EKO Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors

Supreme Court of NSW|2009-02-17|Before: Bergin CJ

CITATION : EKO Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors (Costs) [2009] NSWSC 371

HEARING DATE(S) : 16 and 17 February 2009, 27 April 2009

JURISDICTION : Equity Division - Technology & Construction List

CATCHWORDS : [COSTS] - Concurrent proceedings - complex multi-issue, multi-party case - nominal damages - costs of first set of proceedings as finalised

Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394 Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors [2009] NSWSC 208 CASES CITED : Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors (No. 2) [2009] NSWSC 329 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors (1988) 81 ALR 397 J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch & Anor (No. 2) (1993) 46 IR 301 Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak [2006] NSWSC 1149

EKO Investments Pty Limited Austruc Constructions Limited PARTIES : Cyril Smith & Associates Pty Limited Slater Lomas Pty Limited The Owners Strata Plan No. 64970 Traditional Windows Pty Limited

FILE NUMBER(S) : SC 55047 of 2003; 55048 of 2005

G Sirtes SC (Owners Corporation) I D Faulkner SC (CSA) COUNSEL : M Galvin (EKO) M G Rudge SC/M S White (Austruc) I G Roberts (Slater Lomas) SJ Walsh (Traditional Windows)

David Le Page (Owners Corporation) Kennedys (CSA) SOLICITORS : Stacks/Forster (EKO) Doyles Construction Lawyers (Austruc) DLA Phillips Fox (Slater Lomas) James Tuite & Associates (Traditional Windows)

1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

55047 OF 2003 EKO INVESTMENTS PTY LIMITED v AUSTRUC CONSTRUCTIONS LIMITED & ORS;

55048 OF 2005 THE OWNERS STRATA PLAN NO. 64970 v AUSTRUC CONSTRUCTIONS LIMITED & ORS COSTS JUDGMENT 1 These reasons relate to costs applications in respect of the proceedings the subject of my judgments delivered on 31 March 2009: Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors [2009] NSWSC 208 (the Judgment) and on 30 April 2009 [2009] NSWSC 329 (the second Judgment). I will refer to the first proceedings (55047/03) as the EKO proceedings and the second proceedings (55048/05) as the Corporation's proceedings. 2 In the second Judgment orders were made for the Referee to provide an explanation in respect of his conclusion that CSA negligently designed the façade of the Building. The matter has also been remitted to the Referee in respect of the contents claim. I regard it as appropriate to defer any ruling in relation to the costs of the Corporation's proceedings and the adoption hearing generally until the final orders are made in respect of the adoption hearing and further reports to the Court. It is however appropriate to finalise the orders sought in respect of the EKO proceedings. EKO proceedings 3 On 17 September 2003 EKO's solicitors wrote to the Corporation advising that EKO intended to commence action against Austruc for the "total costs of having another company rectify all defects" in the Building. In that letter EKO advised that the action was taken "for the benefit of all concerned". It is common ground that at no stage between the time that EKO commenced its proceedings and the time the Corporation commenced its proceedings was any complaint made or dissatisfaction expressed with the course taken by EKO in commencing its proceedings.

4 When EKO commenced its proceedings on 12 November 2003, the only defendant was Austruc. On 12 March 2004 EKO filed an Amended Summons joining CSA and Slater Lomas. Austruc filed cross-claims against, inter alia, Traditional Windows Pty Ltd (Traditional). 5 It also appears to be common ground that after the Corporation commenced its proceedings in June 2005, the Corporation obtained the benefit of and utilised quite a deal of the work already done by EKO in the EKO proceedings, for example, the Corporation relied on the Scott Schedule served by EKO in the EKO proceedings. Both proceedings were case managed together. The parties to both proceedings also attended the unsuccessful mediation. Both matters were referred to the Referee in November 2007. It was not until February 2008 that Austruc suggested that EKO discontinue its proceedings. On the first day of the reference hearing CSA objected to the adducing of evidence served by EKO in the EKO proceedings. This application resulted in the Interim Report.

