COSTS AS BETWEEN HBL AND STM
44 HBL seeks an order that STM pay its costs of the Further Amended Summons and the Second Cross-Claim up to and including 12 August 1996 on a party/party basis and thereafter on an indemnity basis, as a result of the non-acceptance of a Calderbank offer. It submits that the Further Amended Summons and Second Cross-Claim involved issues which "were bound together in the factual matrix of the case" and that the results in respect of each should not be viewed in isolation. On this basis, it is submitted that it would be inappropriate for separate costs orders to be made in respect of the Summons and the Cross-Claim.
45 The further submission is made that insofar as HBL was successful on the majority of the claims it pursued against STM, it would be inappropriate to make separate costs orders relating to specific issues. Reliance is placed upon statements made in the judgments of the Court of Appeal in Waters v B P C Henderson (Australia) Pty Ltd (Kirby P, Mahoney and Priestley JJA, CA40678/91, 6 July 1994, unreported). The appeal was from a decision by Cole J in the Commercial Division in which there had been a reference to a referee. It was not a construction case but was a dispute involving a number of issues. Each party was partly successful in relation to matters that were before the Referee. Cole J had treated the matter as if it were "a construction dispute" and had said "it is simply not possible, nor would it be efficient for the Court to seek to isolate each of the multitudinous issues which arise in construction disputes and try and make an appropriate order for costs in respect of each particular item". Mahoney JA (at p 3) indicated that he did not "differ from (Cole J) in relation to the principle in question". His Honour went on to say (at pp 3-4):
"In the present case, it has been submitted, in effect, that the reason why the Court should intervene is that different parties were successful in relation to different issues or successful to different degrees and that the judge should, therefore, have differentiated between the different issues and made different orders as to costs.
It was suggested that the matter could be divided into three or four separate issues and orders made accordingly, and that the judge was wrong in dealing with the matter as if there were numerous issues.
In my opinion the principles in this regard are properly stated in the Supreme Court Act and Rules. S76 of the Supreme Court Act provides that the Court has a discretion with full power to determine by whom and to what extent costs are to be paid. In the Rules, Pt52 R11 provides that:
'If the Court makes any order as to costs, the Court shall, subject to this Part, order that the costs follow the event, except where it appears to the Court that some other order should be made as to the whole or any part of the costs.'
In the notes to the Rules, Pt52.11.2, the following appears:
'Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed.'
Reference is made to cases, some of which I have considered. They appear generally to support the principle which is stated in the Practice. I think that was the principle to which his Honour had regard in the present case.
I do not think that it would have been appropriate for his Honour to attempt to determine which issues were won by particular parties, to what extent they were won, and what was the amount of time spent on each of the issues so as to apportion costs accordingly. I think that would have been contrary to the trend of decision in relation to the exercise of discretion as to costs."
46 HBL relies upon these principles, whilst acknowledging that it failed on a large number of the claims that it brought. On the other hand, STM submits that HBL should not be awarded its costs in respect of the claims upon which it was unsuccessful or in respect of which it substantially lost. In the affidavit evidence before me, both HBL and STM produced schedules indicating claims made, together with the success or failure of those claims. It may be noted that the schedules did not completely agree. This very fact, in my view, indicates the propriety of following the principles outlined above in the present case. I decline to make any orders based upon success or failure of either party in respect of particular issues.
47 I have set out above the passage from the judgment of Giles CJ Comm D, where his Honour sets off the amount established by STM in its cross-claim against the amount established by HBL in its claim, resulting in the balance awarded to HBL. For HBL, it is submitted that I should treat this result as being, in effect, an overall verdict in favour of HBL which would carry with it, the costs of the claim and cross-claim. On behalf of STM, however, it is submitted that, as the cross-claim was partially successful, the whole or part of the costs of the cross-claim should be awarded to STM. This argument, as developed, related to "the difference". STM had obtained a relevant certificate indicating that the costs of completion of the building project after the exclusion of HBL from the site had exceeded the contract price for which HBL was to complete the work by an amount of some $16million. This amount was claimed in the Second Cross-Claim as damages pursuant to cl 44 of the written contract. To this claim, HBL raised two defences: (a) any amount recoverable by STM from it, in this regard, was ultimately attributable to breaches by STM of the written contract which had resulted in HBL's inability to pay its sub-contractor, with the result that any amount established in this Cross-Claim would become part of HBL's damages recoverable against STM in its claim; (b) the costs of completion were excessive.
