Gladstone Area Water Board & Anor v AJ Lucas Operations Pty Ltd [2015] QSC 52

[1] JACKSON J: On 19 December 2014 I gave judgment in the proceeding: Gladstone Area Water Board & Anor v AJ Lucas Operations Pty Ltd [2014] QSC 311 ("principal judgment").

[2] The result was that the plaintiffs were successful on their claim for declaratory relief that the parties had entered into a contract on the terms of the document entitled "Deed of Settlement No 1". The result was also that the defendant was successful on part of its counterclaim for declarations as to the proper construction of the contract in relation to the defendants claims made under the "Deed of Termination" as identified in the principal judgment. I also made factual findings relevant to another part of the defendant's counterclaim, against the possibility that on an appeal I may be found to have made an error in the judgment given on the counterclaim.

[3] As a matter of general impression, in my view, there was a substantial degree of factual overlap and evidence in deciding issues upon both the claim and the counterclaim.

[4] Each of the parties applies for orders for costs. The plaintiffs apply for an order that the defendant pay the plaintiffs' costs of the claim and that the plaintiffs pay the defendant's costs of the counterclaim. They also apply for an order fixing the amount of the plaintiffs' costs of the claim and the defendant's costs of the counterclaim.

[5] The defendant applies for an order that the plaintiffs pay 50 per cent of the defendant's costs of the proceeding (that is claim and counterclaim). The defendant submits that I should not consider the question of fixing the amount of any order for costs until I have decided what the order or orders for costs should be.

[6] The source of the court's power to award costs is now contained in s 15 of the Civil Proceedings Act 2011 (Qld) ("Civil Proceedings Act") which provides that a court may award costs in all proceedings unless otherwise provided.

[7] From there, the jumping-off point, as both party's written submissions acknowledge, is that Uniform Civil Procedure Rules 1999 (Qld) ("UCPR"), r 681(1), provides that costs of a proceeding, including an application in a proceeding, are in the discretion of the court but follow the event unless the court orders otherwise. A proceeding is started by claim or application: UCPR, r 9. In this case, the proceeding was started by the plaintiffs' claim. A defendant may bring a counterclaim against a plaintiff in a proceeding, instead of bringing a separate proceeding by claim or application: UCPR, r 177. Further, the UCPR apply to the conduct of a counterclaim with necessary changes as if the plaintiff on a counterclaim were the plaintiff in an original proceeding and the defendant to the counterclaim were the defendant to an original proceeding: UCPR, r 181(1).

[8] By UCPR, r 181(3), it is provided that a counterclaim must be tried at the trial of the plaintiff's claim. But that is subject to an order for the exclusion of the counterclaim: UCPR, r 182.

[9] The separate nature of the proceeding on the claim on the one hand and on the counterclaim on the other is recognised by other rules. Thus, for example, a counterclaim may proceed after judgment as given in the original proceeding or after the original proceeding is stayed, dismissed or discontinued: UCPR, r 183. In that context, the original proceeding refers to the claim. Further, UCPR, r 184 recognises that separate judgments are given on a claim and counterclaim but where they are both judgments for money sums the judgment may be given for the balance in favour of one of the parties.

[10] It is pertinent to observe that both the Civil Proceedings Act and the UCPR refer to costs in or of a proceeding. The term "proceeding" is defined in the Civil Proceedings Act as a proceeding in a court and so as to include an incidental proceeding in the course of or in connection with a proceeding and an appeal or stated case. None of the procedural statutes or rules in this State now refer to earlier terminology relating to civil proceedings such as "cause", "action", "petition" or "summons". It is better that those earlier names for civil proceedings be discarded, including in the context of an order for costs.

[11] Although UCPR, r 681(1) speaks of costs following the "event", that is not a word which is given any particular meaning in either the UCPR or other statutory provisions. However, the use of that word in the context of the court's power to make an order for costs has a rich history, explained in the context of UCPR, r 681(1) (then numbered r 689(1)) by McPherson JA in Interchase Corporation Ltd (in liq) v Grosvenor Hill (Qld) Pty Ltd (No 3).[1] For the purpose of making an order for costs, the court has the power to treat each separately determined issue as an event. The power to separate the events in a proceeding for the purpose of making an order for costs is further informed by UCPR, r 684, under which the court may make an order in relation to a particular question in or particular part of a proceeding.

[12] Further, in the context of a trial of a claim and counterclaim in a civil proceeding, where there may be a verdict and judgment in favour of one party on the claim and there may be a verdict and judgment in favour of the other party on the counterclaim, it has long been recognised that the judgment of the claim may be treated as one event and the judgment on the counterclaim may be treated as another event.[2]

[13] The plaintiffs submit that the usual order would be that the plaintiffs have their costs of the claim and the defendant have its costs of the counterclaim and that is the appropriate order to make. The defendant submits that the question of what is the event for the purpose of the application of UCPR, r 681(1) should be decided having regard to which party, as a matter of substance and reality, succeeded in the proceeding. The defendant submits it has done so because the declarations that have been made on the counterclaim will operate in the defendant's favour in a related proceeding for the determination by an external panel of the defendant's outstanding claims under the deed of termination.

