concerning pleadings (such as r 150(4) and r 154), the term is plainly used in reference to a cause of action or claim for relief. Rule 353 is also an instance in which the context indicates that the Dictionary definition is inapposite ... on my construction, the Dictionary definition of "claim" refers solely to the plaintiff's claim, and it is improbable that the capacity to make an offer would be correspondingly limited to that claim.

[29] The more obvious reading of the expression "claims in the proceeding" in r 353 is ... that it refers to causes of action or claims for relief, rather than a plaintiff's claim, a counterclaim or claim against a third party."[30]

• [135] On this construction, the offer set out in the defendant's UCPR offer to settle all claims is within the language of r 353(1).
• [136] The more complicated question then is whether the terms and conditions render the defendant's UCPR offer a "non complying offer" or whether the terms and conditions fall to be considered under the tests in r 360 or r 361 UCPR.
• [137] The defendant's UCPR offer states:

(b) Interest on the sum of $1,850,000.00 from 11 August 2016 pursuant to the Civil Proceedings Act 2011 (Qld);

(c) The Plaintiff's costs on the standard basis, to be agreed or assessed.

1 The Plaintiff's acceptance of this offer to settle must be communicated in writing to the solicitors for the Defendant.

2 The Plaintiff and the Defendant will enter into a mutually acceptable deed of settlement and release reflecting the terms in this Offer to Settle.

3 This Offer to Settle will remain open for acceptance for a period of 14 days after the date of service of this offer upon the Plaintiff's solicitors."

• [138] The terms and conditions give rise to two potential issues:

(a) is the way interest is to be calculated and the condition requiring the parties to enter into a "mutually acceptable deed" sufficiently certain and capable of acceptance?

(b) does the way interest is to be calculated and the condition requiring the parties to enter into a "mutually acceptable deed" result in the comparison exercise required by r 360 and r 361 UCPR being ineffective?

• [139] Both of these issues are linked and it is impossible to consider them totally in isolation.
• [140] Byrne SJA in Balnaves v Smith[31] considered an offer that included a confidentiality condition, the requirement for a consent discontinuance and was "without prejudice" to issues in proceedings involving another individual who was also involved in the relevant accident.
• [141] It was argued that as the offer included non-monetary terms it did not conform with Part 5 of the UCPR and further that the terms extended to the resolution of disputes beyond what was in the subject litigation. This submission relied upon the decision in Taske v Occupation & Medical Innovations Ltd[32] where Moynihan SJA found the offer did not comply with the procedural requirements of Part 5 UCPR as it extended beyond the claims in the proceeding. The offer was conditional on a release of the defendant from all claims and also a confidentiality requirement.
• [142] Byrne SJA concluded:

"[10] Part 5 specifies the requirement of a compliant offer to settle.

[12] An offer capable of triggering adverse costs consequences for the offeree[33] must, as r 353(1) states, offer to settle "one or more of the claims in the proceeding...". But r 353(1) does not, in terms at any rate, preclude the inclusion of a condition for the resolution of other contests between the parties.

[13] More generally, the broadly expressed provision in r 353(1) that the offer may be "on the conditions specified in it" - without restriction - is at odds with the notion that an offer which extends beyond the claims in the proceeding is not an "offer to settle". And no such limitation on the range of compliant proposals is suggested by the content of any other rule.

[14] In short, nothing in the language of the UCPR indicates that an offer is non-compliant if it includes a term that extends "beyond the claims in the proceeding".

[17] Of course, conditions of an offer to settle "that extended beyond the claims in the proceeding" could complicate things. Uncertainty might be generated about the meaning or effect of the offer. Problematic complexities might be avoided were the permissible conditions constrained as Taske envisages.[34] But that is not a sufficient reason to imply into Part 5 the Taske restrictions.

[18] Part 5 already provides a[35] substantial incentive to avoid complicating an offer to settle unduly.

[19] To gain the benefit of the Part 5 regime, the offer must, in a phrase, better the judgment...

[20] To be effective for that purpose, the offer must permit fairly ready comparison between the nature and extent of the advantages (and any disadvantages) arising from the judgment with the situation that would have been obtained had the offer been accepted...

[21] So an offer to settle should be clear in its terms.[36] And its effect should be capable of prompt, comparatively inexpensive, assessment - by the recipient, and, where a judicial evaluation needs to be made of the relative benefits and burdens of offer and judgment, by the court.

[22] Difficulty in comparing offer and judgment may well jeopardize the chances of showing that the former was more advantageous to the offeree than the latter.[37] That reality will encourage clarity in the description of the benefits the offeree will derive by acceptance of the offer. For the Part 5 scheme to work, there is no need to interpret rules that prescribe just a handful of formal requirements as impliedly invalidating an offer that incorporates proposals that extend "beyond the claims in the proceeding"."

• [143] His Honour recognised that the approach in Taske is supported in some other states. For example, in White v Director of Housing[38] Gillard J in the Victorian Supreme Court concluded that the imposition of terms including a release and confidentiality did not comply with the offer regime in the Victorian rules. Gillard J stated:

"It is trite to observe that the terms of the offer must be clear, precise, certain and capable of acceptance so that if a party fails to accept the offer, the Court is in a position to give effect to the Rules relating to a failure to accept .... In my opinion, there is no way that a court could evaluate in money terms, the terms imposed by the defendant in the present offer of compromise, namely, release and confidentiality. Because it is not possible for the Rules to operate in relation to the offer of compromise ... the offer of compromise is not one within the provisions of Order 26 of the Rules.

Of course, that does not mean that the offer could not be accepted in accordance with its terms. Clearly, it could have been accepted. It follows that the Rules do not apply to the offer".[39]

• [144] Byrne SJA considered that an offer may be "rules-compliant" even if its terms create problems in undertaking the comparison exercise such that it is ineffective in engaging the Part 5 costs regime.[40] That is: "An offer may be a valid Part 5 "offer to settle" even though it is inefficacious".[41]
• [145] The issue of whether this goes to the offer being a complying offer for the purposes of the UCPR or the comparison exercise has been commented on in some further cases in Queensland but there is no Court of Appeal decision on the point.
• [146] Jackson J in McBride v ASK Funding Ltd[42] noted the divergence of views and indicated a preference for the approach of Byrne SJA but did not decide the point.[43]
• [147] Further, in Binaray Pty Ltd as Trustee for the Allen Family Trust v RAMS Financial Group Pty Limited[44] Brown J stated at [38]:

"It is unclear whether Byrne SJA's reference in Balnaves v Smith to the need for clarity in the terms of the offer was a precondition for an offer being a complying offer, or whether the uncertainty arising from such a lack of clarity is a matter that is relevant in deciding whether a party relying on the offer has met its burden of proof.[45] However, in the present case, I do not need to decide this question because to the extent that the offer contemplates a costs assessment regime beyond that stated in terms of the offer, it would be a non-complying offer.[46] It is analogous to a provision for a deed of release being included in an offer the terms of which are not disclosed.[47] Rule 353(1) provides for the offer to settle the proceeding 'on the conditions specified in the offer" (emphasis added)."

• [148] Flanagan J in Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd[48] considered the reasons of Byrne SJA in Balnaves, including the passages identified above. His Honour recognised that "there is no express requirement of certainty in the rules". Flanagan J also considered the reasons of Brown J in Binaray, particularly the paragraph outlined above.
• [149] His Honour then expressed the following view:

"[37] My view is that Byrne SJA was not suggesting that certainty is a strict requirement of Part 5 of Chapter 9, but that some degree of certainty is necessary to allow ready comparison between the offer and the order obtained for the purposes of rr 360 and 361. This accords with a plain reading of the rules. In some cases, the uncertainty will be immaterial because it is plain that the offer, despite some ambiguity, is less (r 360) or more (r 361) favourable than the order obtained. Conversely, the uncertainty in an offer may prevent a party from engaging rr 360 and/or r 361. It may also be relevant to consider the uncertainty of an offer in deciding whether another costs order is appropriate. Finally, as in Binaray, the uncertainty in an offer may stem from the fact that it is on unspecified terms. Such an offer is not rules-compliant because it fails to satisfy r 353(1), and not because of uncertainty per se."

• [150] Given, Flanagan J's conclusion about the offer in that case not engaging rr 360 or 361 it was unnecessary for him to reach a final view on the point.[49]
• [151] It is necessary in this case to consider what makes an offer "not rules-compliant".
• [152] In Binaray Pty Ltd as Trustee for the Allen Family Trust v RAMS Financial Group Pty Limited[50] Brown J concluded that the offer failed to specify the basis of the assessment of costs by the third party assessor and as a result the offer was not made in accordance with Part 5 of Chapter 9 UCPR.[51] Her Honour noted that the conditions of the offer as to costs were "confusing" and the offer was "silent as to the basis upon which the costs are to be assessed".[52]
• [153] Further, Brown J concluded:

"The terms of the offer were so uncertain that the plaintiff would not have known what it was committing to, in terms of the separate regime contemplated by agreeing to a third party costs assessor assessing costs on an unspecified or yet to be agreed basis. In those circumstances, the plaintiff would not have been able to assess the overall value of the offer and the benefits thereunder.

In my view, for that reason, the offer is not one which is clear in its terms and capable of prompt, comparatively inexpensive assessment by the recipient."[53]

• [154] In Armstrong v Mitchell-Smith and Allianz Australia Insurance Limited (No 2),[54] McMeekin J considered an offer to settle under the UCPR that was subject to the plaintiff signing a "suitably worded discharge to the satisfaction of the defendants". Further, the offer included a condition as follows:

"Acceptance of this offer is in full and final satisfaction of all the claims and rights which the plaintiff has against the first or second defendant in connection with the damage which the plaintiff alleges or could have alleged in this action". (This was referred to as the condition).

• [155] His Honour concluded that the discharge had the potential to require the plaintiff to give up rights that went beyond the effect of any judgment in the proceedings and as otherwise stated in the condition. The terms of the discharge were not provided.
• [156] His Honour referred to the decision of Moynihan SJA in Taske v Occupational & Medical Innovations Ltd[55] as being where the offer was subject to the terms of a deed being agreed, where there was no agreed mechanism to settle the terms of the deed if the parties did not agree them.[56]
• [157] Here, the plaintiff does not contend that the offer does not meet the requirements of r 353.[57] Rather, the plaintiff contends that the "all in offer", interest and the deed of settlement condition all support the conclusion that the comparison between the offer and the outcome cannot usefully be made in this case.[58] That is, rr 360 or 361 are not "triggered".
• [158] It is, however, necessary to consider whether the way interest and the deed of settlement are dealt with in the defendant's UCPR offer results in it being a "non-compliant" offer.
• [159] Dealing with each in turn:

(a) Interest: the offer identified a methodology to calculate the interest component. While it did not specify a rate, the rate was arguably able to be ascertained. For the purposes of r 353 UCPR the interest component was sufficiently certain for the offer to be a "rule-compliant" offer.

(b) Deed of Settlement: the scope of the deed is constrained to that "reflecting terms in [the] Offer to Settle". The inclusion of a non-monetary term does not make the offer "non-compliant". It is contended that the restricted scope of what was to be in the deed avoids the problems associated with other conditions which are "on terms to be agreed". While this issue needs to be considered further at the comparison stage, I consider the better view is that on the particular wording of the condition in this case the offer is "rule-compliant".

• [160] The next step is to consider whether r 361 UCPR operates in respect of the defendant's UCPR offer.
• [161] The issue is complicated by the fact that the defendant's UCPR offer is an "all up" offer settling all claims, being both the claim and the counterclaim.
• [162] Here, the judgment is for a single amount: "THE JUDGMENT OF THE COURT IS THAT the Defendant pay to the Plaintiff the amount of $459,354.38, plus interest in the amount of $209,307.30".
• [163] In contrast, Flanagan J in Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd[59] granted judgment for a sum on the claim and a separate sum on the counterclaim. In those circumstances, the "all up" offer to settle was fatal as his Honour concluded the offer did not trigger either r 360(1) or r 361(1) UCPR.
• [164] This conclusion was upheld by the Court of Appeal.[60] Holmes CJ, with whom Philippides JA and Brown J agreed, stated:

"[40] ... In this case, there was unquestionably more than one relevant order. His Honour gave two judgments, one on the claim, the other on the counterclaim. There was no warrant for treating them as though they were a single judgment, or as though there were only one decision or determination, or as if they could somehow be regarded as a single order. That conclusion is reinforced by consideration of what rr 360 and 361 respectively require by way of comparison.

