Green v Bruckner

Supreme Court of NSW|2009-05-06|Before: Price J, McTiernan JJ

Background 4 Proceedings had been commenced by Allen Green in the Small Claims Division of the Local Court for work done and materials supplied in the erection of a rural shed on the property of Louise Bruckner. Ms Bruckner filed a defence denying Mr Green's claim and in the alternative defended the proceedings on the basis that there had been a total failure of consideration. By a First Amended Cross-Claim she claimed $37,863.92 in damages and $10,000 in solatium. 5 Although Mr Green is the cross-defendant in the cross-claim and Ms Bruckner is the cross-claimant, Mr Green will be referred to in this judgment as the plaintiff and Ms Bruckner as the defendant for the sake of convenience. 6 The proceedings were eventually heard by the Magistrate sitting in the General Division. At the commencement of the hearing the defence of total failure of consideration was abandoned, as was a $10,000 cross-claim for solatium. The matters of contention before the Court were the defendant's claims for defective work which had been identified by items in a Scott Schedule. In a reserved judgment, her Honour found that some of the items claimed had been made out and determined that the reasonable cost of rectification was $2,508.05. Her Honour noted that the cross-claim was in the nature of a set-off and made the following orders: "In relation to Mr Green's claim there will therefore be a verdict for the plaintiff of $5,000. In relation to … Ms Bruckner's cross-claim there will be a verdict for the cross-claimant of $2508.05. After set off, there will be a verdict for Mr Green in the sum of $2491.95 (being $5,000 less $2508.05) plus interest from the date of the application." 7 After delivering judgment, the Magistrate heard oral argument on the question of costs which was complicated by a Calderbank offer. By a letter dated 9 November 2007 from the defendant's solicitors to the plaintiff's solicitors, the following offer was made: "Our client offers to settle the Local Court proceedings on the following basis: 1. Both sets of proceedings being the proceedings commenced by Alan Green numbered 370/06 and the cross-claim by Louise Bruckner (proceedings number unknown) to be dismissed. 2. No order as to costs. This offer is made pursuant to the principles expressed in Calderbank v Calderbank and is open for a period of fourteen (14) days." 8 The defendant's settlement offer was rejected in a letter from the plaintiff's solicitors dated 14 November 2007. The letter relevantly stated: "We are instructed to reject your client's offer of settlement. The plaintiff makes a counter offer of $14,000 inclusive of costs in full and final settlement of his claim, including the costs of the CTTT proceedings. Would you obtain the Defendant's instructions and advise." 9 The mention of "the costs of the CTTT" was a reference to proceedings initiated by the defendant in the Consumer Trader and Tenancy Tribunal (CTTT). 10 In a letter dated 20 November 2007, the defendant's solicitors responded to the counter offer by asking that the plaintiff: "… reconsider his position before substantial monies are spent in lodging a cross-claim and retaining an expert that will be relied upon to support a claim well in excess of your client's current claim of $5,000." 11 Each of these letters was tendered during the costs argument. It seems that following the letter dated 20 November 2007 no steps were taken to settle the proceedings.