6 The Referee noted in his Interim Report that it was common ground that when EKO commenced its proceedings, it had "a prima facie entitlement to damages, and that the damages might have been assessed in the way EKO now contends for": [8]. The Referee concluded that by reason of the Corporation commencing its proceedings and seeking more limited remedial work than that sought by EKO and the Corporation, and not EKO, being in a position to stipulate what work could be done to the Building, it would not be reasonable to award damages to EKO "assessed by reference to the cost of doing some remedial work that will not be carried out": [12]. Although the Referee prevented EKO from calling evidence as to the appropriateness of the remedial work proposed by it in the EKO proceedings, he saw no reason why EKO should not lead evidence going to "other matters": [14]. 7 In his Report dated 24 September 2008, the Referee concluded that EKO was entitled to nominal damages from each of Austruc, CSA and Slater Lomas. EKO's claims otherwise and the cross-claims were dismissed: [55]. Costs of the EKO proceedings 8 EKO accepted that the Referee's ruling in the Interim Report prevented it from adducing any damages evidence in the EKO proceedings that would be different from the damages evidence adduced by the Corporation in its proceedings. EKO submitted that it did not abandon or discontinue its claim in the EKO proceedings and pressed for nominal damages on the basis that the evidence led by the Corporation would establish the very breaches complained of by EKO in its proceedings. It was submitted that ultimately the Referee's Report shows that EKO's position was correct and liability was found in its favour and that it was entitled to nominal damages. 9 EKO submitted that although it recovered only nominal damages, it should be treated as the successful party and have the benefit of the "usual order as to costs". EKO accepted that there are authorities supporting the proposition that in actions for breach of contract where a plaintiff establishes liability but only obtains an order for the payment of nominal damages, the plaintiff is usually not to be regarded as the successful party: Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak [2006] NSWSC 1149; and Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394. However it was submitted that in those cases the plaintiffs were unsuccessful in achieving their aim of higher than nominal damages. EKO submitted that after the Interim Report, it was only ever seeking nominal damages and that is exactly what it achieved. It was submitted that it did not lose a contest on the issue of damages and that the Corporation's success in the Corporation's proceedings establishes that EKO could have proved its damages, if the procedural ruling had not prevented it advancing its evidence. Although the matter of the Corporation's negligent design claim against CSA has been the subject of an order for explanation in a further report from the Referee, this submission is justified to the extent that the Corporation has succeeded against CSA in respect of the negligent design of the windows.

10 On 5 February 2008 Austruc's solicitors put EKO on notice that Austruc would claim that EKO would be unable to prove any loss or damage to it in circumstances where the Corporation had commenced its proceedings. Austruc suggested that EKO should desist from pursuing its claim against Austruc and invited it to discontinue its claim against Austruc on terms as to payment of Austruc's costs to be agreed or ordered by the Court. Austruc submitted that EKO was not successful and whether or not it had justification for commencing the proceedings, the award of nominal damages does not represent success. Austruc claimed that EKO should pay its costs of the EKO proceedings and that such costs should be paid on an indemnity basis from 12 February 2008 when EKO declined Austruc's invitation to discontinue those proceedings. 11 Austruc submitted that in the light of EKO being awarded only nominal damages EKO should not have its costs of the EKO proceedings. Austruc submitted that in its proceedings EKO made claims additional to those made in the Corporation's proceedings, to which Austruc was obliged to respond by preparing and serving lay and expert evidence. Austruc relied on a table setting out numerous claims made by EKO in the EKO proceedings which were either withdrawn, rejected or the subject of the Referee's Interim Report precluding EKO from calling evidence. Austruc submitted that it is entitled to an order that EKO pay its costs thrown away of the claims withdrawn, rejected or the subject of the Referee's Interim Report. 12 CSA submitted that if objection had not been taken to EKO calling evidence, there would be an undoubted entitlement in all defendants for an order that EKO pay their costs. It was submitted that the costs that EKO ought be ordered to pay should be on an indemnity basis from 7 June 2005, the date the Corporation commenced its proceedings. In this regard CSA submitted that such an order is justified whenever it appears that an action has been commenced where the applicant, properly advised, should have known it had no chance of success: J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch & Anor (No. 2) (1993) 46 IR 301; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors (1988) 81 ALR 397. CSA submitted that from the time the Corporation proceedings were commenced EKO was propounding a case that could not succeed. 13 CSA seeks an order that EKO pay CSA's costs of the EKO proceedings, including the costs of EKO's motion for adoption and that from at least 7 June 2005 those costs be payable on an indemnity basis. 14 Traditional was joined in the EKO proceedings as a cross-defendant to a cross-claim brought by Austruc on 16 August 2004. The Referee concluded that this cross-claim should be dismissed. Traditional seeks an order for costs in respect of that cross-claim. CSA also filed a cross-claim against Traditional in the EKO proceedings. The Referee concluded that this cross-claim should be dismissed. Traditional seeks its costs in respect of that cross claim. 15 In Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak [2006] NSWSC 1149 Campbell J dealt with aspects of the costs of a rather complex case in which the plaintiff had amended its pleadings and changed its position a number of times during the litigation, including whether an award of only nominal damages affects the costs orders which should be made in the proceedings: [47-52]. After referring to numerous cases and texts on the subject, his Honour reached the uncontroversial conclusion that the ultimate decision must be made by reference to the facts of the individual case: [52]. 16 CSA's submission that EKO's claim was doomed to failure, or had no chance of success, from the time the Corporation commenced its proceedings is not sustainable. Had there been some support from the Corporation for EKO to maintain any part of its claim, then it may well have achieved, as the Referee correctly pointed out, an assessment of damages in its favour greater than nominal damages. The award of nominal damages reflected EKO's entitlement to bring the proceedings and must be seen in the light of the success of the Corporation's proceedings against Austruc and CSA.