[41] The focus, for each rule, is on the order obtained by the plaintiff. In the present case, judgments were given in favour of two different plaintiffs: the judgment relevant for r 360 purposes was that given to Wiggins on its counterclaim and, for r 361, for Civil Mining on its claim. What had to be considered for the purposes of the two rules was different.... the necessary comparisons for the purposes of those rules individually could not be made."

"[43] The trial judge was right to conclude that the offer was not one to which rr 360 and 361 could be applied and that, in consequence, it was unnecessary to consider whether the offer was sufficiently certain for the purposes of those rules".

• [166] However, there is no clear authority on the consequence of a single judgment in respect of a claim and counterclaim and the operation of rr 360 and 361 UCPR.
• [167] Flanagan J at first instance in Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd expressed the view that even if there had been a single judgment for the balance in favour of one party the formal offer would not have triggered r 361.[61] His Honour reasoned that the rules require consideration of the component parts and there was support for this in Part 5 which emphasised separation of claims to which a formal offer relates. Without the offer identifying the components relevant to the claim and separately the counterclaim a single judgment did not alter the problem in undertaking the necessary comparison for rr 360 and 361 UCPR.
• [168] On appeal, in respect of this issue Holmes CJ stated:

"[42] I depart, with respect, from the trial judge's reasoning to this extent: I am inclined to think that a defendant can properly serve an offer under r 353 to settle the entire proceeding without quantifying claim and counterclaim separately, and that if judgment is given for a net amount under r 184, nothing prevents assessment under r 361(1) of the offer against the order. The judgment in that event is given in favour of a party to the proceedings as a whole, plaintiff or defendant, rather than in their separate capacities as plaintiff on the claim and defendant on the counterclaim and vice versa. However, my view in that regard is not critical to the issues to be decided in this case."

• [169] Brown J in agreeing with the reasons of the Chief Justice expressly imposed a caveat in respect of her Honour's comments at [42]:

"[84] I agree with the reasons for judgment of Holmes CJ save for two minor caveats ... Nor do I decide whether an offer can be properly served by a defendant under r 353 to settle an entire proceeding without quantifying the claim and counterclaim separately, as discussed by her Honour in [42] of her Honour's reasons."

• [170] Philippides JA agreed with the reasons of Holmes CJ and also agreed with the caveats expressed by Brown J.[62]
• [171] I consider that the better view is that expressed by the Chief Justice. Where there is a single judgment in respect of multiple claims:

(a) a formal offer made under Part 5 of the UCPR does not need to identify the separate components in respect of the claims and counterclaims included in the offer to be a valid offer under r 353 UCPR; and

(b) it is not necessary to "trigger" rr 360 or 361 to identify the separate components in respect of the claims and counterclaims included in the offer.

• [172] Such a requirement is not consistent with the text of the relevant rules in the UCPR, nor is it consistent with the objects of the UCPR.
• [173] Rule 361(1)(a) UCPR provides:

(a) The defendant makes an offer that is not accepted by the plaintiff and the plaintiff does not obtain an order that is more favourable to the plaintiff than the offer...".

• [174] To imply or construe a limitation into the rule that would limit the scope of its operation where there is a single judgment against which the offer can be compared, cuts across the purpose of the UCPR and the Part 5 costs regime.
• [175] In Cameron v Nominal Defendant[63] the Court of Appeal in a judgment of the Court identified the purpose as follows:

"The primary purpose of rules such as UCPR 361 and the similar rules which it replaced[64] is to encourage litigants through favourable costs orders to make realistic offers in order to achieve a just compromise and to avoid where possible the expense time and effort of a trial. The interpretation of UCPR 361 in accordance with its ordinary and natural meaning is not inconsistent with this purpose or with the purpose of the rules set out in UCPR 5(1), namely "to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense"."[65]

• [176] Rule 5 UCPR relevantly states:

"(1) The purpose of these rules is to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.

(2) Accordingly, these rules are to be applied by the courts with the objective of avoiding undue delay, expense and technicality and facilitating the purpose of these rules."

• [177] The High Court in AON Risk Services Australia Limited v Australian National University[66] considered, in the context of an application to amend, rule 21(2) of the Court Procedures Rules 2006 (ACT). Rule 21(1) identified the purpose of the rules as being "to facilitate the just resolution of the real issues in civil proceedings with minimum delay and expense". Further, rule 21(2) states:

"Accordingly, these rules are to be applied by the courts in civil proceedings with the objective of achieving-

(a) The just resolution of the real issues in the proceedings; and

(b) The timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties."

• [178] The joint reasons of Gummow, Hayne, Crennan, Kiefel[67] and Bell JJ observe:

"The overriding purpose of r 21, to facilitate the just resolution of the real issues in civil proceedings with minimum delay and expense, is stated in the rules of other courts in Australia, although those purposes and the obligations cast upon the court and the parties may be stated in somewhat different terms.

The purposes stated in r 21 reflect principles of case management by the courts. Such management is now an accepted aspect of the system of civil justice administered by courts in Australia. It was recognised some time ago, by courts here and elsewhere in the common law world, that a different approach was required to tackle the problems of delay and cost in the litigation process.

Rule 21(2)(b) indicates that the rules concerning civil litigation no longer are to be considered as directed only to the resolution of the dispute between the parties to a proceeding. The achievement of just but timely and cost-effective resolution of a dispute has an effect upon the court and upon other litigants ...".[68] (footnotes omitted)

• [179] The objectives of r 21 were to be considered in the exercise of the court's discretionary power in respect of the application to amend the pleading. In this regard Gummow, Hayne, Crennan, Kiefel and Bell JJ stated:

"The purposes stated in r 21 cannot be ignored. The Court Procedures Rules make plain that the Rules are to be applied having regard to the stated objectives of the timely disposal of the proceedings at an affordable cost. There can be no doubt about the importance of those matters in litigation in the courts of the Australian Capital Territory.

Of course, a just resolution of proceedings remains the paramount purpose of r 21; but what is a "just resolution" is to be understood in light of the purposes and objectives stated. Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings ...".[69]

• [180] Rule 5(2) UCPR expressly incorporates the r 5 objective into the construction and application of the UCPR. Accordingly, rr 360 and 361 are to be construed and applied in accordance with the purpose.
• [181] While Holmes CJ did not consider that recourse to the purpose in r 5 UCPR assisted in overcoming the problems where there is a single offer amount but separate judgments on the claim and counterclaim,[70] it is of assistance where there is a single judgment and a single offer amount. That is, where there is a single judgment r 5 UCPR requires that the relevant rule (either r 360 or r 361 UCPR) be construed and applied to facilitate the stated purpose.
• [182] The next step is to undertake the comparison exercise required by r 361 UCPR.
• [183] The requirements in r 361(1) UCPR are:

(a) The defendant made an offer to the plaintiff that was not accepted.

(b) The plaintiff does not obtain an order that is more favourable to the plaintiff than the offer.

(c) The defendant establishes that the defendant was at all material times willing and able to carry out the offer.

• [184] Applying this to the current facts, the requirements in (a) and (c) are met:

(a) As discussed above, the defendant made a complying offer by way of the defendant's UCPR offer dated 21 June 2018.

(b) The defendant's UCPR offer was not accepted.

(c) The affidavit of Mr Ursino at [11] and [12] addresses the defendant's capacity to carry out the offer.

• [185] The critical issue for consideration is whether the judgment is "not ... an order that is more favourable to the plaintiff than the offer".
• [186] The judgment is:

(a) The defendant to pay to the plaintiff $459,354.38; and

(b) The defendant to pay to the plaintiff interest in the amount of $209,307.30.

(a) The defendant to pay the plaintiff $1,850,000.00;

(b) The defendant to pay to the plaintiff interest from 11 August pursuant to the Civil Proceedings Act. This amount has been calculated by the defendant using the Queensland Court's online interest calculator as $191,259.77.[71]

(c) The parties enter into a "mutually acceptable deed of settlement and release reflecting the terms in this Offer to Settle".

• [188] In order to undertake the comparison exercise to determine whether the judgment is more favourable to the plaintiff than the offer, it is necessary to further consider the interest and deed of settlement components of the offer.
• [189] Considering the issue of interest first.
• [190] As set out above, the plaintiff contends that the interest component is uncertain and that as a result the comparison exercise required by r 361 UCPR cannot be undertaken. The terms of the defendant's UCPR offer did not specify a rate of interest to be applied as the Civil Proceedings Act does not define any applicable interest rate.
• [191] Further, the plaintiff submits that the defendant's reliance on Practice Direction No 7 of 2013 does not assist. It is submitted that Practice Direction No 7 of 2013 applies to default judgments entered by the Registrar and to a money order debt. The defendant's UCPR offer was neither of these. Accordingly, the plaintiff contends that Practice Direction No 7 of 2013 does not set out the applicable interest rate for a formal offer under the UCPR.
• [192] The plaintiff's submissions appear to focus on the source of the interest rather than it being the identification of the methodology to calculate interest. An offer could feasibly identify an applicable interest rate on any methodology for the purposes of the offer: it is not limited to a contractual or statutory entitlement to interest. So long as the method or process for calculating interest is sufficiently identified to enable the calculation to be undertaken. Once a figure is calculated then the comparison exercise can be undertaken.
• [193] The defendant's primary position is that the offer was sufficiently certain as to the rate of interest to be applied. In this respect, the defendant points to principles of contractual construction, including the intention of the parties is to be determined objectively and the courts seek to uphold the validity of the contract, particularly in a commercial context.
• [194] Further, in respect of interest "pursuant to" the Civil Proceedings Act, the defendant submits that:

(a) The only referable section is s 58 Civil Proceedings Act which confers power on the Court to award interest at a rate that the "Court considers appropriate".

(b) The Court has published Practice Direction No 7 of 2013, which expressly ties the interest rate under s 58 Civil Proceedings Act to the default judgment rate.

(c) The consequence is that the rate of interest which the Court considers to be appropriate is that calculated under the Practice Direction.

(d) The "conventional practice" is for interest under s 58 of the Civil Proceedings Act to be calculated according to Practice Direction No 7 of 2013 when awarding statutory interest pursuant to the Civil Proceedings Act.[72]

• [195] The defendant points to various authorities in support of this contention.
• [196] In Mr Green Pty Ltd v Broadbeach Bowls & Community Club Inc (No 2)[73] McGill SC DCJ recognised:

"It is common, if not usual, for Queensland courts to award interest under s 58 at the default rate under the practice direction."

• [197] Further, in Keeley v Horton[74] Burns J, with whom Holmes CJ and Peter Lyons J agreed, stated:

"As to the rate to be applied for pre-judgement interest, no evidence was advanced in the court below, or here, regarding the prevailing commercial rates of interest over the period in question. In the absence of such evidence, the primary judge allowed interest on the sum awarded in favour of the second appellant ... in accordance with the rates prescribed for default judgments. That was the correct approach.

