Corbett Court Pty Limited v Quasar Constructions

Civil Procedure Act 2005 (NSW) LEGISLATION CITED : Building and Construction Industry Security of Payment Act 1999 (NSW) Uniform Civil Procedure Rules 2005 (NSW)

Ritter v Godfrey [1920] 2 KB 47 Short v Crawley (No 40) [2008] NSWSC 1302 Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (Supreme Court of New South Wales, Hodgson CJ in Eq, 3 June 1998, unreported, BC9802305) Oshlack v Richmond River Council (1998) 193 CLR 72 CASES CITED : Jamal v Secretary Department of Health (1988) 14 NSWLR 252 Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748 Waters v PC Henderson (Australia) Pty Ltd, (New South Wales Court of Appeal, 6 July 1994, unreported, BC9404952) Cretazzo v Lombardi (1975) 13 SASR 4 Plaza West Pty Ltd v Simon's Earthworks (NSW) Pty Ltd [2008] NSWCA 279

PARTIES : Corbett Court Pty Limited ACN 062 978 545 Quasar Constructions (NSW) Pty Limited ACN 077 757 147

COUNSEL : P.T. Taylor SC with M.E. Luitingh (Plaintiff) D.D. Feller SC with A.S. Kostopoulos (Defendant / Cross Claimant)

SOLICITORS : Swaab Attorneys (Plaintiff) Kreisson Legal (Defendant)

• 16 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY AND CONSTRUCTION LIST

55017/2006 CORBETT COURT PTY LIMITED ACN 062 978 545 -v- QUASAR CONSTRUCTIONS (NSW) PTY LIMITED ACN 077 757 147 12 DECEMBER 2008

