CHAINA v ALVARO HOMES PTY LTD

(4) Order the appellants to pay the respondents' costs of the proceedings in this Court.

CATCHWORDS: COSTS - indemnity basis - standing to challenge costs order - amount of payment due under contract in excess of offer - whether claims unreasonable and unsupported by evidence - whether costs proportionate to importance and complexity of case - Civil Procedure Act 2005 (NSW), s 60 - EVIDENCE - conference of experts - involvement of party in conference - supply to experts of information not agreed in advance - PROCEDURAL FAIRNESS - civil proceedings - need to demonstrate loss of opportunity - onus on complainant to establish facts - PROCEDURAL FAIRNESS - civil proceedings - trial judge's reliance on demeanour of party in courtroom - no notice to parties - whether legal representatives in position to observe party's behaviour - whether refusal to grant adjournment constituted procedural unfairness - whether alleged unfairness affected outcome - whether extent of impact can be assessed on appeal - comparison between failure to accord procedural fairness in administrative law, in civil proceedings and in criminal proceedings - degrees of unfairness

Civil Procedure Act 2005 (NSW), ss 22, 60 LEGISLATION CITED: Legal Profession Act 2004 (NSW), Part 3.2, Div 10 Supreme Court Act 1970 (NSW), ss 75A, 78, 101 Uniform Civil Procedure Rules 2005 (NSW), r 51.53

Angaston & District Hospital v Thamm (1987) 47 SASR 177 Balenzuela v De Gail [1959] HCA 1; 101 CLR 226 Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 Berkeley Challenge Pty Ltd v Potbury [1997] NSWCA 44 Cesan v Director of Public Prosecutions (Cth) [2007] NSWCCA 273; 174 A Crim R 385 Chen v Karandonis [2002] NSWCA 412 Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; 46 FCR 225 Commonwealth of Australia v Gretton [2008] NSWCA 117 Craig v South Australia [1995] HCA 58; 184 CLR 163 Darkan v The Queen [2006] HCA 34; 80 ALJR 1250 Degmam Pty Ltd (In liq) v Wright (No. 2) [1983] 2 NSWLR 354 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; 81 ALR 397 Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22; 209 CLR 478 Government Insurance Office of New South Wales v Bailey (1992) 27 NSWLR 304 Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd [1974] HCA 32; 132 CLR 1 Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242 CASES CITED: In re the Will of FB Gilbert (Deceased) (1946) 46 SR (NSW) 318 Insurance Exchange of Australasia v Dooley [2000] NSWCA 159; 50 NSWLR 222 J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No. 2) [1993] FCA 42; 46 IR 301 Jones v National Coal Board [1957] 2 QB 55 Kassem v Crossley [2004] NSWCA 276 Kioa v West [1985] HCA 81; 159 CLR 550 Mastronardi v State of New South Wales [2007] NSWCA 54 Nudd v The Queen [2006] HCA 9; 80 ALJR 614 Parker v Director of Public Prosecutions (1992) 28 NSWLR 282 The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257(S) Re Refugee Review Tribunal; Ex parte Aala [2000] HCA 57; 204 CLR 82 Rosniak v Government Insurance Office (1997) 41 NSWLR 608 Sandtara Pty Ltd v Abigroup Ltd (1997) 42 NSWLR 5 Seltsam Pty Ltd v Ghaleb [2005] NSWCA 208; 3 DDCR 1 Stead v State Government Insurance Commission [1986] HCA 54; 161 CLR 141 Ucar v Nylex Industrial Products Pty Ltd [2007] VSCA 181; 17 VR 49 Weiss v The Queen [2005] HCA 81; 224 CLR 300 Whisprun Pty Ltd v Dixon [2003] HCA 48; 77 ALJR 1598

George Chaina (First Appellant) PARTIES: Rita Chaina (Second Appellant) Alvaro Homes Pty Ltd (First Respondent) Burke Bros Pty Ltd (Second Respondent)

J Simpkins SC/J Stephenson (First and Second Appellants) COUNSEL: R K Weaver (First Respondent) M Ashhurst SC/A Gemmell (Second Respondent)

Sarvaas Ciappara Lawyers (First and Second Appellants) SOLICITORS: Willis & Bowring (First Respondent) KQ Lawyers (Second Respondent)

8 February, 2008 LOWER COURT DATE OF DECISION: 12 February 2008 15 February 2008

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40086/08 DC 1377/06

GILES JA BASTEN JA YOUNG CJ in EQ

18 December 2008 George CHAINA & ANOR v ALVARO HOMES PTY LTD & ANOR Headnote

In 2002 Mr and Mrs Chaina purchased a property off Yeos Lane near Glenquarry, where they intended to build a chapel and a house. These plans required the construction of a driveway from Yeos Lane to the proposed site of the buildings. The owners engaged Alvaro Homes Pty Ltd as their builder. After an initial false start, Burke Bros was engaged to construct the driveway.

In May 2004 the owners became uncertain as to their intentions with respect to the driveway. Burke Bros ceased construction. At that stage, Burke Bros had issued invoices totalling $136,474, of which the first two had been paid. Burke Bros left the site on 14 May 2004.

On 23 November 2004, it commenced proceedings in the Local Court seeking payment of moneys owing but unpaid under the contract, or, alternatively, a quantum meruit for work done. The owners filed a cross-claim for damages for defective work, as a result of which the proceedings were transferred to the District Court. Alvaro Homes also cross-claimed against the owners, seeking indemnity or contribution from the owners, if Alvaro Homes were liable to Burke Bros.

Burke Bros was substantially successful on its claim, obtaining judgment for $67,047.59 against Alvaro Homes. Alvaro Homes was also successful on its cross-claim, obtaining a judgment against the owners for the amount payable to Burke Bros, plus 15%. The owners' cross-claim was dismissed. The owners sought leave to appeal, challenging the order against them in favour of Alvaro Homes and some of the costs orders against them. The Court of Appeal granted leave.

(i) whether the trial judge denied the owners procedural fairness: (a) by relying on observations of Mr Chaina's demeanour whilst sitting at the back of the Court during proceedings; (b) by refusing to grant an adjournment on 17 December 2007 to allow the owners to obtain further expert evidence; and (ii) whether the trial judge erred in exercising her discretion with respect to costs in ordering the owners to pay Alvaro Homes' costs on an indemnity basis and to pay Burke Bros' costs of the owners' cross-claim on an indemnity basis.

In relation to (i) (Basten JA, Giles JA and Young CJ in Eq agreeing)

To establish that they were denied procedural fairness, the owners had to demonstrate a procedural ruling capable of preventing a trial according to law. Not every refusal of an adjournment, limitation on cross-examination or refusal to allow a plaintiff to reopen which is adverse to one party's interests will be so characterised. It is necessary in each case to consider the extent to which the alleged unfairness may have had an impact on the outcome and, where that possibility arises, whether the extent of the impact can be assessed on the appeal: [1], [29], [118]. Stead v State Government Insurance Comm ission [1986] HCA 54; 161 CLR 141, applied.

Kioa v West [1985] HCA 81; 159 CLR 550, considered.

Balenzuela v De Gail [1959] HCA 1; 101 CLR 226; Craig v South Australia [1995] HCA 58; 184 CLR 163; Darkan v The Queen [2006] HCA 34; 80 ALJR 1250; Nudd v The Queen [2006] HCA 9; 80 ALJR 614; Re Refugee Review Tribunal; Ex parte Aala [2000] HCA 57; 204 CLR 82; Weiss v The Queen [2005] HCA 81; 224 CLR 300; Cesan v Director of Public Prosecutions (Cth) [2007] NSWCCA 273; 174 A Crim R 385; In re the Will of F B Gilbert (Deceased) (1946) 46 SR (NSW) 318; Jones v National Coal Board [1957] 2 QB 55, referred to.

In relation to (i)(a) (per Basten JA, Young CJ in Eq agreeing)

The owners did not complain about the trial judge's factual findings; that is, her description of Mr Chaina's conduct in the witness box and her findings as to his conduct in the courtroom whilst not giving evidence: [40], [118].

Much of Mr Chaina's conduct involved communication with his solicitor; accordingly, it was conduct of which the solicitor must have been aware, at least in a general sense: [41], [44], [118]. Seltsam Pty Ltd v Ghaleb [2005] NSWCA 208; 3 DDCR 1; Ucar v Nylex Industrial Products Pty Ltd [2007] VSCA 181; 17 VR 492, considered.

The trial judge rejected Mr Chaina's evidence on the basis of his demeanour and behaviour in the witness box, together with internal inconsistencies and established inaccuracies. The observations made in court did not cast doubt on Mr Chaina's credibility or reliability as a witness, nor did they impact directly on any issue in dispute: rather, they provided an explanation as to the reason for his poor presentation: [49], [118].

Even if the trial judge's comments about Mr Chaina's demeanour in the courtroom did support the findings of credibility, the refusal to place weight on Mr Chaina's evidence had little bearing on the outcome of the case: [50], [118].

There is no reason to think that, if the trial judge had disregarded Mr Chaina's behaviour in court entirely, she would have come to any different conclusion about the credibility or reliability of Mr Chaina's evidence in the witness box: [64], [118].

A good deal of Mr Chaina's conduct to which the trial judge referred would not have been observed by his representatives. Mr Chaina's representatives would not have recognised that the conduct was seen by the trial judge as providing "a striking contrast" with his conduct in the witness box. There was potential for procedural unfairness: [7].

However, on a proper understanding of the trial judge's reasons, what was said about Mr Chaina's conduct outside the witness box did not contribute to the trial judge's decision-making: [8]-[9], [11], [13].

In relation to (i)(b) (per Basten JA, Giles JA and Young CJ in Eq agreeing)

There was no clear indication in any of the evidence that the exercise proposed by the appellants (an adjournment to allow them to serve a notice to produce, assess the material provided and file a report in response) was likely to have a practical bearing on the outcome of the trial, nor that an extensive analysis of wage records was justified, given the amount in dispute: [1], [83], [118].