48 In the result, HBL succeeded in respect of defence (a) and was substantially successful in defence (b) in that it was determined that the reasonable cost of completion was in the order of $4million. It is clear that a substantial number of hearing days in the reference were taken up in determining the issues involved in defence (b). It was submitted that, in the light of HBL's success in defence (a), these days were wasted because HBL was merely engaging in some sort of "frolic", insofar as whatever was to be awarded to STM on the Second Cross-Claim, the identical amount was to be recovered against it by HBL on the claim. Accordingly, it was submitted on behalf of STM, it should have the whole of the costs of the Second Cross-Claim, including, as I understand it, the costs of items in respect of which it failed.
49 In my view, there is no substance in this submission. Although HBL was successful in respect of defence (a), the point was not conceded, it being argued that, as a matter of construction of cl 44 and in the events which happened, HBL was not entitled to claim "the difference" as damages against STM. Indeed, I was advised, during the hearing, that this point will be argued on appeal. Consequently, it was, in my view, entirely reasonable that HBL should call evidence and raise arguments directed to reducing the amount claimed as "the difference".
50 I am satisfied that the issues of the Further Amended Summons and the Second Cross-Claim were in fact so intertwined as to make it reasonable to follow, in respect of the costs orders, what was done by his Honour, in respect of the award of damages, namely, to regard the balance in favour of HBL as being the final result in its favour. In such circumstances, it is, in my view, inappropriate to make separate costs orders in respect of claim and cross-claim. Subject to the question of indemnity costs resulting from a Calderbank offer, I am satisfied that STM should pay HBL's costs of the Further Amended Summons and the Second Cross-Claim. I turn then to consider the Calderbank offer.
51 On 12 August 1996, HBL made an offer of compromise within Pt 52A r 22(4) of the Supreme Court Rules, to STM. The offer was that HBL would accept the sum of $370,000 together with costs to be agreed or assessed. There was some discussion between the solicitors as to the amount of costs. It appears that these discussions went nowhere. However, in my view, the offer remained open. In the absence of agreement as to the amount of costs, the plaintiff was prepared to accept an assessment in accordance with the Rules.
52 The offer was made in the form of a Calderbank letter. No point is taken as to there being any technical deficiency in the making of the offer. In my view, it is correctly stated, in the written submission of HBL, that:
"As an incentive to making and accepting offers of compromise, Part 52A r 22(4) of the Supreme Court Rules provides that where a Plaintiff makes an offer not accepted by the Defendant, and the Plaintiff obtains a judgment no less favourable that that offer, then, unless the Court otherwise orders, the Plaintiff is entitled to costs from the Defendant on an indemnity basis from the date on which the offer was made, and costs on a party/party basis before the date of that offer."
53 There can be no doubt that the plaintiff's offer was far more favourable to the first defendant than the judgment ultimately entered against it in favour of the plaintiff in the sum of $5,859,671.95.
54 The principles in relation to the application of Pt 52A r 22(4) were considered by the Court of Appeal in Maitland Hospital v Fisher [No.2] (1992) 27 NSWLR 721. The Court said (at p 725):
"The decision to award or withhold indemnity costs where a plaintiff's settlement offer has been made but not accepted, involves a discretion to be exercised by reference to all of the circumstances of the case, not by applying a fixed mathematical formula.
… The rule does no more than to oblige litigants, and those advising them, to consider realistically, upon the best information available to them, the prospects of success and the likely outcome of the litigation. Where, in the particular circumstances, the litigant or its advisers mis-judge the prospects of success or mis-calculate the outcome, their mistake may be warranted on the material which they had available. Alternatively, it may be no more than a mis-calculation in a case with large imponderables where the course they took was nonetheless perfectly reasonable. Litigation is inescapably chancy. The purpose of the rule is to put a premium on realistic assessment of cases. It is not to demand perfect foresight which is denied even to the judges. That is why a discretion is retained, under the rule, for the Court to order otherwise than as the rule provides. But the ordinary provision is expected to apply in the ordinary case."
55 Obviously, a number of discretionary matters enter into the awarding of costs on an indemnity basis. In the present case, it is obvious that the proceedings were extremely complex, and, no doubt, the situation at the completion of the reference was very far from clear. However, the offer that was made was pitched at a level, having regard to the ultimate outcome, that clearly required that it be given very serious consideration. So far as the evidence indicates, it was brushed aside on the basis that no agreement could be reached as to a proper figure for costs. Having regard to the obvious purpose of the provision, I am satisfied that this is an appropriate case for its discretionary application. I can see no sufficient reason, consistent with that purpose, for the rejection of the offer. Accordingly, costs will be ordered on an indemnity basis from the time of its making.
56 The next question to be considered is whether an order, in the nature of a Sanderson or Bullock order should be made in favour of the plaintiff against the first defendant in respect of the costs of the second defendant. HBL, the plaintiff, failed in its action instituted by the Further Amended Summons against the second defendant, KJC. There is no apparent reason why, in these circumstances, HBL should not be liable to KJC for its costs of defending HBL's action. The question is whether HBL is entitled to an order requiring that, directly or indirectly, STM pay those costs. The principle is quite clear. The question is whether, in the circumstances, it was reasonable for HBL to sue KJC. It may be noted that it did not take this course at a late stage in the proceedings, KJC having been included as a defendant in earlier manifestations of HBL's Summons.
57 KJC was the architect with the responsibility for the building project and was also the superintendent of that project, appointed under the written contract. As I understand it, it is STM's contention that there was no necessity for HBL to join KJC because KJC was acting, in all respects, as HBL's agent with the result that, if KJC was guilty of any breaches of duty to HBL, then STM would be liable to HBL as principal. Having regard to the complex issues of this litigation, not only initially but as they developed, I am quite satisfied that this contention is no answer to HBL's claim. Although, with hindsight, especially having regard to the fact that HBL ultimately failed against KJC, it might be said that there was in fact no need to make the joinder, I am not persuaded that it was anything but reasonable on the part of HBL to sue KJC. Admittedly, there was no privity of contract between them, but KJC had professional duties at common law and, arguably, had made representations, referred to in the pleadings, pursuant to the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987. I am satisfied that it was reasonable for HBL to have taken the proceedings against KJC and for the Court to make appropriate orders for the payment to KJC by STM of its costs of defending the action.
58 It has been made clear in these proceedings that HBL is not in a sound financial situation. In my opinion, it would be unsatisfactory to make a Bullock type order in these circumstances. Accordingly, I find that it is appropriate that a Sanderson type order be made. This will be reflected in the orders that I ultimately make.
59 I should add that I accept the plaintiff's submissions that it was inevitable, having regard to the overall factual matrix of this matter that HBL would join KJC, as it in fact did. In those circumstances, having regard to the fact that the plaintiff's claims against both defendants, stated generally, were that there was a failure to prepare the site and provide, in an appropriately timely manner, the relevant and necessary documentation, the joinder of both in the one proceedings was appropriate.
60 The next question to be considered is whether I should make an appropriate order providing for the payment by STM of interest upon the costs awarded to HBL and KJC. In this regard, I am satisfied that s 95(4) of the Supreme Court Act 1970 and also s 76 of that Act enables the making of such an order. I am satisfied that s 95(4) can and should be given retrospection operation The principles upon which such an order may be made are, in my view, founded upon common sense and justice. In circumstances where a successful party has outlaid, from an early stage and often continuously, amounts of money, by way of payments to his legal representatives to finance the conduct of the litigation, he will, manifestly, be significantly out of pocket if he receives, by way of reimbursement of his payments, only an amount of taxed or assessed costs at a far later stage, after he has successfully prosecuted the litigation to finality. Such a financial detriment can only be compensated by the making of an appropriate award of interest to be paid in respect of those payments, providing, of course, that the relevant payments can be properly allocated to the successful outcome of the litigation in whole or in part. I consider that the foregoing is the effect of statements made by Rogers CJ Comm D in McWilliams Wines Pty Ltd v Liaweena (1993) 32 NSWLR 190.
61 I do not understand there to be, in these proceedings, any contest as to the existence of these principles. However, it has been asserted that no order should be made at the present stage because, in the nature of things, no precise orders as to the payment of costs and the amount of such costs can be made. Such precision must await the attention of an Assessor appointed pursuant to the Legal Profession Act 1987. The contention advanced on behalf of STM is that the question of interest must await the primary determination of the Assessor as to the amount of costs payable by STM. Only after appropriate costs orders are made can the matter be returned to this Court for the consideration of appropriate orders for interest to be made in respect of those orders. I do not accept this submission. If accepted, it would lead to quite unnecessary delay which would be inimical to the policy of the Construction List, which requires that all aspects of litigation be determined as quickly as reasonably possible.
62 The affidavit of Darrell Hendry filed on behalf of the plaintiff, the admissibility of which was deferred for consideration in these reasons, is, in my view, admissible to demonstrate that HBL has since 1989 paid significant amounts on account of costs to its legal representatives. The affidavit does not indicate the way in which individual payments can be ascribed to particular areas of the litigation. It may well be that an Assessor will have to determine whether particular amounts are properly recoverable and therefore susceptible to an order for interest. I am satisfied, however, that this does not present any impediment to my making, for the guidance of an Assessor, an order that interest should be payable, where appropriate, upon amounts of costs paid by HBL to its legal representatives from 1989 onwards. It may well be that evidence will be required to assist the Assessor in making appropriate decisions. I do not think it desirable that I say anything further on this aspect. I propose, however, to make what I consider to be an appropriate order in relation to the payment of interest. I should add that these considerations apply as well to applications for interest made by other successful parties in this litigation.
63 So far as the proceedings between HBL and STM are concerned, there remains for consideration three submissions raised by STM. I shall deal with them in order.
64 The first is a submission that a cost order favourable to STM should be made in respect of the number of earlier Summonses issued by HBL in these proceedings. The blanket submission was made that between the commencement of the proceedings in 1988 and the commencement of the reference, HBL should have been able to get its pleadings in order. Its failure to do so occasioned costs to STM in relation to the consideration, by its legal advisers, of earlier abandoned or modified pleadings. I am not prepared to accede to this submission. Whilst it is true that HBL's pleadings underwent many changes and modifications, they did so in the context of the development of the dispute between the parties as detailed earlier in these reasons. It is to be remembered that significant changes in that dispute occurred when STM took steps to exclude HBL from the site of the building project. Applications to the Court and consequent appeals, in my view, altered the litigious landscape significantly, requiring appropriate changes to be made in the shape of the litigation. I do not see any satisfactory basis upon which the orders sought by STM can be made. I refuse them.
65 The next submission by STM is that it should be awarded the costs of one and a half days of hearing occurring shortly after the commencement of the reference, during which amendments sought by HBL to its Summons were the subject of debate. These amendments were allowed in part. The Referee, who acknowledged that he had no power to make any order for costs, indicated that, in his view, it was an appropriate occasion for the costs occasioned by the amendment to be awarded to the other parties. I mean no disrespect to the learned Referee when I say, as he himself acknowledged, that his remarks in this regard can have no binding effect upon this Court. Having regard to the lengthy and complex history of the litigation, I would not be prepared to make such an order unless it was demonstrated to me that it was, in all the circumstances, appropriate. No such demonstration has been occurred. I refuse to make the order.
66 A further submission was made, based upon remarks made by the Referee at the conclusion of the hearing before him. These were to the effect that, in his view, justice would be done if all parties "walked away" from the litigation and paid their own costs. It appears to have been submitted, but faintly, that I should base some costs order upon this expression of view. That is not possible. I also reject this submission.