Although a court is not obliged to apply the rates prescribed for default judgments, since 19 April 2013 those rates have been the product of an agreement reached by representatives of all Australian jurisdictions to establish nationally uniform rates of interest applying to default judgments (and, in Queensland, money order debts pursuant to s 59 of the Civil Proceedings Act). For default judgments, the prescribed rate is four per cent above the cash rate last published by the Reserve Bank of Australia and that rate is adjusted bi-annually. In the absence of contrary evidence, the prescribed rates are generally accepted as satisfying the need for economic loss to be compensated by an award of interest on the principal debt at ordinary commercial rates. They should therefore be applied to the damages awarded in the first appellants' favour as varied by the Court."[75] (emphasis added by the defendant) (citations omitted)

• [198] The defendant also relies on the statement of Sofronoff P, with Morrison and Philippides JJA agreeing, in HAP2 Pty Ltd v Bankier[76] endorsing this approach:

"The usual practice in current times has been, as Burns J explained in Keeley, to apply the rate specified by practice direction for the Registrar's purposes."[77]

• [199] The interest rate under Practice Direction No 7 of 2013 is a rate of 4% above the Reserve Bank cash rate. The Queensland Court's website has an online interest calculator available to assist in the calculation of interest in accordance with the Practice Direction.
• [200] The defendant has undertaken the interest calculation using the online interest calculator and a copy is Annexure A to the defendant's written submissions.
• [201] The interest component of the offer is identifiable in accordance with the "usual practice" and calculable with certainty for the period 11 August 2016 to 21 June 2018. It is sufficiently certain so that the comparative analysis required under r 361 UCPR can be undertaken.
• [202] The next issue is that of the condition of "enter[ing] into a mutually acceptable deed of settlement and release reflecting the terms in this Offer to Settle".
• [203] The plaintiff submits that the condition requires the parties to agree an acceptable form of document and this requirement impedes useful comparison.
• [204] Conversely, the defendant contends that this requirement does not preclude or impede the comparison of the offer and the judgment. The defendant submits:

(a) The authorities support the position that an offer is not invalidated if the terms go beyond the claims in the proceeding or beyond what could be ordered by the Court.

(b) Further, an offer including terms that go beyond the claims in the proceeding or beyond what could be ordered by the Court can be compared to the judgment.

(c) The relevant question is whether the effect of the judgment is overall more or less favourable than the offer.

• [205] The decision of Byrne SJA in Balnaves v Smith & Anor[78] outlines the approach to the task as:

"The offer must permit fairly ready comparison between the nature and extent of the advantages (and any disadvantages) arising from the judgment with the situation that would have been obtained had the offer been accepted."[79]

• [206] The comparison is between the overall effect of the judgment and the offer, rather than a precise correlation between all elements of the offer and the judgment. This is evident from a consideration of cases where non-monetary terms have been considered, including:

(a) In Balnaves v Smith[80] Byrne SJA undertook the comparison exercise in respect of an offer containing a consent discontinuance term. His Honour concluded that there was no disadvantage in such a term as the prospect that the defendants might have pursued a claim for costs was fanciful. Consequently, the judgment was not more favourable than the offer.

(b) In Tremco Pty Ltd v Thomson[81] Porter QC DCJ considered an offer under the UCPR containing a condition that "[t]he parties execute an appropriately worded Settlement Deed reflecting these terms within 7 days of acceptance" of the offer.

(i) His Honour concluded that the inclusion of non-monetary terms did not make the offer non-compliant with Part 5 UCPR but noted that such terms may make it difficult to determine whether the condition in r 360 was met (as was relevant in respect of an offer from a plaintiff).

(ii) In undertaking the comparison exercise, his Honour concluded:

"[13] The settlement offer by the plaintiff was for $250,000 to be paid in full settlement of the claims in the proceedings including costs, interest and any GST. Judgment was substantially more favourable than that offer. None of the non-monetary terms are capable of impacting on that conclusion."

(c) In McKay v Armstrong & Anor[82] Morzone QC DCJ considered an offer by the defendant that included a monetary sum and a condition requiring the execution of a release and discharge. The Deed of release/Discharge was attached to the offer and included other extraneous terms and binding acknowledgements as well as the release and discharge.

(i) His Honour concluded that the terms including "matters beyond the purview of a court's jurisdiction and adjudication of the proceeding, in particular the condition of requiring execution of the release and its terms" did not vitiate the offer or render it "non-compliant" with the rules and the offer was "caught" by r 361.[83]

(ii) Further, his Honour observed:

"[15] In my view both quantitative and qualitative matters are relevant to my consideration of whether the overall effect of the judgment was more favourable, or not, to the plaintiff than the offer pursuant to r 361(1)."

(iii) In undertaking the comparison exercise, his Honour stated:

"[17] Of course, hybrid offers are not merely unfavourable because they contain extraneous matters beyond the relief available in a court. Some of the extraneous matters included in an offer are consistent with the available relief flowing from a court adjudication. For example, in the wake of a judgment parties are barred from bringing future like actions (with rare exceptions), rights are merged in the judgment, and liabilities discharged by the operation of the judgment, executory obligations will include statutory refunds and setting time for payment after clearances.

[18] Although the offer exceeded the judgment by over $3000, it contains terms extending beyond the claims in the proceeding and conditional on the agreement of a deed, which in turn imposed on the plaintiff conditions of strict confidentiality and a contradictory acknowledgement that the defendant does "not admit injury, loss or damage". Consequently, the terms of the offer sought to burden the plaintiff with a lifelong silence without any acknowledgement of liability for her injury, loss or damage. These extraneous matters did not, and could not, form part of any judgment in the proceeding. The court did not, and could not, compel the plaintiff to execute a form of release and discharge in those terms. As for the acknowledgement that the second defendant does "not admit injury, loss and damage", that contradicts the defendants' pleadings and the conduct of the case for the sole purpose of adjudicating causation and consequential loss and damage. Further, the judgment did not restrain the plaintiff from publication or force confidentiality about the nature and effect of the outcome."

(iv) His Honour found that the extraneous aspects of the offer were "incongruent with the fundamental attributes of ... open justice". This was particularly so given the case was a personal injuries compensation case with no dispute about liability.[84] In comparison, the "overall effect of the judgment" was:

"... to acknowledge the nature and extent of the plaintiff's loss and damage, to attribute liability for her loss caused by the defendant, to quantify compensation, and to acknowledge the defendants' responsibility of the plaintiff's past and future impairment and incapacity."[85]

(v) In all of the circumstances of that case, his Honour found that the plaintiff did obtain a judgment that was overall more favourable to the plaintiff than the offer with the extraneous terms.[86]

• [207] Here the condition is that the parties will "enter into a mutually acceptable settlement and release reflecting the terms in this Offer to Settle". The defendant submits that this causes no difficulty in comparing the offer with the judgment. The condition is subject to the restriction that the deed reflect the terms in the offer. This is to be contrasted to open-ended conditions "on terms to be agreed".[87]
• [208] The defendant submits that the restriction on the condition properly construed is that the terms of the deed are not to go beyond, and are to be consistent in substance with, the terms set out in the offer. That is, when the condition is read in the context of the offer as a whole, the condition is "no more than a proposal to formalise any settlement agreement in such a deed to the same material effect as the offer".[88] This construction supports the defendant's contention that there is no impediment to the comparison of the offer with the judgment.
• [209] The defendant also submits that such a condition does not prevent the existence of a binding contract[89] and the condition to formally restate the terms of the offer in a deed does not impede the comparison of the offer with the judgment.
• [210] Here, the condition is "mutually acceptable". It is not limited to just one party, which could raise potential disadvantage to the other party. Further, it is expressly stated to be reflecting the terms of the offer. It is therefore limited in scope to the terms of the offer. While one may ask the utility of such a deed, as the defendant points out this is an accepted practice.
• [211] On the basis that the condition requires no more than formalising the settlement in a deed to the same material effect as the offer, the condition is sufficiently certain and can be readily and easily compared with the judgment. It can be distinguished from cases where there is a disadvantage by the terms[90] or where the condition is so uncertain that the party has failed to discharge the onus of showing that the judgment would not be more favourable to the plaintiff than the offer.[91]
• [212] Undertaking the comparison of the defendant's UCPR offer and the judgment for the purposes of r 361 UCPR, the defendant has discharged the onus of showing that the plaintiff has not obtained an order that is more favourable to the plaintiff than the offer.

"(2) Unless a party shows another order for costs is appropriate in the circumstances, the court must -

(a) order the defendant to pay the plaintiff's costs, calculated on the standard basis, up to and including the day of service of the offer; and

(b) order the plaintiff to pay the defendant's costs, calculated on the standard basis, after the day of service of the offer."

• [216] Accordingly, the cost order must be as per r 361(2)(a) and (b) UCPR, unless a party shows another costs order is appropriate in the circumstances.
• [217] It is therefore necessary to consider the submissions in respect of the defendant's Calderbank offer and other factors which the defendant relies on to support an argument that the mandated costs order should be varied as follows:

(a) up to and including 21 June 2018:

(i) the plaintiff to pay 50 per cent of the defendant's costs; or

(ii) there be no order as to costs; and

(b) after 21 June 2018, the plaintiff pay the defendant's costs on the indemnity basis.

• [218] Further, if I am wrong about the defendant's UCPR offer, costs would fall to be determined in the discretion of the Court and the defendant's Calderbank offer is relevant to the exercise of that discretion, together with the other factors addressed in submissions.

Does the defendant's Calderbank offer establish that another order for costs is appropriate in the circumstances?

(a) was marked "without prejudice save as to costs".

(b) was expressly stated to be made pursuant to the principles of Calderbank v Calderbank.[93]

(c) Was stated to be open for 14 days from the date of the letter. The defendant's Calderbank offer was contained in a letter that was sent by email on 21 June 2018 at 9.31am.

(d) Contained an offer to settle as follows:

"On the basis of the matters set out in Part 2 below, our client offers to settle your client's claim and our client's counterclaim on a purely commercial basis by paying to your client the total sum of $2,250,000 (inclusive of fees and interest) within 14 days after your client's acceptance of this offer".

(e) The letter sets out the basis identified by the defendant to establish that the offer is a genuine attempt to settle the issues in dispute "at least for the reasons discussed ... in this Part 2".

(f) The offer:

(i) Sets out reasons as to why the plaintiff's claim would be unsuccessful in relation to the Mechanical Variation, Delay Costs and Repayment of Liquidated Damages claims.

(ii) Refers to the reasons pleaded in the defence[94] as to:

• (A) why the Joinery Delay and Bathroom Design Variation claims were "doomed to fail", including that the plaintiff failed to comply with the express notice provisions in the Contract.
• (B) why the Disputed Variation claims in Schedule 3 and 4 of the statement of claim would fail, including that the Superintendent had correctly assessed each variation in accordance with the pricing mechanism in the Contract.
• (C) why the provisional Sum claims in Schedule 5 of the statement of claim would fail, including that the Superintendent had correctly assessed each provisional sum in accordance with the adjusted mechanism in the Contract.
• (D) why the Variation Pricing Claims in Schedule 6 of the statement of claim would fail, including that the Superintendent had correctly assessed each provisional sum in accordance with the pricing mechanism in the Contract and that each variation had been correctly individually priced.
• (E) why the Wrongful Set-Offs and Deductions claims in Schedule 7 of the statement of claim would fail, including that the Superintendent had correctly assessed each set-off and deduction in accordance with the Contract.

(iii) Refers to the reasons pleaded in the counterclaim as to why the plaintiff would be obliged to rectify all defective work under the Contract and would be 100% liable for the rectification costs.

(g) If the offer was not accepted, foreshadowed an application for indemnity costs on the basis that the rejection of the offer was imprudent and/or unreasonable.

(a) The plaintiff's claim was $5,257,165.22. Of that sum:

(i) $4,060,284.03 related to the Mechanical Variation Claim (including GST, Delay Damages and Repayment of Liquidated Damages):

(ii) $1,196,881.19 related to the balance of the claims.[95]

(b) The defendant's counterclaim was principally a claim for specific performance for the plaintiff to rectify the defective work or damages in lieu.

• [221] The defendant has identified an amount of $473,139.00 in the judgment being referable to defects included in the 2018 Defence and Counterclaim.[96]
• [222] The plaintiff appears to accept that the defendant's Calderbank offer meets the requirements identified in the authorities to be a valid Calderbank offer. However, the plaintiff contends that it was not unreasonable for the plaintiff to reject the offer.
• [223] It is common ground that:

(a) The relevant question is whether it was reasonable for the plaintiff to reject the offer.

