Denham Constructions Pty Ltd v Islamic Republic of Pakistan (No 3) [2016] ACTSC 249 (31 August 2016)

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Denham Constructions Pty Ltd v Islamic Republic of Pakistan (No 3)

[2016] ACTSC 249

The defendant is to pay the plaintiff's costs of the proceedings on a party and party basis up until 13 January 2016 and thereafter on a solicitor and client basis. There is otherwise no order as to the cost of the proceedings.

COSTS - Where an offer of settlement made - Whether defendant's failure to accept offer was unreasonable in the circumstances - Offer unambiguous - Reasonableness of defendant's non-acceptance must be judged against evident policy of the Building and Construction Industry (Security of Payment) Act 2009 (ACT) - Defendant to pay plaintiff's costs of the proceedings on solicitor and client basis after date for acceptance of offer

COSTS - Intervener - Intervention by the Attorney-General pursuant to Judiciary Act 1903 (Cth) s 78A, Court Procedures Act 2004 (ACT) s 27 - Whether intervener entitled to costs of hearing - Whether discretion to make orders for costs in favour of Attorney-General exists where statutory provisions only refer to orders against Attorney-General - Not necessary to decide -Where case involved constitutional issues significant for the government of the Territory - Where Attorney-General chose to intervene - Circumstances not sufficient to warrant costs order in the Attorney-General's favour

Building and Construction Industry (Security of Payment) Act 2009 (ACT)

Constitution (Cth), s 52(i)

Court Procedures Act 2004 (ACT), s 27

Court Procedures Rules 2006 (ACT), r 1752, Pt 2.10

Judiciary Act 1903 (Cth), s 78A

Cheesman v Waters [1997] FCA 90; (1997) 77 FCR 221 at 227

Denham Constructions Pty Ltd v Islamic Republic of Pakistan [2016] ACTSC 67

Denham Constructions Pty Ltd v Islamic Republic of Pakistan (No 2) [2016] ACTSC 215

Hakea Holdings Pty Limited v Denham Constructions Pty Ltd; BaptistCare NSW & ACT v Denham Constructions Pty Ltd [2016] NSWSC 1120

Hakimi v Legal Aid Commission (ACT) [2009] ACTSC 48; (2009) 3 ACTLR 127

Kemp v Ryan [2012] ACTCA 12

O'Keeffe Nominees Pty Ltd v BP Australia Ltd (No 2) [1995] FCA 1079; (1995) 55 FCR 591

Svikart v Stewart [1994] HCA 62; (1994) 181 CLR 548

University of Wollongong v Metwally (1985) 1 NSWLR 722

Attorney-General of the Australian Capital Territory (Intervener)

1. On 12 August 2016 I gave reasons consistent with a judgment in favour of the plaintiff: Denham Constructions Pty Ltd v Islamic Republic of Pakistan (No 2) [2016] ACTSC 215. On 17 August I ordered that judgment be entered in favour of the plaintiff in the sum of $1,062,886.78. The plaintiff has applied for an order that its costs be paid on an indemnity basis from the date of expiry of a Calderbank offer. The Attorney-General, who intervened in the proceedings, has applied for an order for costs in his favour. The defendant contended that the appropriate order would be that it pay the plaintiff's costs on a party and party basis and that there be no order as to costs in relation to the Attorney-General.

2. It was open to the plaintiff to have made an offer of compromise under Pt 2.10 Court Procedures Rules 2006 (ACT) (CPR). That would have avoided any need to assess whether the failure to accept the offer was unreasonable. It chose not to do so and instead relied upon the making of a Calderbank offer which, in order to warrant the making of a better than usual costs order, requires that the offering party demonstrate that the other party's rejection of the offer was unreasonable.

3. The plaintiff relied upon the making of an offer of settlement expressed to be a Calderbank offer in a letter dated 4 January 2016. The offer was expressed as:

Our client is willing to:

(i) accept the sum of $750,000 (Inc GST) in settlement of payment claim number 26 and proceedings ACTSC 15/428;

(ii) on receipt of which our client will discontinue the proceedings (with no order as to costs).