A careful reading of the transcript demonstrates no refusal of the trial judge to give careful consideration to the claims and requests made by the owners in relation to the adjournment applications, nor a refusal to consider the prejudice on which they sought to rely: [1], [84], [118].

In relation to (ii) (per Basten JA, Giles JA and Young CJ in Eq agreeing)

Burke Bros' challenge to the competency of the owners' appeal on costs on the basis that the owners had no standing to challenge the costs order made on Burke Bros' claim is without substance. A third party against whom a defendant seeks relief becomes a party to the proceedings between the plaintiff and defendant, so that the third party is bound by the decision between the plaintiff and defendant: [1], [97], [99], [118]. Insurance Exchange of Australasia v Dooley [2000] NSWCA 159; 50 NSWLR 222; Sandtara Pty Ltd v Abigroup Ltd (1997) 42 NSWLR 5, applied.

Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd [1974] HCA 32; 132 CLR 1; Berkeley Challenge Pty Ltd v Potbury [1997] NSWCA 44, distinguished.

The trial judge correctly assessed the amount of the payment held to be due under the contract, together with interest to the date of the offer, as being significantly in excess of Burke Bros' offer of compromise: [1], [101], [118].

The trial judge was entitled to take the view that, to the extent there were matters genuinely and reasonably in dispute, the proceedings had expanded well beyond the objective support for the case. She was entitled to conclude that the appellants were responsible for that outcome: [1], [113]-[114], [118]. Commonwealth of Australia v Gretton [2008] NSWCA 117; Degmam Pty Ltd (In liq) v Wright (No. 2) [1983] 2 NSWLR 354; Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; 46 FCR 225; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; 81 ALR 397; The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257(S), considered.

Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359; Chen v Karandonis [2002] NSWCA 412; Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242; Rosniak v Government Insurance Office (1997) 41 NSWLR 608; J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No. 2) [1993] FCA 42; 46 IR 301, referred to.

In these circumstances, it did not constitute error in the exercise of the discretion to award costs to require that the costs, which the owners had to pay, were to be assessed on an indemnity basis: [1], [101], [114], [118].

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40086/08 DC 1377/06

GILES JA BASTEN JA YOUNG CJ in EQ

18 December 2008 George CHAINA & ANOR v ALVARO HOMES PTY LTD & ANOR Judgment 1 GILES JA: The issues in the appeal are explained in the reasons of Basten JA, which I have had the advantage of reading in draft. I agree with his Honour's reasons as to denial of procedural fairness in relation to adjournment and as to erroneous exercise of the discretion in relation to costs. I set out below my reasons, in some respects differing from those of his Honour but arriving at the same result, as to denial of procedural fairness in relation to observations of Mr Chaina's demeanour. 2 There can be denial of procedural fairness if a judge materially uses in decision-making observations of a witness outside the witness box. There is no dogmatic rule; in Government Insurance Office of New South Wales v Bailey (1992) 27 NSWLR 304 Clarke JA, with whom Hope AJA agreed, said at 323 that it was "a flexible one based on considerations of fairness and justice". His Honour cited from the judgment of King CJ in Angaston & District Hospital v Thamm (1987) 47 SASR 177 at 178-179 a passage also cited by Mason P, Heydon JA and Clarke AJA agreeing, in Kassem v Crossley [2004] NSWCA 276 at [15] - "The principle of law which was expressed in Minagall v Ayres and which was accepted by the judges who constituted the court in Jobst v Inglis is expressed in a passage in the judgment of Chief Justice Napier, with whom Justice Travers agreed at 156 of the report. It is as follows: 'But while we agree with Hogarth J, we desire to guard ourselves against being understood as laying down any absolute rule upon the subject. It seems to us that it is a matter of what we should regard as `fair play and common sense'. The condition upon which a judge is at liberty to take notice of what he has seen for himself is that the parties should know or be informed of what he has noticed, and have an opportunity of answering or dealing with it.'

The rule, as appears from the passage cited is not to be regarded as absolute in the sense that it must be applied rigidly to every observation which a judge might make of a party during the course of a trial outside the witness box. Something will depend no doubt on the circumstances of the particular case and upon the significance of the particular observations. It is clear however that where the judge makes observations of the actions or demeanour of a party, which actions and demeanour are not observable by counsel, and makes use of those observations in a way which has a significant influence upon his decision of the case, he is required in justice before making such use of those observations to make those observations and the possibility of his using them in the course of his judgment known to counsel at a stage of the hearing at which counsel still has an opportunity of dealing with them in a proper and effective way." 3 Exceptionally, but as a matter of principle possibly, it may be that fairness requires the judge to draw attention to an observation of the witness in the witness box. The rule is not restricted to the actions or demeanour of a party, and is not necessarily restricted to when the actions or demeanour are not observable by counsel, since the vice lies in the judge making use of what has been observed when the party's representatives are not aware that it may be used in the decision-making. In Ucar v Nylex Industrial Products Pty Ltd [2007] VSCA 181; (2007) 17 VR 49 Redlich JA began by noting at [42] the parties' entitlement to know the case sought to be made against them and have the opportunity of replying to it, and after consideration of the cases said - "52. A decision-maker sitting in the courtroom is not blind to the events which occur in the courtroom but when his or her observations are of matters which the party's representatives have no opportunity to observe, or where it may reasonably be assumed that the party's representatives will not appreciate the inferences which the decision-maker intends to draw from observations that are made, the party should be informed of the observations or the inferences which the decision-maker contemplates drawing so as to afford the party an opportunity to deal with such matters, whether by calling evidence or by making submissions." (citations omitted) 4 Many considerations may come into whether there has been a denial of procedural fairness, as it is a question of practical fairness and justice. Amongst other things, where a party is represented the focus will ordinarily be on what should in fairness and justice be made known to the representative. It is not required that the representative be apprised of the judge's views generally, although if the judge is minded to decide the case on a completely different basis from that on which the case is being conducted that should be raised, Seltsam Pty Ltd v Gahleb (2005) NSWCA 208; (2005) 3 DDCR 1 at [78] per Ipp JA. There is no such question in the present case. 5 Basten JA has set out the relevant portions of the trial judge's reasons, from which I draw. 6 The trial judge gave an account of her observations of Mr Chaina's "decisive and controlling conduct in the courtroom during the evidence of others, the conduct of the proceedings generally and his attentative behaviour during the 'other' evidence, and addresses and statements by counsel". This was contrasted with Mr Chaina's "episodic incapacity and vagueness and conduct in the witness box". 7 It seems to me likely that a good deal of Mr Chaina's conduct to which the trial judge was referring would not have been observed by his representatives, and further I do not think that the representatives would have recognised, certainly not with appreciation of the full extent of the trial judge's observations, that the conduct was to be seen by her Honour as providing what she referred to as "a striking contrast" with his conduct in the witness box. There was the potential for procedural unfairness. Had the observations been material to the trial judge's decision-making, in my opinion the circumstances were such that in fairness and justice her Honour should have drawn them to the attention of the owners' counsel in a manner enabling submissions, or possibly an application to call further evidence, in an endeavour to cast what had been observed in a benign light. 8 However, I do not think that the observations were material to the trial judge's decision-making. 9 The trial judge found Mr Chaina's evidence "evasive, internally contradictory, and in various respects plain wrong". These reasons for an adverse view of his evidence rested upon the quality of the evidence and Mr Chaina's conduct in the witness box, and were not affected by any contrast with what the trial judge observed in his conduct outside the witness box. 10 Her Honour referred also to professed inability to understand or attend to relatively simple questions, the same matters apparently being within her description of "episodic incapacity and vagueness and conduct in the witness box". In that respect she posed whether there were "significant cogitative restrictions and deficiencies in concentration" or "a degree of artifice". The contrast with Mr Chaina's conduct as observed in the courtroom during the evidence of others and in relation to the conduct of the proceedings appears to have assisted her Honour to the explanation of artifice. 11 However, the explanation was not of significance in her Honour's ultimate conclusion that Mr Chaina was an unreliable witness on whose evidence little weight could be placed, and her statement that she "rejected much of his evidence, and virtually any evidence upon which he was contradicted by another witness or a contemporaneous document". Evident evasiveness, contradictoriness and being "plain wrong", plus the view her Honour said she formed from observing Mr Chaina testify that there was "a contrived overlay of paranoia and blame-shifting about his testimony", would of themselves mark him as an unreliable witness. It did not matter whether what was added to that was "significant cogitative restrictions and deficiencies in concentration" on the one hand or, as distinct from that explanation, "a degree of artifice" on the other hand. Whichever was the explanation (at least in part) for the view the trial judge took of Mr Chaina's evidence, it lacked reliability and claim to any substantial weight and was in large part to be rejected. 12 It may fairly be asked why the trial judge devoted a number of paragraphs of her reasons to her observations concerning Mr Chaina's conduct in the courtroom. The reasons were lengthy and of uncertain structure. The heading of "Credit and reliability" early in the reasons brought observations upon a series of witnesses, including Mr Chaina, but what appeared under the heading was introduced by the words, "Insofar as the case rest[s] upon credit … ". What appeared under the heading is to be regarded, in my opinion, as a general exposition of the trial judge's views, without particular regard to the significance of credit and reliability to the issues in the case and equally without particular regard to the significance of the expressed observations concerning Mr Chaina's conduct in the courtroom to the conclusion to which her Honour came as to the reliability of his evidence. 13 In my opinion, on a proper understanding of the reasons what was said about Mr Chaina's conduct outside the witness box did not contribute to the trial judge's decision-making. Accordingly, I do not think that the denial of procedural fairness of which the owners complained has been made out. 14 I agree with the orders proposed by Basten JA. 15 BASTEN JA: In 2002 Mr and Mrs Chaina ("the owners") purchased a property off Yeos Lane near Glenquarry in the Southern Highlands. They intended to build on the property a chapel (in honour of their deceased son) and a house. These plans required the construction of a lengthy driveway from Yeos Lane to the proposed site of the buildings. On the advice of their architect, the owners engaged Alvaro Homes Pty Ltd ("Alvaro Homes") as their builder. After an initial false start, Burke Bros Pty Ltd ("Burke Bros") was engaged to construct the driveway. An initial quotation, provided on 29 August 2003, was for an amount of $162,800. Subsequent variations increased the price to a little over $202,000. 16 In May 2004 the owners (particularly Mr Chaina) became uncertain as to their intentions with respect to the driveway and Burke Bros ceased construction. At that stage, Burke Bros had issued invoices totalling $136,474, of which the first two, totalling $88,000, had been paid. Burke Bros left the site on 14 May 2004. On 23 November 2004, it commenced proceedings in the Local Court seeking payment of an amount which, with interest, was a little over $50,000. The owners filed a cross-claim, as a result of which the proceedings were transferred to the District Court. 17 The hearing of the matter in the District Court covered 10 days. Burke Bros was substantially successful on its claim, obtaining judgment in an amount of $67,047.59 against Alvaro Homes. Alvaro Homes had cross-claimed against the owners and was also successful, obtaining a judgment against the owners for the amount payable to Burke Bros, plus 15%, being the margin payable by the owners under their contract with Alvaro Homes, in respect of subcontractors. The cross-claim by the owners for damages for defective work was dismissed. 18 The proceedings in this Court were commenced by the owners challenging the principal order against them in favour of Alvaro Homes and (in relation to costs) in favour of both Alvaro Homes and Burke Bros. As the judgment in respect of which they sought to appeal was less than $100,000, leave was required pursuant to s 101(2)(r) of the Supreme Court Act 1970 (NSW). Leave was opposed by the respondents, partly on the basis that the costs of the proceedings now far exceeded the amounts in dispute. That is an unfortunate feature of the case. However, because the issues sought to be raised by the owners included two respects in which the proceedings in the District Court were said to have been procedurally unfair, being matters which could not properly be explored in this Court without a significant investigation into the manner in which those proceedings were conducted, and because the complaints were not patently without substance, it was considered appropriate that the application for leave and the appeal be considered concurrently. 19 For reasons which appear below, the further investigation, which took two days of hearing in this Court, revealed sufficient substance in some of the complaints made by the owners to warrant a grant of leave to appeal. Nevertheless, the claims have not been made out and the appeal must be dismissed. Grounds of appeal 20 The grounds identified in the draft notice of appeal and pressed at the hearing were as follows:

(1) denial of procedural fairness in: (a) placing reliance upon observations of the demeanour of Mr Chaina whilst sitting at the back of the Court during the proceedings, and (b) refusing to grant an adjournment on 17 December 2007 to allow the owners to obtain further expert evidence;

(2) erroneous exercise of her Honour's discretion with respect to costs in: (a) requiring the owners to pay Burke Bros' costs of the owners' cross-claim on an indemnity basis, and (b) ordering the owners to pay the costs of Alvaro Homes generally on an indemnity basis. 21 Each of the parties instructed separate experts to determine the value of the work done by Burke Bros. On the first day of the trial, her Honour ordered that the experts should confer in order to determine to what extent agreement could be reached and to identify issues which remained in contention. Mr Tippett, the principal of Burke Bros, was involved in the conference and provided some information to the experts in relation to the equipment and resources used by him on the job. In the draft notice of appeal, the owners complained that this caused the conclave of experts to be "contaminated", resulting in a denial of procedural fairness. That complaint was abandoned as a separate ground during the hearing of the appeal, but the factual basis for that complaint was relied upon as the basis for the adjournment application. The circumstances of the conference of experts will need to be addressed for that purpose. 22 It is convenient to commence by identifying the principles relevant to the grounds with respect to "procedural fairness". Procedural fairness in civil proceedings 23 The proper approach to an alleged failure to accord procedural fairness is a matter of some significance. The phrase is imported from administrative law where it is used to identify an aspect of invalid administrative decision-making. A failure on the part of an administrative decision-maker to comply with obligations of procedural fairness will render a decision invalid on the basis that there has been a failure to exercise the power or jurisdiction conferred on the decision-maker, usually by statute. Relief in the form of prerogative or constitutional writs will be available to prevent the decision being carried into effect and to require the decision-maker to complete the proper exercise of power according to law. 24 This is neither the analysis invoked, nor the relief sought, where a trial judge is said to have acted in a procedurally unfair manner. First, a court has jurisdiction to determine questions of law, procedure and fact and will not usually exceed its jurisdiction if it does so wrongly: see Craig v South Australia [1995] HCA 58; 184 CLR 163 at 179-180. Procedural decisions are inherently discretionary and, even where there is an appeal by way of rehearing, are conventionally accorded a significant degree of deference: see In re the Will of FB Gilbert (Deceased) (1946) 46 SR (NSW) 318 at 323 (Jordan CJ). 25 Secondly, the courts treat the manner in which administrative officers deal with prejudicial material more strictly than that permitted of judges. Judges are expected to put to one side irrelevant and prejudicial material which has come to their attention; a court would not be expected to disavow reliance on such material in its reasons for judgment. A different attitude is taken in relation to administrative decision-makers: see Kioa v West [1985] HCA 81; 159 CLR 550 at 588 (Mason J), 603 (Wilson J). Brennan J (at 629) went further in articulating the approach to administrative decision-making, stating: "It is not sufficient for the repository of the power to endeavour to shut information of that kind out of his mind and to reach a decision without reference to it. Information of that kind creates a real risk of prejudice, albeit subconscious, and it is unfair to deny a person whose interests are likely to be affected by the decision an opportunity to deal with the information. He will be neither consoled nor assured to be told that the prejudicial information was left out of account." 26 Thirdly, in circumstances where the obligation of procedural fairness has been breached by an administrative officer, relief will follow if the contravention deprived the person concerned of the possibility of a successful outcome: see Re Refugee Review Tribunal; Ex parte Aala [2000] HCA 57; 204 CLR 82 at [57]-[60] (Gaudron and Gummow JJ) and [148]-[149] (Kirby J). It may be unfortunate that authority for the last proposition, in the context of judicial review, is sometimes sought in a case concerned with civil proceedings, namely Stead v State Government Insurance Commission [1986] HCA 54; 161 CLR 141. Stead involved an appeal by way of rehearing. The trial judge, having indicated in the course of submissions that he did not accept a key witness and the counsel need not address further in relation to him, gave judgment accepting and relying on the evidence of the witness. Stead turned upon the principle which at general law is often sourced to Balenzuela v De Gail [1959] HCA 1; 101 CLR 226, and now encapsulated in this jurisdiction in r 51.53 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), that no new trial should be ordered unless there has been some substantial wrong or miscarriage of justice. 27 The scope of appellate review may be addressed by reference to both civil and criminal cases. However, in particular cases, it may be important not to elide the differences in jurisdiction. The role of a criminal prosecutor is not the same as that of a party in a civil trial, nor are the protections afforded to an accused by any means the same as those which arise in civil proceedings. 28 The criminal cases addressing the question whether there has been a substantial miscarriage of justice distinguish between:

(a) procedural unfairness which can be shown to have led to an unjust conviction;

(b) unfairness which precludes an assessment of the justness of the outcome, or

(c) a departure from an essential requirement of a trial which itself involves a substantial miscarriage of justice without the need to consider the possible effects on the outcome.