(b) This question is to be considered at the time the offer was made.

• [224] There are two preliminary matters that require further consideration:

(a) who bears the onus; and

(b) the effect of the Calderbank offer being "inclusive of costs".

• [225] There was some debate at the hearing about who bears the onus in respect of whether the rejection of the offer was unreasonable. This arose in the context of a quote of relevant principles from the Court of Appeal decision in Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd & Anor.[97] The issue there concerned whether part of the costs of the appeal should be paid on an indemnity basis. The joint reasons for judgment of McMurdo P, Atkinson J and Mullins J relevant stated at [2]:

"The basis on which the respondents seek their costs on an indemnity basis is because they made an offer to the applicant pursuant to the principles in Calderbank v Calderbank[98] which was not accepted. The law with regard to costs when a Calderbank offer has been made was set out by the High Court in a joint judgment in Stewart v Atco Controls Pty Ltd [No 2][99] where the court held at [4]:

'This Court has a general discretion as to costs. The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs. The respondent submits that its rejection of the offer was not unreasonable. If that be the test, it would appear to require at the least that the respondent point to a reason for not accepting the offer beyond the usual prospects of being successful in litigation'." (emphasis added)

• [226] The phrase "require ... that the respondent point to a reason" would tend to support a conclusion that the onus was on the offeree to show that the rejection of the offer was reasonable. However, this is not consistent with other authority. It is generally accepted on the authorities that the party seeking an order for indemnity costs bears the onus of establishing the entitlement to an award of indemnity costs based on the unreasonable rejection of an offer of compromise.[100]
• [227] That position is consistent with the phrase "[u]nless a party shows another costs order is appropriate" in r 361 UCPR.[101] Here, the burden of proof is on the defendant to show that a special costs order, such as an order for costs on an indemnity basis, should be made taking into account the plaintiff's rejection of the defendant's Calderbank offer.[102]
• [228] It is also necessary to consider the effect of the defendant's Calderbank offer being inclusive of costs. The plaintiff does not contend that the defendant's Calderbank offer was not a valid offer as a result of it being inclusive of costs and interest. Rather, the plaintiff submits that the result is that the defendant cannot establish that the rejection of the Calderbank offer was unreasonable.
• [229] The plaintiff also submits that the "all up" offer did not provide a breakdown of how the settlement amount was calculated and did not particularise the components relevant to the claim, the counterclaim and costs. The plaintiff relies upon the statement at [100] in the reasons for decision of McColl JA in Elite Protective Personnel Pty Ltd v Salmon[103] which includes at [100] a quote from Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors[104] as follows:

"It has been held that a Calderbank letter which is expressed to be 'inclusive of costs', is insufficiently precise to qualify as a Calderbank offer, for the reason that the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim and the costs incurred in advancing it ...".[105]

• [230] This statement and quote occurs in the consideration of the line of authorities "commencing with Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97".[106] Relevantly, McColl JA continues with a consideration of the authorities and also states at [103]:

"In an ex tempore judgment in DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 2151; (2004) 51 ACSR 555 (at [12] - [13]), Allsop J referred to Smallacombe, Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Pty Ltd) [1998] 1429 FCA (Federal Court of Australia, Moore J, 11 November 1998, unreported) and Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602. He did not regard Smallacombe as having articulated "a definitive rule that in an application for costs, an offer that was an all inclusive sum could not, in any circumstances, be taken into account by a Court in considering whether thereafter indemnity costs should be awarded".

• [231] The defendant submits that the above passage does not reflect the actual decision of McColl JA or the Court of Appeal. It is necessary to consider later statements by McColl JA and the reasons for the other two judges on the Court. At [115] McColl JA went on to state:

"I agree with Allsop J that Smallacombe does not lay down a 'definitive rule' that an 'all-in' Calderbank offer can never be considered on the question of indemnity costs. The Court cannot fetter the s 98 discretion by legal rules: Oshlack (at [35]). Smallacombe does, however, afford guidance as to the exercise of the s 98(1) discretion. It informs the question of the reasonableness of an offeree's refusal to accept an "all-in" offer. In my view it has a sound practical basis. While I accept each case should be considered on its facts, Smallacombe provides sound reasons to discourage offerors from drafting Calderbank letters on an "all-in" basis."

• [232] Beazley JA in Elite Protective Personnel noted that the application for indemnity costs was based on a Calderbank offer which was inclusive of costs and that the application was resisted principally on the basis that an offer inclusive of costs did not satisfy the requirements of a Calderbank offer. While the Court of Appeal decided not to exercise its discretion to award indemnity costs, Beazley JA made the following comments:

"[5] ... I do not agree that an offer which is inclusive of costs cannot ever be the basis upon which the court exercises its discretion to award indemnity costs. The award of indemnity costs involves the exercise of a discretion. The application of an overarching 'rule' or 'principle' that only offers exclusive of costs could ground a favourable exercise of the court's direction would operate as a fetter on that discretion and would introduce a rigidity to the making of so called Calderbank offers which has no basis in principle.

[6] There is, however, as discussed in the judgments of McColl JA and Basten JA, some disputation in the authorities as to whether an offer that is inclusive of costs may be the basis upon which an indemnity costs order can be made. Notwithstanding a number of first instance decisions that state that an offer inclusive of costs does not operate as a Calderbank offer, there are authorities of this Court that an offer of compromise which is inclusive of costs may form the basis upon which the court awards indemnity costs.

[7] As is apparent from the short remarks I have made, I consider that the proper approach to any such offer of compromise is to consider it according to its terms and determine whether, in all the circumstances, the court should exercise its discretion to award indemnity costs. Having said that, there may be difficulties in the path of a party who seeks indemnity costs when the application is based upon an offer inclusive of costs, as is examined and explained by Basten JA".

• [233] Basten JA considered the line of authorities of Smallacome, Hanave and Dr Martens and relevantly stated:

"[143] With respect, I would not accept that reasoning. If a party in receipt of an offer wishes to know how far the sum offered will go in meeting its costs up to that time, all it has to do is ask its lawyers. In an age where lawyers are required to provide advance estimates of their fees and in circumstances where commercial services are billed on a monthly basis, it is unrealistic to suggest that the recipient of an inclusive offer will be confused or otherwise unable to assess the financial risk of proceeding with litigation. In any event, the offeree is likely to be liable for legal fees exceeding the costs recoverable from the other party. Most litigants, in considering offers, will want to know from their own lawyers, how much they will receive in hand. Of course, if the offer is not left open for a reasonable time, that might itself make non-acceptance a reasonable course. However, an offeree which is genuinely seeking to assess it position, might be advised to seek more time, if it thinks that is reasonably required.

[144] The suggestion that a Calderbank letter which is expressed to be inclusive of costs is "insufficiently precise to qualify as a Calderbank offer" requires to be addressed in particular circumstances. A defendant who fears that even if successful it will be unable to recover costs awarded against the plaintiff, may wish to make an offer in full and final settlement, without further disputation over costs. It may wish to place pressure on the plaintiff to consider the offer favourably by reserving an entitlement to use the offer in relation to costs if the matter proceed to trial. There is no reason based on policy or principle which would preclude a defendant relying on such an offer only when it is said to be exclusive of costs. Such as inclusive offer will not cause the plaintiff embarrassment: its value will be that amount remaining to him or her after deducting costs already incurred, which the plaintiff's lawyer should be readily able to quantify. The disadvantage of an inclusive offer lies with the defendant if the matter proceeds to judgment. Where the judgment is equal to or above the inclusive figure, the defendant will have failed to better its own offer. However, if the judgment is below the offer there may be uncertainty because the offer included an unquantified element for costs incurred up to the time when it lapsed or was rejected. ..."

• [234] The decision of Parker J in Megerditchian v Khatachadourian[107] succinctly stated the approach as follows:

"[38] Making an offer inclusive of costs may sometimes have the result that it is difficult to demonstrate unreasonableness in rejecting it. This is particularly so where the offeror is the plaintiff. In such a case the defendant will have no direct knowledge of the costs which the plaintiff has actually incurred and will only be able to make the broadest estimate.

[39] But that is not so where the offer is made on an inclusive basis from the defendant to the plaintiff. The plaintiff knows, or can readily find out, what his or her costs are. Where it is sufficiently clear afterwards that, taking into account the costs the plaintiff had incurred at the date of the offer, the offer was more than favourable than the ultimate result, there is no objection in principle to concluding that refusal of the offer was unreasonable: see Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [136] - [145], per Basten JA."

• [235] I agree with the conclusion that ultimately the award of indemnity costs involves the exercise of a discretion and there is no rule that a Calderbank offer which is inclusive of costs cannot be the basis upon which the court exercises its discretion to award indemnity costs. The proper exercise of the discretion is to be in all of the circumstances.
• [236] Sackville J in Seven Network Ltd v News Ltd[108] recognised that the task is whether the offeree acted unreasonably in rejecting the offer. His Honour identified that some cases will not be difficult and others far more formidable. Relevantly, Sackville J identified:

(a) The court is to consider whether the rejection of the offer was unreasonable by considering, among other relevant circumstances, the strengths and weaknesses of the relevant party's case "prospectively at the time the offer was made" (emphasis added); and

(b) A matter to be taken into account is that the relevant party ultimately failed in the proceedings.[109]

• [237] Accordingly, it is necessary to consider whether the plaintiff's rejection of the defendant's Calderbank offer, in all of the circumstances, justifies the exercise of the court's discretion to vary the costs order under r 361(2) UCPR and award indemnity costs.
• [238] Bond J helpfully summarises the relevant legal principles to be applied in considering reasonableness and the non-exhaustive list of factors to be considered in the Court's exercise of discretion in SHA Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd (No 2)[110] as follows:

"[8] The relevant considerations were identified in J & D Rigging Pty Ltd v Agripower Australia Limited [2014] QCA 23 at [5] to [6] per Holmes JA and Applegarth and Boddice JJ, and in Hadgelias Holdings and Waight v Seirlis [2014] QCA 325 at [11] to [12] per Holmes JA with whom Gotterson and Morrison JJA agreed. In each case, the Queensland Court of Appeal followed the approach taken by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435.

[9] The following propositions may be distilled from those appellate decisions.

[10] First, the usual rule is that where the Court orders the costs of one party to litigation to be paid by another party, the order is for assessment of those costs on the standard basis.[111]

[11] Second, the Court will depart from the usual rule where the circumstances of the case warrant that course.[112]

[12] Third, one feature which may justify a departure from the usual rule is the rejection of a Calderbank offer to compromise.[113] However, it is wrong to think that an offeree's rejection of a Calderbank offer gives rise to a presumption that the offeree should pay the offeror's costs on an indemnity basis if the offeree obtains a less favourable result than contained in the offer.[114] Rather, the correct approach is to consider whether the rejection of the Calderbank offer, in all the circumstances, justifies a departure from the usual rule.[115]

[13] Fourth, the balance between the competing policy considerations of, on the one hand, appropriately encouraging settlement and, on the other, not discouraging potential litigants from bringing their disputes to the courts, is found by applying a test of "reasonableness".[116] The policy rationale for requiring the offeree to indemnify the offeror for costs incurred after the offeree's unreasonable rejection of an offer is that, from the time of the unreasonable rejection, notionally the real cause and occasion of the litigation is the unreasonable attitude adopted by the offeree.[117]

[14] Fifth, deciding the critical question of whether the offeree's rejection of the offer is unreasonable in all the circumstances will always involve matters of judgment and impression.[118] However, the discretion as to costs must be exercised judicially and is subject to review in accordance with the principles set out in House v The King (1936) 55 CLR 499 at 505.[119] Without being exhaustive concerning the considerations which should be taken into account, a court should ordinarily have regard to at least the following matters:[120]

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(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 of the offeree rejecting it."

• [239] It is necessary to consider each of these factors and other relevant circumstances.

The stage of the proceedings at which the offer was received

• [240] The claim was filed on 31 May 2017, a notice of intention to defend and defence and counterclaim was filed on 9 August 2017 and a rejoinder and reply to answer was filed on 2 November 2017.
• [241] The 2018 Defence and Counterclaim was filed on 16 February 2018 and an amended reply and answer was filed 2 March 2018.
• [242] The defendant's Calderbank offer was made on 21 June 2018.
• [243] The plaintiff contends that it was not unreasonable for the plaintiff to reject the offer at the time it was made having regard to the following particular factors, including:

(a) Significant changes were made to the defendant's counterclaim after the offer was made.

(b) At the time of the offer, the counterclaim was not quantified. The relief sought was rectification or alternatively unquantified damages for failure to rectify.

(c) The defendant's pleaded case in respect of why the Mechanical Variation was not a variation changed after the offer.

• [244] These issues will be considered further below in respect of the prospects of success.

The time allowed to the offeree to consider the offer

• [245] The offer was open for 14 days from the date of the letter and it was served by email at 9.31am on 21 June 2018, the date of the letter. There is no evidence or suggestion that the time was not reasonable to consider the offer.

• [246] The defendant's Calderbank offer was a genuine offer of compromise. The plaintiff's claim at the time of the offer was $5,875,366.27 plus GST,[121] with over $3.8 million (plus GST) being related to the Mechanical Variation and related issues.[122]
• [247] If the plaintiff was wholly successful on its claim and successfully defeated the counterclaim, the plaintiff's best case scenario was a payment by the defendant of approximately $6.4 million.[123]
• [248] The plaintiff's worst case scenario was a loss on its claim and the defendant succeeding on the counterclaim, which would have resulted in the plaintiff having to undertake the work or most likely pay to the defendant damages in respect of the defective work.
• [249] The defendant's Calderbank offer provided for the defendant paying a substantial sum to the plaintiff. While this did not specify amounts in respect of the claim, counterclaim, interest and costs, the amount of the payment was generous in favour of the plaintiff. Even allowing for costs and interest, it can be inferred that the offer factored in a substantial component to the advantage of the plaintiff.
• [250] This is also evident from a consideration of the course of without prejudice correspondence between the parties, namely:

(i) On 14 June 2018 the plaintiff made an offer pursuant to Part 5 of Chapter 9 of the UCPR as follows:

• (A) Settle all claims made by the plaintiff, the defendant to pay to the plaintiff:

  • (I) $3,100,000; and

  • (II) The plaintiff's costs assessed on the standard basis.

  • (B) Settle all counterclaims made by the defendant, the plaintiff will provide an irrevocable undertaking to rectify all defects listed in Schedule 1 in accordance with the terms of the Contract.[124] Schedule 1 listed Defect 3 in Annexure 4 and Defects 2, 15, 19, 32, 33 and 34 in Annexure 6 to the Counterclaim.[125]

(ii) On or about 15 June 2018, the plaintiff was prepared to settle costs, on a commercial basis, for the amount of $550,000.[126]

(iii) By email sent at 9.29am on 21 June 2018 the defendant's UCPR offer was made to the plaintiff as follows:

• (A) In full and final settlement of all claims and counterclaims, the defendant pay to the plaintiff:

  • (I) the sum of $1,850,000;

  • (II) interest pursuant to the Civil Proceeding Act; and

  • (III) the plaintiff's costs on the standard basis.

  • (B) The parties enter into a mutually acceptable deed of settlement and release reflecting the terms of the offer.

(iv) By email at 9.31 am on 21 June 2018 the defendant's Calderbank offer was made to the plaintiff as follows:

• (A) In full and final settlement of all claims and counterclaims, the defendant pay the plaintiff the sum of $2,250,000 (inclusive of legal fees and interest) within 14 days of acceptance of the offer.

• [251] The compromise in the defendant's Calderbank offer incorporated a considerable compromise of the claim and counterclaim in the plaintiff's favour.

The clarity with which the terms of the offer were expressed

• [252] The defendant's offer was expressed in clear terms.
• [253] The offer outlined the basis upon which the defendant contended it was unreasonable for the plaintiff to reject the offer.
• [254] The offer identified the key reasons that supported the reasonableness of the offer by reference to the specific matters outlined in the letter in respect of the Mechanical Variation, the Delay Costs and Repayment of Liquidated Damages claims and matters pleaded in the 2018 Defence and Counterclaim in respect of the other claims and the counterclaims.
• [255] These reasons will be considered further below in respect of the prospects of success.

Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it

• [256] The defendant's Calderbank offer expressly stated that if not accepted the offer would expire 14 days from the date of the letter.
• [257] Further, it also expressly stated that if not accepted, the defendant reserved the right to rely on the offer in support of an application for indemnity costs on the grounds that the failure to accept the offer was imprudent and /or unreasonable.

The offeree's prospects of success, assessed at the date of the offer

• [258] The mere rejection of an offer and the offeror doing better at trial does not result in an indemnity costs order. What is required is that the rejection of the offer was unreasonable. The question then is what constitutes an unreasonable rejection.
• [259] The making of an offer of compromise and the receiving of an offer of compromise is the intersection of two assessments of prospects of success and damages that may be awarded. The offeror in making the offer makes an assessment of prospects of success (or loss) and an assessment of possible exposure to damages (or not recovering that amount) if the matter proceeds to trial. The offeree on receipt of an offer assesses the offer and also undertakes its own assessment of the prospects of success (or failure) and an assessment possible exposure to damages (or not recovering that amount) if the matter proceeds to trial.
• [260] These assessments are also undertaken knowing the costs rules in the UCPR and the law in respect of Calderbank offers.[127] The costs consequences of an offer not being accepted are a key factor in the making of an offer and also factor into the decision to accept or reject an offer.
• [261] The ability to give proper consideration to an offer depends on whether the terms are sufficiently clear. An offer inclusive of costs and interest may give rise to difficulties in the offeree being able to assess the offer to decide whether to accept it or not. It may also give rise to the Court having difficulties in determining whether it was unreasonable not to accept it. However, as identified by Basten JA in Elite Protective Personnel, those difficulties are not necessarily insurmountable.
• [262] Further, the outcome as reflected in the judgment is not determinative but is a factor to be taken into account. The reasons for judgment are also a factor in the assessment undertaken by the Court as to reasonableness. While the reasonableness is viewed as at the time of the offer, it is relevant to consider whether the arguments identified in the Calderbank offer were ultimately accepted by the Court.
• [263] For example, Bond J in Barboza v Blundy & Ors[128] stated:

"The offer outlined why the defendants suggested that the plaintiff would fail at any trial. In support of that contention, the offer advanced reasons which were the equivalent of two critical propositions which I ultimately accepted in my judgment on the merits .... I made equivalent points in my judgment on the merits". (footnotes omitted)

"The terms of the offer explained critical matters fatal to the plaintiff's case which were entirely consistent with the way in which the trial and my judgment played out."

• [264] An assessment of an offer is to take into account an assessment of the prospects of success but is also to take into account the advantages and disadvantages of the offer. For example, the defendant's Calderbank offer was a specified amount inclusive of all claims, counterclaims, interest and costs. The plaintiff has pointed out the disadvantages of not knowing the components parts for each. However, the offer clearly has some advantages:

(a) It avoided the need for further costs being incurred to obtain an assessment of costs.

(b) If the offer was accepted the money would be paid within 14 days, giving certainty of cash-flow.

(c) It would give finality to the issues then in dispute between the parties.

(d) It would have removed the then current risk of the defendant having recourse to the security bond in respect of the defects (and/or as happened here, the plaintiff having to pay an equivalent cash security to avoid a call on the security bond).

• [265] The two key issues relevant to the assessment of the offer identified by the plaintiff are:

(a) The 2018 Defence and Counterclaim pleading in respect of the Mechanical Variation differed to that at trial; and

(b) The counterclaim was unquantified at the time of the offer and changed significantly after the offer.

• [266] The plaintiff focuses on the defendant's pleading in the 2018 Defence and Counterclaim but does not really grapple with the matters outlined in the defendant's Calderbank offer. The reasons in the letter are in narrative form rather than a pleading and should be read to supplement the defendant's pleaded case. It is appropriate, and necessary, to look at the relevant pleaded case together with the arguments articulated in the letter to evaluate whether the rejection of the offer was unreasonable or not.
• [267] The plaintiff focusses on [8] of the 2018 Defence and Counterclaim. The defendant's pleading did change from the 2017 version, to the 2018 Defence and Counterclaim, the 2019 version and ultimately the 2020 version, being the Trial Defence Counterclaim. However, the central issues raised in each of the defendant's pleading (not just limited to [8]) was what was required under the Contract and whether the notices from the defendant in August and September 2016 were notices to remedy defective work or were directions to undertake a variation. These were the issues ultimately determined in the reasons for judgment.
• [268] The assessment of the offer in respect of the Mechanical Variation claim required the plaintiff to undertake an objective assessment of the strengths and weaknesses of its own claim in light of the matters raised by the defendant in its pleading and the defendant's Calderbank offer.
• [269] As at the date of the defendant's Calderbank offer, the 2018 Defence and Counterclaim clearly put in issue whether the installation of the three-pipe air-conditioning system was a variation to the Contract or was required to comply with the primary obligation in the Contract. It could not logically be both: it was either required under the Contract or was a variation to the Contract.
• [270] Paragraph [8] of the 2018 Defence and Counterclaim sets out the following:

(a) Denies that the notices constituted a direction to undertake a variation under the Contract ([8(d)]);

(b) Says that the Contract ( clauses 1, 2,1, 2.2, 8.5(a) and annexures L, K and O) required the plaintiff to provide an air-conditioning system that provided independent heating and cooling ([8(aa)]);

(c) Says that the air-conditioning system installed by the plaintiff:

(i) did not provide independent heating and cooling; and

(ii) as a result if (i) was defective ([8(ab)]);

(d) Says that the notices to the plaintiff dated 11 August 2016, 16 August 2016 and 17 September 2016 were notices of defective works ([8(b) and (c)]).

• [271] The plaintiff refers to [8] of the Trial Defence and Counterclaim and notes that the pleading was amended to include references to the "Mechanical Services Specification" and that the air-conditioning system being installed by the plaintiff "did not meet the performance requirements of the Mechanical Services Specification". It also raised an alternative position that if there was any ambiguity between the Mechanical Services Specification and the Mechanical Services preliminary Design Drawings the system with the "higher level of quality " was to be installed.
• [272] The plaintiff submits that these were significant changes to the bases for the denial of the variation and this goes to the reasonableness of rejecting the offer.
• [273] The plaintiff's approach to the 2018 Defence and Counterclaim is blinkered and fails to consider the full pleaded position of the defendant as at the date of the offer. The 2018 Defence and Counterclaim also included:

(a) At [9]:

(i) The plaintiff undertook the work to replace the 2-pipe heat pump air conditioning system with a 3-pipe air conditioning system ([9(a)]);

(ii) Denied this work was additional and stated "it was not" ([9(b)]);

(iii) Denied that this work was required to give effect to the alleged Mechanical Direction or any direction or variation and says "as it was not" ([9(c)]);

(iv) Repeats and relied on the matters pleaded in [8].

(b) At [10]:

(i) The work required as a consequence of the notices dated 11 August 2016, 16 August 2016 and 17 September 2016 was not a variation of the work under the Contract ([10(c)]);

(ii) Identifies the Mechanical Services Specification ([10(h)]);

(iii) Identifies that the "Mechanical Services Specification and Mechanical Services Preliminary Design Drawings set out those performance requirements listed in the 11 August 2016 notice from the Superintendent" ([10(i)]);

(iv) Says that "Annexure O of the Contract expressly required that any alternative mechanical systems, including the air-conditioning system, proposed by the Plaintiff were required to meet the performance requirements set out in the tender drawings and specifications" ([10[j)]);

(v) Says that "the work required as a consequence of the 11 August 2016 notice was work required to rectify, or partly rectify, the non-compliance of the mechanical system designed and installed by the Plaintiff with the performance requirements set out in the Mechanical Services Specification and Mechanical Services Preliminary Design Drawings" ([10(k)]). (emphasis added)

• [274] The 2018 Defence and Counterclaim also incorporates the 11 August 2016 notice. The notice expressly states as follows:

"the mechanical services system installed by the Contractor does not comply with the Contract and, in particular, paragraph 1(u) of the Annexure Part O, as that mechanical services system does not meet the performance requirements set out in the Thwaite Consulting Group Mechanical Services Specification, Reference 3235, October 2014 document which form part of the preliminary design."[129] (emphasis added)

• [275] The notice then went on to identify elements that did not meet the "performance requirements" of the Contract.
• [276] In submissions the plaintiff contends that the pleading did not identify that the failure to provide independent heating and cooling was a failure to meet a "performance requirement". This submission appears to disregard the defendant's pleading, particularly in [8(aa)], [8(ab)], [8(c)] [10(c)], [10(i)], [10(j)] and [10(k)] which clearly raise this issue.
• [277] Further, the plaintiff says that it was only after service of Mr Dowden's report dated 5 April 2019 and the pleading amendments in 2019 that the defendant asserted that the alternative proposal "had not met the "performance requirements" of the Mechanical Services Specification and the Mechanical Services Preliminary Design Drawings".[130]
• [278] Again, this submission appears to disregard the pleading at [8], [9] and [10] of the 2018 Defence and Counterclaim, and in particular [8(aa)], [8(ab)], [10(j)] and [10(k)].
• [279] The plaintiff's submissions also do not engage with what is in the defendant's Calderbank offer. The submission was made that they were entitled to rely on the defendant's pleaded case.[131] However, in considering "all of the circumstances" it is relevant to consider the reasons outlined in the offer itself, as well as the 2018 Defence and Counterclaim.
• [280] The defendant's Calderbank offer relevantly states:

"2.2 Mechanical Variation, Delay Costs and Repayment of Liquidated Damages claims are doomed to fail

2.3 The crux of the claims made in the Proceeding arise out of your client's claim for the Mechanical Variation. Specifically, what system the Contract required your client to design and install, and whether that system was the 2-pipe VRF system which your client initially commenced the installation of, or the 3-pipe VRF system which your client has ultimately completed the installation of. Out of your client's claim for the Mechanical Variation flows your client's Delay Cost claim, which ultimately flows into your client's claim for the repayment of the Liquidated Damages.

2.4 Paragraph 1(u) of Annexure Part O of the Contract provides as follows:

(u) The Contractor's alternative proposal for structural and mechanical systems on the basis that the Contractor meets the performance requirement of the tender drawings and specifications.' (emphasis added)

2.5 Clause 8.1 of the Contract relevantly provides that:

When construing the Contract Documents, the following rules of construction apply:

(a) in the event of any inconsistency between the Contract Documents:

(i) the formal instrument of agreement and these general conditions have precedence; and

(ii) the clarifications have precedence over the preliminary design;

(i) where inconsistent levels of quality are required, the higher level of quality shall apply

The Contractor shall have no entitlement as a consequence of a direction given by the Superintendent under this subclause 8.1 which is consistent with the rules of construction in this clause 8.1.'

2.6 Your client has adopted an interpretation of the Contract that makes the emphasised part of paragraph 1(u) of Annexure Part O of the Contract otiose. If it was the case that, by the Contract, the parties had agreed on a position that your client's alternative proposal was to be used, whether or not it satisfied the drawings and specifications, there would be no need to include that qualification within paragraph 1(u) of Annexure Part O of the Contract. It follows that the mechanical system still needed to comply with the performance requirements of the drawings and specifications (including that the system independently heats and cools) and if your client's alternative system was unable to comply with the drawings and specifications, then your client was required to design and install a system that did."

• [281] Further, the defendant's Calderbank offer addressed the Delay Costs claim and the claim for repayment of Liquidated Damages as follows:

"2.10 In the premises of paragraphs 2.3 to 2.9 of this letter, your client's claim for Delay Costs will fail because your client will not establish that the Mechanical Variation is in fact a variation under the Contract and therefore no Qualifying Cause of Delay under the Contract has occurred. Even if your client could establish that a Qualifying Cause of Delay under the Contract has occurred (which is denied), your client will not succeed in establishing an entitlement to delay costs under the Contract because:

(a) the Project was more than 100 days late as at the date that the Superintendent issued the notice of defect for the Mechanical System;

(b) there was a further delay of more than two months before your client confirmed that it would comply with the Superintendent's direction;

(c) your client appears to have manipulated its programs to try and keep the Mechanical System on the critical path.

2.11 In the premises of paragraph 2.10 of this letter, your client's claim for repayment of Liquidated Damage will also fail."

• [282] These matters pleaded in the 2018 Defence and Counterclaim and as articulated in the defendant's Calderbank letter are consistent with the issues which ultimately were the issues determined in favour of the defendant at trial.
• [283] Paragraph [149] of the reasons for judgment states:

"The critical issue for determination in in this matter is whether or not the Independent Heating/Cooling Function was a performance requirement of the tender drawings and the Specification."

• [284] Ultimately, on the construction of the Contract this issue was determined in favour of the defendant. As a result of that determination, the plaintiff's Mechanical Variation claim did not succeed and the plaintiff was unsuccessful in recovering the costs of carrying out the rectification work, an extension of time, delay costs and repayment of liquidated damages.
• [285] The plaintiff would (or should) have been aware of this risk at the time that the offer was made. The nature of the above claims was that they were dependent on establishing the Mechanical Variation. Even if a variation was established, there were further risks to the plaintiff recovering the amount claimed, as is evident from Annexure A to the reasons for judgment.
• [286] The defendant rightly identifies that while the outcome of the Mechanical Variation claim was not a "foregone conclusion", the plaintiff ought to have been aware of the weaknesses in its own case regarding the Mechanical Variation. To assist with this assessment it had the detailed argument of the defendant set out in the defendant's Calderbank offer, together with the 2018 Defence and Counterclaim.[132]
• [287] The defendant contends that it was unreasonable for the plaintiff to reject the defendant's Calderbank offer in light of the difficulties in the plaintiff's Mechanical Variation claim. The defendant identifies four material difficulties with the plaintiff's case as follows:

(a) The plaintiff's asserted construction was inconsistent with the language of the Contract, in that clause 3.1 of the Specification did not contain the only performance requirements of the Contract.

(b) The plaintiff's asserted construction was contrary to the language of the drawings and specifications forming part of the Contract, indicating that each room was to be individually air conditioned.

(c) The plaintiff's asserted construction was not consistent with the construction that a reasonable businessperson would make of the Contract, in particular that 'conditioned air' did not mean 'unconditioned air' from outside ventilation.

(d) The plaintiff's asserted construction was contrary to accepted facts, in particular that it was possible to design a VRF air conditioning system providing for independent heating and cooling. This was in fact what happened.

• [288] Each of these aspects played a fundamental part in the reasoning that led to the plaintiff's Mechanical Variation claim being unsuccessful. In the reasons for judgment, the matters at (a) to (d) above are addressed as follows:

(a) [157(b)] and [168] - [169];

(b) [158] - [159];

(c) [160] - [161]; and

(d) [164].

• [289] These difficulties should have been apparent to the plaintiff at the time it was assessing the defendant's UCPR offer and the defendant's Calderbank offer, and equally when it was preparing its own earlier UCPR offer.
• [290] Further, the defendant also accepts that an indemnity costs order may be refused where the offeror succeeds on an entirely different case,[133] but that is not the case here. The material aspects of the Mechanical Variation claim were known at the time of the offer.
• [291] The defendant relies on the statement of Perry J in Shaw v Jarldorn[134] as follows:

"The circumstances which are most likely to arise and which might justify relieving a defendant from the obligation to pay solicitor and client costs, will be those where there is such a significant change in the manner in which the plaintiff's case is presented at the trial, or the manner in which the evidence emerges at the trial, that it might fairly be said that the full dimensions of the plaintiff's entitlement could not possibly have been foreseen before the hearing commenced."[135] (emphasis added)

• [292] Here, no such circumstances are present. In respect of the Mechanical Variation the key contractual issues had been identified as at the date of the offer.
• [293] The defendant also points to the comments of Doyle CJ in Shaw v Jarldorn that parties are assumed to anticipate the ordinary risks and vicissitudes of litigation.[136] Refinement of pleadings would be within that range. Here, subsequent amendments may have refined the defendant's pleading, but the material position of fundamental aspects of the plaintiff's claim did not change.
• [294] The amendment of the defendant's defence and counterclaim following the Calderbank offer does not support a conclusion that the plaintiff's rejection of the offer was reasonable. The analysis of the 2018 Defence and Counterclaim, the matters raised in the defendant's Calderbank offer in respect of the Mechanical Variation, and the conclusions reached in respect of those issues in the reasons for judgment support the opposite conclusion.
• [295] The next issue to be considered is the defect claims in the 2018 Defence and Counterclaim and the subsequent amendments to the counterclaim.
• [296] The plaintiff submits in respect of the defendant's counterclaim:

(a) Significant changes were made to the counterclaim after the offer was made.

(b) At the time of the offer the counterclaim was not quantified.

(c) The plaintiff rectified some of the alleged defects at some stage after the offer.[137]

(d) The offer did not identify an amount referable to the defects claim.

(e) The defendant abandoned close to 80 per cent of the defects alleged at the time of the Calderbank offer.[138]

• [297] In light of these circumstances, the plaintiff contends it was not unreasonable for the plaintiff to refuse the defendant's Calderbank offer.
• [298] The defendant agrees that the claims made in respect of defects did change after the offer but disagrees as to the relevance of this to the question of reasonableness in rejecting the offer. The question of reasonableness is to be determined at the time of the offer. It remains a relevant consideration to consider the reasonableness of rejecting the offer in respect of what was claimed at the time of the offer.
• [299] Further, the defect claims were unquantified at the time of the offer. The primary relief sought was specific performance. However, it is submitted that the plaintiff was in a position to be able to estimate the costs involved in the rectification work that would have been involved in respect of the identified defects.
• [300] In this regard, the defendant refers to and relies on the comments by Adams J in Alves v Patel[139] as follows:

"When dealing with the issue of costs in the context of settlement negotiations it is important to recognize, as it seems to me, that such negotiations often take place before the trial commences, well before the evidence is concluded and often before its detail is clear. Moreover, as the matter proceeds, the absence of settlement in the period - sometimes lengthy - before trial will often lead to further investigation and the collection of further evidence. The notion that Calderbank offers can safely be ignored without costs consequences just because the offeror's case is not ready for trial or all pre-trial requirements as to service of reports or supply of particulars have not been complied with cannot be right: much will depend on a commonsense approach to the case and the particular circumstances at the time of the offer.

... The mere fact that a defendant does not know precisely what the value of the plaintiff's claim or the scope of the evidence proposed to be led in support of it when a Calderbank offer is made does not mean that it is not unreasonable for such an offer to be ignored. After all, the defendant is not without the means of independently estimating the value of the case. Offers are very often made and accepted because the value of the claim is difficult to estimate. Much also depends also on the extent to which the offer is exceeded by the judgment. (emphasis added).

In short, the question is not so much what is the 'true' value of the plaintiff's case but having due regard to the imponderables and uncertainties in the case, whether it was 'plainly' unreasonable to refuse the plaintiff's offers, bearing in mind the 'ordinary rule is that costs when ordered in adversary litigation are to be recovered on the party and party basis': per Sheppard J in Sanko Steamship Co (supra). These are all very much matters of fact and degree."

