In these proceedings the plaintiff (Ceerose) was partly successful in challenging the validity of an adjudication determination made by the second defendant (Adjudicator) in favour of the first defendant (A-Civil) under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) on 27 September 2022 (the Determination): Ceerose Pty Ltd v A-Civil Aust Pty Ltd (No 2) [2023] NSWSC 345 (the Judgment). These reasons deal with the remaining issue of costs.
[2]
Background
Before the Duty Judge, Stevenson J, on 14 October 2022, Ceerose filed a Summons and a Technology and Construction List Statement seeking orders that the Determination be quashed (prayer 6 of the Summons) because the Adjudicator had erred in concluding that a clause in the subcontract between the parties entered into on 2 March 2022 (Contract) was an invalid "pay when paid" provision (List Statement [18]-[19]), and seeking orders for a Brodyn/Grosvenor stay (List Statement [20]-[22]). A-Civil filed a List Response on 21 October 2022 setting out its position that any denial of procedural fairness was immaterial.
A-Civil had obtained an adjudication certificate in respect of the Determination and judgment was entered in the District Court for the sum of $189,297.53. On 14 October 2022, Stevenson J as Duty Judge made an interim order (amongst other orders) restraining A-Civil from enforcing the judgment sum until 21 October 2022, on the condition that Ceerose pay the amount into Court.
On 21 October 2022, Ceerose made an application to extend that interim injunction, so that A-Civil was prevented from obtaining the retention monies until the proceedings were determined. On 2 November 2022, Rees J declined to grant that relief, in part because of her Honour's reservations regarding Ceerose's prospects of success in establishing jurisdictional error on the basis of a denial of procedural fairness: Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2022] NSWSC 1487. As noted by her Honour at [36]-[41], the focus of Ceerose's procedural fairness attack at that stage of the proceedings was on the first sentence of [112] of the Determination. Her Honour, at [51], ordered that the money paid into Court by Ceerose be paid out to A-Civil and that Ceerose pay A-Civil's costs of the interlocutory application.
On 18 November 2022, A-Civil filed a Cross-Summons and Cross-Claim List Statement seeking severance under s 32A of the Act if Ceerose was successful in its procedural fairness case, so that the retention monies would be deducted from the adjudication amount.
On 22 November 2022, Ceerose filed a Cross-Claim List Response in which Ceerose asserted that the Adjudicator had erred in concluding that there was a right to release of retention monies upon termination. Ceerose conceded that the Determination should be set aside only in part if jurisdictional error was found. However, Ceerose argued that the Determination was void ab initio and that s 32A only revived the unaffected parts of the Determination prospectively, such that the Adjudicator's fees and costs would not have been apportioned equally.
On 23 November 2022, Ceerose filed written submissions and served a draft Amended Summons and draft Amended List Statement.
In the Amended Summons, Ceerose amended the relief sought to seek only an order that the Determination be quashed "in part" and a declaration specifying the part to be set aside to include both the decision regarding the retention monies and the Adjudicator's fees and costs.
In the Amended List Statement, Ceerose:
1. amended its case regarding the denial of procedural fairness; and
2. abandoned its claim for a Brodyn/Grosvenor stay, which had been rendered moot by the decision of Rees J.
On 29 November 2022, A-Civil filed written submissions. A-Civil did not consent to Ceerose being given leave to amend. A-Civil's case was that there was no jurisdictional error.
Ceerose was given leave at the commencement of the hearing before me on 1 December 2022 to file its Amended Summons and Amended List Statement.
Ceerose's claim that it had been denied procedural fairness focussed on [112] of the Determination. In its original List Statement filed on 14 October 2022, Ceerose contended that the basis of the Adjudicator's decision in respect of A-Civil's claim for retention was "the Adjudicator's conclusion that clause 5.4 of the Contract was an invalid pay when paid provision" found in the first sentence of [112]. In the Amended List Statement, Ceerose put that the basis of the decision was either "the Adjudicator's conclusion that clause 5.4 of the Contract was void" (which attacked the first sentence of [112]) or "alternatively, the Adjudicator's further conclusion that there was a right to release of the retention upon the termination of the Contract" (which attacked the second sentence of [112]). Ultimately, I upheld Ceerose's contention that the key part of the Adjudicator's reasoning was to be found in the second sentence of [112] and this involved a denial of procedural fairness for the reasons stated in the Judgment at [67]-[70].
In respect of the Adjudicator's fees and costs, I concluded that [163] of the Determination, which determined that the parties were obliged to pay the Adjudicator's fees and expenses as to 50% each, was not affected by jurisdictional error and that, even if it was, s 29(3) created an obligation for the parties to pay the Adjudicator's fees and expenses equally: Judgment at [85]. I therefore disagreed with Ceerose's contention that s 32A operates to revivify parts of a Determination that would otherwise be void ab initio.