17 There was no objection raised to the EKO proceedings being referred to the Referee. There was no objection raised to any of the evidence that was ordered and served in the EKO proceedings until February 2008. EKO was pressing for much broader rectification of the Building than that which the Corporation ultimately sought in its proceedings. The status of the parties and the process of the hearing before the Referee should have been settled prior to the first day of the reference hearing. 18 In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 Devlin J, as his Lordship then was, referred to the ordinary rule of costs following the event and said, at 874: In applying that rule, however, it is necessary to decide whether the plaintiff really has been successful, and I do not think that a plaintiff who recovers nominal damages ought necessarily to be regarded in the ordinary sense of the word as a 'successful' plaintiff. In certain cases he may be, e.g., where part of the object of the action is to establish a legal right, wholly irrespective of whether any substantial remedy is obtained. To that extent a plaintiff who recovers nominal damages may properly be regarded as a successful plaintiff, but it is necessary to examine the facts of each particular case. 19 This was a complex, multi-party, multi-issue case. That complexity was compounded by the concurrency with the Corporation's proceedings. There is no doubt that EKO was entitled to commence the proceedings. I also accept EKO's submission that it was concerned to refrain from discontinuing the proceedings in the light of the fact that it carried a liability for the work undertaken by Austruc pursuant to the provisions of s 3A of the Home Building Act 1989. Austruc did not suggest that there be a discontinuance of only the wider rectification claim. It proposed a discontinuance of the whole of the EKO proceedings.

20 In complex technology and construction cases it is even more apt to adhere to the principle that it is necessary to examine the facts of each case to decide whether a party who recovers only nominal damages may properly be regarded as a successful plaintiff. There is no doubt that the subject Building was defective. As I have already said, the responsibility for those defects has still not been finally decided, albeit that it is clear that Austruc is liable for poor workmanship and CSA is liable in respect of the negligent design of the windows. The remaining issues referred back to the Referee are CSA's liability for the negligent design of the Building and the contents claim 21 EKO should have negotiated a sensible arrangement with the Corporation for the conduct of the litigation to ensure that costs were not incurred unnecessarily. It was the Referee, on CSA's application, who put that arrangement in place at least from the date of the Interim Report. Prior to that Austruc and CSA had to be ready to meet the case that EKO brought for the more comprehensive rectification of the Building. EKO conceded that from the date of the Interim Report it remained in the reference hearing to defend itself in the cross-claims brought against it in the Corporation's proceedings. That may have been the practical outcome, however there were cross-claims brought by the defendants in the EKO proceedings that remained on foot after the Interim Report was delivered. It is not possible to be satisfied that if EKO had discontinued the EKO proceedings those cross-claims would have been abandoned. That is because of the concurrency of the proceedings and the complex issues that had arisen in respect of the respective liability of each of the parties to the main case and in the cross-claims. However the cross-claimants, Austruc and CSA, could have negotiated a discontinuance or dismissal of the cross-claims against Traditional in the EKO proceedings, but did not. 22 The achievement of the nominal damages award in the EKO proceedings is not a basis upon which EKO should have its costs of the reference hearing in its proceedings, nor is it a basis for a costs order against EKO in respect of that hearing. However there are good reasons for costs orders against EKO in respect of the wider more comprehensive rectification case that the Referee prohibited EKO from pursuing. That result is appropriately described as a failure of EKO's case albeit, that nominal damages were awarded. The defendants had to ready themselves to meet that wider case and incurred unnecessary costs in doing so. EKO should pay the costs thrown away by reason of the failure of the wider rectification case.

23 I am satisfied that EKO should have its costs of the proceedings up to a date by which it would have been reasonable for EKO and the Corporation to reach a sensible arrangement to streamline the litigation so that unnecessary costs were not incurred. The Corporation commenced the proceedings in June 2005 and a reasonable period to reach such agreement is within 6 months of that date. The complexity of the matter and EKO's uncertain position under s 3A of the Home Building Act justified it in not discontinuing its case, except the aspects of the wider rectification claim. I am satisfied that the costs thrown away should be on a party/party basis.

Orders 24 I order that Austruc pay EKO's costs of the proceedings against it up to and including December 2005. 25 I order that CSA pay EKO's costs of the proceedings against it up to and including December 2005. 26 I order that EKO pay Austruc's and CSA's costs thrown away by reason of the failure of the wider rectification claim.

27 Austruc and CSA are to pay Traditional's costs of the cross-claims brought against Traditional. 28 Otherwise EKO, Austruc and CSA are to pay their own costs of the EKO proceedings. 29 The costs applications in respect of the Corporation's proceedings, the adoption hearing and any further applications consequent upon the process referred to in the second Judgment are deferred until that process is completed.

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