C&V Engineering Services Pty Ltd v Metropolitan Demolitions Pty Ltd

C&V's application as to costs

1. By motion filed on 7 August 2023, C&V seeks orders varying the orders as to both the costs of the appeal and the costs of the proceedings at first instance. As to the costs of the appeal, C&V instead seeks an order that Metropolitan pay C&V's costs on an indemnity basis. As to the costs of the proceedings at first instance, C&V seeks an order that Metropolitan pay C&V's costs on the ordinary basis until 3 June 2021 and on the indemnity basis from 4 June 2021 to 21 September 2022. However, C&V asks that this Court remit its application for those orders, that is, for the orders set out above, to the District Court for determination after the assessment of damages on the appellant's claim for breach of the Building C contract. C&V relies upon affidavits of Mr Jonathan O'Loughlin, filed 7 August 2023, and Mr Bart Dziubinski, filed 18 August 2023.
2. C&V submits that its applications regarding both the costs of the appeal proceedings and of the proceedings at first instance depend upon the quantum of damages ultimately awarded, which will not be known until after damages for their claim in respect of Building C is determined. In this regard, C&V relies upon two Calderbank (Calderbank v Calderbank [1975] 3 All ER 333) offers described as Offer 1 and Offer 2, made in the alternative, as set out in a letter dated 3 June 2021 from C&V's solicitor to Metropolitan's solicitor.
3. Offer 1 involved an offer to exchange an executed deed of settlement, including personal guarantees, on the basis that Metropolitan agreed to pay C&V the sum of $214,000.00 in three instalments, payable between a date three days after acceptance of the offer and 31 July 2021.
4. Offer 2 involved Metropolitan agreeing to pay C&V the sum of $178,088.00 within three days of the date of acceptance of the offer and the parties requesting that the proceedings be dismissed by consent.
5. Both offers involved Metropolitan accepting that it was liable to C&V for the total amount of the relief claimed by C&V and that any default in meeting the agreed terms of settlement, whatever the reason, would result in Metropolitan owing the full amount of relief claimed by C&V as a debt immediately due and owing. Both offers also involved each party bearing their own costs of the proceedings. The offers remained open until 5.00pm on 10 June 2021, that is seven days after the offer was communicated.
6. By email of 3 June 2021 from the solicitor for Metropolitan, the offers were rejected.
7. Prior to the 3 June 2021 offers, C&V had offered to settle the proceedings by offers communicated in a letter dated 2 June 2021. Those offers were on the same terms as the 3 June 2021 offers and with the same amount being proposed for Offer 1. An increased sum of $198,088.00 was proposed for Offer 2. On 2 September 2021 C&V made a further offer to accept either the sum of $224,000.00 with Metropolitan paying C&V's total costs of the proceedings as agreed or assessed, or the sum of $258,000.00 with each party bearing its own costs.
8. Attached to the written submissions of C&V as to costs, filed 21 August 2023, is a schedule which calculates C&V's "Damages Calculation" as follows: C & V Engineering Services v Metropolitan Demolitions Pty Ltd Appellant's Damages Calculation Item Description Amount Notes 1 Building B 2 Judgment Sum $50,783.28 1 3 plus pre-judgment interest $9,920.34 2 4 Sub-total (Building B) $60,703.62 5 Building C 6 Payment Claim 3 (ex. GST) $127,262.08 3 7 less Administration $22,304.00 4 8 plus GST $10,495.81 5 9 plus pre-judgment interest $15,813.71 6 10 Sub-total (Building C) $131,267.60 11 Grand Total $191,971.22 Notes 1 Order 5 of the Court of Appeal made on 24 July 2023 2 Pre-judgment interest on item 1 from 24 July 2018 to 21 September 2022 3 Blue 3:1149Q 4 On account of [122]-[124] of the CoA judgment, sum of Blue 3:1149I and Blue 3:1133K. 5 Being 10% of $104,958.08. 6 Pre-judgment interest on $115,453.89 from 5 November 2018 to 21 September 2022.