The Costs Judgment 12 After a short adjournment, the Magistrate proceeded to give judgment on the costs application. Her Honour noted that the plaintiff had been successful on his claim "subject to the set-off for the insulation work" and that it was not disputed that Local Court Practice Note 2 of 2007 applied to the plaintiff's claim. Her Honour was of the view that the relevant provision of the Practice Note provided for the maximum costs allowable of $2,500 and understood that the plaintiff was seeking costs of $2,000 on the claim. Her Honour found that the presumption that costs followed the event had not been displaced and made an order in favour of the plaintiff for costs in the sum of $2,000. 13 The Magistrate went on to consider the cross-claim. Her Honour described the defendant's argument that she had been wholly successful on her cross-claim as being a "bold submission" given that the claim was for $37,500 and that she was awarded $2,508.05. Her Honour said (T12 L43-47): "She has not been highly successful either in the totality of the claim for [the] defects or in the amount of the claim. However, I do accept that Ms Bruckner has been successful in her claim on a number of items of alleged [defective] work. On the basis of costs following the event she must be entitled to some of her costs." 14 Her Honour then made reference to the letters as to settlement between the solicitors and to the principles of a Calderbank offer. Her Honour said (T13 L9-12): "… I accept Mr Green's submission that the result he has obtained is clearly better than had he accepted the offer contained in correspondence in November 2007. That would have resulted in his payment of an amount of $14,000 to Ms Bruckner." 15 The Magistrate did not accept that the defendant was unreasonable in refusing to settle the matter and declined to award costs on an indemnity basis. Her Honour ordered the plaintiff to pay one third of the defendant's costs on the cross-claim as agreed or assessed on a party/party basis. 16 An exchange then took place between the Magistrate and Ms Painter, the defendant's counsel. Ms Painter submitted that her Honour had misunderstood the Calderbank offer and that the amount of $14,000 was raised by the plaintiff as a counter-offer. Her Honour agreed that there had been a misunderstanding and took a short adjournment to reconsider the matter. When her Honour returned, she remarked that the offer of compromise in November 2007 was in fact the defendant's. 17 Her Honour said (T16 L7-16): "Clearly in this matter, looking at the fact that Ms Bruckner offered in the Calderbank offer for the parties to walk away, with no order as to costs, and Mr Green's response was a request that the matter be settled on the basis that she pay him the amount of $14,000 inclusive of costs in final settlement of the claim. Clearly Mr Green has not achieved an outcome that is better than that, and there must be consequences that flow from that. The result is clearly less favourable to him. I note that the letter purports to be in relation to both claims, so I need to take it into account in relation to both claims for costs. There is an awkward cross-over between what flows from that and the requirements of the practice direction in relation to small claims." (Italics added) 18 In relation to the small claim, the Magistrate considered there should be a deduction to the plaintiff's costs of $2,000 to take into account the Calderbank letter. Her Honour ordered that the defendant was to pay the plaintiff's costs "up until the Calderbank letter of 20 November and that there should be a discount following 20 November flowing from the Calderbank letter." Making an adjustment from 20 November, her Honour reduced the costs to $1,500. 19 Her Honour went on to say (T16 L38-49, T17 L1-2): " In relation to the costs on the cross-claim, in my view, Ms Bruckner is liable for costs up to the Calderbank letter. As I said before, she was successful in about 50 per cent of the claim, but of a much smaller monetary amount, and I believe one third of the costs is the appropriate amount up until 20 November as agreed or assessed on a party/party basis. However, after 20 November I believe costs should flow the other way . The refusal to engage in the settlement posited by the Calderbank letter meant that we went to three days of hearing, great expense, great expense for the experts, great expense to the parties and costs. In my view, after 20 November, it is for Mr Green to pay Ms Bruckner's costs on an indemnity basis." (italics added). 20 The transcript reveals that the following exchange then took place between the defendant's counsel and her Honour (T17 L4-25): "Painter: Can I clarify something, your Honour?

Painter: In the judgment before the short adjournment, you awarded Mrs Bruckner a third of her costs on the cross-claim as agreed or assessed.

Painter: Does the [gravamen] of that order stand? That is, does your new order mean she gets a third of her costs…

Her Honour: She gets one third of her costs up until 20 November.

Her Honour: On a party/party basis and thereafter she gets costs on an indemnity basis - the whole of her costs on an indemnity basis.

Painter: Thank you for that clarification, your Honour.

