DRUMMOND AND ROSEN PTY LIMITED v EASEY & ORS [2009] NSWCA 331 | Case summary

(1) The orders for costs included in orders (2), (3), (4), (5) and (8) made by this Court on 16 April 2009 are varied as herein provided. (2) Order (2) is varied by adding "to be paid by the first and second defendants jointly, jointly and severally with the third defendant and the plaintiff, the order against the plaintiff only to be enforceable to the extent, if any, that the fourth defendant is unable to recover its costs of the action from the other defendants." (3) Order (3) against the owners is varied by adding "such costs to be on an indemnity basis from 20 June 2006." (4) Order (4) against the builders is varied by adding "such costs to be on an indemnity basis from 20 June 2006." (5) Order (8) is varied by adding "the orders against the first, second and third respondents only to be enforceable to the extent, if any, that the appellant is unable to recover its costs of the appeal from the fourth respondent." (6) The appellant to pay the plaintiff's and the builders' costs of the Notice of Motion of 30 April 2009. (7) The owners to pay one half of the appellant's costs of the Notice of Motion of 30 April 2009 in so far as that Notice of Motion related to claims against the owners. DECISION: (8) The plaintiff's Notice of Motion of 16 June 2009 dismissed as incompetent, with no order as to costs. (9) In this order: X - equals the total amount of costs and disbursements which the architects have paid or are liable to pay to their legal advisers in connection with these proceedings. Y - equals the total amount of costs and disbursements allowed on assessment to the architects in connection with these proceedings. The Allowed Percentage equals ((y/x) x 100)% Order the owners and the builders to pay to the architects interest on costs and disbursements, at the rates set out in Schedule 5 Uniform Civil Procedure Rules, on the Allowed Percentage of each amount of costs and disbursements actually paid by the architects, from the date of payment by the architects of each such amount of costs and disbursements until the first to occur of: (a) such time as the owners or builders have paid the costs due to the architects under any order made in these proceedings, or (b) the assessment of the costs to which the architects are entitled pursuant to the costs orders in their favour. (10) Grant liberty to the architects to apply upon 3 days notice to the other parties for an order for payment of a specific amount in respect of the interest awarded upon costs pursuant to Order (9).

