Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd

Settlement offers - indemnity costs 9Reference is made in submissions to this Court to certain settlement offers made by Illawarra to Walton. These are relevant to two questions: whether, having regard to the outcome on appeal, some part of the costs awarded to Illawarra at first instance should be assessed on an indemnity basis; and whether s 100(4) of the Civil Procedure Act operates in relation to the pre-judgment interest which this Court decided had correctly been awarded to Walton: see [143] of the principal judgment. 10The settlement offers should be considered first as to their relevance to the question of the costs awarded to Illawarra at trial. 11The proceedings were commenced by Walton's summons filed on 13 February 2008. Illawarra filed a cross-summons on 16 April 2008. Illawarra made a settlement offer on 11 December 2008 (expressed to be open until 24 December 2008). That offer was rejected by Walton on 18 December 2008, renewed on 22 December 2008 (for a period until 12 January 2009) and again rejected on 24 December 2008. 12These matters are referred to in an affidavit of Illawarra's solicitor dated 4 March 2013 which contains the only material, additional to the content of the appeal books, available to the Court for present purposes. Illawarra's offer was to settle the whole of the proceedings on the basis of a payment by Illawarra to Walton of $260,000 plus costs, save for the costs of interlocutory applications in respect of which it had already been determined that each party should bear its own costs. 13Illawarra contends that Walton acted unreasonably in not accepting either of Illawarra's offers and that the costs awarded to Illawarra should therefore be assessed on an indemnity basis from December 2008. 14For the purposes of considering the question of indemnity costs, it is appropriate to have regard to the proceedings as a whole and not separately to the claims in the summons and the claims in the cross-summons. The offers were on the basis that the proceedings as a whole should be resolved. A "global" approach is therefore required to both the question whether a genuine compromise was involved and the question of reasonableness or unreasonableness of non-acceptance. 15Walton advances several arguments in support of the proposition that Illawarra's offer did not involve any element of genuine compromise and should therefore not be taken into account for the purposes of the principles in Calderbank v Calderbank [1975] 3 WLR 586. The central point made by Walton is that the sum of $260,000 represented no more than the rounded up equivalent of $258,096.01 that the superintendent had certified as being payable by Illawarra to Walton, with the result that there was no element of concession or compromise. 16That submission is untenable when it is recognised that the letters of offer referred to ways in which Illawarra regarded the superintendent's determination to be deficient, (particularly because variation claims had been undervalued) and uncertainties that attended the positions of both parties concerning not only the correctness of the superintendent's determination but also other matters in dispute. The offers of 11 and 22 December 2008 were genuine offers of compromise. 17The next issue is whether it was unreasonable for Walton not to accept the offer. That question is to be approached objectively in the circumstances known (or which should reasonably have been anticipated) by both parties at the time the offer was made: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 at [22]. 18Walton says that, as at December 2008, the pleadings for the cross-summons were still in a state of flux and there were further and substantial amendments at later times, with the second further amended cross-summons not filed until 17 June 2010. Walton says that it was only at that stage that Illawarra claimed damages for late completion referable to proper market rental value of the premises for the period of delay. Illawarra says that the basis of that claim was made absolutely plain from the start. 19The only basis this Court has for assessing these propositions consists of copies of the second further amended cross-summons dated 17 June 2010 upon which the matter went to trial and the cross-summons as originally filed in April 2008. A comparison of the two shows the following: (a) addition of an allegation that the superintendent should have fixed 25 September 2006, instead of 28 November 2006, as the date for practical completion; (b) omission of a claim for the difference between the amount that would have been received once trading regained an equilibrium level after completion of the works (calculated by reference to the delay period) and the amount which was actually received during that period (or an alternative amount); (c) addition of a claim based on deprivation of the economic value of the enjoyment of the premises from 26 September 2006 to 29 November 2006 or 29 November 2006 to 10 Juy 2007, being loss of the opportunity to obtain rent from tenants or profit that would have been derived from direct trading or a sum calculated by reference to proper market value; (d) significant expansion and re-casting of a claim based on the loss of services of Mr Anzani; (e) loss attributable to communication to Gamone and Vosava of an estimated opening date that could not be met; (f) the inclusion of claims based on s 51A of the Trade Practices Act 1974 (Cth), in addition to claims based on s 52; (g) decrease from $336,569 to $191,872 of a claim concerning additional rent if one bar of the hotel been operating between September 2006 and 10 July 2007. 20This comparison demonstrates that there is merit in Walton's contention that the case had not assumed, as at December 2008, sufficient of its ultimate shape to warrant a conclusion that failure by Walton at that point to accept Illawarra's offer was indicative of unreasonable conduct. 21No adequate basis is shown for an order for the assessment of costs on the indemnity basis after December 2008.