4. The plaintiff submitted that the offer was clearly a compromise upon the entitlements of the plaintiff and that, in the light of the outcome of the proceedings, costs on an indemnity basis should be awarded from the date of the expiry of the offer. The defendant submitted that the offer was uncertain because it offered to settle Payment Claim 26 and proceedings ACTSC 15/428. It therefore submitted that the offer may have been to settle the substantive claim under the construction contract as well as the claim arising under the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (SOP Act). The defendant pointed to the proceedings it commenced by originating application dated 27 January 2016 in the Supreme Court of Queensland in which it sought declarations that it had no liability under DCV075 or entitlement under Payment Claim 26. Although the Queensland proceedings were commenced after the date of the offer in question here, the existence of the proceedings is a reminder that there were two levels at which disputes between the parties existed, namely, under the SOP Act and under the substantive building contract.

5. The starting point for consideration of the costs issue is the failure of the defendant's defences. As is common with matters under the SOP Act, the arguments relating to the invalidity of the payment claim involved a degree of complexity. The defences were sufficient to avoid summary judgment being granted: Denham Constructions Pty Ltd v Islamic Republic of Pakistan [2016] ACTSC 67. So far as the constitutional arguments were concerned they were arguments involving some far reaching propositions and did not involve a working out of any unsettled constitutional principle or application of any settled constitutional principle. In particular, so far as the arguments raised the exclusivity of the Commonwealth Parliament's power under s 52(i) of the Constitution, the defence was inconsistent with the decision in Svikart v Stewart [1994] HCA 62; (1994) 181 CLR 548 (Svikart).

6. I accept the plaintiff's submission that the offer involved a compromise of its entitlements even though the offer did require actual payment prior to the proceedings ending.

7. I do not accept the submission that the terms of the offer gave rise to an ambiguity. It is well established that Calderbank offers must be unambiguous: Kemp v Ryan [2012] ACTCA 12 at [12]- [13]. An unambiguous offer can usually be achieved by setting out as part of the offer the terms of the court orders which are to be made in order to dispose of the proceedings. If that is done then the consequences of acceptance of the offer will be clear. Where the nature of the offer of settlement is described in narrative terms, rather than by reference to specific orders, there is greater potential for ambiguity to exist. In the present case, having regard to the terms of the offer and the existence of the overlapping obligations under the SOP Act and the construction contract, the words quoted above might have been considered to be ambiguous except for the context in which they appeared. Immediately prior to the quoted passage the letter made express reference to the fact that "any payment under the Act is interim in nature and 'on account' (accordingly your client can seek to re-agitate/challenge the claims made under it.)" When read in this context it ought to have been clear to the defendant that the offer only related to the claim under the SOP Act and did not affect the underlying entitlements under the building contract.

8. It is clear that the entitlement of the plaintiff under the underlying building contract was, and remains, disputed by the defendant. The absence of a payment schedule and hence the capacity of the plaintiff to seek judgment based on its payment claim was the result of an oversight on the part of the defendant's agent (the architects appointed under the contract). Those facts, however, do not mean that the rejection of the offer in the present case was not unreasonable.

9. It must be recognised that the scheme of the SOP Act is one which requires interim payment on account where the requirements of the Act are satisfied and places the risk of a builder's insolvency upon the paying party. It is therefore not an answer to proceedings based upon an entitlement under the Act that the paying party will have a good answer to the claim when it is ultimately substantively litigated or that defence of the claim might delay payment until the claimant's insolvency provides a basis for non-payment. What is reasonable or unreasonable conduct must be judged in the context of the accepted policy of the SOP Act. Parties who refuse offers of settlement which involve compromises of entitlements under the Act must have their conduct judged by reference to that Act. To do otherwise would undermine the operation of the Act and the policy rationale behind giving effect to Calderbank offers by reducing the incentives for settlement of claims made under the Act. It is true that the defendant may have achieved a financial goal by delaying its obligation to pay the amount for which it has been found liable. That delay may have other consequences now that the plaintiff has been put into administration and the enforceability of other judgments in its favour enjoined: see Hakea Holdings Pty Limited v Denham Constructions Pty Ltd; BaptistCare NSW & ACT v Denham Constructions Pty Ltd [2016] NSWSC 1120. However, that kind of delay is directly contrary to the evident policy of the SOP Act.

10. Thus while the refusal of the offer could, if the SOP Act is ignored, be seen as reasonable conduct, when the SOP Act is taken into account, in my view, the refusal of the offer should be characterised as unreasonable.

11. In my view the plaintiff should have the benefit of a costs order on a solicitor and client basis after the last date for the acceptance of the offer made on 4 January 2016. While there are some differences between the solicitor and client basis of assessment and the indemnity basis (see rr 1752(3)-(4) of the CPR), I consider that it is appropriate to adopt the former rather than the latter because it imposes a greater requirement for reasonableness in the costs recovered.