The Allowed Percentage equals ((y/x) x 100)% Order the owners and the builders to pay to the architects interest on costs and disbursements, at the rates set out in Schedule 5 Uniform Civil Procedure Rules, on the Allowed Percentage of each amount of costs and disbursements actually paid by the architects, from the date of payment by the architects of each such amount of costs and disbursements until the first to occur of: (a) such time as the owners or builders have paid the costs due to the architects under any order made in these proceedings, or (b) the assessment of the costs to which the architects are entitled pursuant to the costs orders in their favour. 6 I would also add the following order: (10) Grant liberty to the architects to apply upon 3 days notice to the other parties for an order for payment of a specific amount in respect of the interest awarded upon costs pursuant to Order (9). 7 Order (10) is necessary as the jurisdiction of costs assessors under the Legal Profession Act 2004 does not extend to the assessment of interest payable on costs (see Division 11 of Part 3.2 and the definition of "legal costs" in s 4(1)). If agreement can be reached as to the interest payable on costs agreed or assessed, a form of consent order may be submitted to the Court. 8 Although taking a different view as to interest on costs, I would not propose any different orders as to the Notice of Motion costs than those proposed by Handley AJA. 9 HANDLEY AJA: The Court delivered judgment on 16 April 2009 [2009] NSWCA 74, allowing the appeal by the architects, and adjusting the contribution between the owners and builders to throw on the builders the burden created by the exoneration of the architects. Although verdicts and judgments in favour of the plaintiff, the owners, and the builders against the architects were set aside the burden of this successful appeal, other than for costs, will fall on the builders provided they are solvent. 10 The Court made orders dealing with the costs of the trial and the appeal, but gave leave to apply for additional or varied orders by Notice of Motion filed within 14 days of the publication of our reasons. This is the period allowed for such applications by UCPR Pt 36 r 16(3A), and the period cannot be extended (r 16(3C)). 11 The architects filed a Notice of Motion seeking a variation to the costs orders within the 14 day period. The plaintiff also filed a Notice of Motion seeking other variations on 16 June, well outside the fixed period allowed by the rules. This Notice of Motion must be dismissed as incompetent. The architects' Notice of Motion sought the following: (1) That the order for costs in order (2) made on 16 April dealing with the costs in the District Court of the action against the architects be on an indemnity basis from 21 June 2006 and that the first respondent pay the architects' costs of the appeal on an indemnity basis. (2) In the alternative that order (2) be varied by substituting an order that the costs of the action in the District Court and the costs in this Court be paid by the builders from 21 June 2006 on an indemnity basis. (3) That the order for costs in order (3) made on 16 April dealing with the costs of the owners' cross-claim against the architects and the costs in this Court be on an indemnity basis from 21 June 2006. (4) That the order for costs in order (4) made on 16 April dealing with the costs of the builders' cross-claim against the architects and in this Court be on an indemnity basis from 21 June 2006. (5) An order was also sought for interest to be payable on the costs prior to their assessment. 12 The architects' application was based on three Calderbank offers made before the trial began on 18 July 2006. 13 The Calderbank offer to the plaintiff was that there be judgment for the architects in the action with no order as to costs. The offer was to remain open until 11 July. The costs of the architects at that stage would have been substantial, but would have to be apportioned between the action, and the various cross claims. 14 The plaintiff was invited to accept this offer because he "was traversing upon R11 tiles at the time of the subject incident [and] [t]he selection of the R11 product was appropriate for the ramp in question." However, as the judgment of Handley AJA recorded (para [15]), the trial judge found that the tiles should have been R12, but were only R10. The architects succeeded in the appeal on an entirely different ground which was not mentioned in their Calderbank offer to the plaintiff. The plaintiff and his legal advisers were justified in rejecting this offer on the only basis on which was made. There should be no order for indemnity costs against the plaintiff. 15 The Calderbank offer to the builders was relevantly in the same terms as the offer to the plaintiff but the architects' claim to orders for indemnity costs against the builders was settled. 16 The Calderbank offer to the owners was that there be judgment for the architects on the owners' cross-claim with no order as to costs. However in this offer, made the same day as the others, the solicitors for the architects said that the owners should accept the offer for two reasons: "the Plaintiff was traversing upon R11 tiles at the time of the subject incident. The selection of a R11 product was appropriate for the ramp in question. In any event, our client had no responsibility for the selection of the relevant tile product." 17 The second reason was the ground on which the architects ultimately succeeded in this Court. Substantial costs had already been incurred before the offer was made and it involved a sufficient element of compromise to attract the Court's power to make an order for indemnity costs. 18 This Court held that there was no evidence that the architects had assumed any responsibility for the technical quality of the tiles and their only responsibility to the owners under their contract was for the finishes and colours. In these circumstances an order should be made that the owners pay the architects' costs of the owners' cross-claim on an indemnity basis from 21 June 2006. 19 On 20 April 2009, after judgment had been delivered, the solicitors for the owners wrote to the solicitors for the other parties proposing that the owners and the builders each pay 50% of the architects' costs in the District Court, that the builders pay the architects' costs of the appeal, and that there be no other order as to the costs of the appeal. The solicitors for the owners in their letter of 28 April to the solicitors for the architects said that the plaintiff and the builders had accepted this offer. 20 On 27 April the solicitors for the architects wrote to the solicitors for the builders making another Calderbank offer dealing with restitution, which is no longer in contention, and costs. They offered to accept an order for indemnity costs on the builders' cross-claim "from the date of the 20 June 2006 Offer". The offer was open for acceptance until 12 p.m. on 29 April. 21 The solicitors for the builders purported to accept that offer by their letter of 29 April. Mr Mitrevski, who swore an affidavit of 20 May in support of the architects' Notice of Motion, annexed the correspondence without suggesting that the acceptance was too late and the offer had lapsed. The Court should infer that the acceptance was within time and orders should be made giving effect to this offer and its acceptance. 22 The agreement between the plaintiff, the owners, and the builders for those defendants to each bear 50% of the architects' costs of the trial does not bind the architects, who are not obliged to take the risk of either or both the other defendants becoming insolvent. The Court should give effect to the agreement by ordering the owners and builders jointly and severally to pay the architects' costs of the action, and by ordering the plaintiff to pay the architects' costs of the action to the extent, if any, that the costs are not recovered from the other defendants. 23 The builders having accepted the architects' Calderbank offer of 28 April 2009 they should be ordered to pay the architects' costs of their cross-claim on the ordinary basis up to 20 June 2006, and on an indemnity basis thereafter. 24 Although an offer of compromise under the rules or in the Calderbank form at first instance is capable of being relevant in considering whether to order indemnity costs in an appeal: Fotheringham v Fotheringham [No. 2] [1999] NSWCA 21, 46 NSWLR 194; Monie v Commonwealth of Australia [No. 2] [2008] NSWCA 15, the absence of a corresponding offer in the appeal tends against such an order: Monie v Commonwealth of Australia [No. 2] (above). 25 Since I would not make an order for indemnity costs against the plaintiff in respect of the trial, there is no reason for making such an order in respect of the costs of the appeal. 26 The architects' Calderbank offer to the builders made after we gave judgment, which the builders accepted, was limited to the costs of the cross claim. The offer did not extend to the costs of the appeal, and its acceptance precludes any order for indemnity costs against the builders in this Court. 27 The element of compromise in the Calderbank offer made to the owners was limited to costs. There is no evidence of the costs the architects had incurred on the owners' cross claim up to 20 June 2006 but a renewed offer on the same terms after the trial would be different in substance because of the costs of the trial. Offers by defendants in this form are spent once the time for acceptance has passed, and this pre-trial offer is of negligible relevance to the costs of the appeal. The costs order against the owners in respect of the appeal should be on the ordinary basis. 28 The owners sought a Sanderson order ([1903] 2 KB 533CA) against the builders which would require the latter to pay the architects' costs and would relieve the owners from all liability for those costs. A Sanderson order is justified where the plaintiff has no personal knowledge of the relevant facts which are peculiarly within the knowledge of the unsuccessful defendant who attempted to shift the blame to another. A properly advised plaintiff must sue both defendants and the costs are properly thrown on to the unsuccessful defendant. 29 This plaintiff had no personal knowledge of the facts which would determine the responsibilities of the builders and the architects but the orders proposed exonerate him from any liability for the architects' costs of the trial provided the other defendants remain solvent. 