Her Honour: Thank you. My apologies for the confusion." 21 Unfortunately, the confusion as to what the Magistrate intended does not end here. The orders engrossed by the Registrar of the Downing Centre Local Court do not reflect what was said by the Magistrate during that exchange. The formal orders are as follows: "1. On the claim by plaintiff Green Ms Bruckner is to pay costs in the sum of $1500. 2. On the cross-claim Ms Bruckner is to pay ½ of Mr Green's costs on a party/party basis as agreed or assessed up until 20/11/2007 , thereafter, Mr Green is to pay the whole of Ms Bruckner's costs on an indemnity basis." (underlining added) 22 As the plaintiff's summons details the Magistrate's decision in terms of the formal orders, the parties were invited to make submissions on the apparent inconsistency between what appears in the exchange quoted above at [20] above and order 2 of the formal orders. 23 In written submissions the defendant applied to this Court to correct what was said to be errors in the second order. It was contended that the orders reflect either a clerical mistake or an accidental slip which this Court could correct under the slip rule: UCPR36.7. Reference was also made to the inherent jurisdiction of this Court to correct a duly entered judgment where the orders do not truly represent what the court has intended to pronounce. 24 The plaintiff opposed any correction of the formal orders and pointed out that the defendant's solicitors had written to the Registrar of the Downing Centre Local Court on 5 February 2009 requesting advice as to whether the orders were correct and had drawn the Registrar's attention to the orders noted by Ms Painter. The Registrar had responded by forwarding a copy of the handwritten orders which were signed by the Magistrate (ex A Doc14). Those handwritten orders are in the same terms as the formal orders. 25 In view of the Magistrate's handwritten orders, the defendant's request for this Court to apply the slip rule was declined. This disinclination to intervene in such circumstances was re-enforced by the Magistrate's remarks in the passage quoted at [19] above: "However, after 20 November I believe costs should flow the other way." 26 The defendant was nevertheless offered the opportunity to apply to the Magistrate for correction of the asserted error before this appeal proceeded further but this offer was declined. Accordingly, consideration of the appeal must proceed upon the basis of the formal orders. To avoid misunderstanding the second order is: "On the cross-claim [the defendant] is to pay ½ of the [plaintiff's] costs on a party/party basis as agreed or assessed up until 20/11/2007, thereafter [the plaintiff] is to pay the whole of the [defendant's] costs on an indemnity basis.'

The appeal from the Judgment 27 At the hearing of this appeal, Ms Painter who appeared for the defendant submitted that there was no articulation in the summons of error said to ground the appeal. I found merit in this submission, as the first ground did nothing more than allege an error in law by a recitation of the formal orders. The second ground alleges error in the exercise of the Magistrate's discretion "on the issue of costs by failing to apply established principles." As there was no identification of the "established principles", this ground was less than clear. 28 A Summons commencing an appeal is required to "contain a statement setting out briefly but specifically the grounds relied on in support of the appeal including, in particular, any grounds on which it is contended that there is an error of law in the decision of the court below": UCPR 50.4(2). Although in the present appeal, it was not difficult to intuit that the principal complaint was her Honour's consideration of the Calderbank offer, the grounds of appeal were not distinctly (and briefly) identified. As was explained in Nichols v Lee [2008] NSWSC 1243 by McCallum J at [30]: "The Summons in an appeal to the Court must specify the grounds on which it is contended that there is an error of law in the decision below: UCPR 50.4(2). In my view, the obligation imposed by that rule is to identify with precision the error of law complained of: cf ASIC v Saxby Bridge Financial Planning Pty Ltd [2003] FCAFC 244 at [45] to [48]. The remarks of the Full Court of the Federal Court in that case were made in the different statutory context of an appeal on a "question of law" from the Administrative Appeals Tribunal, but in my view are nonetheless apposite to an appeal to this Court under the Local Courts Act ." 29 Leave was granted to the plaintiff to amend the summons and the grounds of appeal are as follows (MFI B): "The Magistrate erred in law in the following respects:

a) By not applying the general principle that costs follow the event in respect of the cross-claim where the cross-defendant was the successful party.

b) By making a manifest error in the application of the principles in Calderbank v Calderbank where it was not established that the offeror, Mr Green, unreasonably rejected the offers by the cross-claimant on 9 and 29 November 2007.

c) By misapplying the principles in Calderbank v Calderbank when the plaintiff was the successful party on its claim and the cross-claim, receiving a verdict and judgment in his favour.