12. Therefore, in my view, the appropriate order is that the defendant pay the plaintiff's costs of the proceedings on a party and party basis up until 13 January 2016 and thereafter on a solicitor and client basis.

Costs order in relation to the Attorney-General

13. The Attorney-General intervened in the proceedings pursuant to s 78A of the Judiciary Act 1903 (Cth) and s 27 of the Court Procedures Act 2004 (ACT) (CPA). An intervener is a party to the proceedings: Cheesman v Waters [1997] FCA 90; (1997) 77 FCR 221 at 227; Hakimi v Legal Aid Commission (ACT) [2009] ACTSC 48; (2009) 3 ACTLR 127 at [47]. Both sections expressly permit the making of costs orders against the Attorney-General: s 78A(2) of the Judiciary Act, s 27(4) of the CPA. Those provisions do not make express reference to the making of orders in favour of the Attorney-General. The Attorney-General contended that the terms of s 27 and s 78A did not displace the general discretion of the Court to make orders in relation to costs. The defendant contended that they did.

14. In O'Keeffe Nominees Pty Ltd v BP Australia Ltd (No 2) [1995] FCA 1079; (1995) 55 FCR 591 at 595 (O'Keeffe) Spender J held that under s 78A(2) there was no capacity to make an order in favour of an Attorney-General who intervened. His Honour's judgment distinguished between:

(a) cases where the Attorney-General is an intervener pursuant to s 78A(2), in which case no power to award costs exists: O'Keeffe at 595; and

(b) cases where the Attorney-General intervenes pursuant to a relevantly unqualified right created by statute, in which case the Court's discretion to award costs exists: O'Keeffe at 597.

15. His Honour recognised that this approach to s 78A constituted a qualification on the broad statement made by the Full Court of the Federal Court in United States Tobacco Co v Minister for Consumer Affairs [1988] FCA 213; (1988) 20 FCR 520 that "[a]n intervener, whether pursuant to s 12 of the AD(JR) Act, 06, r 8(1) of the Federal Court Rules, s 78A of the Judiciary Act or otherwise, becomes a party to the proceedings with the benefits and burdens of that status."

16. The decision of Spender J was referred to by Flick J in Dunstan v Von Doussa (No 2) [2008] FCA 827; (2008) 102 ALD 327 at [84]- [88], although it is somewhat unclear how the reliance upon Spender J's reasons in O'Keeffe supported the conclusion reached by his Honour in that case.

17. The approach to s 78(2) adopted by Spender J would be consistent with the purpose of that provision being to protect the position of parties who have the costs of their proceedings increased by reason of the Attorney-General's intervention: University of Wollongong v Metwally (1985) 1 NSWLR 722 at 728. However, the section would not put the parties at risk of a costs order against them if they were unsuccessful in advancing a position contrary to that adopted by the Attorney-General.

18. It is not necessary to resolve this issue in order to decide the question of costs in this case. Even assuming the general power in relation to costs exists, I do not consider that this would be an appropriate case in which to make an order in favour of the Attorney-General.

19. Intervention by the Attorney-General in a case such as this is generally in order to ensure that proper arguments are put on constitutional matters and to ensure that the position of the Attorney-General, who has a broader perspective on and responsibility in relation to such matters than the litigating parties, is understood by the Court. In those circumstances, where the Attorney-General chooses to intervene and where the arguments put by the Attorney-General are accepted, that will not generally be sufficient to warrant the exercise of discretion to make a costs order in the Attorney-General's favour.

20. In the present case the Attorney General also relied upon the sending of a letter dated 9 March 2016 which pointed out the weakness of the defendant's constitutional argument. The arguments put forward by the defendant can be seen, in the light of the decision ultimately reached, to have been weak and, in particular, inconsistent with the decision of the High Court in Svikart. However, on the assumption that power exists to award costs in favour of the Attorney-General, it is a power that would need to be exercised cautiously so as not to make the threat of intervention by the Attorney-General and the potential for an adverse costs order a significant deterrent to raising questions of constitutional law.

21. While, in my view, it was appropriate for the Attorney-General to intervene so as to ensure that proper arguments were put, the nature of the constitutional arguments put by the defendant and the letter dated 9 March 2016 would not provide a sufficient reason to make a costs order in his favour.

1. The defendant is to pay the plaintiff's costs of the proceedings on a party and party basis up until 13 January 2016 and thereafter on a solicitor and client basis.

2. There is otherwise no order as to the cost of the proceedings.

I certify that the preceding twenty-two [22] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop.