Cleve Smith Excavations Pty Ltd v Hodgson

Cleve Smith Excavations Pty Ltd v Hodgson [2009] NSWDC 232 CASES CITED: Smith v NSW Bar Association [1992] HCA 36; (1992) 176 CLR 256 Texas Co (Australasia) Ltd v Federal Commissioner of Taxation [1940] HCA 9; (1940) 63 CLR 382

PARTIES: Cleve Smith Excavations Pty Ltd (Plaintiff) Martin Robert Hodgson (Defendant)

COUNSEL: Mr J Lazarus (Plaintiff) Mr P Menadue (Defendant)

SOLICITORS: Conditsis & Associates (Plaintiff) Brennan Tipple Partners (Defendant)

On 15 October 2010, primary findings and reasons for judgment were delivered in these proceedings. A verdict was entered in favour of the plaintiff, Cleve Smith Excavations Pty Ltd, with damages assessed in the sum of $108,148.76. On the defendant's cross claim against the plaintiff, a verdict was entered in favour of the defendant/cross claimant, Mr Hodgson, with damages assessed in the sum of $126,743. These amounts excluded pre-judgment interest : Cleve Smith Excavations Pty Ltd v Hodgson [2009] NSWDC 232.

The parties were required to calculate the amount of the final judgment to reflect the primary findings, including the amount for interest. These supplementary reasons arise from the parties being given an opportunity to prepare submissions on pre-judgment interest to reflect the primary findings, as well as questions concerning set-off and costs.

Following the delivery of the primary reasons, the plaintiff filed a notice of motion seeking to re-open the judgment in order to deal with a matter upon which final submissions had previously been made at the conclusion of the hearing. The plaintiff submitted that there had been no findings made in respect of those submissions. The defendant contested that view, and made reference to a portion of the primary reasons to support that contested view.

In the paragraphs that follow, these reasons deal with a minor slip rule amendment to the primary reasons, the identification of the agreed final amount for judgment in the proceedings after calculation of interest and set-off, the plaintiff's application to re-open the proceedings, the plaintiff's arguments on the manner in which costs ought to be payable, and an application by the defendant for indemnity costs.

The first issue requiring attention is a slip rule amendment to the primary reasons concerning the defendant's claim for economic loss. In this regard, at paragraphs [96], [121], [143] and [155] of the primary reasons, reference was made to an amount of $103,743. There is no controversy between the parties over the need to amend that amount to an agreed calculation in the sum of $102,041.

Plaintiff's verdict, including pre-judgment interest

Consequent upon the finding that the plaintiff was entitled to compound interest on unpaid rent, plus GST, the parties have agreed that the total amount for that head of claim is the sum of $120,256.42. The parties have also agreed that a further amount $8,576.12 including pre-judgment interest and GST should be added in respect of the defendant's liability to the plaintiff for legal fees for the expenses concerning the lease they entered into. When these sums are added together, the defendant's liability to the plaintiff is revealed in a revised verdict for the plaintiff in the sum of $129,012.54.

Defendant/cross claimant' verdict including pre-judgment interest

After amending the assessed amount of the defendant's entitlement to economic loss from $103,743 to the agreed calculated sum of $102,041, and after adding the agreed calculation for pre-judgment interest in the sum of $64,762.49, this revealed a revised amount of $166,762.49. It was also agreed that to this sum, a further $35,693.42 including pre-judgment interest and GST should be added in respect of the defendant's claim against the cross defendant for legal costs. When these sums are added together, the plaintiff/cross defendant's liability to the defendant/cross claimant on the cross claim is revealed in a revised verdict for the defendant/cross claimant in the sum of $202,496.91.

The difference between the claims of the respective parties is the amount of $73,484.37, the balance being in favour of the defendant/cross claimant.

There was contention between the parties as to the appropriateness of a set-off between the respective verdicts.

The resolution of that issue is dependent upon the outcome of the notice of motion filed by the plaintiff seeking changes to the judgment by way of further findings concerning the defendant's entitlement to economic damages on the cross claim. The outcome of that issue affects the balance of the monies owing between the parties for set-off. That issue is addressed in the paragraphs that follow. If, on a resolution of the motion, the amount of the verdict in favour of the plaintiff against the defendant remains for a lesser amount than the amount of the verdict for the defendant/cross claimant on the cross claim, then a set-off of these two amounts becomes appropriate and necessary.

