Conditionex Design & Construct Pty Ltd trading as Conditionex Mechanical Services v Nationwide Builders Pty Ltd

District Court of NSW|2022-12-01

Judgment

In these proceedings judgment was delivered on 18 November 2022. That decision confirmed the earlier entry of judgment for the plaintiff, Conditionex Design & Construct Pty Ltd trading as Conditionex Mechanical Services, against the defendant, Nationwide Builders Pty Ltd, on 26 May 2022, in the sum of $119,224.78. At that time consequential orders were made for dismissal of the defendant's cross-claim against the plaintiff: Conditionex Design & Construct Pty Ltd trading as Conditionex Mechanical Services v Nationwide Builders Pty Ltd (No 3) [2022] NSWDC 565, at [143].
Following those orders, the plaintiff made an application for indemnity costs. The parties agreed to file and serve written submissions as to costs so that the costs consequences of the principal findings could be determined on the papers. The costs submissions, including submissions in reply, were completed on 1 December 2022. These reasons assume familiarity with the earlier decisions published in the proceedings as identified in the preceding paragraph.
In support of its application for costs the plaintiff relied upon two affidavits from its solicitor, Ms Claudette Gazi, respectively sworn on 25 May 2022 and 30 September 2022. Those affidavits annexed relevant costs correspondence and offers, summarised as follows: 1. On 20 May 2021, the plaintiff's solicitor sent an offer of settlement to the defendant's solicitor inviting a settlement that involved the defendant paying the plaintiff $80,000 within 7 days with a deed of settlement and release that would have resulted in the proceedings being dismissed with no order as to costs: Calderbank v Calderbank [1975] 3 AER 333; 2. On 26 April 2022, the plaintiff's solicitor served the defendant's solicitor with a 28 day offer of compromise that invited the defendant to settle the plaintiff's claim for $95,000 with a dismissal of the defendant's cross-claim. That offer was in compliance with Uniform Civil Procedure Rules 2005 (NSW), r 20.26; 3. On 20 May 2022, following the commencement of the hearing set for 18 May 2022, by a Calderbank letter, the plaintiff's solicitor renewed the offer which had expired on 9 May 2022. That offer specifically stated that the plaintiff would settle its claim on payment of $95,000 within 28 days, with each party to bear its own costs, and for the defendant's cross-claim to be dismissed; 4. On 7 June 2022, the plaintiff's solicitor wrote to the defendant's solicitor in respect of the defendant's cross-claim, pointing out evidentiary deficiencies in respect of a component of the cross-claim involving $120,000. That letter pointed out that costs had been "unfairly, improperly, or unnecessarily incurred", referring to the decision in Windsurfing International Inc v Petit (1987) AIPC 90-441, at 37,861-37,862. That letter went on to identify the plaintiff's offer of a settlement by receiving payment of its claim of $119,224.78 within 28 days, and for payment of the plaintiff's costs in the sum of $30,000, with dismissal of the cross-claim, with the proviso that each party would bear its own costs of the cross-claim; 5. On 12 August 2022, in light of an impending reference of the dispute on the cross-claim to a Referee, the defendant's solicitor wrote to the plaintiff's solicitor noting that there would be considerable costs involved in obtaining the Referee's report. In that context, the defendant's solicitor invited a settlement on terms that the plaintiff pay the defendant $75,000 in respect of the defendant's cross-claim, with such sum to be offset against the judgment of $119,224.78 already entered in favour of the plaintiff, along with a dismissal of the cross-claim, with each party to bear their own costs of the cross-claim. That offer was expressed to be available for acceptance until 5:00pm on 19 August 2022: Calderbank v Calderbank [1975] 3 AER 333; 6. On 12 August 2022, by email sent at 10:45am, the defendant's solicitor wrote to the plaintiff's solicitor to vary the terms of the defendant's offer as outlined at (5) above. The variation reduced the amount to be paid by the plaintiff from $75,000 to $33,500: Calderbank v Calderbank [1975] 3 AER 333.