d) By erring in law by misapplying the principles in Calderbank v Calderbank by reducing the plaintiff's costs from $2,000 to $1,500." Ground 1: By not applying the general principle that costs follow the event in respect of the cross-claim where the cross-defendant was the successful party. 30 The plaintiff complains that her Honour erred by not applying the general principle that costs follow the event in the cross-claim. He argued that he had been victorious in the proceedings as he was awarded $2,491.95 plus interest after set-off and the practical result of the proceedings as a whole was that he was the successful party. The disputed questions of fact or law, the plaintiff contended, were determined entirely favourably to him on his claim and in the cross-claim 93.4 per cent of the factual evidence supporting the defendant's cross-claim was rejected and only 6.6 per cent of the claim namely $2,508 out of $37,500 was successful. 31 The defendant submitted that this ground proceeds on the false assumption that the plaintiff was the successful party in the cross-claim. The true position the defendant contended was that she succeeded in her cross-claim for which she obtained a verdict for $2,508.05. 32 The court's power as to costs is found in s 98 of the Civil Procedure Act and Pt 42 of the UCPR. The general rule is that costs follow the event and are assessed on an ordinary basis (party/party basis): UCPR r 42.2. In the exercise of discretion, the court may make an order other than that costs follow the event, or other than that costs be assessed on an ordinary basis: UCPR r 42.1 and 2. 33 The identification of the 'event' in r 42.1 depends upon the circumstances of the case: Commonwealth of Australia v Gretton [2008] NSWCA 323 at [40]. 34 In considering the principles to be applied to the question of costs Clarke JA relevantly said in X and Y (by her Tutor X) v Pal (Court of Appeal, 7 June 1991, unreported): "…costs are in the discretion of the court. This discretion must be exercised judicially. The principles which bear on its exercise are generally: (1) Ordinarily, costs follow the event; (2) In particular circumstances it may be reasonable to require that a litigant who has succeeded only upon a portion of his claim should bear the expense of litigating the other portion or portions; and (3) Circumstances may dictate that a successful party who has failed on certain issues may not only be deprived of the costs in those issues but may be ordered as well to pay the other party's costs of them." 35 Clarke JA observed that "the overriding objective must be to make an order which is appropriate to the justice of the case." The question of costs is not determined by reference to success or failure on a series of issues or by keeping a tally of "wins and losses": Australian Prudential Regulation Authority v Holloway [2000] FCA 1245. 36 During oral submissions in the Local Court, the plaintiff submitted that overall he had been successful in his cross-claim and that he should be entitled to all of the costs of his defence of the cross-claim which submission the Magistrate did not accept. The defendant submitted to her Honour that she had been wholly successful on her cross-claim which was also rejected. Her Honour was plainly mindful of the general rule that costs follow the event and considered that neither party was entitled to all of its costs on the cross-claim. 37 Her Honour determined that the defendant had been successful in about 50 per cent of the cross-claim although in a small monetary amount. On the other hand, the plaintiff had successfully limited the amount claimed by the defendant to a verdict of $2,508.05. The Magistrate ultimately resolved this dichotomy by ordering that the defendant was to pay one half of the plaintiff's costs on the cross-claim on an ordinary basis up until the date of the Calderbank letter. 38 It was open to her Honour to conclude that in the circumstances it was reasonable that the defendant who had succeeded on the cross-claim in part should bear the burden of paying 50 per cent of the plaintiff's costs as well as being deprived of a costs order in her favour. 39 As the Magistrate had the benefit of hearing the evidence in the proceedings, her Honour was in the best position to make a costs order which reflected the practical result of the cross-claim and was appropriate to the justice of the case. I am not persuaded that the Magistrate when exercising her discretion erred in law by not applying the general principle that costs follow the event and no error has been demonstrated. Ground 1 of the appeal has not been established. Ground 2: By making a manifest error in the application of the principles in Calderbank v Calderbank where it was not established that the offeror, Mr Green, unreasonably rejected the offers by the cross-claimant on 9 and 29 November 2007. Ground 3: By misapplying the principles in Calderbank v Calderbank when the plaintiff was the successful party on its claim and the cross-claim, receiving a verdict and judgment in his favour. Ground 4: By erring in law by misapplying the principles in Calderbank v Calderbank by reducing the plaintiff's costs from $2,000 to $1,500. 40 As each of these grounds raise the principles governing Calderbank offers, it is convenient to consider them together. 41 The defendant's settlement offer in the letter dated 9 November 2007 was for both the plaintiff's claim and her cross-claim be dismissed with no order as to costs. 42 The plaintiff principally contended that the offer in the Calderbank letter of 9 November 2007 was made in respect of both sets of proceedings and was not confined to the cross-claim. The plaintiff submitted that he had bettered the offer which was to walk away from both his claim and the cross-claim with no order as to costs by the verdict in his favour after set off of $2,491.95 plus interest and costs of $1,500. It was further contended that the letter pre-dated the expert's report and Scott Schedule which the defendant relied upon at the hearing. This material was not served until 13 March 2008. The plaintiff argued that he was not afforded an appropriate opportunity to consider and deal with the Calderbank offer. 43 The defendant submitted that the Magistrate correctly enunciated the Calderbank principles in her reasons and no error of law arises. The defendant argued that the plaintiff sought impermissibly to reargue her Honour's factual findings and no error of law had arisen by the contention that the Magistrate had made a wrong finding of fact. 44 The Magistrate determined that the plaintiff was entitled to 50 per cent of his costs on the cross-claim until 20 November after which date "costs should flow the other way" and the plaintiff was to pay all of the defendant's costs on an indemnity basis. It appears that the date of 20 November was chosen as it was the date of the letter in which the defendant's solicitor asked the plaintiff to "reconsider his position". 45 During the costs judgment, the Magistrate correctly summarised the legal principles which apply to Calderbank offers when she said (T12 L50, T13 L1-7): "Letters were put before me evidencing an offer of settlement in accordance of the principles of Calderbank. Where an offer of settlement has been made, and a party unreasonably refuses to accept that offer, the party may rely upon it in an application for costs, in particular on an indemnity basis. Costs may be ordered on an indemnity basis in favour of a defendant who has made an offer better than the result obtained by the plaintiff. But there is no presumption in favour of such an entitlement. This is relied upon by Ms Bruckner." 46 The Magistrate was aware that the making of a Calderbank offer was one of the circumstances in which her discretion as to costs could be exercised under r42.1 UCPR by some other order than costs following the event. Her Honour was also aware that the making of a Calderbank offer did not automatically result in a favourable costs order notwithstanding a more favourable judgment to the party making the offer: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323. The onus is on the party making the offer to satisfy the court that it should exercise the costs discretion in its favour: Perpetual Trustees Victoria Limited v Cipri [2009] NSWSC 335. A Calderbank offer will not justify an order for indemnity costs unless its rejection was unreasonable: Jones v Bradley (No.2) [2003] NSWCA 258. 47 When a Calderbank offer is made, it is fundamental to the exercise of the discretion that the offeror establishes that the offeree ended up worse off than if the offer had been accepted. As was said by Giles JA in SMEC Testing Services at [37]: "…the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted …" (underlining added) 48 Although there is no criticism of her Honour's recitation of the principles governing Calberbank offers, it is evident that her Honour misunderstood how the principles were to be applied. The Magistrate's misapprehension arose from her consideration of the plaintiff's counter offer. 49 It was initially understood by the Magistrate that the offer made by the defendant was that the plaintiff pay her $14,000. When it was pointed out that the $14,000 was the plaintiff's counter offer, the Magistrate took a short adjournment. After her Honour returned, she recognised in the passage quoted at [17] above that the defendant's Calderbank offer was for the parties "to walk away, with no order as to costs" and the plaintiff's counter offer was that the defendant pay him $14,000 inclusive of costs. Her Honour however went on to say (T16 L11-13): "Clearly Mr Green has not achieved an outcome that is better than that, and there must be consequences that flow from that. The result is clearly less favourable to him." 50 It is apparent that the Magistrate had misdirected herself by identifying the offer against which the litigated result was to be measured to be the plaintiff's counter offer of $14,000 inclusive of costs and not the defendant's offer that both sets of proceedings be dismissed with no order as to costs. It was the defendant's offer of compromise (and not the counter offer) which her Honour was obliged to compare when determining whether the plaintiff as a result of his rejection of the defendant's offer had ended up after judgment in a worse position. 51 Her Honour made an error of law in misconceiving the question of fact that had to be determined when the principles governing a Calderbank offer were to be applied. Glass JA in Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 said at 156: "A finding of fact in the Commission may nevertheless reveal an error of law where it appears that the trial judge has misdirected himself ie has defined otherwise than in accordance with law the question of fact he has to answer."