The plaintiff has made application to re-open the judgment in respect of the defendant's cross claim for damages for breach of the covenant of quiet enjoyment, as provided for in the lease between the parties. 12. The argued basis of that application was the submission that the principal judgment did not include a consideration of the plaintiff's argument that was made at the hearing, to the effect that there can be no breach of the covenant of quiet enjoyment if the proposed use of the premises was unlawful. In this regard, the plaintiff argued that the proposed use of the premises by the defendant, being the carrying out of mining in the banned areas, was unlawful, as to do so would have been in breach of the 1979 development consent that affected the property, as was outlined in paragraphs [138]-[150] of the plaintiff's written submissions.

It was the plaintiff's submission that the defendant could not rely upon his own wrongdoing to enforce a right arising from his own breach of contract or duty. The plaintiff claimed that a finding should have been made, and if made, it would defeat the claim for damages for breach of the covenant of quiet enjoyment. The plaintiff argued that in such event, the defendant's cross claim ought to fail. In this regard, it was argued that the defendant had conceded in his evidence, that if he had mined in the banned areas without rehabilitating half a hectare of the site at any one time, this would be a breach of the development consent, and therefore it would have been unlawful because s 76A(1)(b) of the Environmental Protection Act 1979 obliged him to carry out mining in accordance with the 1979 consent. The argument proceeded on the basis that a breach of the condition of the consent is deemed to be a breach of the Environmental Protection Act 1979 : s 122(b)(ii).

The defendant/cross claimant resisted the plaintiff's application to re-open, arguing that the primary judgment dealt with the identified point raised by the plaintiff's submissions, and in this regard, pointed to the finding at paragraph [114 ] of the primary judgment, where I recorded the finding that it could not be reasonably said that the defendant's operations in the quarry were contrary to any development consent because, by mining in the banned areas, he had not broken any new ground within the existing development and therefore did not have to submit a mining plan.

There is power to recall a judgment before final orders are entered : Uniform Civil Procedure Rules 2005, r 36.16(1); Texas Co (Australasia) Ltd v Federal Commissioner of Taxation [1940] HCA 9; (1940) 63 CLR 382 at p 457; Smith v NSW Bar Association [1992] HCA 36; (1992) 176 CLR 256 at pp 265 - 267. However here, the effect of what the plaintiff seeks in this case, is for me to determine a notional appeal on my own judgment. I do not consider that suggested course to be appropriate in this instance as a relevant finding has been made on the issue in dispute and where the finding paragraph [114] of the primary judgment, involved a construction of the lease.

I do not consider that any further consideration, or a re-consideration, of the point is required, because of the findings I recorded in the primary judgment at paragraph [114]. What the plaintiff now seeks, in effect, is more detailed reasons for the rejection of argument referred to, at paragraph [114] of the primary judgment, on a construction point. In my view, the circumstances did not require more expansive reasoning other than to state the conclusion at which I had arrived, based upon the underlying facts as found.

In this regard I found that the topsoil had already been removed from the already mined quarry, including in the banned areas, by the time the defendant/cross claimant had taken on the lease. I found that it was therefore not possible for the defendant/cross claimant to rehabilitate the land in the terms required by the consent. It was these circumstances that compelled the finding that the consent to mine in the banned areas was unreasonably withheld by the plaintiff, and thus constituted a breach of the covenant of quiet enjoyment giving rise to the cross claim. The finding that the consent to mine in those areas was unreasonably withheld was compelled by the terms of Mr Smith's evidence of his adamant and unreasoned refusal of consent, and which made no reference to any term of the planning consent, which was in any event incapable of performance, because of the prior removal of topsoil from the site.

In these circumstances I do not consider that the interests of justice required that the judgment be re-opened. I therefore dismiss the application to re-open the judgment.

Consequent upon the dismissal of the plaintiff's motion to re-open, after set-off of the balance of account between the respective claims and counter claims, I find that there should be a judgment for the defendant/cross claimant on his cross claim against the plaintiff in the amount of $73,484.37, including pre-judgment interest.

The plaintiff submitted that even in the event that the application to re-open was unsuccessful, as I have determined, the ultimate costs order in the proceedings should nevertheless reflect the fact that the defendant's cross claim succeeded in an amount which was substantially less than the terms in which it was mounted, in which aspects of the cross claim failed, such as the claim for allegedly defective electrical wiring, whereas the plaintiff's claim for rent was, on the evidence, bound to succeed.

The plaintiff contended that the appropriate order for costs should be that the plaintiff pay 60 per cent of the defendant's costs of the proceedings, including the cross claim, and the defendant pay 40 per cent of the plaintiff's costs of the proceedings including the cross claim to roughly reflect the degrees of success of the respective claims.

I do not consider the course contended by the plaintiff to be appropriate in this case. This is because not only did significant portions of the plaintiff's claim fail to succeed as against the defendant, namely the claims for maintenance and repair of plant and equipment, and the rehabilitation of land claim, but also because I consider it to be fairer to determine the question of costs on the outcome of the final adjusted result of the set-off, rather than to seek to dissect the various components, particularly since significant time was spent at the trial on the issue of credibility of testimony.

The defendant cross/claimant has made an application for his costs to be paid on an indemnity basis because, on 24 May 2007, he and Mr Betts, who at that time was a co-defendant in the proceedings, through their solicitor, made an offer to the plaintiff to settle the proceedings in the sum of $60,000, the effect of which was that each party was to bear their own costs.

That offer was made in the context of an application made by the plaintiff by way of notice of motion seeking summary judgment. The offer was expressed in terms that it would remain open for acceptance for 7 days, until 1 June 2007.

The offer in question recited the respective claims and counter claims that were then on foot between the parties. In my view, there is no doubt that at the time it was made by the defendants, the offer was a genuine offer aimed at compromising the proceedings by way of significant discount. The offer foreshadowed that the litigation was likely to consume the parties' significant resources if fully litigated, as in fact turned out to be the case.

On 1 June 2007 the solicitor for the plaintiff wrote to the solicitor for the defendant to acknowledge the letter of offer, noting that instructions were being obtained. The offer was not accepted and it subsequently lapsed. To make it abundantly clear, on 6 June 2007 the solicitor for the plaintiff wrote to the solicitor for the defendant conveying the plaintiff's instructions to reject the offer that had, by its terms, already lapsed.

On behalf of the defendant, Mr Menadue has submitted that the plaintiff's rejection of the offer was unreasonable, not only because of its timing, but also because: (a) Although the plaintiff was entitled to succeed on its claim for rent and legal costs totalling approximately $90,000, it was unsuccessful on its other claims;

(b) The defendant had a set-off claim for approximately $30,000;

(c) The defendant foreshadowed a claim for economic loss which succeeded for significant quantum, but which was put to one side for the purpose of the offer;

(d) If after set-off, the plaintiff's claim succeeded, it would have received no more than the $60,000 that was offered by the letter dated 24 May 2007.

(e) The defendant secured a more advantageous result from the conclusion of the litigation, thus enabling an argument for the award of indemnity costs from 25 May 2007.

In making those submissions, the defendant accepts that the terms of the offer did not provide for the payment of the plaintiff's costs, however the defendant submitted that was not fatal to the application for his costs to be paid on an indemnity basis.

Whilst the defendant's costs argument hold some attraction when viewed against the ultimate and overall result of the proceedings, care must be taken to avoid a retrospective analysis informed by hindsight considerations. In this regard, at the time the offer was made and was expressed to remain open, the respective cases were not fully formed, particularised or supported by the affidavit evidence and documentation the parties relied upon at the trial. This was particularly so with regard to the cross claim for economic loss, which succeeded at the trial.

Whilst that factor of itself does not necessarily pose a barrier for the making of an indemnity costs order, because the policy behind the power to award indemnity costs encourages parties to act reasonably to try and achieve early settlement, I consider that the fact the offer was expressed to be open for only 7 days, indicates that the making of an indemnity costs order is inappropriate in this case.

Whilst the monetary terms of the offer undoubtedly represented a genuine compromise of the litigation, I consider that the 7 day time constraint for acceptance imposed by the terms of the offer were tactical and not practically conducive to creating a reasonable opportunity to settle. In this regard, I consider that it was reasonable for the plaintiff not to accept the offer during the time it remained open. I consider this to be so because the offer only provided 7 days in which to allow Mr Smith, who was then working on a works site as an excavator, to find and take the time away from his work, at what was very short notice, and to find some mutually convenient time within that period to meet with his legal representative or representatives to discuss the relevant issues, evidence and ramifications of the offer, including a re-evaluation of the respective cases, which at that time, remained incompletely defined.

If the defendant's offer had been expressed in terms that provided for acceptance within 28 days, my view of the reasonableness of its non-acceptance by the plaintiff may have been different. In the circumstances, I consider that it was not unreasonable for the plaintiff to allow the defendant's offer dated 24 May 2007 to lapse. I therefore decline to make an order for the payment of the defendant/cross claimant's costs other than on the ordinary basis.

After set-off, the defendant cross claimant is entitled to a judgment on his cross claim in the amount of $73,484.37 including pre-judgment interest, plus costs on the ordinary basis.

I make the following orders:- (a) After set-off of the respective claims, judgment for the defendant/cross claimant against the plaintiff/cross defendant in the sum of $73,484.37;

(b) The plaintiff is to pay the defendant/cross claimant's costs of the primary claim, and of the cross claim, on the ordinary basis;

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