Donau Pty Limited v ASC AWD Shipbuilder Pty Limited

Supreme Court of NSW|2018-10-04|Before: Ball J

Background

These proceedings concern a contract (the 2HA) entered into on 26 October 2012 between the plaintiff, Donau Pty Limited, formerly known as Forgacs Engineering Pty Ltd (Forgacs), and the defendant, ASC AWD Shipbuilders Pty Limited (ASC), which varied the terms of an earlier contract (the Original Contract) between Forgacs and ASC by which Forgacs agreed to construct for ASC certain parts of the hulls of three air warfare destroyer ships that ASC, with others, had contracted to build for the Commonwealth of Australia.
During the course of the proceedings, a large number of issues were raised by the parties in connection with their dispute. Some of those issues, such as a claim by ASC that the 2HA should be rectified and claims by Forgacs that various estoppels operated in its favour, raised substantial factual issues.
Many of those issues were abandoned before trial with the result that the trial itself concerned two principal issues. One was the correct construction of the 2HA and whether on its correct construction it had come into effect and, if so, whether ASC had validly terminated it and the consequences of termination if it had. The second issue was whether ASC had been induced to enter into the 2HA by the misleading and deceptive conduct of Forgacs in contravention of s 18 of the Australian Consumer Law.
In a judgment I delivered on 20 August 2018 (see Donau Pty Limited v ASC AWD Shipbuilder Pty Limited [2018] NSWSC 1273), I concluded: 1. Contrary to ASC's submissions, the 2HA had come into effect; 2. Contrary to Forgacs' submissions, ASC had validly terminated the 2HA; 3. Contrary to Forgacs' submissions, the effect of termination was that ASC was largely entitled to the rights it had under the Original Contract and in particular the right to adjust the Payable Fee payable by it under that contract by reference to the mechanism set out in the contract; 4. Contrary to ASC's submissions, the 2HA did have the effect of releasing any right that ASC may otherwise have had to liquidated damages; and 5. Had it been necessary to decide, contrary to ASC's submissions, its case based on misleading and deceptive conduct failed.

The parties' submissions

ASC submits that, subject to certain specific costs orders made by the Court, it should have its costs of the proceedings up until 11.00 am on 6 October 2017 on the ordinary basis and from 11.00 am on 7 October 2017 on an indemnity basis.
The claim for costs of the proceedings is based on the fact that from a practical point of view, it was successful. The claim for indemnity costs is based on an offer of compromise made on 6 October 2017 under Uniform Civil Procedure Rules 2005 (NSW) r 20.26 to settle the proceedings by a payment to Forgacs of $750,000. ASC plainly did better than that offer as a result of the judgment it obtained and for that reason would normally be entitled to its costs on an indemnity basis from the time the offer was made.
Forgacs, on the other hand, submits that the appropriate order is that each party should bear its own costs. That submission was made on the basis that ASC failed on its primary case that the 2HA did not come into effect, failed on its case that it was entitled to liquidated damages, only succeeded on a case on the interpretation of the 2HA which was not advanced by either party and failed on its case based on misleading and deceptive conduct.
The parties were largely content for the Court to deal with the question of costs on the papers. However, during the course of a hearing on 4 October 2018 to deal with final orders and an application for a stay of my judgment pending an appeal, I raised the question whether an appropriate costs order was an order that all previous costs orders be vacated and that ASC have its costs of the proceedings so far as they concerned the construction of the 2HA on the ordinary basis up until 6 October 2017 and on an indemnity basis after that time and that otherwise the parties should bear their own costs of the proceedings.
Ms Holmes, who appeared for ASC, was inclined to embrace that proposal. Ms Stern SC, who appeared for Forgacs, resisted it and maintained that the appropriate order was that each party should bear its own costs of the proceedings.

Consideration

I have concluded that I should accept Ms Stern's submissions.
As I have said, during the course of the proceedings, the parties raised a large number of issues. Some of the issues raised by both sides were factually intensive. As issues were abandoned and amendments made, the Court made various costs orders in favour of one party or another. The result is that any assessment of costs according to the existing orders would be complex, time-consuming and likely to be productive of further disputes. Much of the evidence filed, materials collected and thoughts marshalled were relevant to a greater or lesser degree to more than one issue in the case and it cannot be said - at least on the evidence before the Court - that one issue or one group of issues raised by one party was so clearly dominant that it could be said that most of the costs of the case relate to that issue or group of issues. The result is that, at least so far as the group of issues that did not form part of the hearing are concerned, it seems sensible to vacate all costs orders and order that each party bear its own costs of those issues. An order in those terms would simplify considerably the task of assessing costs.
As I have said, neither party objected strongly to that course nor pointed to any compelling reason why that general approach would work an injustice on one party or the other.
In effect, the real debate between the parties was whether the costs relating to the misleading and deceptive conduct claim should be wrapped up with the other costs of the abandoned contentions or whether they should be treated separately. On the former approach, the Court would set off costs incurred in relation to all issues other than the construction issues and make a separate order for the costs of those issues in favour of ASC. On the latter approach, the Court would set off the costs of the construction issues against the costs of the misleading and deceptive conduct claim. This second approach does not deny that ASC enjoyed a substantial victory on the construction issue and consequently should have its costs of that victory. However, it proceeds on the basis that Forgacs should have its costs of the misleading and deceptive conduct claim and that those costs are roughly equal to any costs order that would be made in favour of ASC on the construction issues.
In my opinion, the preferable course is the latter one. I say that for two reasons.
First, Forgacs chose to press its claim based on misleading and deceptive conduct at trial. That case took up a substantial amount of time at trial; and a substantial amount of the evidence relied on at trial related to that issue. For those reasons, I do not think that the issue should be treated along with all the others that fell by the wayside. Necessarily, the claim for misleading and deceptive conduct was brought by way of cross-claim. The cross-claim to that extent failed. For the reasons I gave in my earlier judgment, the case was weak. Therefore, in the normal course of events, the Court would make a costs order in favour of Forgacs in relation to that aspect of the cross-claim.
Second, ASC was not successful in relation to all construction issues. It failed in relation to its primary case that the 2HA did not come into effect. It failed in relation to its claim for liquidated damages. It succeeded in relation to its claim that its termination of the 2HA was effective and it succeeded in its claim that the effect of termination of the 2HA meant that most of its rights under the Original Contract were preserved.
Forgacs contends that ASC succeeded on this last point on a basis that was not argued by any party. To some extent, that is correct. However, it was certainly part of ASC's case that the effect of termination of the 2HA was to preserve its rights under the Original Contract and it succeeded on that point except in relation to liquidated damages, although not precisely for the reasons it advanced. Taking these matters into account, there is no compelling reason why the costs order should reflect the ultimate outcome of the case rather than a fair apportionment of costs having regard to the success and failure that each party enjoyed on particular issues.
As I have said, that is not to deny that ASC is entitled to its costs of the construction issues on which it succeeded. Nor is it to deny that those costs should be assessed on an indemnity basis from the time it made its offer of compromise. However, it would be appropriate to make some reduction to those costs to reflect the fact that ASC succeeded on a point that it did not specifically argue and failed on points that it did. For the reasons I have explained, it would also be appropriate to set off those costs against the costs of the misleading and deceptive conduct claim. A fair and practical method of doing that is to order that each party bear its own costs of the proceedings.

Orders

The orders of the Court are: 1. Vacate all previous costs orders made in the proceedings; 2. Order that each party bear its own costs of the proceedings.

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: 23 October 2018

Australian Consumer Law Uniform Civil Procedure Rules 2005(NSW)

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