[14] The plaintiffs' claim succeeded to the extent of obtaining a declaration that the parties entered into a contract on the terms of Deed of Settlement No 1. By that contract, a number of the defendant's claims were settled for the sum of $26,200,000, subject to some possible variation. By the counterclaim, the defendant succeeded in obtaining a declaration in effect that the compromise of the defendant's claims under the Deed of Termination by the Deed of Settlement No 1 is not as great as that contended for by the plaintiffs.

[15] The defendant submits that the net result is that the plaintiffs were substantially unsuccessful in their contention as to the effect that Deed of Settlement No 1 has on the dispute between the parties. The defendant submits that will affect the course of the expert determination. The defendant submits that the plaintiffs' success in establishing that there is a contract on the terms of Deed of Settlement No 1 is thus a pyric legal victory with no commercial benefit.

[16] I am unable to understand or accept these submissions. The success or otherwise of the plaintiffs in this proceeding does not depend on any position taken by either of the parties in the proceedings for determination of the defendant's claims under the Deed of Termination by the expert panel. In this proceeding, the plaintiffs were entitled to bring a claim that a contract had been made on the terms of the Deed of Settlement No 1. The defendant disputed that there was any such contract and was thus a contradictor. The defendant relied on numerous grounds, which were apparent on the face of the defence and raised in the evidence, in defence of the plaintiffs' claim. They are detailed in the principal judgment. I also observe that the defendant has started an appeal against the judgment given in favour of the plaintiffs on the claim.

[17] The effect of the judgment on the claim is that the plaintiffs and the defendant are bound by the contract made on the terms of Deed of Settlement No 1. There is nothing pyric that I can see about the plaintiffs' success on that issue. Whether or not the result of its success on the claim is as favourable to the plaintiffs as it would have been if the plaintiffs had also successfully defended the counterclaim is not the relevant question, in my view. If it is relevant to ask the question who has really won as a matter of substance, it does not seem to me that the answer to the question can be gleaned from an examination of the parties positions as presently adopted in the proceeding for expert determination.

[18] Accordingly, in my view, it is not appropriate to determine that the relevant event, so far as the costs of the proceeding are concerned, is whether the defendant is to be seen as more successful than the plaintiffs. Based on an assessment of the effect of the declaration of the claim on the one-hand and the declaration on the counterclaim on the other-hand in the expert determination.

[19] The defendant also submits that the plaintiffs were unsuccessful on one of their alternative causes of action, namely that a binding oral agreement which was made at the "first meeting", as described in the principal judgment. However, the plaintiffs always pleaded an alternative cause of action based on Mr Campbell's signature and return of the final document. So far as I can tell, without evidence on the point, no substantial costs will have been added in terms of the determination of the substance of the dispute between the parties on the claim as to whether or not there was a binding contract by the addition of the alternative cause of action that the contract was made orally at the first meeting. I add that the defence of the defendant was that the oral accord reached between the parties at the first meeting was substantially different from that contained in the writing which became the final document of the Deed of Settlement No 1.

[20] In my view, there is no reason to deprive the plaintiffs of the costs of the claim as an event in the proceeding by making an order otherwise.

[21] Once that point is reached, the defendant's submission that the order for costs should be that the plaintiffs pay a percentage of the defendant's costs of the whole proceeding including claim and counterclaim falls away. The defendant does not submit that if the defendant is ordered to pay the plaintiffs' costs in the claim, the plaintiffs should only be ordered to pay a proportion of the defendant's costs in the counterclaim.

[22] The plaintiffs submit that the costs should be fixed under UCPR, r 687(2)(c).

[23] The plaintiffs' solicitor swears in her affidavit that the usual process to assess costs under the UCPR is likely to be more time consuming and expensive than would normally be the case between commercial parties. The basis for saying so is that this proceeding and other disputes between the parties have been characterised by the inability of the parties to reach agreement on a wide variety of procedural and administrative matters. She expects the difficulties to continue. That may be so, but a party liable to pay an order for costs may protect itself from an unreasonable opponent by making an appropriate offer to settle: UCPR, r 733. And a party entitled to an order for costs is usually entitled to the costs of the assessment as well unless the amount of the professional charges and disbursements claimed is reduced by more than 15%: UCPR, r 735. In my view, that the parties to the particular proceeding may be less likely to behave reasonably in an assessment of costs than other parties is not in itself a good reason for a judge of the court to exercise the jurisdiction to fix costs under the UCPR, r 687(2)(c).

[24] Practice Direction 3 of 2007 provides that the court will fix costs to avoid undue delay and expense "but only provided the court is confident to fix costs on a reliable basis". The practice direction also provides that a party seeking an order fixing the amount of the costs should inform the court of a realistic estimate of the amount of the recoverable costs on a standard or indemnity basis should the party be the beneficiary of a costs order.