Metropolitan's application as to costs

1. By motion filed on 8 August 2023, Metropolitan seeks orders varying the order that Metropolitan pay C&V's costs at first instance and seeking instead an order that the costs of the proceedings at first instance be remitted to the District Court for determination after the assessment of damages on C&V's claim in respect of Building C. Metropolitan also seeks an order that C&V pay Metropolitan's costs of the motion. Metropolitan relies upon affidavits of Mr Mark Irwin, affirmed 7 August 2023 and filed 8 August 2023, and Ms Jennapher Khouzame, affirmed and filed 28 August 2023.
2. Like C&V, Metropolitan contends that success on its application for costs of the proceedings at first instance depends upon the outcome of the assessment of damages on C&V's claim in respect of Building C. In support of its application, Metropolitan relies upon a Calderbank offer, which it made by letter dated 27 August 2021, to pay C&V the sum of $105,964.11, including GST, provided and conditional upon the proceedings being discontinued with no order as to costs and C&V executing a deed of release in a form acceptable to Metropolitan. The offer remained open until 4.00pm on 3 September 2021, being seven days after the offer was communicated.
3. Metropolitan also relies upon an offer of compromise which it made on 28 April 2022, offering to compromise the whole of the proceedings on the basis of an order that there be judgment for the plaintiff in the amount of $39,000.00, without deduction for the $41,008.00 paid on or about 17 December 2018 pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW). The offer was stated to be made "in accordance with Rule 20.26" of the UCPR, and was open to be accepted until 4.00pm on 2 May 2022. By letter also dated 28 April 2022 the solicitor for Metropolitan wrote that if, for any reason, the offer of compromise was invalid, Metropolitan made the same offer by way of Calderbank offer.