30 The order for costs in the builders' cross-claim against the architects has been agreed, and in the result the only costs that would be affected by a Sanderson order against the builders would be the costs of the owners' cross-claim against the architects which would otherwise be paid by the owners on an indemnity basis because of the Calderbank offer they rejected. 31 This Court held that the architects' contract with the owners for phases 3 and 4 of the construction did not include responsibility for the technical qualities of the floor tiles. The relevant facts were peculiarly within the knowledge of the owners, not the builders. 32 The owners were also reminded of the limited role of the architects by the terms of the Calderbank offer and should not have been misled by the builders' cross-claim against the architects. In these circumstances there is no proper basis for a Sanderson order against the builders for the costs that would otherwise be payable by the owners for their cross-claim against the architects. 33 The remaining issue is that raised by the builders' submission that the architects' case at the trial was not confined to the issue on which they succeeded in this Court, but included other issues on which they failed, and that this constituted misconduct which should be reflected in the orders for costs. Huxley v West London Extension Railway Co (1889) 14 App Cas 26, 32-3 was cited in support of this submission. The submission, which was directed to the architects' claim for indemnity costs against the builders for the latter's cross-claim, does not arise because that claim has been rejected for other reasons. 34 The architects also sought orders for the payment of pre-assessment interest on the costs payable to them by the other parties. Section 101(4) and (5) of the Civil Procedure Act provided: "(4) The Court may order that interest is to be paid on any amount payable under an order for the payment of costs. (5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the Court may order, as from: (a) the date or dates on which the costs concerned were paid, or (b) such later date as the Court may order." 35 The only evidence in support of this application was the statement in the affidavit of Mr Mitrevski that the trial lasted for five days. Section 101(5) requires the Court to fix the date or dates from which interest is to be calculated, either from the date or dates on which the costs were paid, or from some later date. There is no evidence of the date or dates when the architects' costs of the trial were paid, and there is no other evidence which would enable the Court to fix a later date. 36 There have been a number of cases dealing with the exercise of this power under earlier legislation where there was evidence before the Court of the amounts paid, and the dates of payment: Fischer v David Syme & Co Ltd (1989) 18 NSWLR 606, 617; approved in GIO of NSW v Healey (No 2) (1991) 22 NSWLR 380, 387; RTA v Cremona (No 3) [2005] NSWCA 13 paras [20], [23]-[24], [26]-[27], [33]-[34]. The question is whether a special order for interest on costs can and should be made in the absence of such evidence. 37 The position in the Supreme Court prior to the Legal Profession Reform Act 1993, which introduced the costs assessment system to replace the taxation of costs by an officer of the Court, was considered by Smart J in Fischer v David Syme & Co Ltd (above). 38 RSC Pt 52 r 54A, then in force, authorised the taxing officer to allow interest on costs paid by the successful party from the date they were paid. However the general rule in a common law action, under s 95(3) of the Supreme Court Act, was that interest was not allowed on costs paid within 21 days of the certificate of taxation. Nevertheless, as Smart J said in Fischer (above) at 618: "… there will be cases where it would be appropriate to allow interest as from an earlier date." 39 The Court's Legislation Further Amendment Act 1995 (No 88) added a new subsection (4) to s 95: "(4) If an order is made for the payment of costs, the Court may order that interest is to be paid on the amounts so ordered, at the prescribed rate, from the date or dates when the amount in respect of costs was duly paid." 40 This conferred a power similar to that previously given to taxing officers by the Rules of Court. The power was not given to costs assessors. In fact s 208V, inserted in the Legal Profession Act by the same Act No 88 of 1995 provided: "This Division does not apply to an amount of interest ordered on a judgment debt (being an order for the payment of costs) under s 85(4) of the District Court Act … or s 95(4) of the Supreme Court Act ..." 41 The function of a costs assessor in a party and party assessment, as defined in s 208F(2) of the 1987 Act, was to determine the costs payable as a result of an order made by a Court or Tribunal. The definition of costs in s 3 did not include interest on costs. The position was different as between practitioner and client. Section 190 permitted a legal practitioner to charge interest on costs in accordance with a costs agreement, or if it was claimed in a bill of costs. Section 208E(1) gave costs assessors the power to disallow any claim for interest in whole or in part, and to determine the rate of interest but the section did not apply to a party/party assessment (subs (4)). 