• [301] Here, the plaintiff was a construction company that, as part of its business, estimated the cost of undertaking building construction work. It was in a position where it was able to evaluate the potential cost of undertaking the work and to factor that into the analysis of the advantages and disadvantages of the offer.
• [302] Further, the plaintiff's UCPR offer includes an undertaking to complete rectification work in respect of some of the defects. To that extent, it can be inferred that the plaintiff was in a position to be able to evaluate the risk that it was potentially liable for some of the rectification work in respect of defects and also the potential costs of undertaking that work.
• [303] The ultimate question is whether the defendant has discharged the onus on it to establish that the plaintiff's rejection of the defendant's Calderbank offer was unreasonable.
• [304] In all of the circumstances:

(a) The Mechanical Variation and associated claims by far constituted the largest component of the plaintiff's claim. If the plaintiff was unsuccessful in respect of those claims, the plaintiff could only recover an amount substantially less than the defendant's Calderbank offer.

(b) The other claims by the plaintiff totalled $1,196,881.19.[140] Even if the plaintiff was totally successful on those claims (which it was not) and successfully defended all the counterclaim, the amount paid to the plaintiff (even including interest and costs) would be substantially less than the defendant's Calderbank offer (and also the defendant's UCPR offer).

(c) Factoring in a mixed result on the other claims and the counterclaims (which is what occurred), then the prospect of the plaintiff obtaining a judgment more favourable than the defendant's Calderbank offer is even further diminished.

(d) While the plaintiff may have considered that its construction of the Contract in respect of the Mechanical Variation was open, the prospects of success have to be considered in light of the advantages and disadvantages of the offer.

(e) The issues at the heart of the Mechanical Variation claim had been ventilated during the project and explored in detail in project correspondence. The dispute resolution procedures in the Contract had also been activated.

(f) The plaintiff and the defendant are sophisticated parties and are familiar with the evaluation and allocation of time, costs and risk. These are at the heart of every construction contract and project.

(g) The plaintiff should have been aware of the difficulties it faced in respect of its Mechanical Variation claim.

(h) Similarly, the plaintiff was uniquely placed to be able to evaluate the claims in respect of defective work then included in the counterclaim. It did in fact do so at least the week prior to the defendant's Calderbank offer when the plaintiff made its UCPR offer.

(i) The plaintiff should have been aware of the consequences of the rejection of the defendant's UCPR offer and the defendant's Calderbank offer. After that point, by proceeding to have the Court determine the claims, the plaintiff did so knowing that the litigation risks included the potential reallocation of the costs risk.

• [305] The plaintiff ultimately obtained a judgment whereby the defendant is required to pay the plaintiff $668,661.68 (principal of $459,354.38 and interest $209,307.30). This outcome was well within the range of likely outcomes unless the plaintiff was successful on the Mechanical Variation and associated claims.
• [306] The defendant's Calderbank offer contained a genuine offer of compromise reflecting the litigation risks to both the plaintiff and the defendant in respect of both the claim and the counterclaim. In the circumstances of this case, the plaintiff had sufficient material and was in a position to be able to give proper consideration to the offer despite the component parts not being identified.
• [307] In all of the circumstances, I am satisfied that the plaintiff's rejection of the defendant's Calderbank offer was unreasonable. Consequently, the plaintiff's rejection of the defendant's Calderbank offer, in all of the circumstances, justifies a departure from the costs consequences mandated in r 361(2) UCPR.
• [308] Pursuant to r 361(2) UCPR the defendant has shown that another order for costs is appropriate: namely, that the plaintiff pay the defendant's costs, calculated on the indemnity basis, after the day of service of the offer (that is, after 21 June 2018).
• [309] The defendant also seeks an alternative order in respect of the costs up to the date of the offer. The defendant submits that the mixed outcome for both parties supports a costs order that the plaintiff pay 50 per cent of the defendant's costs or alternatively there is no order as to costs up to the date of the offer.
• [310] I am not satisfied that the defendant has shown that such a costs order is appropriate in the circumstances. In respect of the costs up until the date of the offer being 21 June 2018, the appropriate costs order in all of the circumstances is in accordance with r 361(2)(a) UCPR. That is, the defendant pay the plaintiff's costs, calculated on the standard basis up to and including the day of service of the offer.
• [311] If I am wrong about the defendant's UCPR offer being effective, in exercising the Court's discretion and taking into account the defendant's Calderbank offer, the appropriate costs order would be the same.

• [312] As I have found that the defendant's UCPR offer and the defendant's Calderbank offer were both engaged, it is not strictly necessary for me to consider the submissions from both parties about the appropriate costs order if the offers were not engaged and costs are in the general discretion of the Court.
• [313] As the judgment has been appealed, it is appropriate to make some comments that may assist in the event that the costs consequences need to be re-considered in the exercise of the general discretion as to costs.
• [314] If costs are to be awarded on the exercise of the Court's general discretion, the plaintiff's position is that the defendant should pay the plaintiff's costs on the standard basis. Alternatively, if it is appropriate to apportion costs on an "issues" basis, the plaintiff contends that the appropriate order is that the defendant pay 75 per cent of the plaintiff's costs on the standard basis.
• [315] If costs are to be awarded solely on the exercise of the Court's general discretion, the defendant's position is that the plaintiff should pay 50 per cent of the defendant's costs on the standard basis, or there be no order as to costs.
• [316] First, both parties have provided evidence analysing the outcome by reference to:

(a) The evidence in chief constituted by witness statements and expert reports devoted to the Mechanical Variation claim; and

(b) The closing submissions and transcripts by reference to each claim and counterclaim.

• [317] This type of statistical analysis is not particularly helpful in determining the appropriate order as to costs.
• [318] Equally, concluding that as the judgment is for a payment by the defendant to the plaintiff, the plaintiff should be entitled to its costs does not do justice to the overall outcome in the various claims in this proceeding.
• [319] That costs follow the event is only a starting point and it is subject to the Court ordering otherwise. Rules 687 and 684 UCPR are examples where a different approach may be appropriate. The flexibility to be able to award costs as a percentage or in respect of a particular question or part of a proceeding accords with the ability of the Court to depart from the general rule.
• [320] The general principles have been helpfully summarised in the recent Court of Appeal decision in Speets Investment Pty Ltd v Bencol Pty Ltd (No 2) [2021] QCA 39. Bond J (which his Honour then was), with whom Sofronoff P and Callaghan J agreed, identified the relevant principles as including:

(a) The Court is empowered to determine that some other order is more appropriate in the exercise of the broad discretion.[143]

(b) The general approach is that there must be special or exceptional circumstances to warrant depriving a successful party of its costs and the mere fact that the successful party has been unsuccessful on some issues will ordinarily not be sufficient to do so.[144]

(c) One circumstance where it might be appropriate to award costs of a particular question or part of a proceeding is where that matter is definable and severable and has occupied a significant part of the proceeding.[145]

(d) Where there are multiple issues which are determined in different directions as between the parties, a court may form the "overall impression" having regard to the significance of the issue, the way they were determined, and the amount of time and cost spent on them.[146]

(e) An appropriate costs order may be that a party pay a portion of another party's costs as a way to reflect fairly the parties' comparative success or failure in the outcome which was obtained.[147]

(f) Further, if different issues are determined in different directions and costs were awarded in respect of issues, this may result in overly complicated costs assessments.[148]

(g) It is open to the Court to "net-off" orders for issues in different directions and to arrive at a "rough and ready" assessment.[149]

• [321] Pre-trial the parties were directed to agree a "concise list of the real and substantial issues of law in dispute between the parties". This identified the issues including both quantum and liability. The list of issues followed largely the groupings of claims in the statement of claim and the counterclaim.
• [322] The reasons for judgment addressed the issues identified in the list of issues. Further, as is evident from the index to the reasons for judgment and the headings, the reasons for judgment use as the structure the issues identified. These issues at a high level are:

(a) Claims by the plaintiff:

(i) Mechanical Variation, including:

• (A) Delay Damages;
• (B) Extension of Time claim; and
• (C) Repayment of Liquidated Damages

(ii) Joinery Delay;

(iii) Bathroom Design Variation;

(iv) The Schedule 3 and 4 variations;

(v) The Schedule 5 provisional sums;

(vi) The Schedule 6 variations;

(vii) Other claims by the plaintiff, including:

• (A) Utility back charges;
• (B) Amounts withheld for defects; and
• (C) Amounts unpaid.

(b) Counterclaims by the defendant:

(i) Alleged non-mechanical defects;

(ii) Alleged mechanical services defects;

(iii) Additional liquidated damages.

• [323] The plaintiff was unsuccessful in respect of the Mechanical Variation (including related claims), Joinery Delay, the Bathroom Design Variation and the Schedule 6 variations. The balance of the claims and counterclaims were mixed success. The plaintiff obtained amounts in respect of (a)(iv), (v) and (vii) above but was not successful on all claims. Similarly, the defendant was successful in obtaining amounts in respect of (b)(i) and (ii) but was not successful on all counterclaims. The defendant was unsuccessful in respect of its claim for additional liquidated damages.
• [324] Annexure A contains a table with the agreed claims at trial and the outcomes in the reasons for judgment in respect of these categories of claims and counterclaims.
• [325] If costs were to be awarded pursuant to the general discretion of the Court, I consider that the appropriate approach would be to award a proportion of costs based on an overall consideration of the outcome on the issues identified above. The "big ticket" items were the Mechanical Variation, the Bathroom Design Variation and Schedule 6 variation claims on which the defendant wholly succeeded.
• [326] Further, the defendant was also successful in respect of a substantial number of its counterclaims. In particular, the counterclaims in respect of the defects in the mechanical services defects included recovery of substantial amounts for some defects.
• [327] In considering the ultimate judgment it is also necessary to consider the effect of the cash security amount that the defendant had recourse to in respect of the defects. The security amount was $834,150.68 and recourse to that money was subject to the terms of the Contract.
• [328] The defendant was successful in respect of defects valued at $742,393.39. But for the recourse to the cash security, the overall judgment amount would have been that the plaintiff pay the defendant $ 374,796.30.[150] As a result of the recourse to the cash security, the end result was that the plaintiff received a return of the amount of $91,757.29, being the balance of the security amount not attributable to defects. The effect of the recourse to the cash security in part operates to mask the overall outcome of the various claims.
• [329] My overall impression based on all of the circumstances (including the issues at trial, the written and oral evidence, the expert reports and oral expert evidence, and the analysis required for the reasons for judgment and the outcomes as set out in the reasons for judgment and summarised in the agreed table) is that the defendant was substantially successful at trial. However, it also needs to be acknowledged, that the result was "mixed" in respect of a number of claims with both parties being successful on some claims.

1. The defendant pay the plaintiff's costs, calculated on the standard basis, up to and including 21 June 2018; and

2. The plaintiff pay the defendant's costs, calculated on the indemnity basis, after 21 June 2018.

Annexure A - Agreed tables of amounts claimed and amounts reflected in judgment figure

Built Qld Pty Ltd v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd

Amounts claimed at trial and amounts included in judgment of $459,354.38

An extension of the Date of Practical Completion until at least 3 March 2017[152]

The Plaintiff was not entitled to an extension of the Date of Practical Completion

Schedule 4: $189,993.45 (plus GST)[156]

$28,910.78 plus GST, being $31,801.86.[159]

$141,626.65 plus GST, being a total of $155,789.32[164]

$53,758.37 plus GST, being a total of $59,134.21[166]

$834,150.68[168] [NOT AGREED] [DEFENDANT: $91,757.29]

Annexure B - Agreed tables of amounts claimed at time of defendant's Calderbank and UCPR offers

Built Qld Pty Ltd v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd

At time of offer - Amounts claimed (21 June 2018)

Entitled to an extension of the Date for Practical Completion until at least 3 March 2017[175]

Schedule 4: $188,167.30 (plus GST)[179]

The Defendant sought an order requiring specific performance by the Plaintiff of its obligation to rectify the defective works, and in the alternative, the Defendant sought damages (but with no quantification of the damages).[184]

Note: In relation to the calculation of the judgment sum, the parties agreed to the below calculations on the basis of the table in paragraph [8] of Built Qld Pty Ltd v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd (No 2) [2021] QSC 301:

Unpaid portion of progress claim 24 and unpaid contract sum

Balance of security amount not attributable to defects

[1] Built Qld Pty Ltd v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd [2021] QSC 224.