These categories were identified in Darkan v The Queen [2006] HCA 34; 80 ALJR 1250 at [94]; Weiss v The Queen [2005] HCA 81; 224 CLR 300 at [45]-[46]; Nudd v The Queen [2006] HCA 9; 80 ALJR 614 at [7]-[9] (Gleeson CJ); Cesan v Director of Public Prosecutions (Cth) [2007] NSWCCA 273; 174 A Crim R 385 at [97]-[118]. 29 In civil proceedings it is also helpful to consider the nature of the error asserted by reference to the categories identified above. Stead fell within the second category. In Stead the plaintiff had been denied a "fair trial" because he had been stopped from presenting his case properly before the judge: see reference in Stead at 145 to Jones v National Coal Board [1957] 2 QB 55 at 67. Because the appeal court had not heard the witness, it could not say that the lost opportunity made no difference. To come within Stead, an appellant must first demonstrate a procedural ruling capable of preventing a trial according to law. Not every refusal of an adjournment, limitation on cross-examination or refusal to allow a plaintiff to reopen which is adverse to one party's interests will be so characterised. It is necessary in each case, therefore, to consider the extent to which the alleged unfairness may have had an impact on the outcome and, where that possibility arises, whether the extent of the impact can be assessed on the appeal. Reliance on behaviour and demeanour in the courtroom 30 In order to assess this ground of appeal it is necessary to identify the comments in her Honour's judgment on which the appellants rely and the apparent use made of them. Before assessing that material, it is convenient to note the general principles of law which are to be applied. 31 First, it is not in dispute that a trial judge is entitled to take account of observations of a witness, or party, in the courtroom whilst not giving evidence: Government Insurance Office of New South Wales v Bailey (1992) 27 NSWLR 304 at 323B-D (Clarke JA, Hope AJA agreeing) and 313 (Kirby P, albeit in dissent). Nevertheless, it is important to distinguish two different purposes for which such material may be deployed. There are cases in which trial judges have relied on their observations of a plaintiff, often both whilst in the witness box and when sitting in the courtroom, to assess the level of pain or disability they appear to be suffering. If, on occasion, the plaintiff moves with a degree of agility, or without apparent discomfort, that may be treated as inconsistent with claims of disability or discomfort made to medical practitioners or in evidence. Alternatively, apparent disability or discomfort displayed in the courtroom may be compared with a video recording of the plaintiff, unaware of the observer, behaving without such an appearance of either disability or discomfort. That exercise must be approached with caution, whether the plaintiff is in the witness box or not. Reasons for caution include the possibility that a condition may fluctuate; that a person unfamiliar with a courtroom environment may react differently in the courtroom and outside it, and that the judge does not have medical expertise. 32 The other use which may be made of such observations is, as in the present case, to contrast behaviour in the courtroom with behaviour in the witness box. Such observations may not go directly to any issue in dispute, but may go to questions of credibility, or may merely provide some possible explanation for behaviour in the witness box otherwise deemed curious or inexplicable. 33 The second principle which is generally accepted is that it may be unfair for a trial judge to rely upon observations of a party in circumstances where his or her legal representatives are not in a position to observe the behaviour and thus to anticipate any inference which might be drawn from it by the trial judge. This is not a typical example of what might be described as breach of rules of procedural fairness. If, as appeared to have occurred in the present case, a party has deliberately placed himself in a position where the trial judge can see him, and then conveys by gestures or grimaces agreement or disagreement with particular evidence or arguments, it will not be strictly correct to say that the party does not know of a particular matter and hence has no opportunity to address it in submissions. The obligation of procedural fairness does not enure to the benefit of witnesses or lawyers, but to individual litigants. Indeed, the complaint is not raised in terms of awareness of the party, but rather by reference to the failure of the trial judge to advise the lawyers of how their client is behaving, so that they may address it by way of evidence or submissions. A more nuanced approach to the question of possible unfairness is required in order to address the possible need for a trial judge to advise the lawyers as to how their client is behaving. 34 That situation also gives rise to potential factual issues. It cannot necessarily be assumed that, because a client is sitting behind his or her solicitor, the solicitor is entirely unaware of how the client is behaving. It is not unlikely that a solicitor, knowing that the client is emotional or likely to give expression to his or her feelings, will have given advice about appropriate courtroom behaviour, not limited to dealing with questions in the witness box. 35 The question of fairness in such circumstances takes into account the relationship between lawyers and their clients and the expected dynamics of a courtroom which may be assumed in the absence of any indication to the contrary, such assumptions being conducive to the efficient administration of justice. One such assumption is that the trial judge will deal with the factual issues on the basis of the evidence presented in court of which the lawyers are aware. Economy in submissions is promoted by such an assumption and an expectation that if the trial judge considers some material or legal principle is likely to affect the outcome, but is not being addressed in argument, that fact will be identified. Similarly, some indication may be expected if an inference is being drawn which is not the inference which might reasonably be expected in a particular circumstance or which is not that which the parties appear to have assumed to be the relevant inference. For example, where an appellant was convicted and placed on recognisance, the appeal court should have given a warning that it was minded, if the conviction were upheld, to impose a custodial sentence: see Parker v Director of Public Prosecutions (1992) 28 NSWLR 282. More recently, and in a civil case, Seltsam Pty Ltd v Ghaleb [2005] NSWCA 208; 3 DDCR 1, Ipp JA (Mason P agreeing) noted that "although the basis on which the parties conduct a trial does not bind the judge, if the judge contemplates determining the case on a different basis he or she must inform the parties of this prospect so that they have an opportunity to address any new or changed issues that may arise": at [78]. 36 With respect to evidence concerning what the complainant would have said or done, given notice of the new or unanticipated issue, limited assistance is to be found in administrative law practice. In judicial review of an administrative decision, the court has no business with the merits of the decision. It is therefore not appropriate for the court to consider what result might have flowed if the decision-maker had had other information. Because the court is not empowered to enter upon that inquiry, it will usually be inappropriate to tender material to the court. However, quite a different situation arises where the complaint is one of procedural fairness at a trial and the appeal court is conducting a rehearing. In the latter case, the court is not only able, but is required, to determine the appeal on the material before it. If the appellant does not tender relevant material, the court may dismiss the appeal on the basis that it is not persuaded that any different outcome would have been achieved absent error. That is not to say that such evidence will always be necessary: where, as in Ucar v Nylex Industrial Products Pty Ltd [2007] VSCA 181; 17 VR 492, the opportunity lost was to persuade the trial judge as to a different view of the credibility of the appellant, any reassessment is likely to be one which must be carried out at a new trial, rather than in the appeal court. Nevertheless, to obtain a new trial the appellant must demonstrate some substantial wrong or miscarriage, occasioned by the error of the trial judge, at least in the circumstances identified in UCPR, r 51.53. 37 When this matter was raised in the course of the hearing, senior counsel for the appellants did not directly challenge the application of the rule, but appeared to affirm that, in accordance with Stead, the Court must be satisfied that there was no possibility of a different result, where there had been procedural unfairness. The appellants did not suggest that the rule was in any way inconsistent with s 75A of the Supreme Court Act, or that it was in its terms inapplicable to an appeal from a District Court judge sitting without a jury: cf Whisprun Pty Ltd v Dixon [2003] HCA 48; 77 ALJR 1598 at [113] (Kirby J, dissenting); Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22; 209 CLR 478 at [53] (Kirby and Callinan JJ); Mastronardi v State of New South Wales [2007] NSWCA 54 at [74]-[85]. Comments as to appellant's behaviour 38 The style of the judgment was discursive and included 45 headings and subheadings. The trial judge commenced with a general statement of the background to the litigation. At p 6 (of 76 pages) her Honour addressed the topic of "Credit and reliability". She did so by identifying first the surveyor (Mr Anderson), the architect (Mr Suttor), the principal of Burke Bros (Mr Tippett) and the principal of Alvaro Homes (Mr Alvaro) each of whom she described as honest, frank and precise, or words to that effect, noting the need to resolve points of conflict. Of Mr and Mrs Chaina, her Honour took a different view (pp 6-7): "Precisely the contrary was true of Mr Chaina, whose evidence was evasive, internally contradictory, and in various respects plain wrong. On occasions in the witness box, Mr Chaina professed an inability to understand or attend to relatively simple questions or to turn the pages of the annexures to his own affidavit to find clearly marked and numbered pages. … Mr Chaina sought to explain his curious manner in evidence by professing difficulties in concentration. Viewed in isolation, Mr Chaina's conduct in the witness box could suggest significant cogitative restrictions and deficiencies in concentration. But the points at which such difficulties manifested suggested a degree of artifice, being markedly (but not exclusively) in the course of cross-examination where it might be thought that a straightforward response would be contrary to the interests of the owners." 39 Her Honour noted that Mr Chaina was present and instructed lawyers throughout the hearing, continuing (pp 7-8): "There was a striking contrast between Mr Chaina's episodic incapacity and vagueness and conduct in the witness box and his decisive and controlling conduct in the court room during the evidence of others, the conduct of proceedings generally, and his attentive behaviour during the (other) evidence, and addresses and statements by counsel. In the court room, Mr Chaina was active, responsive and involved, frequently rising from his seat at the rear of the court room and rushing across to his solicitor to issue instructions as soon as questions were posed from the bench or the bar table. Mr Chaina demonstrated immediate comprehension, complete with head shakes and expressions of annoyance and disagreement immediately upon the articulation of that which might have been thought to be adverse to his version in the evidence of others, accompanied by repeated and rapid approaches to confer with his solicitor in the courtroom throughout the hearing. When Mr Hill gave evidence by telephone, I observed that Mr Chaina followed the questioning and evidence closely from the rear of the court room, demonstrating rapid comprehension. Thus, for example, when answers were given by reference to the size of sandstone, Mr Chaina demonstrated to his wife by rapid hand and finger gesture the differences between sandstone crushed to 50mm and that crushed to 75-80mm, demonstrating the respective differences between splayed fingers. On day 8, when counsel for the second and third defendants sought an adjournment, Mr Chaina communicated immediate decisions the instant issues were raised in discussions, sometimes by rapid and decisive gesture from the rear of the courtroom, and sometimes by leaping to his feet and hastening across from the rear of the courtroom to give instructions to the solicitor. Likewise, during submissions, Mr Chaina's close attention and comprehension was evident as he sat in the rear of the court, moving if his view of me was obscured by counsel addressing, and vigorously shaking his head and frowning or nodding as points were discussed with which he variously disagreed or agreed." 40 The ground of appeal complaining of procedural unfairness in making these comments faces four difficulties. First, there is no complaint in respect of the factual findings. Thus, there is no complaint about her Honour's description of Mr Chaina's conduct in the witness box, nor is there any specific complaint about her Honour's findings as to his conduct in the courtroom whilst not giving evidence. 41 Secondly, much of the conduct involved communication with his solicitor. It was, accordingly, conduct of which the solicitor must have been aware, at least in a general sense. There was no evidence tendered on the appeal from the solicitor that he was not aware of the conduct nor that he was unaware of the extent to which Mr Chaina's conduct conflicted with his demeanour and behaviour in the witness box. So far as Mr Chaina's conduct which did not involve the solicitor directly was concerned, again there was no evidence as to the seating in the courtroom, the extent to which the solicitor was in fact aware of his client's conduct or the extent to which it may have been observable by counsel. Furthermore, there were interchanges between the trial judge and counsel during the course of the hearing in which her Honour gave some indication, apparently understood by counsel, that she considered Mr Chaina's conduct curious. If, as appears from the uncontradicted statements in the judgment, Mr Chaina was effusive and expressive, it is not clear why this Court should draw the inference that his lawyers were unaware of his behaviour in a general sense, even if not perhaps in relation to specific responses. 42 The possibility of calling evidence to demonstrate a breach of procedural fairness was discussed by Ipp JA (Mason P agreeing) in Seltsam Pty Ltd v Ghaleb at [79] in a comment which followed upon the statement of principle that a trial judge must inform the parties if he or she intends to decide the case on a basis different from that on which the case was presented: see [35] above. Ipp JA continued: "A failure so to inform the parties will ordinarily result in a denial of procedural fairness. A new trial will be ordered if a party is not afforded a fair trial in circumstances where a properly conducted trial might possibly have produced a different result. It will not ordinarily be necessary to lead evidence to prove that the denial of procedural fairness had the potential to affect the outcome; in most cases the facts will speak for themselves." 43 That approach was adopted by the Victorian Court of Appeal in Ucar, where the Court was dismissive of an affidavit in which the solicitor for the appellant indicated what explanation would have been given in respect of certain aspects of the appellant's conduct in court during the trial, had the opportunity been provided. Warren CJ noted that she did not consider the affidavit necessary to establish the appellant's submissions in the circumstances of the appeal and therefore would not consider it: at [4]. The issue was also dealt with by Redlich JA at [81]-[84], relying on Seltsam and administrative law cases. 44 In this area of discourse, it is important to distinguish two separate steps, namely, on the one hand, establishing the existence of procedural unfairness and, on the other hand, the legal consequences and the appropriate relief. In some cases, procedural unfairness is demonstrated by establishing a representation, reliance and detriment. These are matters of fact which must be established by evidence, or inference from agreed facts. In the present case, the claim of procedural unfairness had two limbs. The first was reliance by the trial judge on conduct of which the appellants' lawyers were unaware; the second was reliance on that material in a manner which could not reasonably have been anticipated. Whether the second limb was made out may have depended upon the facts of which the lawyers were aware. The first limb was not made out unless it could be inferred or was proved that the lawyers were unaware of the conduct relied upon. Either by way of inference or evidence, that was a fact which the appellants needed to establish to make out their case on appeal. That they failed to do and hence must fail on the first limb. In relation to the second limb, the question of whether the judge made use of conduct known to the parties and their lawyers in a manner which could not reasonably have been expected depends on what use she did in fact make of her observations. This raises the third difficulty faced by the appellants 45 The third difficulty is to identify the issue to which her Honour's observations of Mr Chaina's behaviour were relevant. Having referred to the curious manner in which he gave evidence (in the first passage set out above) and after recounting his conduct in court when not in the witness box, her Honour continued (p 8): "Observing Mr Chaina testify, I formed the view that there was a contrived overlay of paranoia and blame shifting about his testimony, particularly when addressing matters adverse to his interests, which expanded to make unsubstantiated allegations against the surveyor, the architect, the builder and the road builder/plaintiff, together with anger at the suggestion that Mr Chaina should talk to the road builder, which Mr Chaina manifestly did, and indeed narrated in his own affidavit." 46 Mr Chaina's conduct in the presentation of his evidence was relied on by counsel for Alvaro Homes (judgment, p 9): "It is submitted that Mr Chaina did not present as a credible witness both in terms of his demeanour and his evidence. The court would infer that Mr Chaina, who was apparently capable of providing cogent instructions throughout the first few days of the hearing, feigned difficulty in responding to straightforward questions in cross examination. He was obfuscator[y] and at times non-responsive. Further, the Court would consider his unsolicited allegation that not only Mr Alvaro, but also that Mr Suttor, had 'an agenda' in relation to their dealings with Mr Chaina to be illustrative of the self-serving nature of Mr Chaina's evidence." 47 After giving some examples of testimony described as "contrived" and "somewhat evasive", her Honour returned (at p 9) to the possible explanation: "Although it is not impossible that the explanation lies in medication or capacity, I found a degree of artifice in Mr Chaina's presentation and evidence, which tended against honesty rather than capacity; and I formed the view, on the civil standard, that the explanation was artifice." 48 In conclusion, her Honour stated that Mr Chaina was "an entirely unreliable witness", that she had placed "very little weight upon the evidence of Mr Chaina and Ms Chaina generally" and that she had "rejected much of his evidence, and virtually any evidence upon which he was contradicted by another witness or a contemporaneous document": at p 10. 49 Mr Chaina's evidence was rejected on the basis of his demeanour and behaviour in the witness box, together with internal inconsistencies and established inaccuracies. The observations made in court did not cast doubt on his credibility or reliability as a witness: rather, they provided an explanation as to the reason for his poor presentation. In other words, the behaviour in court supported the inference that Mr Chaina was capable of concentration, comprehension and intelligent understanding, lack of which might have explained his poor performance as a witness. In short, the comments as to demeanour in the courtroom were not the basis of the finding with respect to credibility and reliability, nor did they impact directly on any issue in dispute. 50 Fourthly, even if the impugned comments did support the findings as to credibility, the refusal to place weight on Mr Chaina's evidence had little bearing on the outcome of the case. In written submissions, the appellants' somewhat glibly remarked (par 41): "The effect of these observations permeate throughout the Judgment, including the terms of the main contract between the First and Second Respondents, the Claimants' Second Cross Claim in relation to the location of lower road and also the First Respondent's Third Cross Claim." 51 These matters were developed more fully in the course of oral argument and encompassed three issues. The first issue concerned the content of the road building contract. In June 2003 what were described as "series A" plans were prepared showing a driveway with a three metre width. Mr Tippett, the principal of Burke Bros, saw the plans and offered to do the work for $162,800. That quotation was not immediately accepted and, in early September 2003, fresh plans ("series B") were prepared showing a driveway with a width of five metres with 0.5 metre shoulders on either side. Initially, the roadwork was undertaken by another contractor, but the arrangement with him was terminated and in February 2004 Burke Bros was invited to take over the work in accordance with Mr Tippett's previous quote. According to the evidence given by Mr Tippett and Mr Alvaro, there was no reference in the course of the conversation to the fact that since the quotation of late August 2003 the plans had changed from a three metre wide road to a five metre wide road. Even when Mr Tippett was handed the series B plans and series C plans (which contained further changes), he was not aware of the difference between them and the series A plans on which he had quoted. 52 There were differences in minor respects between the evidence of Mr Alvaro and that of Mr Tippett. These differences were resolved by her Honour without reference to the evidence of Mr Chaina. 53 Mr Chaina's evidence was that the re-engagement of Burke Bros occurred on the telephone. He recalled Mr Tippett saying, "I have thrown everything away because I didn't get the job, the quotation, the plans, the whole lot". Mr Chaina then described the size of the road and the location ("per the Campbell & Anderson plans"), but made no specific reference to the fact that the width of the driveway had changed since Mr Tippett's original quotation. 54 The point which arose from this evidence was whether Burke Bros was entitled to recover payment for a wider driveway than that on which it had earlier quoted, or whether it was to be held to its original quotation in respect of the wider driveway. 55 The trial judge held that the agreement between Mr Alvaro and Mr Tippett was in relation to the original quotation, the increase in size being dealt with by a later variation. According to each of them, Mr Chaina was not party to that arrangement: Mr Chaina himself agreed that he did not contract with Burke Bros, but only with Alvaro Homes, which in turn contracted with Burke Bros. The terms of the contract between Alvaro Homes and Burke Bros did not turn on his evidence. 56 It is convenient to turn next to the third issue raised by the appellants as it was related to the first, although somewhat indirectly. According to counsel for the appellants, the calculation of one of the experts, Mr Grieve, instructed by Burke Bros, was accepted as the most accurate calculation of the value of the work done because it was based upon the evidence of Mr Tippett as to the resources which had been deployed in the road building, so far as it went. This was a point on which there had been a difference in the evidence of Mr Tippett and Mr Alvaro. According to the appellants, if Mr Chaina's evidence had been accepted in relation to the original contractual arrangement, that might have cast doubt upon the veracity of Mr Tippett and, as a further consequence, on his evidence as to the resources deployed. If that evidence were not accepted, the expert evidence of Mr Grieve would also be in doubt. 