Extension of time for the respondent's motion

1. Under UCPR, r 36.16(3A) the court has power to determine the matter and to set aside or vary a judgment or order as if it had not been entered if a notice of motion seeking such relief is filed within 14 days after the judgment or order is entered. UCPR, r 36.16(3C) provides that, despite r 1.12, the court may not extend the time limited by subrule (3A) or (3B). The effect of UCPR, r 36.16(3A) is to alter the position at general law whereby, absent statutory authority, a court is not permitted to vary orders once they have been entered: DJL v The Central Authority (2000) 201 CLR 226; [2000] HCA 17 at [38]-[40], referring to Bailey v Marinoff (1971) 125 CLR 529; [1971] HCA 49 at 530.
2. In this matter, the orders of this Court were entered on 24 July 2023. Thus, under UCPR, r 36.16(3A) the parties' applications had to be filed by 7 August 2023.
3. As set out above, Metropolitan's notice of motion was not filed until 8 August 2023. It was therefore filed one day out of time. However, at 10.29am on 7 August 2023, Ms Khouzame, graduate solicitor of Vincent CCL Pty Limited t/a Vincent Young, solicitor for Metropolitan, sent an email to the chambers of each of Justices Kirk, Adamson and Stern (copied to the solicitor for C&V) notifying that Metropolitan "hereby applies to be heard in relation to a different order as to costs." Attached to the email were proposed consent orders timetabling the filing and service of submissions in relation to costs.
4. At 9.48pm on 7 August 2023 Ms Khouzame sent an email addressed to the Court of Appeal Registrar and the Supreme Court eFiling email address notifying the following: "We have attempted to file the attached Notice of Motion and Supporting Affidavit in the Online Registry however have been unsuccessful due to an issue with the website. Would you please accept the attached documents as evidence of our attempt to file and we will attend at the Court to file in person tomorrow should the issue persist."
5. At 10.00pm on 7 August 2023 a second email was sent by Ms Khouzame to the chambers of Justices Kirk, Adamson and Stern (copied to the solicitor for C&V) attaching Metropolitan's motion as to costs and the supporting affidavit of Mr Irwin affirmed 7 August 2023 and indicating that these were "emailed to the Court today for filing on behalf of the Respondent."
6. Ms Khouzame states in her affidavit filed 28 August 2023 that "later" on 7 August 2023 (meaning after sending her first email that day to the chambers of Justices Kirk, Adamson and Stern) she attempted to file Metropolitan's motion in the Court's online registry "several times." Annexed to Ms Khouzame's affidavit is what she describes as a photograph of her computer screen showing one failed attempt to file Metropolitan's motion. No date is apparent on the photograph. The photograph appears to show a "Saved forms" page on the NSW Online Registry Courts and Tribunals. The text on that page says: "There is a problem with your form ⚠ User doesn't have sufficient rights to execute process".
7. Ms Khouzame states that she also asked a senior associate at Vincent Young, Mr Tan, to try to file the motion and in the evening of 7 August 2023 he told her that he could not file the motion. She states that it was after this that she sent the second and third emails described above. On 8 August 2023 she attended the Court and filed Metropolitan's motion.
8. In its written submissions filed 14 August 2023, Metropolitan submitted that it "applies for an order accepting the application and dispensing with the 14-day limitation in UCPR 36.16 for the Notice of Motion."
9. In Kable v State of New South Wales (No 2) [2012] NSWCA 361 this Court considered whether the Court has power under s 14 of the Civil Procedure Act 2005 (NSW) to dispense with the need for filing a notice of motion in the form prescribed where notice had been given to the Court and to the other party to the appeal within the time prescribed in UCPR, r 36.16(3A). Justice Basten, with whom Allsop P, Campbell and Meagher JJA and McClellan CJ at CL agreed, held at [15] that it did have such power, and that it was in the interests of justice to dispense with the need for filing a notice of motion in the form prescribed in circumstances in which the notification that was given within the relevant time period "should be deemed to be appropriate notice of the matter to which it referred." The President, with whom Campbell and Meagher JJA agreed, made the following additional observations: "[2] Rules 36.15, 36.16, 36.17 and 36.18 deal with important questions concerning variation of orders of the Court. Rule 36.16 is particularly important. It deals with the fundamentally important question of finality of litigation: see in particular subrules (3A), (3B) and (3C). Parties should not think that they can, at their choice, avoid the operation of the Rules by less formal communication. The Rules take their form because of the regularity and good order promoted by the procedures there set down in respect of such an important topic. Too often practitioners consider that they can say something on the occasion of delivery of judgment or send an email to judge's chambers (the latter sometimes, though not here, without the knowledge of the other side - a serious breach of professional etiquette and possibly a breach of duty to the Court) and thereby hold their client's position, irrespective of the Rules. The profession should understand that this is not the case. [3] I am persuaded, however, that in the present circumstances it would be unjust not to permit s 14 of the Civil Procedure Act 2005 to be used to dispense with the filing of a notice of motion when there was adequate notice to the Court and to the other side as to the application. But I would not permit the exercise of the power to go beyond the content of the letter in question. That would raise the far more difficult question as to whether s 14 can operate to override the operation of r 36.16(3C) and, if it can, the stringency of any such operation. [4] It should not be thought that the above course sanctions as satisfactory, or regularises, the procedure used in this case."
10. Those observations were emphasised by Macfarlan JA, with whom Gleeson JA agreed, in Boateng v Dharamdas [2019] NSWCA 233, in which this Court again found that it had power under s 14 of the Civil Procedure Act to dispense with the need to file a notice of motion in circumstances in which notice of the intention to seek the relevant order has been given. The relevant dispensation under s 14 of the Civil Procedure Act was of the requirement under UCPR, r 18.2(1) for the filing of a notice of motion. In Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin (No 2) [2021] NSWCA 98 at [37], White JA, with whom Basten JA agreed, referred to, but did not doubt, the power of the Court to "enlarge the power under r 36.16(3A) by dispensing with the requirement for the filing of a notice of motion if the application for an order varying or setting aside a final costs order has been notified, even informally, within 14 days". His Honour held at [38], however, that s 14 of the Civil Procedure Act would not permit the extension of the time prescribed by UCPR, r 36.16(3A) for the filing of the notice of motion.
11. In the present case, there is no doubt that the Court was notified of Metropolitan's application as to costs. Metropolitan's intention to apply to be heard in relation to a different order as to costs was notified by email at 10.29am on 7 August 2023. The notice of motion and supporting affidavit of Mr Irwin were sent to the Court in the evening of 7 August 2023. It is further apparent from the affidavit of Ms Khouzame affirmed 28 August 2023 that she and Mr Tan also attempted to file those documents with the Court on 7 August 2023. C&V's position as to this is that other than observing that the merits of the application appear to be a relevant consideration to be taken into account in exercising the discretion, it does not oppose Metropolitan's application for dispensation under s 14 of the Civil Procedure Act.
12. In the circumstances set out above, it is in the interests of justice to dispense with the need for filing a notice of motion in the form prescribed. The notification of the motion by email on 7 August 2023, given within the relevant time period, should be deemed to be appropriate notice of Metropolitan's application as to costs.