INTEREST 1 HIS HONOUR: Before the Court is yet another contest between these two parties, this time concerning what allowance for interest should be made in respect of the verdict which the plaintiff has obtained against the defendant as a consequence of the adoption (with variations) of the report of Mr Easton of 23 May 2008. 2 The matter was last before the Court on 28 November 2008 when judgment was entered in favour of the plaintiff for $635,754.56, including $64,350.59 for interest, which the defendant conceded was the minimum amount owing. 3 The plaintiff, however, sought additional interest of $99,713.91. 4 I directed the parties to provide the Court with brief written submissions. The submissions they provided have been helpful. They do, however, reflect (as in the past) that neither party is prepared to give any quarter to the other. 5 The discretion to award interest on a verdict is now conferred on the Court by s 100(1) of the Civil Procedure Act 2005 (NSW) which provides as follows: "In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect." 6 In his report, Mr Easton found that of the amount for which the defendant was liable to the plaintiff, $161,446 plus GST was for damages for defective work; $10,000 was for an adjustment for incomplete work plus GST; and $12,600 was for liquidated damages calculated from the date for practical completion to the date of practical completion. These three amounts total $201,190 of the final amount owing (exclusive of interest) of $571,404.07. 7 During the course of the construction of the project, one of the claims which the defendant made on the plaintiff under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act") resulted in an adjudication by a Mr O'Mara on 10 March 2006 in the defendant's favour of $573,574, together with interest of $8,171.28 calculated from 30 January 2006 to 23 March 2006. The defendant proceeded to obtain judgment against the plaintiff in the District Court for the amount of $599,785.28 which included that interest and an allowance for adjudication fees and costs. Ultimately, and over time, the plaintiff paid the defendant $670,159.16 made up as to: O'Mara determination $573,574; O'Mara interest $8,171.28; interest on the District Court judgment $70,373.88; and adjudicator's fees of $18,040. 8 The plaintiff's approach to interest is, on the face of it simple. It says that the amount of the ultimate verdict in its favour is effectively a repayment of the O'Mara adjudication amount. It puts that its payment of the O'Mara adjudication amount was an overpayment and that it should be allowed interest on it at the Court rate from 30 January 2006 being the date of the final payment made by the plaintiff to the defendant in respect of the project. 9 The defendant resists this approach. It points out with some force that it simply cannot be the case that the award amount which the plaintiff has obtained is represented by the O'Mara adjudication. This is because the amounts found by the referee to be payable include (with GST) the amounts for defective work, for incomplete work and for liquidated damages totalling $201,190.60. It follows that of the O'Mara adjudication amount, only $370,213.47 is capable of being attributed to an overpayment (ie, $571,404.07 minus $201,190.60). 10 The defendant further puts that the plaintiff's claim was not one for restitution of the O'Mara adjudication amount, and that the referee did not approach it on that basis. 11 The referee's approach was to work out the amount paid by the plaintiff to the defendant to work out the adjusted contractual amount including damages payable by the defendant to the plaintiff and to deduct that amount from the amount paid, leaving a balance of $736,263.77 - which itself was subject to an agreed adjustment resulting the final verdict figure which was entered in favour of the plaintiff on 28 November 2008. In addition, the defendant submits that the plaintiff's claim did not include one for restitution of interest paid. It puts that amounts paid as interest on the District Court judgment cannot now be claimed by the plaintiff. 12 It seems to me that there is some merit on both sides of the argument. On the one hand the plaintiff paid more than it owed the defendant. In the ultimate reckoning, the defendant owed it money including for damages. On the other hand it is clear that the ultimate result is neither in form nor substance a verdict for the restitution of the O'Mara adjudication amount. 13 The purpose of an award of interest, which is a discretionary matter, is to permit a successful party to be properly compensated for the practical loss it has suffered. 14 On the approach which I have decided to adopt, it does not seem to me that any of the difficulties which each party places in the way of the other are real ones. 15 Following the approach of the referee, it seems to me that the exercise which will result in the fair and just outcome with respect to interest is as follows: that the plaintiff be entitled to interest at 9 per cent per annum on amounts which it paid beyond the figure which is reached by taking the full amount paid by it to the defendant, less the amount of $571,404.07, such interest to be calculated on the amounts paid beyond the result of that calculation from the dates that the payments were made by the plaintiff. 16 For example, if the amount finally paid by the plaintiff is $12,500,000, one would deduct from that $571,404 which would leave $11,928,596. Assuming on 1 January 2007 the plaintiff had paid to the defendant $11,928,596 and the day thereafter it paid it a further $1,000, it will be entitled to interest at the rate of 9 per cent on that $1,000 from the date of the payment to the plaintiff until the date of the defendant until the date the defendant pays it back. 17 I have adopted the figure of 9 per cent to take account of certain of the contingencies and the realities of the present economic situation. 17 DECEMBER 2008 INTEREST 18 The plaintiff has carried out an interest calculation in accordance with my reasons of 12 December 2008. 19 There is no issue between the parties as to the accuracy of the calculations which have been made on the stated basis. 20 The result of those calculations is that the plaintiff is entitled to interest of $74,973.89 rather than the $64,350.59 already ordered, a difference of $10,623.30. 21 The plaintiff is accordingly entitled to an ultimate verdict of $646,377.86 for which there will be judgment. The judgment of 28 November 2008 will be varied accordingly. Short minutes are to be brought in. 22 Mr Taylor of senior counsel on behalf of the plaintiff made a submission that in addition to the verdict referred to above the plaintiff was entitled to a further allowance of $78,545.16 for interest which it had paid to the defendant on the O'Mara determination and $18,040 which it paid as adjudicator's fees. It was put that there had been a slip on its part which translated into a slip reflected in paragraph 20 of my judgment of 19 November 2008 which refers to an agreed adjustment which the plaintiff says includes the aforesaid amounts. The plaintiff puts that by agreement the parties excluded those amounts from the final determination of the referee and that s 32(3)(a) of the Act requires the Court to allow for it in the order which the Court makes in these proceedings. 23 Section 32(3) is in the following terms: " 32 Effect of Part on civil proceedings (3) In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal: (a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and (b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings." 24 Mr Taylor accepted that there may be difficulty with the submission concerning the adjudication fees as being a matter that was required to be taken into account in the proceedings. 25 Mr Feller of senior counsel for the defendant, took the position that the defendant was not now in a position to deal with any slip rule application and would wish to put on evidence which might involve relying on agreements between counsel. 26 Ultimately the plaintiff was content for this aspect not to be dealt with at this time, on the basis that if it was later advised to bring a slip rule application it would do so, and that it would consider its position after the Court had dealt with costs. COSTS 27 The question of costs was fully contested. The primary position of each party was that the other should pay all of its costs. Argument on costs took up a significant part of a day.