57 The proposed chain of connection is remote. In any event, it depends upon a challenge to Mr Tippett's evidence as to the resources and equipment used on site. Because the documents were belatedly produced, Mr Tippett was not cross-examined on this material until day nine, being 17 December 2007. The Court was not taken to any material which cast doubt upon the answers given by Mr Tippett in cross-examination. Mr Chaina himself gave no evidence as to these matters, primarily because he was not on site while the work was being performed. 58 The second issue to which Mr Chaina's evidence was said to be relevant was an attempt by Mr Chaina to relocate the road to a lower position. Mr Chaina gave evidence of conversations with Mr Alvaro, whilst the construction work was at an early stage, directing him to relocate it to a lower point on the topography, some 30 metres to the south of the then current line of construction. This evidence did not involve any dispute between Mr Chaina and Mr Tippett, but between Mr Chaina and Mr Alvaro. This evidence was highly relevant to (and indeed formed the entire basis of) the cross-claim brought by the appellants against Alvaro Homes. 59 Relevant to this issue, Mr Chaina's affidavit of 9 November 2007 stated that in early September 2003 the proposed road on the property had been pegged by Campbell & Anderson Consulting Surveyors Pty Ltd ("Campbell & Anderson") in accordance with its plans. Mr Chaina asserted an agreement that the position of the road would be changed and also claimed that with Mr Moses (who was the contractor then intended to undertake the road building) "the majority of the pegs" were moved to the new position. 60 This evidence was entirely inconsistent with that of Mr Tippett who stated that he had met Mr Alvaro on the property and asked him to get Campbell & Anderson to peg the road prior to commencement of construction. Her Honour accepted that evidence and also found that so much of the driveway as was constructed followed the course provided by the survey pegs. 61 In the course of his cross-examination, Mr Chaina was taken to a plan prepared by Campbell & Anderson and accepted that he instructed them to prepare that plan: Tcpt, 29/11/07, pp 350-351. The evidence continued (p 351): "Q. That plan shows the driveway as it is presently built by Burke Bros, doesn't it? A. I don't understand the plan. I don't know - I can't comment. I don't understand plan. Q. You don't understand plans? A. No. If I did I would have picked up the problem from plan A, but I did tell Campbell and Anderson 6 metre road. Q. Were you ever made aware that Campbell and Anderson undertook a survey to check that the road as built was in accordance with their plans? A. That's the point, no. It's wrong. I told him, as I said, 'I don't want the road there.' I mean this is the difficulty I'm having. I don't want the road there. Irrelevant of Campbell and Anderson, irrelevant of the architect, it's my farm, it's my land. I tell them where I want the road. It's only fair." 62 This passage was referred to by her Honour (pp 49-50) and was one of the passages to which the Court was referred by counsel for the appellants. 63 There can be little doubt that Mr Chaina was a difficult witness in a number of respects. Her Honour's description of his evidence is amply borne out by a reading of the transcript. While it is true that, at least with respect to the second issue, rejection of his evidence was critical to the outcome for this issue, a comparison of his affidavit, his evidence in chief (which was not extracted without some difficulty) and his cross-examination leaves little doubt that her Honour rejected his evidence for the reasons she gave. What is not apparent is that her comments about his demeanour in Court had any bearing on the rejection of that evidence. 64 The themes addressed by her Honour in her judgment were loosely connected and did not necessarily follow the logical structure of the legal issues to be determined. In the end, the comments on Mr Chaina's behaviour in court appear to be gratuitous, though not in any sense offensive. There is no reason to think that, if her Honour had disregarded those matters entirely, she would have come to any different conclusion about the credibility or reliability of Mr Chaina's evidence in the witness box. The appeal on this ground must fail. Quantification of amount owing 65 The contract between Alvaro Homes and Burke Bros involved the construction of the driveway for a lump sum, to be paid by a series of progress payments. The sum originally agreed was varied so as to incorporate some additional work, such as the laying of drainage pipes and electricity cables. Work having ceased, without completion of the driveway, Burke Bros sued for moneys owing but unpaid under the contract, or by way of alternative, a quantum meruit for the work done. Assessment of the amount owing was calculated by reference to the work which had been completed. To address this issue, each party obtained and tendered a report from a civil engineer or quantity surveyor. 66 Calculations were undertaken by each of the three experts in respect of the value of the work done under the original contract to construct the driveway, and, separately, the additional work involved in the construction of batters to hold the banks of the driveway, the installation of concrete pipes and trenching for power cables. Following a joint conference of experts held over 26-28 November 2007, it appears that her Honour accepted a costing of the additional work in the sum of $31,627: judgment, p 29. 67 There was however a dispute as to the quantification of the cost of the road works completed by Burke Bros. Mr Grieve, who gave evidence for Burke Bros, costed the work done at $94,680 which, after allowance for the amount paid, left a balance outstanding of $14,680. When that sum was added to the figure for variations, it gave a total of $46,307, to which GST was to be added. Interest on the period from 14 May 2004 until 8 February 2008 was calculated at $16,110 which, with GST on the contract amount, gave a total judgment in favour of Burke Bros for $67,047.59 (in inappropriately precise terms). 68 The conference of experts took place on 26-28 November 2007. The basis of the appellants' complaint was that the principal of Burke Bros (Mr Tippett) attended the conference and provided information to the experts as to the actual equipment and resources used by Burke Bros in the construction of the driveway, including the relevant hours of usage. On 6 December 2007, the appellants sought an adjournment to allow them to "forensically examine" the log books supplied by Mr Tippett. That material was served on 29 November and formally tendered by Burke Bros at the hearing on 3 December 2007, as an annexure to a further report from Mr Grieve. On 6 December 2007 the appellants sought an adjournment to allow them to serve a notice to produce documents, assess the material produced and file a further report in response. They requested that the case be adjourned to the new year. They were given a limited adjournment, the hearing recommencing on 17 December 2007. 69 The trial had commenced on 26 November 2007. The conclave of experts was arranged on the same day, in a reasonably informal manner. The power to direct such a conference is contained in UCPR, r 31.24. The court may direct a conference be held "with or without the attendance of the parties affected": sub-r (2)(a). In the Supreme Court, Practice Note SC Gen 11 deals in more detail with the manner in which a conference may be convened and conducted. Whether it is generally followed in the District Court or whether more informal procedures apply was not part of this case. The appellants' complaint was that information was supplied to the experts in circumstances which had not been agreed in advance and was not consented to by the lawyers for the appellants. 70 This situation had the potential to create unfairness, but also to produce a more useful result than would otherwise have occurred. It is usually necessary for experts to formulate their opinions on the basis of assumed facts. If the facts as found by the trial judge differ from those relied on by the experts, the value of their opinions may be diminished. Further, because the basis of the opinion should always be expressed in the report of the expert (or the experts, in the case of a joint report from a conference) both the parties and the court should be fully aware of the material upon which the experts relied. It is undoubtedly good practice to ensure that the parties set the rules (with directions from the court) before a conference of experts commences and that any variation takes place pursuant to further directions of the court. Nevertheless, a failure to comply with such a practice does not vitiate the result. Disposition of adjournment application 71 In order to understand the complaint about the manner in which her Honour dealt with the adjournment application made on 6 December, it is necessary to provide some further chronology of events in relation to the trial. As already noted, Mr Tippett (for Burke Bros) attended at the conference of experts and provided documents indicating the resources in fact used in the construction of the driveway. The particular schedule he produced had apparently been prepared some weeks earlier and was dated 12 August 2007. The schedule, and the underlying records from which it was prepared, were not discovered nor produced in answer to a subpoena issued in August 2005, although apparently falling within its terms. The late production of this material and its potential to affect the basis on which the experts prepared their opinions, might well have sounded in costs. However, that question may be put to one side. 72 The events at the experts' conference were known to the appellants, through their expert, Mr Keirnan, on the day on which they occurred. Complaint was raised before the trial judge shortly after lunch on that day: Tcpt, 28/11/07, p 251-253. 73 The following morning, 29 November 2007, Burke Bros served on the appellants an affidavit from Mr Tippett exhibiting the original records which provided the basis of information given in summary form to the experts on the previous day. Burke Bros also provided two further letters from Mr Grieve dated 29 November 2007. One referred to a verbal instruction of 23 November asking him to "correct the calculation of the backfill with sandstone rate". In the second, he provided an opinion with respect to the costs of equipment and plant, based on Mr Tippett's documents. 74 The experts agreed on the total of quotations submitted by Burke Bros ($191,347 plus GST) and agreed on the work done on the variations, as indicated above. On Saturday, 1 December 2007, Mr Keirnan (for the appellants) produced some further calculations based upon Mr Grieve's letter of 29 November. 75 It was recognised at this stage that the case for the plaintiff (Burke Bros) had changed significantly and counsel sought to put the pleadings in order by filing a further amended statement of claim on the morning of 29 November 2007. Counsel for the appellants stated that he had no instructions to consent, but made no submissions in opposition: Tcpt, 29/11/07, p 292. Mr Chaina was then called to give evidence in the appellants' case. The effect of the amendments was to increase the sum sought by approximately $18,000. 76 At the commencement of the hearing on Friday, 30 November, there was discussion about the anticipated report from the experts' conference and as to dates for completing the hearing. No issue was raised at that stage as to difficulties faced by the appellants with respect to the new material relied on by Mr Tippett. 77 When the hearing recommenced on Monday, 3 December, counsel for the appellants noted that he had "some very short cross-examination of Mr Tippett, on his final affidavit": Tcpt, 03/12/07, p 441. There was then a discussion as to whether Mr Tippett should be recalled before the experts gave evidence. Counsel provided an explanation of the points of difference between the experts and the reasons for the differences. The evidence proceeded with Mr Grieve being called and cross-examined by counsel for the appellants. Subject to the qualification that Mr Tippett would need to satisfy the Court as to the factual basis for Mr Grieve's opinions, there seems to have been no further complaint by the appellants as to the trial proceeding on 3 December. Mr Tippett was in fact recalled and cross-examined by counsel for the appellants, who was unavailable on the following day. There was also further cross-examination by counsel for Alvaro Homes. 