Relevant principles

1. Subject to the rules of court, costs are in the discretion of the court: Civil Procedure Act, s 98. UCPR, r 42.1 provides that if the Court makes any order as to costs, the court is to order that costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.
2. There is no presumption that a party who does not accept a Calderbank offer and does not obtain a more favourable judgment will necessarily pay indemnity costs from the date of that offer: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] (Santow JA, Bryson and Stein JJA agreeing); Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 at [9] (Bathurst CJ, Allsop P and Beazley JA agreeing).
3. The relevant principles on an application for indemnity costs following a Calderbank offer are well established. Success on such an application depends upon whether the offer was a genuine offer of compromise and whether the offeree acted unreasonably in all the circumstances in refusing the offer, tested as at the time the offer is made and not with the benefit of hindsight resulting from a known outcome recorded in a judgment: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8], [11] (Basten JA, McColl and Campbell JJA agreeing); Krolczyk v Winner t/as J Winner Building Services [2022] NSWCA 196 at [217] (Griffiths AJA, White and Kirk JJA agreeing).
4. The party seeking an indemnity costs order bears the onus of demonstrating that the other party's failure to accept a Calderbank offer was unreasonable in all the circumstances.
5. As recently set out by Ward CJ in Eq (as her Honour then was) in E Group Security Pty Ltd v Chief Commissioner of State Revenue (No 2) [2021] NSWSC 1296 at [59]-[60], the factors to be taken into regard when considering whether the rejection or non-acceptance of an offer was unreasonable include: 1. the stage of the proceeding at which the offer was received; 2. the time allowed to the offeree to consider the offer; 3. the extent of the compromise offered; 4. the offeree's prospects of success assessed as at the date of the offer; 5. the clarity with which the terms of the offer were expressed; and 6. whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.
6. As to Metropolitan's offer of compromise of 28 April 2022, the offer is in accordance with UCPR, r 20.26. Were Metropolitan to obtain an order or judgment "no less favourable" to it than the terms of the offer, unless the Court otherwise ordered, it would be entitled under UCPR, r 42.15A to an order for costs on the ordinary basis up to 29 April 2022, and on an indemnity basis thereafter.