The legal principles 28 Part 42 r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") provides as follows: "Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs." 29 The general rule that costs follow the event and that a successful litigant receives his costs in the absence of special circumstances justifying some other order is of very long standing: see eg Ritter v Godfrey [1920] 2 KB 47. 30 The general rule can, in the discretion of the Court, be displaced in appropriate cases. Relevant authorities have been recently and conveniently collected by White J in Short v Crawley (No 40) [2008] NSWSC 1302 at [25]-[32]. 31 Examples of instances where the general rule may be displaced include the following: a a costs order in favour of a successful party can be modified to reflect its failure on particular issues even if the successful party did not act unreasonably in raising those issues: Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (Supreme Court of New South Wales, Hodgson CJ in Eq, 3 June 1998, unreported, BC9802305 at 10-11); b if a party unreasonably pursues or persists with points which have no merit, such conduct will constitute a consideration relevant to the ordering of costs even in circumstances where that party is generally successful: Oshlack v Richmond River Council (1998) 193 CLR 72 at 122; c conduct in relation to the matter may be discreditable to an extent warranting a party being deprived of costs: Jamal v Secretary Department of Health (1988) 14 NSWLR 252 at 271; d where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed: Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748 at 48,136; e where the proceedings involve multiple issues departure from the general rule may be warranted particularly where the losing party has succeeded on issues which occupied significant time. Nevertheless the application of the general rule may involve hardship where a party succeeds on some issues but fails on others particularly where the losing party succeeds on some issues. However unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Ritchie's Uniform Civil Procedure NSW at [42.1.15]; Waters v PC Henderson (Australia) Pty Ltd (New South Wales Court of Appeal, 6 July 1994, unreported, BC9404952 at 5); Short v Crawley (No 40) at [27]-[28]; f a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them: Hughes v Western Australian Cricket Association (Inc) at 48,136. 32 In Hughes v Western Australian Cricket Association (Inc) Toohey J (in a passage cited by White J in Short v Crawley (No 40)) referred to what was said by Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 12 in the following terms:

"His Honour sounded what he described as 'a note of cautious disapproval' of applications to apportion costs according to the success or failure of one party or the other on the various issues of fact or law which arise in the course of a trial. His Honour commented: 'But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.'" The parties' submissions

33 The plaintiff put that it had been successful and that under Part 42 r 42.1 UCPR the usual rule should apply. It was, however, accepted that the defendant was largely successful with respect to the adoption hearing in that the plaintiff's challenges to the referee's report failed, although with the qualification that the defendant's challenges (albeit far more limited than the plaintiff's) were also not entirely successful. 34 The plaintiff also placed reliance on a without prejudice offer of settlement dated 1 September 2008 to found a submission, not that it should be awarded indemnity costs, but to indicate that it had adopted a reasonable stance towards settlement and behaved reasonably as a litigant. In the letter the plaintiff offered "full and final settlement of this matter" on the following terms: " 'Without Prejudice'

We are instructed to submit the following offer in full and final settlement of this matter:

1. Verdict and Judgment for the Plaintiff/Cross Defendant in Supreme Court Proceedings 55017 of 2006 of $572,000 inclusive of GST and inclusive of interest;
2. Verdict for the Cross Defendant on the Cross Summons;
3. The Defendant/Cross Claimant to pay the Plaintiff/Cross Defendant $400,000 for the Plaintiff/Cross Defendant's costs of the proceedings;
4. This offer shall remain open for acceptance until 12 noon on Monday, 8 September 2008.

This offer is to be made pursuant to the decision in Calderbank v Calderbank [1976] Fam 93; [1975] 3 All ER 333; [1975] 3 WLR 586 .