Submissions of the parties

The plaintiff/cross-defendant's primary costs submission was that the defendant should pay the plaintiff's costs of the principal claim and on the cross-claim on the ordinary basis until 27 April 2022, and on the indemnity basis thereafter. The plaintiff also argued that the cost of the reference to the Referee and the Referee's report should be shared equally between the parties.
The defendant's submissions on costs were to the effect that its costs liability to the plaintiff on the plaintiff's claim and on its liability to the plaintiff/cross-defendant on the cross-claim, should be limited to costs on the ordinary basis. That submission was founded upon the proposition that the effect of the offers identified at paragraph [3] above did not constitute genuine compromises and essentially required the defendant/cross-claimant to capitulate its position in the litigation within the context of an unreasonable timetable where the evidence was not complete, and the parameters of the dispute had not yet been defined.

Guiding principles

Section 98(1) of the Civil Procedure Act 2005 (NSW) confers on the Court a wide discretion when making orders for costs. Whilst historically, orders for costs, including indemnity costs, frequently followed the event (following Oshlack v Richmond River Council [2000] NSWCA 323; Jones v Bradley (No 2) [2003] NSWCA 258, at [8]-[9]), the accepted current approach is that an indemnity costs order is not an automatic consequence of a refusal of a Calderbank offer or an offer of compromise. Instead, that question must be determined according to the justice of the case: Gray v Richards (No 2) [2014] HCA 37 at [2]; Northern Territory v Sangare [2019] HCA 25 at [25]; s 58(2) of the Civil Procedure Act 2005. Litigation delinquency of a party is a relevant consideration to be taken into account: s 58(2)(iv) of the Civil Procedure Act 2005.
It is axiomatic that the party seeking a special order for costs must discharge the burden of showing that the opposing side had acted unreasonably in not accepting a relevant Calderbank offer or a validly expressed offer of compromise: Gretton v Commonwealth of Australia [2007] NSWSC 149, at [16].

Consideration and determination

It is convenient to analyse the implications of each of the 6 offers referred to at paragraph [3] above, to discern whether any of them are capable of forming a proper basis for making the respective costs orders sought by the parties.

21 May 2021 offer

In my view, the plaintiff's 20 May 2021 Calderbank offer, whilst reasonable in terms of the amount of the proposed compromised settlement position ($80,000 in the context of a claim for $119,224.78), was unreasonably peremptory in setting a 7-day time for acceptance in such a complex case involving a lot of detail. I therefore consider that offer does not provide a reasonable basis upon which to make an indemnity costs order.

26 April 2022 offer

The plaintiff's 26 April 2022 offer of comprise (which offered settlement of the plaintiff's claim in the sum of $95,000 and dismissal of the defendant's cross-claim), was in my view made at a relatively advanced stage of the proceedings. This offer provided the parties with a timely and reasonable opportunity to consider and take stock of the merits or otherwise of their respective cases for the purpose of considering settlement.
Notably, that offer in effect discounted the plaintiff's claim against the defendant by approximately 20 per cent. As such, in my view, it was a reasonable offer and it did not amount to an invitation to the defendant to capitulate in the face of the plaintiff's claim.
The invitation to the defendant to abandon its cross-claim, whilst on one view might be capable of being read as an invitation to capitulate, must be viewed in the context that, at the time, the defendant had not filed or served a Scott Schedule that sufficiently identified the detail or the substance of its dispute involving the cross-claim. Also, at that point, the defendant/cross-claimant had not served sufficient evidence that identified rational and persuasive arguments in favour of an acceptance of substantive aspects of its cross-claim. These circumstances, which prevailed just 3 weeks before the hearing, suggested an inherent weakness in the defendant's cross-claim.
Therefore, in those circumstances, I do not interpret the 26 April 2022 offer by the plaintiff as one which necessarily called upon the defendant to capitulate its position in the litigation. The reality was that the defendant's cross-claim was ill-defined and procedurally deficient as the customary Scott Schedule was glaringly absent.
In those circumstances, in my view, the plaintiff acted reasonably in trying to protect its position on costs in the face of the defendant's procedural inactivity.
The 26 April 2022 offer was made following a call-over on 9 February 2022 at which time a hearing date was set to commence on 18 May 2022. Plainly, the plaintiff was seeking to avoid or at least try and gain protection from burgeoning costs, in a claim of relatively modest proportions.
At that point, the defendant/cross-claimant was placed in a position where if it declined a reasonable settlement opportunity, it did so at its peril as to costs. The 26 April 2022 offer of compromise was a reasonable settlement opportunity in the circumstances. In my view on the state of the evidence at that time, absent a Scott Schedule, the defendant/cross-claimant acted unreasonably in refusing the offer made by the plaintiff on 26 April 2022.

20 May 2022 offer

The context of the plaintiff's 20 May 2022 offer was that by that time the hearing had already proceeded in part on 18 and 19 May 2022.
At the hearing on 18 May 2022 the procedural problem of an absent Scott Schedule was identified. This led to an order for the separation of the plaintiff's claim from the cross-claim, and the entry of judgment for the plaintiff on its principal claim. However, by that time, the die had already been cast in terms of the parties having incurred significant costs associated with the trial.
In my view, at the time the 20 May 2022 offer was made, absent a Scott Schedule in support of the cross-claim, the plaintiff had acted reasonably in re-activating its 26 April 2022 offer by extending the time for acceptance.
However, in those circumstances, the 20 May 2022 offer should not be considered to be a pivotal event. The relevant event was when the offer was made on 26 April 2022, which was originally expressed to be open for 28 days, to 24 May 2022. This means that the 20 May 2022 offer may be excluded from consideration in terms of a costs analysis.

7 June 2022 offer

The plaintiff's 7 June 2022 offer to settle for the amount of the judgment entered on 26 May 2022 in the amount of $119,224.78 plus costs, assessed at $30,000, was in effect a call for capitulation of the principal claim (where judgment had already been entered but stayed pending the hearing of the cross-claim) and a call for the cross-claim to be abandoned.
The essential effect of this offer was a recognition that judgment on the plaintiff's claim had already been entered and there was no Scott Schedule or cogent evidence in support of the cross-claim. Accordingly, in the circumstances, the effect of this offer did not derogate from the force of the plaintiff's offer of compromise made on 26 April 2022.

12 August 2022 offers

The same comments in paragraphs [19] to [24] above apply to this offer. They do not derogate from the 26 April 2022 offer made earlier by the plaintiff.
The latest the parties were required to prepare and file a Scott Schedule was by 13 July 2022, and to identify the questions to be directed to the Referee. The Scott Schedule was only provided on 5 August 2022. This was the occasion on which a Referee was appointed.

Cost of the reference

On 17 August 2022, an interim order was made for the parties to equally bear the costs of the Referee. I see no sound basis for varying that order for the following reasons: 1. Until now, no application was made for a variation of that order; 2. The reference to the Referee should be seen to be a separate costs question to the costs of the proceedings generally. The order for the reference was made to remedially deal with the procedural delinquency of a failure to present a timely Scott Schedule; 3. The costs of the reference and the Referee could have been avoided if either party had taken the trouble to list the matter to seek a timely pre-trial remedial order that would have enabled the trial to proceed with a Scott Schedule supported by evidence.
In those circumstances, both parties missed an available pre-trial opportunity for securing a less costly course. In the circumstances, where both parties were in sequential fault as to the untimely absence of a Scott Schedule (the defendant/cross-claimant failing to prepare one and the plaintiff/cross-defendant failing to complain about that absence), I see no sound reason to vary the previous order that they should bear the costs of the reference and the Referee equally.

Orders

I make the following orders: 1. The defendant is to pay the plaintiff's costs of the proceedings against the defendant on the ordinary basis until 26 April 2022, and on the indemnity basis from 27 April 2022; 2. The defendant/cross-claimant is to pay the plaintiff/cross-defendant's costs of the cross-claim on the ordinary basis until 26 April 2022, and on the indemnity basis from 27 April 2022; 3. The order made on 17 August 2022 for the parties to equally bear the costs of the reference to the Referee is confirmed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 December 2022

At a glance

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Judgment (12 paragraphs)

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Cases Cited (6)