[2] Built Qld Pty Ltd v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd (No 2) [2021] QSC 301.

[3] [1975] 3 All ER 333.

[12] [2010] QCA 58.

[13] Unreported Court of Appeal Supreme Court of New South Wales 19 April 1989.

[15] [2007] WASC 140 (S) at [37].

[17] The Law Book Company; 1986 at 258.

[18] London Publishing Partnerships; 3rd edition; 2020 at pp 2266.

[19] See eg. Rival Nominees Pty Ltd v Craig Davis Constructions Pty Ltd (unreported) Supreme Court of Victoria, Full Court; 26 June 1981, see especially Starke ACJ at 11-12; LNC Harper Davidson Pty Ltd t/as Allansons (WA) v Keywest Building Co Pty Ltd Unreported; Supreme Court of Western Australia; 13 July 1988 per Kennedy J at 11; Angelatos v Alternative Constructions Pty Ltd Unreported; Supreme Court of Victoria; Full Court; 30 November 1992 per Brooking J at 6 (with whom Phillips and Byrne JJ agreed); Lamac Developments Pty Ltd v Devaugh Pty Ltd [2001] WASC 298 at [90] per Roberts-Smith J, which was endorsed on appeal: Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245; (2002) 27 WAR 287; Kane Constructions Pty Ltd v Sopov (No. 2) [2005] VSC 492 at [64] and [68] per Warren CJ. See also Badge Constructions Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6 at [10].

[20] [2007] WASCA 158 (S) at 115, [7].

[21] [2020] QSC 1 per Flanagan J and upheld on appeal [2021] QCA 8.

[22] Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]. See also AVS Australian Venue Security Services Pty Ltd v Criminale (No 2) [2007] NSWCA 34, [7]; Porter v Lachlan Shire Council (No 2) [2006] NSWCA 252, [6]; Jones v Bradley (No 2) [2003] NSWCA 258, [8]; Leichhardt Municipal Council v Green [2004] NSWCA 341, [19]; Brymount Pty Limited t/as Watson Toyota v Cummins (No 2) [2005] NSWCA 69, [14].

[23] See Annexure A to the defendant's written submissions.

[24] [2007] NSWCA 322.

[25] See Defendant's written submissions at [68]. This figure was confirmed as correct by email dated 16 March 2022.

[26] See Defendant's written submissions at [68]. These figures were confirmed as correct by email dated 16 March 2022.

[27] Figure at [69] missing a digit. Figure corrected at hearing.

[28] Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2020] QSC 1 at [6] (Flanagan J).

[29] [2021] QCA 8.

[30] The Chief Justice identified at [30] a possible broader construction, however, did not decide the issue. Philippides JA and Brown J also expressly did not decide the issue. It is not necessary to consider that possible broader construction further in the current circumstances.

[31] [2012] QSC 408.

[32] [2007] QSC 147.

[33] Under r 360 (plaintiff's offer) and r 361 (defendant's offer).

[34] Cf Australian Medica Innovations Pty Ltd v GO Medical industries Pty Ltd, Supreme Court of Western Australia (Wallwork J), 22 April 1996, BC9601613.

[35] There may be more than one incentive to clarity and certainty. Rules 360(1)(d) and 361(2) empower the court to make a different order for costs than that which otherwise obtains where the offeree does not better the offer by the judgment. The more the complications arising from the offer, the greater the prospect that the court may order a departure from the ordinary costs consequences: Godin v Godin [2004] WASCA 186 at [37]- [38]; cf Preti v Sahara Tours Pty Ltd [2008] NTCA 2 at [46]- [49].

[36] Dover Beach Pty Ltd v Geftine Pty Ltd [2008] VSCA 248 at [118].

[37] Cf Williams Civil Procedure, Victoria I 26.02.30; AJ Lucas Drillings Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) [2010] VSCA 128 at [31]- [33], where the court refrained from ruling on whether the uncertainty also affected validity as an "offer of compromise"; and Armstrong v Mitchell-Smith and Allianz Australia Insurance Limited (No 2) [2012] QSC 370 at [10]- [13].

[38] [2003] VSC 124.

[41] At [28]. His Honour also refers to the decision of the Ontario Court of appeal in Rooney (Litigation Guardian of) v Gray 53 OR (3d) 685, 198 DLR (4th) 1; 2001 CanLII 24064 on the basis that the Ontario rules were the source of Part 5 UCPR.

[42] [2013] QCA 130.

[44] [2019] QSC 280.

[45] See Balnaves v Smith [2012] QSC 408 at [27], referring to Rooney (Litigation Guardian of) v Gray 53 OR (3d) 685, 198 DLR (4th) 1; 2001 CanLII 24064.

[46] Armstrong v Mitchell-Smith and Allianz Australia Insurance Limited (No 2) [2012] QSC 370 at [10]- [13].

[47] See Armstrong v Mitchell-Smith and Allianz Australia Insurance Limited (No 2) [2012] QSC 370 at [10]- [13]. In this regard, Byrne SJA in Balnaves v Smith did not appear to differ from the view of Moynihan SJA in Taske: see Balnaves v Smith [2012] QSC 408 at [8].

[48] [2020] QSC 1.

[50] [2019] QSC 280.

[54] [2012] QSC 370.

[55] [2007] QSC 147.

[56] Taske at [16]. Armstrong at [14].

[57] See [27] Plaintiff's written submissions.

[58] See [27] and [34] Plaintiff's written submissions.

[59] [2020] QSC 1.

[60] [2021] QCA 8.

[63] [2000] QCA 137; (2001) 1 Qd R 476.

[71] See [51] Defendant's written submissions on costs and Annexure A, being a printout from the Queensland Court's online interest calculator.

[72] Avis v Mark Bain Constructions Pty Ltd (No 2) [2011] QSC 151 at [3]- [5] (Atkinson J); BM Alliance Coal operations Pty Ltd v BGC Contracting Pty Ltd [2015] 1 Qd R 228 at [86] (Muir JA; Holmes JA and Ann Lyons J agreeing); Chambers v Brice [2014] QSC 52 at [9], [12] & [16] (Peter Lyons J); Keeley v Horton [2016] QCA 253 at [13] (Burns J; Holmes CJ and Peter Lyons J agreeing); Mr Green Pty Ltd v Broadbeach Bowls & Community Club Inc (No 2) [2018] QDC 65 at [41] (McGill SC DCJ).

[73] [2018] QDC 65.

[74] [2016] QCA 253.

[76] [2020] QCA 152.

[78] [2012] QSC 408.

[80] [2012] QSC 408.

[81] [2018] QDC 109.

[82] [2020] QDC 146.

[87] See for example, Campbell v Northern Territory of Australia (No 4) [2021] FCA 1413 at [36] which included a condition "the parties enter into a Deed of Settlement and release in terms agreed by the parties".

[88] Defendant's written submissions at [43].

[89] Farmer v Hoban [1919] HCA 13; (1919) 26 CLR 183, 193 (Barton J); Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353, 360.

[90] McKay v Armstrong & Anor [2020] QDC 146.

[91] Binaray Pty Ltd as Trustee for the Allen Family Trust v RAMS Financial Group Pty Ltd [2019] QSC 280 at [40] where Brown J considered the alternative to her main reasoning.

[92] Defendant's written submissions at [40] and [53] and footnote 50.

[93] [1975] 3 All ER 333.

[94] Being the 2018 Defence and Counterclaim.

[95] See Defendant's written submissions at [68] and [69].

[96] See document entitled "Schedule of Defects - as identified by Built as similar and referable to defects included in 2018 Defence and Counterclaim" (which was handed up at the hearing and attached to the back of the Defendant's submissions on costs).

[97] [2016] QCA 130.

[98] [1975] 3 WLR 586.

[99] [2014] HCA 31; (2014) 252 CLR 331.

[100] Seven Network Ltd and Anor v News Ltd and Ors [2007] FCA 1489; [2007] 244 ALR 374 at [59]- [63]; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]; Evans v Braddock (No 2) [2015] NSWSC 518 at [49]; Southwell v Staite (No 2) [2019] ACTSC 83 at [15].

[101] Rule 360 UCPR expressly says unless "the defendant shows" another costs order is appropriate.

[102] Equally, the onus would be on the plaintiff to show that an alternative order was appropriate.

[103] [2007] NSWCA 322.

[104] [2006] NSWSC 583.

[106] Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [100].

[107] [2020] NSWSC 112.

[108] [2007] FCA 1489; (2007) 244 ALR 374.

[110] [2020] QSC 323.

[111] See Hadgelias Holdings at [11].

[112] See Hazeldene's Chicken Farm at [16], [18], [20].

[113] See Hazeldene's Chicken Farm at [20]; J & D Rigging at [5]; Hadgelias Holdings at [11], footnote 2 and the citation of Velvet Glove Holdings Pty Ltd v Mount Isa Mines Ltd [2011] QCA 312 at [105].

[114] See Hazeldene's Chicken Farm at [19]; J & D Rigging at [5].

[115] See Hazeldene's Chicken Farm at [19]-[20]; J & D Rigging at [5].

[116] See Hazeldene's Chicken Farm at [21]-[23]; J & D Rigging at [5].

[117] See Hazeldene's Chicken Farm at [21]

[118] See Hazeldene's Chicken Farm at [24].

[119] See Hazeldene's Chicken Farm at [25]

[120] See Hazeldene's Chicken Farm at [25]; J & D Rigging at [6]; Hadgelias Holdings at [11].

[121] But no GST on $10,025.62 utility backcharges. See Annexure B relating to amounts claimed at time of offer. This sum is derived from adding the amounts at A(1) to A(8).

[122] See Annexure A table dealing with amounts claimed at time of the offer. See Annexure B relating to amounts claimed at time of offer. This sum is derived from adding the amounts at A(1) to A(3)

[123] This amount is calculated by adding A(1) to A(8) of Annexure B, and adding GST as applicable.

[124] The covering letter confirmed that the defects in the offer did not include those the plaintiff had already rectified or provided further information about to confirm they had been rectified.

[125] This appears to include four of the defects on which the defendant was ultimately successful at trial, including the item in respect of the Guestroom and Maids rooms exhausts air conditioning where the amount awarded was $376,727.68.

[126] Affidavit of Anthony Ursino sworn 16 December 2021, Exhibit ADV-4, at 8. See also T1-24 line 15-18.

[127] Particularly where, as here, both parties are represented by experienced legal teams.

[128] [2021] QSC 82.

[129] See [2(b)] of the notice dated 11 August 2016 at Exhibit SGS-3 to the affidavit of Samuel Speechly sworn 16 December 2021.

[130] Plaintiff's written submissions in reply at [32].

[132] Defendant's written submissions at [73].

[133] Defendant's written submissions at [76].

[134] (1999) 76 SASR 28.

[137] Plaintiff's written submissions on costs at [43].

[138] Plaintiff's written submissions at [48].

[139] [2005] NSWSC 841 at [14]- [16].

[140] Defendant's written submissions at [69]. This sum is the product of the amount claimed, $5,257,165.22, less the sum of $4,060,284.03, which itself is the aggregate of the other amounts referred to in paragraph [68].

[141] Further, the inference may be open that 60 per cent of the plaintiff's actual costs at the time of the plaintiff's UCPR offer was less than $550,000. But I do not need to conclusively determine that issue.

[142] The deed of release reflecting the terms of the offer could not impact that effect.

[150] This figure was confirmed as correct by email dated 4 April 2022. The approach to calculating the judgment (ignoring the security amount) was to a) add up the amounts in A(2), (5), (6), (8)(i), (ii) and (iii) of Annexure A (incl GST) (being $367,597.09); and b) take that amount away from the amount the defendant was successful on at (B) of Annexure A, the difference being $374,796.30 in favour of the defendant.