We put you on notice that this offer will be relied on for any indemnity costs application." 35 The defendant initially put that the plaintiff should pay all of the defendant's costs, or as a "fall back position", 85 per cent of the defendant's costs. This was modified during submissions to one that the defendant should pay the plaintiff 15 per cent of the plaintiff's costs and the plaintiff should pay the defendant 85 per cent of the defendant's costs, resulting in the plaintiff paying the defendant 60 per cent of the defendant's costs. The defendant put the following in support of its position: a the usual rule that costs should follow the event was displaced by one of the underlying policies of the Act. This policy was ultimately articulated as follows: where a plaintiff who has paid money to a defendant as a consequence of the operation of the progress payment provisions of the Act seeks reimbursement based on the terms of the construction contract between the parties and is only partially successful there is a policy which requires that the plaintiff not be awarded costs because to do so would constitute a disincentive for builders to use the machinery of the Act; b the plaintiff's victory was fortuitous because the defendant had been able to extract from it, by means of garnishee orders the District Court verdict based on the O'Mara adjudication. Had the defendant not taken that course there would have been a nil or close to nil balance; c the plaintiff's success was so limited (having regard to the claims it made and the time which was spent in dealing with claims which were not successful) as to warrant the plaintiff paying the defendant's costs; and d the plaintiff had been guilty of disentitling conduct because of the behaviour of Mr Corbett d uring the administration of the contract and during the conduct of the reference. Reliance was placed on the fact that Mr Corbett's evidence was in certain significant respects not accepted by the referee. Consideration 36 The starting point is that the plaintiff was successful to the extent that it has obtained a verdict of well over $600,000, which includes a "claw back" of $370,213.47 of the O'Mara adjudication amount. This in my view is sufficient to describe the event as being a success for the plaintiff. 37 It should accordingly have its costs unless it appears to the Court that some other order should be made. 38 The defendant's submission that there is a policy underlying the Act which displaces the usual rule as to costs, subject to the usual discretion that some other order should be made is unsustainable. 39 No authority supporting it was cited and I was not referred to any extra legislative material. 40 The Act creates a regime whereby an interim position is obtained between participants in the construction industry pending the satisfactory resolution of their mutual claims: see Plaza West Pty Ltd v Simon's Earthworks (NSW) Pty Ltd [2008] NSWCA 279 per Allsop P, with whom Giles and Hodgson JJA agreed. 41 If the defendant by the adjudication process was provided with a windfall, which in law it was not entitled to retain, the appropriate vehicle for the vindication of the plaintiff's rights was a proceeding under s 32(3) of the Act: see Plaza West Pty Ltd v Simon's Earthworks (NSW) Pty Ltd at [49] per Allsop P with whom Giles and Hodgson JJA agreed. 42 This is the vehicle which the plaintiff used which resulted in a verdict in its favour. 43 The defendant had itself used and obtained the benefit of the machinery of the Act. The machinery worked in its favour so much so that it obtained a District Court judgment on the basis of an adjudication which was satisfied by use of the execution processes of the Court, and which resulted in payment to it of money to which it was not under the terms of the contract between the parties lawfully entitled. 44 There is, in my view, no policy which allows the machinery of the Act to facilitate the obtaining of payment of money to which the claimant is not under the parties' contract entitled to retain, with the effect that when the payer successfully recovers that money (also using the machinery of the Act) the usual costs consequences do not obtain. 45 There is no logical or rational reason why such a policy, if it exists, would apply where the amount recovered is part only of a larger claim, as suggested by the defendant. 46 In my view the usual principles as to costs apply together with the exceptions in appropriate cases, to proceedings contemplated by s 32(3) of the Act. 47 The submission that the plaintiff's success was fortuitous is without substance. The fact is that the defendant extracted money from the plaintiff which it was not lawfully entitled to retain, and the plaintiff was put to legal proceedings to recover it. 48 The defendant urged upon the Court what might be described as a "statistical approach" which involves trying to assess the parties' respective success or failure in various claims and cross-claims, measured as a percentage of the particular amount claimed or the time spent with that issue during the hearing. So, for example, it was put that: a the further amended summons claimed $3,663,407 (exclusive of the O'Mara adjudication amount which at the time the summons