On 2 May 2023, the Court made the following orders:
(1) The Court declares that the parts of the Second Defendant's Determination of 27 September 2022 (Determination) which are not affected by jurisdictional error are:
(a) the Adjudicated Amount up to $40,835,30;
(b) the due date for payment of the Adjudicated Amount, being 16 August 2022;
(c) the rate of interest payable, being 8.35%;
(d) the apportionment of the adjudicator's fees and expenses; and
(e) the formal parts of the Determination being those parts that identify it as such, identify the parties to it, and identify the payment claim and the payment schedule to which it relates.
(2) The Court declares that the part or parts of the Determination affected by jurisdictional error is the Adjudicated Amount above $40,835.30.
(3) Pursuant to s 32A [of the Act], the Court sets aside the part or parts of the Determination identified in Order 2 and the parts of the Determination identified as not affected by jurisdictional error are confirmed.
(4) The First Defendant is to pay to the Plaintiff within 7 days from the date of these orders:
(a) $128,905.83; and
(b) $3,821.96, comprising pre-judgment interest to 1 May 2023.
[3]
A-Civil
A-Civil submitted that, while Ceerose was successful on its case of a material denial of procedural fairness, it was relevant to the Court's exercise of its discretion as to costs that:
1. Ceerose "failed" on its Brodyn/Grosvenor stay application advanced in the original Summons;
2. Ceerose was unsuccessful before Rees J in its application for an interim injunction;
3. Ceerose was only successful on its repleaded case - not on the case advanced in the original Summons (or before Rees J); and
4. Ceerose failed on its argument regarding the Adjudicator's fees and expenses which prolonged the hearing and increased costs.
Therefore, A-Civil contended that the appropriate orders are:
(1) The first defendant pays the plaintiff's costs of the Amended Summons save and except:
a. all the costs of relief, interim and final, sought in the Summons and List Statement of 14 October 2022, including the affidavit of Stephanie Saad of 13 October 2022; and
b. severance pursuant to s 32A, Building and Construction Industry Security of Payment Act 1999 (NSW).
(2) The plaintiff pays the first defendant's costs of:
a. the wasted costs arising from the amendments to the Summons of 14 October 2022; and
b. the Cross-Summons.
(3) Each of the Amended Summons and the Cross-Summons is otherwise dismissed.
[4]
Ceerose
Ceerose submitted that it was the successful party in the proceedings, and costs should follow the event. Specifically, Ceerose submitted that:
1. Ceerose should not pay the costs of the Cross-Summons, because Ceerose accepted that there should be severance;
2. Ceerose should not pay the costs of matters prior to the Amended List Statement because Ceerose won on the core of its case that there was a denial of procedural fairness and there were no costs thrown away because Ceerose did not 'drop' any claims;
3. Ceerose should not now pay the costs of its application before Rees J to extend the interim injunction and the costs orders made by Rees J should be vacated because it was made on an "erroneous basis";
4. Ceerose should receive its costs because the "event" (which costs should follow as per r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR)) was the partial setting aside of the Determination, tested by reference to order 4 made on 2 May 2023 that A-Civil was ordered to pay Ceerose $128,905.82 plus pre-judgment interest.
Ceerose submitted that the Court should not apportion costs because "where there are multiple issues in a case, the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed": Barbieri v Pirovic [2022] NSWCA 76 at [36]. Rather, "[u]nless a particular issue or group of issues is clearly dominant or separable, it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed": Barbieri at [36]. Even then, the power to apportion costs between issues "should be exercised only in the most exceptional of circumstances": Jones v Trad (No 3) [2013] NSWCA 463 at [18].
[5]
Consideration
Section 98 of the Civil Procedure Act 2005 (NSW) confers on the Court, subject to the rules of court, a wide discretion as to costs. Under r 42.1 of the UCPR the general rule is that costs follow the event unless the circumstances justify some other order. The "event" may be characterised in more than one way but generally refers to the result of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [14]-[15].
Ceerose has had only partial success in these proceedings. In Barbieri at [36] Gleeson and Mitchelmore JJA adopted the following observations in Doppstadt Australia at [18] on the approach in such circumstances:
The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this court in Elite Protective Service Pty Ltd v Salmon (No 2) [2007] NSWCA 373, and summarised in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA), as follows:
"• Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v PC Henderson (Australia) Pty Ltd.
• In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal.
• If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 at [27].
• Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).
• A separable issue can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].
• Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272."
The Court of Appeal also said in Doppstadt Australia at [19] that "where there has been a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the Court".
In my opinion, the preferable way to deal with costs to reflect Ceerose's partial success is to make a global assessment reflecting the parties' respective successes, rather than separate orders directed to specific issues. In my opinion, the appropriate approach reflecting Ceerose's relative success and the time spent on the various issues is to award Ceerose 60% of its costs of the proceedings, as agreed or assessed.
However, I decline to disturb the costs order made by Rees J on 2 November 2022 because Ceerose's ultimate success in the proceedings was as a result of a new argument not put to Rees J, as noted at [12] above and in the Judgment at [35].
Accordingly, the Court will order that the first defendant pay 60% of the plaintiff's costs of the proceedings, as agreed or assessed. The Court will note that this order does not disturb the costs order made by Rees J on 2 November 2022.
[6]
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: 21 August 2023