52 The defendant further contended that the Magistrate had dealt with the costs of the plaintiff's claim and cross-claim separately and there was no error for her Honour to find that the eventual outcome was no more favourable to the plaintiff. This argument, in my opinion, has no merit. 53 The Magistrate expressly observed that the Calderbank offer was made in relation to both claims. Her Honour's mistaken consideration of the Calderbank principles is manifested by the reduction of $500 in the costs awarded to the plaintiff on his claim by making an adjustment from 20 November. The plaintiff had obtained a verdict of $5,000 in his claim plus costs which were originally assessed by her Honour to be in the amount of $2,000. The plaintiff had ended up better than if he had accepted the defendant's offer. The only reason for the reduction of $500 was that the verdict was measured against the plaintiff's counter offer of $14,000 inclusive of costs which was an error. 54 When both actions were considered together, the defendant could not establish that the plaintiff (the offeree) after set off had ended up in a worse position than if her offer had been accepted. Before the question of costs was determined, the plaintiff had obtained a verdict in the sum of $2,491.95. 55 In my respectful opinion, her Honour erred in ordering that on the cross-claim the plaintiff was to pay the whole of the defendant's costs after 20 November 2007 on an indemnity basis. It was within her Honour's discretion to order that the defendant pay half of the plaintiff's costs on the cross-claim on an ordinary basis. The original assessment by the Magistrate that the defendant pay the plaintiff's costs of his claim in the amount of $2,000 was also within her discretion. An error occurred when that amount was reduced to $1,500. 56 The plaintiff did not contend either before the Magistrate or in this Court that Local Court Practice Note 2 of 2007 which provides at [5.1] for maximum costs of $2,500 for small claims transferred to the General Division did not apply to the plaintiff's claim. 57 As the plaintiff has demonstrated manifest error, it is unnecessary to consider whether he was afforded an appropriate opportunity to consider and deal with the Calderbank offer. 58 Grounds 2,3 and 4 of the appeal are established. 59 The plaintiff seeks relief pursuant to s 75(b) of the Local Courts Act that the orders as to costs be set aside. Neither party submitted that the matter should be remitted to the Local Court: s 75(c) of the Local Courts Act. Substantial costs have undoubtedly been incurred in these proceedings which commenced in the Small Claims Division of the Local Court. It is appropriate that the matter be brought to an end in this Court so as to facilitate the just, quick and cheap resolution of the issues in dispute: s 56 of the Civil Procedure Act. 60 I make the following orders: 1. Leave to appeal granted. 2. The orders as to costs made by Dr G Fleming LCM on 29 January 2009 are set aside. 3. On the plaintiff's claim Louise Jean Bruckner (the defendant) is to pay the plaintiff's costs in the sum of $2,000. 4. On the cross-claim, Louise Jean Bruckner (the cross-claimant) is to pay one half of the costs of Allen Green (the cross- defendant) on an ordinary basis. 5. The defendant is to pay the plaintiff's costs of the appeal. The defendant (the respondent to the appeal) is to have a certificate under the Suitors Fund Act1951 **********

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.

CITATION : Green v Bruckner [2009] NSWSC 700

Australian Prudential Regulation Authority v Holloway [2000] FCA 1245 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Commonwealth of Australia v Gretton [2008] NSWCA 323 CASES CITED : House v The King (1936) 55 CLR 499 Jones v Bradley (No. 2) [2003] NSWCA 258 Nicholas v Lee [2008] NSWSC 1243 Perpetual Trustees Victoria Limited v Cipri [2009] NSWCA 335 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (15 paragraphs)

Parties

Cases Cited (11)