The primary judgment

1. Following the report of the referee on 19 August 2022, by orders of 21 September 2022 the primary judge ordered that there be judgment for C&V in respect of its claim as regards Building B (the only claim upon which it succeeded before the primary judge) in the sum of $42,438.62 and that Metropolitan pay pre-judgment interest under s 100 of the Civil Procedure Act from 24 July 2018: C&V v Metropolitan (No.3). The sum of $42,438.62 was reached by first calculating that C&V's entitlement on its claim in respect of Building B was $83,446.62 excluding GST, and then deducting from that the sum of $41,008.00 paid under an adjudication pursuant to the Building and Construction Industry Security of Payment Act. Section 32(3) of that Act required that allowance to be deducted from judgment as an interim payment.
2. During the hearing of the appeal the parties jointly proposed orders increasing the judgment sum awarded to C&V in respect of Building B to $50,783.28 on account of the agreed position of the parties on appeal that the primary judge erred in not including a component in respect of GST in the judgment sum awarded.
3. The primary judge held that Metropolitan should have its costs in relation to C&V's (then) unsuccessful claim in relation to Building C and that C&V should have its costs in relation to its successful claim in relation to Building B. Before the primary judge both parties claimed partial indemnity costs orders, relying upon the various offers set out above. The primary judge found that only Metropolitan's application needed to be considered. As to that, the primary judge found that C&V obtained a more favourable result than it would have had it accepted Metropolitan's offer of compromise and that it was not unreasonable for C&V to reject Metropolitan's Calderbank offer as it ascribed no value to the claim for Building C. The primary judge found that C&V's claim as regards Building C was hard fought and occupied most preparation and hearing time and those matters indicated that it was not unreasonable for C&V to reject Metropolitan's offer.

Determination

1. Dealing first with Metropolitan's application, we see no reason why the question of the entitlement to costs at first instance should be remitted to the District Court for determination. Rather, as set out in Stern JA's judgment, given that C&V has now largely succeeded on its claims as regards both Buildings B and C, it is appropriate that Metropolitan be ordered to pay the whole, and not merely 40%, of C&V's costs at first instance. Moreover, the primary judge rejected Metropolitan's application for indemnity costs relying upon its offer of compromise and its Calderbank offer. Metropolitan did not appeal against that judgment. Metropolitan's position in that regard has now significantly weakened in the light of C&V's success on appeal as regards its claim for Building C. In these circumstances, Metropolitan should not, in our judgment, be permitted to reagitate its application for indemnity costs.
2. As to C&V's application, this is premised upon the Calderbank offers set out in the letter of 3 June 2021, as set out above, offering to compromise the proceedings on the basis that Metropolitan paid C&V either $214,000.00 in three instalments or $178,088.00, with each party bearing their own costs and on the basis that if there is any default, regardless of the reason, Metropolitan becomes liable to pay the full amount of C&V's claim as a debt immediately due and owing. C&V's schedule (extracted above), based upon the full value of its claim as regards Building C and also including its claim as regards Building B plus interest and GST, comes to $191,971.22. That is a little more than the amount of Offer 2 made on 3 June 2021. Further, given we have found that C&V is entitled to its costs below (the only issue being whether it is entitled for some period to those costs on an indemnity basis), C&V's position as to costs is now better than it would have been had its offer of 3 June 2021 been accepted.
3. The offers of 3 June 2021 were made after C&V's Amended Statement of Claim was filed on 13 May 2021 but before the Amended Defence was filed on 1 April 2022. They were made before either of Mr Pizzolato's affidavits or any of Metropolitan's affidavits were filed. They were premised upon the amount claimed in an invoice sent on 5 November 2018, which included an amount of $109,569.28 claimed as owing under an outstanding invoice from 4 September 2018, which in turn included a claim of $48,316.00 for workshop labour undertaken by C&V in respect of Building C between 23 July 2018 and 29 August 2018.
4. However, as set out in the reasons on the appeal at [66], it is apparent that on 27 July 2018 C&V was instructed not to work on any more soldiers. Further, as found at [118] of the reasons, referring back to [67], there is no basis to overturn the primary judge's finding that on 1 August 2018 Mr Cooney (of Metropolitan) repeated his earlier instruction to C&V not to do any further works on the Building C soldiers. Thus, as submitted by Metropolitan in its written submissions on costs, there remains a live issue as to whether or not C&V is entitled to be paid anything in respect of work undertaken in relation to Building C after 27 July 2018. That issue is reflected in the primary judge having, on 10 August 2023, made orders referring the quantum of C&V's claim for Building C out to a referee on alternative bases (those orders are set out in Metropolitan's written submissions on costs). That is, both on the basis (a) that C&V is only entitled to be remunerated up to and including 27 July 2018, and (b) on the basis that that limitation does not apply.
5. If the amounts claimed for workshop labour in the 4 September 2018 invoice are limited to the workshop labour in the period 23-27 July 2018 (inclusive) that comes to the sum of $19,905.07, that is nearly $30,000 less than the amount claimed for workshop labour in the invoice. If the amount claimable for workshop labour is reduced by that sum, it is clear that the workshop usage costs, claimed in the 4 September 2018 invoice at 30.5% of workshop labour costs, would be correspondingly reduced. Having regard to the fact that the 5 November 2018 invoice includes amounts claimed as interest on the 4 September 2018 invoice, it is clear that if C&V's claim had been limited to work done up to and including 27 July 2018 then on C&V's figures, as set out in the 4 September and 5 November 2018 invoices, the claim would not exceed the amount which C&V offered to accept in the lower of the 3 June 2021 offers. Whilst the precise amounts of C&V's claims, and whether those claims must be limited to the period up to 27 July 2018, remain unknown, the figures set out above show that on the figures included in C&V's invoice, if C&V's claim is limited to labour costs up to and including 27 July 2018, that is likely to mean that the judgment sum does not exceed the amount which C&V agreed on 3 June 2021 to accept in full and final settlement.
6. C&V seeks an order that its application that Metropolitan pay its costs of the appeal on an indemnity basis, and that from 4 June 2021 to 21 September 2022 Metropolitan pay its costs below on an indemnity basis, be remitted to the District Court for determination. Leaving aside the question of whether the District Court would have jurisdiction to make an order as to the costs of proceedings in this Court, in light of the matters set out above, we are not satisfied that Metropolitan acted unreasonably in refusing C&V's offers of 3 June 2021. Those offers were made at an early stage of the proceedings, before the pleadings were closed and before evidence was filed and served. It is not clear to what extent Metropolitan would, by that date, have undertaken all relevant investigations in relation to C&V's claim. The offers set out in the 3 June 2021 letter also involved an onerous "default" clause, requiring Metropolitan to agree that any default, regardless of reason, in complying with the settlement terms proposed by C&V would result in the whole of C&V's claim becoming a debt of Metropolitan, immediately due and owing.
7. It is also clear that C&V's claim was not predicated upon any clear agreement as to price or labour costs for the construction of the Building C soldiers, and that there was opacity as regards whether C&V was entitled to any payment on account of work performed after 27 July 2018. This was not a case in which Metropolitan could have predicted with any measure of certainty whether or not C&V, even if successful in establishing that there was a contract for fabrication of soldiers for Building C, would be entitled to a sum equal to or exceeding the sums C&V offered to accept in the 3 June 2021 letter of offer.
8. In addition, it is not clear what C&V's legal costs would have been as at 3 June 2021. Thus, it is not possible to say that Metropolitan acted unreasonably in refusing the offer even having regard to the fact that the offer was on the basis of each party bearing its own costs.

Conclusion

1. In these circumstances, the applications of both C&V and Metropolitan should be dismissed. There should be no variation to the Court's orders of 24 July 2023. Given that neither party has succeeded in its application, there should be no order as to the costs of either motion.
2. The following orders should be made: 1. Dispense with the requirement that Metropolitan Demolitions Pty Ltd give notice of the motion notified in the emails from Ms Khouzame, graduate solicitor for Metropolitan Demolitions Pty Ltd, of 7 August 2023 to the Court. 2. The application of C&V Engineering Services filed 7 August 2018 and the application of Metropolitan Demolitions Pty Ltd filed 8 August 2018 should both be dismissed. 3. Make no order as to the costs of either motion.

Amendments 10 October 2023 - Case name amended to reflect (No 2) judgment DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 October 2023