[25] In accordance with the practice direction, the plaintiffs relied on affidavits as to the plaintiffs' costs by the solicitor who had the conduct of the proceeding on behalf of the plaintiffs and by a costs assessor. On limited information and in accordance with the letter of instructions given to him, the costs assessor adopted a methodology short of a costs assessment. He considered the time costing records of the plaintiffs' lawyers and from those records prepared a schedule of allowable items, adopting a discount factor of 20 per cent to items included in the schedule to take into account work which may not be recoverable and a 25 per cent to 30 per cent allowance for care and consideration. An assessment was made of counsels' fees based on an adopted daily rate and hourly for senior counsel and an hourly rate for junior counsel.

[26] It is unnecessary to consider the affidavit material in detail. The substantial difficulty is that the affidavits do not distinguish between the costs on the claim and those on the counterclaim. There can be no doubt that a substantial part of the costs incurred by the plaintiffs were costs incurred in defence of the counterclaim but no real recognition is given to that fact. It may be very difficult to disentangle them.

[27] As explained by Dixon J (as he then was) in Smith v Madden,[3] the adoption of the common law rule on taxation of costs of claim and counterclaim, in preference to the equitable rule, led to the principle that where an item of "common costs" is reasonably incurred on both the claim and the counterclaim, the plaintiff's entitlement to those costs on the claim leads to the defendant not being entitled to any amount for the same item on the counterclaim, in the absence of a special order.[4] This can lead to a plaintiff being advantaged only because they were the first party to sue.[5] However, where the item is not truly an item of common costs but an undivided item of "mixed" costs attributable to some work on the claim and different work on the counterclaim, it must be apportioned.[6]

[28] The plaintiffs submit that the majority of the time at the trial was spent on the events of the first meeting and second meeting on 16 November 2012 and that the only part of that evidence which related to the counterclaim concerned the defendants abandoned contentions about rectification. As well, the plaintiffs submit that there were very few parts of the trial which related solely to the counterclaim.

[29] In my view, those submissions understate the significance of the evidence given at the trial generally in relation to the counterclaim.

[30] Further, the plaintiffs submit that the defendant's solicitors statement that the vast majority of costs incurred and time spent were in relation to matters common to the claim and counterclaim is sufficient to conclude that the vast majority of the costs were at least the general or common costs of the proceeding, which are probably part of the costs of the claim.

[31] The plaintiffs submit that I should determine that on a conservative approach 85 per cent of the costs of the proceeding will be costs of the claim alone or common costs of the claim and counterclaim and, therefore, only 15 per cent of the costs were additional costs of the counterclaim. In my view, there is no reliable basis in the evidence to fix the costs on that basis. There is no evidentiary connection I can see or basis on which I am able to infer that the outcomes of 85 per cent and 15 per cent respectively.

[32] In my view, the court could not be confident to fix costs on the plaintiffs' claim or on the defendant's counterclaim on the footing that the costs as identified in the present affidavits form or provide a reliable basis to do so.

[33] The defendant sought to reserve evidence or submissions as to the appropriateness of a fixed costs order until such time as an order for costs is made. In my view, the defendant is not entitled to impose a procedural step or break in the determination of the costs order to be made.

[34] In the result, in my view, it is not appropriate to make an order that the plaintiffs' costs of the claim or the defendant's costs of the counterclaim be fixed in a particular sum.

[35] There is, however, a remaining question as to the appropriate order for costs on the counterclaim. At the end of the fifth of six days of trial, the defendant abandoned paragraphs 7 to 22, 30 to 32, 33 to 41 and 42 to 47 of the amended defence and counterclaim, together with the relief sought in paragraphs 1, 3, 3A and 4 of the claims for relief in the counterclaim. In my view, the defendant should not have the costs of the issues raised upon those paragraphs and claims. Further, in accordance with the spirit of UCPR, r 386, the defendant should be ordered to pay the plaintiffs' costs of those issues.

[36] Accordingly, the orders for costs to be made are that the defendant pay the plaintiffs' costs of the claim and of the issues raised upon paragraphs 7 to 22, 30 to 32, 33 to 41 and 42 to 47 of the amended defence and counterclaim and the relief sought in paragraphs 1, 3, 3A and 4 of the claims for relief in the counterclaim but otherwise that the plaintiffs pay the defendant's costs of the counterclaim.

[1] [2003] 1 Qd R 26, 60-61 [82]-[84].

[2] Quick & Garnsworthy, Quick on Costs, Sydney, Law Book Co, 2009, [2.410]; GE Dal Pont, Law of Costs, 3rd ed, LexisNexis, 2013, [8.4].

[3] [1946] HCA 19; (1946) 73 CLR 129.

[4] Smith v Madden [1946] HCA 19; (1946) 73 CLR 129, 133-134.

[5] Quick & Garnsworthy, Quick on Costs, Sydney, Law Book Co, 2009, [4.4960].

[6] Smith v Madden [1946] HCA 19; (1946) 73 CLR 129, 136-137.