78 On the morning of Tuesday, December 4, counsel for both defendants were absent and the hearing proceeded with counsel for Burke Bros cross-examining the appellants' expert, Mr Keirnan. The day ended with discussion as to the order of addresses which were to follow. 79 The Court did not sit on Wednesday, 5 December but reconvened on Thursday, 6 December with all counsel present. The hearing commenced with an application by counsel for the appellants for an adjournment "to enable [the appellants] to obtain further evidence regarding how Mr Tippett undertook the job and how he proposed to undertake the job …": Tcpt, 06/12/07, p 579. In the course of discussion, counsel for Burke Bros suggested that the problem might be resolved if he withdrew reliance upon Mr Tippett's affidavit served on 29 November and Mr Grieve's letter about the costs of equipment and plant. On obtaining those instructions, counsel for the appellants returned to his complaint as to the provision of the schedule to the experts at the joint conference: p 584. He then explained: "Well that, in my submission, has polluted the whole expert conclave process. The other difficulty is that there has been some cross-examination about things such as supervision, some cross-examination about supply of witnesses. So, after the matter of what actually - the subjective Burke Bros work supervision has become an issue, evidence of that has got in and has been relied upon by the experts, so we say it's difficult to excise the subject Burke Bros information from the expert reports." 80 Counsel for Burke Bros objected to an adjournment being granted on the basis of an unsubstantiated claim of the possible effect of that material on the experts. The question of actual prejudice arose in part from questions by her Honour of Mr Keirnan on 4 December, when she had inquired whether it was appropriate, on a contract claim, to assess Burke Bros' costs by reference to the equipment that the expert would have deployed, rather than that which was in fact available to Burke Bros. In response to that question, Mr Keirnan had said, "very good point, and we didn't have that information": Tcpt, 04/12/07, p 568. At least with respect to the contract claim, which was by that stage the primary claim relied upon by Burke Bros, there appeared to be a degree of unanimity that the critical question was the equipment and resources available to Burke Bros. 81 The discussion on 6 December extended for some time, in the course of which the trial judge made it clear that she thought the appellants were entitled to the opportunity they sought and rejected the submissions of Burke Bros in resisting the application. The remainder of the debate, which extended over 26 pages of transcript, related to the timing of the various steps to be taken in providing the appellants with an opportunity to examine Burke Bros' original records and then seek a further opinion from their expert, Mr Keirnan, together with some further discussion in relation to costs. 82 The hearing resumed on Monday, 17 December 2007. On that day the appellants sought a further adjournment to allow Mr Keirnan two-three days in order to prepare a further report. The basis of the application was that the documents required to be produced had not been produced in accordance with the specified timetable and, instead of being made available on Friday, 7 December, had been made available on 10, 11 and 12 December and had been followed by a further explanatory affidavit of Mr Tippett, supplied (unsworn) on the evening of 13 December. In the solicitor's affidavit in support of the adjournment, an explanation was given that Mr Keirnan had expected to be able to provide a further report by 14 December but had advised on the evening of 13 December that that would not be possible because: "(a) The documents provided on 11 December 2007, including extensive weekly wage summaries for the period 7 January 2004 to 2 June 2004 involved a further detailed analysis; (b) The documents provided on 12 December 2007, including tax invoices from numerous different companies involved a further detailed analysis; and (c) The unsworn affidavit of Richard Tippett received at 5.45pm on 13 December 2007 contained detailed information which required further detailed analysis, for example, the precise machinery purportedly used on site." 83 The transcript of Monday, 17 December, shows that her Honour was not satisfied with the hearsay evidence from the solicitor, reporting a telephone conversation with Mr Keirnan on the previous Thursday evening, as justifying the absence of the report on the following Monday. Her Honour was criticised on the appeal for failing to take account of the fact that two of the three preceding days had been a weekend. However, there was no clear indication in any of the evidence that the exercise proposed by the appellants was likely to have a practical bearing on the outcome of the trial, nor that an extensive analysis of wage records was justified, given the amount in dispute. When her Honour suggested that the appellants might have until the following morning to produce the report, which would have allowed three working days from the last day on which documents were produced, counsel conceded that the report might not be ready even on that timetable, although it appears to be that which he had proposed. 84 A careful reading of the transcript of these days in relation to the adjournment applications demonstrates no refusal of her Honour to give careful consideration to the claims and requests made by the appellants, nor a refusal to consider the prejudice upon which they sought to rely. Considerable time was devoted to argument of the applications before her Honour made rulings on what was a matter of practice and procedure, towards the end of a 10 day trial and thus at a time when she was fully conversant with the factual issues in dispute and the matters about which the experts might usefully give an opinion. Absent other relevant considerations, it is not a matter which would normally attract a grant of leave to appeal, having regard to the amount in dispute. 85 There is a further consideration. By the time the application was made to this Court, by summons filed on 10 April 2008, the appellants had had four months in which to determine whether there was indeed a basis for demonstrating that the evidence before her Honour proceeded upon some misapprehension or was incomplete in a material respect, having a significant financial impact, adverse to the appellants. No such evidence was produced to this Court. 86 Finally, although her Honour gave no separate reasons for her determination of the adjournment applications, she did address them in her judgment, noting that the matter was adjourned on 6 December and that there was a further adjournment application on 14 December. Her Honour stated at p 39: "More than the requisite time had passed when the matter resumed on Monday, 17th December 2007, although no expert report had been served. When [the appellants] were given until Tuesday, 18 December 2007 (an extension of 4 days as compared with the 2-3 days nominated in the affidavit) in which to serve the expert report, counsel advised that 'I am instructed we can't do it by the time given.' There is no explanation why that is so, which is odd in the light of the solicitor's affidavit. Putting aside the issue as to when material was made available to the [appellants'] expert, which is in issue, there was no reason to grant yet another adjournment after 9 days of hearings in respect of unexplained delays in the completion of a report said to be likely to address a claim valued by the plaintiff at $46,307.09 plus GST (and interest)." 87 Her Honour also took into account, properly, the mandate of s 60 of the Civil Procedure Act 2005 (NSW) that the court should adopt procedures "with the object of resolving the issues between the parties in such a way that the costs to the parties is proportionate to the importance and complexity of the subject matter in dispute". The appellants say that it was "erroneous" for her Honour to rely on s 60, "which is subject to the dictates of justice". With respect, it was a factor properly taken into account in balancing the various interests which attended the determination of the adjournment applications. The ground of appeal is without merit. Reasons for rejecting the appellants' expert 88 Although there was a complaint in the notice of appeal with respect to the adequacy of her Honour's reasons for preferring the expert evidence of Mr Grieve, it was not pressed at the hearing as a separate ground, but "only in the context in the context of a complaint about the way in which the trial judge dealt with our application for adjournment": Tcpt (NSWCA), 24/09/08, p 5(10). For reasons already given, that application must fail and hence it is unnecessary to consider further what were identified as grounds 4 and 5 in the draft notice of appeal. Costs orders 89 Having been unsuccessful in challenging the substantive orders made by the trial judge, the appellants must bear the costs of the trial. The remaining issue, as pressed at the hearing of the appeal, was a challenge to so much of the costs orders as required payment of costs on an indemnity basis. 90 The costs orders were complex. In order to understand them, it is necessary to identify the particular elements of the proceedings and the orders made in respect of each. 91 The initial claim was made by Burke Bros against Alvaro Homes. Mr and Mrs Chaina were joined as second and third defendants in response to an assertion by Alvaro Homes that it contracted with Burke Bros as agent for Mr and Mrs Chaina. That assertion failed. Mr and Mrs Chaina cross-claimed ("the first cross-claim") against Burke Bros and Alvaro Homes on the basis that the work was defective and needed rectification. That claim failed and was dismissed. There was no separate order with respect to the costs of the first cross-claim. 92 Mr and Mrs Chaina also brought a second cross-claim against Alvaro Homes and Burke Bros alleging defective work. (Why a second and more substantial cross-claim was lodged by Mr and Mrs Chaina is unclear, but may have related to the fact that the first cross-claim was originally filed in the Local Court proceedings, before they were transferred to the District Court.) The second cross-claim was dismissed. 93 The third cross-claim was brought by Alvaro Homes against Mr and Mrs Chaina. It sought indemnity or contribution from Mr and Mrs Chaina in the event that Alvaro Homes were to be found liable to Burke Bros. Alvaro Homes was successful against Mr and Mrs Chaina and obtained a judgment in the amount owing by it to Burke Bros plus its 15% margin. 94 It would have been possible for her Honour to award costs of the proceedings generally, or by reference to the claim and cross-claims individually. What was not appropriate, but was done, was a combination of the two approaches. The matter was further complicated because the original orders were made on 8 February 2002, varied on 12 February 2002 and then again on 15 February 2002. The result was unnecessarily complex and confusing. Furthermore, the general orders were qualified by a separate order made with respect to the costs of the adjournment on 6 December 2007 and a further separate order with respect to the costs of the variation on 15 February 2008. 95 One consequence of the mixed approach was that in the order with respect to Burke Bros' claim, Alvaro Homes was ordered to pay Mr and Mrs Chaina's costs of that claim. However, in a separate order relating to the proceedings generally, Mr and Mrs Chaina were ordered to pay Alvaro Homes' costs, including costs payable to the plaintiff and to Mr and Mrs Chaina. In the course of the hearing on 12 February, her Honour described this as "a slight [logical] absurdity": it was, and the order should not have been left in that form. Nevertheless, it was accepted that Mr and Mrs Chaina were, subject to the two specific qualifications noted above, to pay the costs of Burke Bros and Alvaro Homes of the proceedings generally. The appellants sought to dispute so much of the costs orders as required that they pay:

(a) Burke Bros' costs of their cross-claim on an indemnity basis, and

(b) the costs of Alvaro Homes' generally on an indemnity basis. 96 Putting to one side the merits of the challenge, Burke Bros raised an issue of the standing of the appellants to challenge the costs order made on the plaintiff's claim, as between Alvaro Homes and the plaintiff. It sought to do so on the basis of a decision of this Court in Berkeley Challenge Pty Ltd v Potbury [1997] NSWCA 44. That judgment held that, in accordance with the then current provisions in the District Court Rules, a third party, subject to the direction of the court, did not become party to the issues between the plaintiff and the defendant. 97 The reason for reliance on this decision is obscure. In Sandtara Pty Ltd v Abigroup Ltd (1997) 42 NSWLR 5, this Court (constituted by Gleeson CJ, Meagher and Handley JJA) held that, pursuant to s 78 of the Supreme Court Act, a third party against whom a defendant sought relief became a party to the proceedings between the plaintiff and defendant, so that the third party was bound by the decision between the plaintiff and the defendant. The same approach was adopted in relation to the District Court Rules by this Court in Insurance Exchange of Australasia v Dooley [2000] NSWCA 159; 50 NSWLR 222 (Handley, Giles and Fitzgerald JJA). 98 The submissions for Burke Bros, somewhat coyly and without reference to either the present equivalent to s 78 of the Supreme Court Act (being s 22 of the Civil Procedure Act), or Sandtara, challenged Dooley on the basis that it misapplied the reasoning in Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd [1974] HCA 32; 132 CLR 1. Burke Bros argued that absent a direction that the third party be bound, it had no standing to challenge an order as between plaintiff and defendant, even if it gave rise to a liability in the third party. Whatever the precise basis on which Helicopter Sales proceeded, there was no order directing the extent to which the third party should be bound by the proceedings between the plaintiff and the defendant, although the third party had been given leave to defend the plaintiff's action. There was no challenge to the right of the third party to take the appeal and doubts expressed by Stephen J as to its standing were clearly obiter and were not shared by Barwick CJ or Mason J. There is nothing by way of a definitive conclusion, relevant to the terms of s 22 of the Civil Procedure Act, or inconsistent with the approach of this Court in Sandtara and Dooley, which can be derived from Helicopter Sales. 99 The standing argument faced a further difficulty in that Mr and Mrs Chaina were not joined to the plaintiff's claim by Alvaro Homes, but by the plaintiff, Burke Bros. Accordingly, it was not necessary to refer to s 22 of the Civil Procedure Act to conclude that Mr and Mrs Chaina were bound by the findings and orders made on the plaintiff's claim, even to the extent that those orders were as between Burke Bros and Alvaro Homes. The challenge to the competency of that aspect of the appeal is without substance and should be dismissed. 100 There remains the question as to whether costs should have been ordered in various respects on an indemnity basis. 101 The order with respect to payment by Alvaro Homes of the costs of Burke Bros of the latter's claim, required an assessment on the indemnity basis from 2 November 2007. That was the date on which Burke Bros made an offer to settle the matter for the sum of $50,000 plus costs. Although her Honour did not undertake the calculation in her reasons, it would appear that she correctly assessed the amount of the payment held to be due under the contract, together with interest to the date of the offer, as being significantly in excess of the offer. That being so, the discretion available to her Honour to award costs on an indemnity basis thereafter has not been shown to have miscarried. (Indeed, the challenge was not raised by the appellants until an amended draft notice of appeal was produced a matter of days before the hearing of the appeal.) 102 The second respect in which the payment of costs on an indemnity basis was challenged was the general requirement that the appellants pay the costs of both Alvaro Homes and Burke Bros on an indemnity basis from the commencement of the proceedings. That order appears to have been made on the basis that the position adopted by the appellants was at all stages unreasonable and unsupported by evidence. The unreasonableness of their position derived in part from the fact that their architect, Mr Suttor, had directed their attention to the fact that Burke Bros was proceeding to build a five metre wide driveway for a sum originally quoted with respect to a three metre wide driveway, in circumstances where that fact had not yet been appreciated by Burke Bros or Alvaro Homes. Further, it appeared to have been tolerably clear to Mr Chaina at that time that Burke Bros was building the driveway in accordance with the plans prepared by the surveyor. As appeared in the course of his evidence, his complaint was that the plans had not been altered and did not reflect his wishes. At least with respect to Burke Bros that provided no basis for resisting its claim or maintaining a cross-claim for defective work. The only substantial basis on which the appellants could succeed was if they had been able to persuade the Court that Alvaro Homes was negligent in failing to obtain further plans placing the road in a different position. 103 During the course of the principal judgment, the trial judge spent some time discussing both the pleadings and the evidence in respect of the location of the road. For example, she noted that the cross-claim against Alvaro Homes identified a contract in express terms requiring a driveway to be built in accordance with plans prepared by the surveyors and Mr Suttor. The principal contention on the cross-claim was, in accordance with a later amendment to the cross-claim, that Alvaro Homes "would not permit the road to be constructed at a location other than the location at which the [appellants] had instructed the road to be located": second cross-claim, par 12A. Mr Chaina said in evidence that he gave oral instructions that the road be relocated. As a reading of his evidence demonstrates, there were aspects to it which were quite unsatisfactory and which were identified by her Honour in some detail in her judgment at pp 51-53 and 55-60. 104 Much of the trial judge's assessment of Mr Chaina's evidence has been set out above, in particular at paragraph [45] dealing with his general approach to the proceedings. Just prior to that passage, her Honour had stated (judgment, p 8): "In various respects, Mr Chaina's evidence was, at best curious, such as when he maintained that the road was 'in the wrong place', in the circumstances [where] the surveyor and architect he retained consistently said the contrary. Mr Chaina made no relevant contemporaneous complaint about the plans, or working to the plans. He brings no claim in respect of the drawings, the surveyor, or the architect; although he complained about them in the course of his evidence - after each had testified in a way that contradicted Mr Chaina's claims." 105 In considering the application for indemnity costs, her Honour referred to the judgment of the Full Court of the Federal Court in Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; 46 FCR 225 and the decision of this Court in Chen v Karandonis [2002] NSWCA 412, at [110] where the relevant principles were summarised by Beazley JA (Heydon and Hodgson JJA agreeing). 106 The modern approach to the question of awarding indemnity costs is often sourced to the judgment of Holland J in Degmam Pty Ltd (In liq) v Wright (No. 2) [1983] 2 NSWLR 354. In cases where the winning party has acted extravagantly, thus running up unnecessary costs, it may be inappropriate to require the losing party to pay all of the winner's costs. However, the question of indemnity costs will usually arise in circumstances where it is the losing party which has behaved inappropriately. Degmam itself was a case in which the unsuccessful defendant made factual allegations which were "false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability … from herself": at 358. His Honour continued: "As well as that, she so conducted herself in the proceedings, by multiplying allegation upon allegation, and by prevaricating in the witness box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues." 107 These principles were applied in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; 81 ALR 397 at 400-401, by Woodward J. His Honour referred to the case where an action had been commenced or continued in circumstances where "the applicant, properly advised, should have known that he had no chance of success": at 401. His Honour explained: "In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law." 108 In later cases it has been emphasised that the circumstances identified in Degmam and Fountain are not to be treated as exhaustive of the cases in which indemnity costs may be awarded: see, eg, J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No. 2) [1993] FCA 42; 46 IR 301 at 303 (French J). It was sufficient, his Honour said, to enliven the discretion to award such costs that "for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case". An indemnity costs order will be warranted where proceedings were maintained by a party having "no reasonable prospect of success": see, eg, Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 (Powell J); Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242 at 273 (Mahoney JA). 109 The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257(S) (Pullin and Buss JJA, and Newnes AJA) held that an indemnity costs order must be justified by "some special or unusual feature of the particular case": at [5]. Nevertheless, in declining to make such an order, the Court merely held that the respondent could not be accused of "having some ulterior motive, or wilfully disregarding the facts or the law": at [7]. 110 In Colgate-Palmolive, Sheppard J sought to elucidate the principles to be derived from the earlier cases: at pp 232-233. 111 Nevertheless, more recent case-law generally shows a tendency to grant indemnity costs orders more readily than was the case in the past. That may be seen to be an element of a broader policy directed to limiting the litigation of cases where there are no reasonable prospects of success: see, eg, Legal Profession Act 2004 (NSW), Part 3.2, Div 10. Such a policy is also reflected in the presumption in favour of an order of indemnity costs where an offer of compromise in accordance with court rules has been made by one party but not accepted by the other and where the offeror has bettered the offer in the litigation. Although the court may otherwise order, the fact that the offeree may be at substantial risk as to an adverse costs order, to be assessed on an indemnity basis, if the offer is bettered, places a significant financial incentive favouring careful consideration of such offers and careful assessment of the benefits of settlement. 112 As appears from the discussion in Commonwealth of Australia v Gretton [2008] NSWCA 117 (Beazley JA, Mason P agreeing) at [48]ff, the test of unreasonableness, applied with respect to the consequences of refusing a Calderbank offer are likely to operate also with respect to other aspects of a party's conduct of litigation: see also Gretton at [117] (Hodgson JA), referring to Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 (Mason P, Clarke AJA agreeing). 113 While the general rule remains that costs should be assessed on a party and party basis, it is important that the standard to be applied in awarding indemnity costs not be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis, absent some blameworthy conduct on its part. A test of unreasonableness should not be upheld on other than clear grounds. Nevertheless, the evaluative judgment thus engaged was satisfied by the findings of fact made by the trial judge and not directly challenged on appeal, except on the basis of other grounds referred to above. In those circumstances, the discretionary power to award costs on an indemnity basis was engaged and it was not demonstrated on House v The King principles that the discretion had miscarried. 114 In substance, her Honour found that the appellants, acting particularly through Mr Chaina, first defended the proceedings brought by Burke Bros and pursued their own cross-claim with little prospect of success, in circumstances where they should reasonably have been aware of the absence of objective support for their case. A contract claim originally brought in the Local Court, expanded to fill 10 days of hearing before the District Court. Her Honour was entitled to take the view that, to the extent there were matters genuinely and reasonably in dispute, the proceedings had expanded well beyond the limits so identified. Her Honour was also entitled to take the view that the appellants were responsible for that outcome. In those circumstances, it did not constitute and error in the exercise of the discretion to award costs to require that the costs which had to be paid by the appellants were to be assessed on the indemnity basis. The grounds of appeal which were ultimately pursued with respect to the costs orders should be dismissed. Conclusion 115 The result is that the appellants have been entirely unsuccessful in their challenge to the judgment and orders made in the District Court. There were aspects of the judgment below, including her Honour's comments with respect to the demeanour of Mr Chaina when not giving evidence, but in the courtroom, which warranted a grant of leave to appeal. No purpose is served in considering whether, had the leave application been considered separately, it would have been limited to particular grounds. Accordingly there should be a grant of leave to appeal, but the appeal should be dismissed. 116 With respect to the costs of the appeal, it is apparent that the appellants must pay the costs of both respondents. Neither the offer of compromise (unless renewed after the judgment in the District Court) or the other factors taken into account by the trial judge, would warrant an order that the costs of the appeal be assessed otherwise than on the ordinary basis. Nor would the conduct of the appeal warrant any other order. There may, of course, have been a further offer of compromise in the course of the appeal proceedings, of which the Court is unaware. If there were such an offer, it should be assumed that the parties will be able to reach agreement as to its effect, the orders of this Court not having varied the orders made below in any respect. 117 I would propose the following orders:

(1) Grant the applicants on the summons leave to appeal with respect to the judgments and orders made in the District Court on 8 February, 12 February and 15 February 2008.

(2) Order the applicants to file the amended draft notice of appeal of 19 September 2008 within seven days.

(4) Order the appellants to pay the respondents' costs of the proceedings in this Court.

It is not anticipated that there will be any need to vary the orders as indicated above. The parties are reminded that if such a need does arise, application must be made by way of notice of motion filed within 14 days of the entry of the orders (which should be taken to be the day on which judgment is delivered). 118 YOUNG CJ in Eq: I agree with Basten JA. **********

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