42 The position in the Supreme Court after the 1995 amendments until the commencement of the Civil Procedure Act 2005 was that the allowance of interest on costs before their assessment was a matter for the Court and not the costs assessor. 43 The Civil Procedure Act repealed the relevant provisions in s 95 of the Supreme Court Act and s 85(4) of the District Court Act and replaced them with s 101 quoted above para [26] in slightly different language with the same effect. 44 The Legal Profession Act 2004 has not given costs assessors the power to allow interest on party/party costs prior to their assessment. The definition of legal costs in s 4(1) specifically excludes interest and s 395 provides that Div 11, which comprises ss 350-395 dealing with costs assessment, does not apply to "an amount of interest ordered on a judgment debt (being an order for the payment of costs) under s 85(4) of the District Court Act … or s 95(4) of the Supreme Court Act …". 45 Schedule 5 of the Civil Procedure Act cl 5.27 amended s 208V of the Legal Profession Act 1987 (but not s 395 of the 2004 Act) to substitute a reference to s 101(3) of the Civil Procedure Act for s 85(4) of the District Court Act and s 95(4) of the Supreme Court Act. 46 Presumably, following the repeal of the Legal Profession Act 1987, s 68(3) of the Interpretation Act applies and the reference in s 101(3) of the Civil Procedure Act to s 208V of the 1987 Act is now to be read as a reference to s 395 of the 2004 Act. 47 Section 208V of the 1987 Act and s 395 of the 2004 Act refer to "an amount of interest ordered" which appears to contemplate orders which actually fix the amount of interest payable to the party entitled to receive the costs. 48 In my judgment this is not necessary because the actual amount once calculated will be the amount ordered. There would be problems if it was necessary because the Court cannot know whether amounts paid to the successful party's lawyers will be allowed on assessment, and to what extent. 49 It follows therefore that the power in s 101(4) must be exercised by the Court and under UCPR Pt 36 r 16 it must be exercised in the substantive judgment, or on a motion filed within 14 days thereafter. In my opinion the power should not be exercised without evidence of the amounts paid and the dates of payment. 50 The Court had such evidence in the cases referred to ([28]). Such evidence was also before the Court in the recent cases of Leda Pty Ltd v Weerden & Anor (No. 2) [2007] NSWCA 283 [6]; and Rob Evans of Rob Evans & Associates v European Bank Ltd (No. 2) [2009] NSWCA 170 [34]. In the latter case Basten JA, with the concurrence of Campbell JA, said, referring to such evidence, that "The precondition to the operation of s 101(4) was satisfied." 51 It may not be appropriate to treat this statement as a decision that evidence of this nature is a statutory precondition to the exercise of the power in every case but assuming, contrary to my present inclination, that the power is wide enough to permit the Court to make an order without such evidence there is nevertheless, in my opinion, a serious question as to whether the power ought to be exercised in such a case. 52 The general rule is that interest on costs only runs from the certificate of assessment and is only payable if the assessed costs are not paid within 28 days. I see no reason for exercising the power when the party seeking the order does not provide the Court with evidence and invites the Court to make an order without knowing what its practical effect will be. In my opinion an order for interest on costs should not be made in the present case. 53 It is now necessary to deal with the costs of these motions. Orders (2) and (5) that I propose reflect the agreement reached between the plaintiff, the owners and the builders prior to the filing of the Notice of Motion to adjust, as between themselves, the burden of the costs orders in favour of the architects. Those adjustments could have been effected by a consent order. The variation in order (3) against the owners, to provide that the costs payable to the architects of their cross-claim should be on an indemnity basis from 20 June 2006, had never been offered. The architects' success in this respect should be reflected in the orders for the costs of the motion. The variation in order (4) against the builders gives effect to the compromise between the architects and the builders agreed on 29 April. The architects' application for pre-assessment interest on costs has been refused. 54 In these circumstances the architects should pay the costs of the plaintiff and the builders of the Notice of Motion of 30 April, and the owners should pay half the architects' costs of that Notice of Motion, so far as it related to the claims against the owners. There should be no order as to the costs of the plaintiff's Notice of Motion of 16 June 2009. 55 The following orders should therefore be made: (1) The orders for costs included in orders (2), (3), (4), (5) and (8) made by this Court on 16 April 2009 are varied as herein provided.

DRUMMOND AND ROSEN PTY LIMITED v EASEY & ORS

At a glance

Court

Decision date

Before

Source

Judgment (40 paragraphs)

Parties

Cases Cited (10)

Cited By (50)