was filed had not been paid - the summons challenged the O'Mara adjudication to the extent of $508,935). It was put that the plaintiffs ultimate verdict is about 15 per cent of that amount. (Taking interest into account the verdict is 17.6 per cent of the original amount claimed. Taking interest into account the verdict is 15.5 per cent of the amount claimed in the summons together with the amount of the O'Mara adjudication challenged in the summons); b before the referee the plaintiff claimed $1,185,187 for defects in respect of the basement slab and was awarded $51,060 or 4.3 per cent; c before the referee the plaintiff claimed $198,069 in respect of defects to the external car park and was awarded $6,173 or 3.11 per cent. The defendant estimated that this issue took up 3 per cent of the hearing time before the referee; d the plaintiff was awarded $12,600 out of $418,900 which it claimed for liquidated damages, equating to 3 per cent; and e before the referee the plaintiff challenged five adjudicated claims (including O'Mara) totalling $1,899,809 of which it had to repay $370,214. The amount the defendant retained ($1,529,595) as a percentage of that which the plaintiff claimed is 80 per cent. 49 These analyses, it was put, demonstrate that the plaintiff largely failed. 50 The statistical approach has inherent problems and I do not propose to take it. For example it takes no account of the time spent preparing particular issues, including the time spent by experts. It does not take account of the relative complexity of issues and it loses sight of the fact that the plaintiff has recovered a meaningful amount of money. 51 The plaintiff was ultimately successful in obtaining a verdict in its favour which represented success in its claims for damages for defective work, incomplete work and liquidated damages and perhaps somewhat better with respect to the proportion of the O'Mara adjudication recovered. 52 Nevertheless, for the reasons which follow and in the particular circumstances of this case it appears to me that an order, other than one that all costs follow the event, should be made: a firstly, a significant amount of time was spent on discrete issues on which the plaintiff failed or failed substantially, for example on its claim that the entirety of the concrete slab was to be replaced, and on the extensions of time which the defendant claimed. Correspondingly the defendant was largely successful on the discrete and important issues of the dates for and of practical completion; b secondly, considerable time was taken up with expert evidence and undoubtedly considerable expense incurred in relation to experts. The referee preferred the defendant's experts, Mr Zakos over Mr Shahady and Mr Finnane over Messrs Lawrence and Fiadino. Expert evidence was pertinent to the issues of variations and extensions of time in which the defendant was largely successful; and c thirdly, the defendant was almost entirely successful with respect to the adoption hearing. But for one minor variation in respect of which it was unsuccessful its variations of the report were accepted whereas none of the significant variations for which the plaintiff contended were accepted. 53 In the circumstances I do not consider that it would be just or fair that the defendant bear the burden of all of the plaintiff's costs and that there should be an adjustment to take account of these factors. 54 In coming to this conclusion I leave out of account the findings of the referee as to the unsatisfactory evidence of Mr Corbett or other conduct on the part of the plaintiff criticised by the defendant because I do not consider it to be discreditable to any extent significant enough adversely to affect the plaintiff's entitlement to costs. Part of the attack related to the conduct of the commercial dealings between the parties rather than the plaintiff's conduct as a litigant and I also do not take it into account for that reason. 55 I also do not take into account the terms of the settlement offer as in any way evincing reasonable conduct to be taken into account in favour of the plaintiff because the offer came late (after a 35 day hearing) and was open only for a short time, on a fair reading of it it required the defendant to give up a costs order dated 26 April 2007 which it had in its favour and the amount offered for costs might reasonably have been construed as being excessive at the time. Even if the plaintiff was acting reasonably in making the offer I do not think that the defendant acted unreasonably in declining it. 56 Taking all of the circumstances into account and giving due allowance to the fact that in my view the costs of the adoption hearing should be treated as being payable by the plaintiff to the defendant, I consider that the plaintiff's costs entitlement should be discounted by 40 per cent so that it is entitled to 60 per cent of its costs (other than those costs incurred in relation to the matters which are the subject of the costs order dated 26 April 2007 which will still stand), and I so order. 57 The plaintiff urged upon me that I should fix a money sum as costs payable in its favour but the evidence does not enable me to do it. **********

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