Settlement offers - pre-judgment interest 22The next matter for consideration is the contention of Illawarra that, in light of the result on appeal, s 100(4) of the Civil Procedure Act operates to make inapplicable part of the element of the orders below that added interest to the judgment sum payable by Illawarra to Walton. 23Section 100 of the Civil Procedure Act, so far as relevant, is in these terms: "(1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. ... (4) In any proceedings for damages, the court may not order the payment of interest under this section in respect of the period from when an appropriate settlement sum was offered (or first offered) by the defendant unless the special circumstances of the case warrant the making of such an order. (5) For the purposes of subsection (4), appropriate settlement sum means a sum offered in settlement of proceedings in which the amount for which judgment is given (including interest accrued up to and including the date of the offer) does not exceed the sum offered by more than 10 per cent." 24There can be no doubt that the proceedings below were "proceedings for the recovery of money" as referred to in s 100(1). Walton, by its summons, sued Illawarra for damages; and Illawarra, by its cross-summons, sued Walton for damages. In terms of s 100(4), therefore, Illawarra was "the defendant" on the summons and Walton was "the defendant" on the cross-summons. Each was successful in its claim. The court below exercised the power under s 100(1) to include interest in both the amount for which judgment was given for Walton and against Illawarra on the summons and the amount for which judgment was given for Illawarra and against Walton on the cross-summons. 25The question of present relevance is whether either of Illawarra's settlement offers of December 2008 was an offer which, by force of s 100(4) (construed without reference to any "special circumstances"), can now be seen to have curtailed the power under s 100(1) to include interest in the judgment sum. 26Section 100(4) operates where an "appropriate settlement sum" has been "offered ... by the defendant". Because the December 2008 offers were made by Illawarra, their relevance, for s 100(4) purposes, is limited to the aspect of the proceedings in which Illawarra was "the defendant", that is, Walton's proceedings on the summons. The question whether the offered sum was an "appropriate settlement sum" therefore turns upon a comparison of that offered sum with the sum which, in respect of the summons, is "the amount for which judgment is given (including interest accrued up to and including the date of the offer". 27The amount for which judgment was given against Illawarra and in favour of Walton was $513,025.99 inclusive of interest of $129,527.78 to the date of judgment. Had interest up to only 11 December 2008 been included, the judgment sum would have been $366,944.18. 28The sum offered by Illawarra in December 2008 was $260,000 (plus costs). That sum, plus 10 per cent of it, is $286,000 (plus costs). If the costs element is ignored (since the judgment sum with which the comparison is to be made obviously does not include costs), the comparison is between a judgment sum of $366,944.18 and an adjusted offer sum of $286,000 and it is seen that the judgment sum exceeds the offered sum (plus 10 per cent), so that the offered sum does not satisfy the definition of "appropriate settlement sum". 29It is clear that this approach does not cater for the reality that the parties maintained claims against one another and that, in the event of some measure of success by each of them, the overall result would inevitably be some net balance. 30One possibly conceivable outcome, in that eventuality, would have been a single judgment in favour of one party and against the other for that net balance sum. Had that course been adopted, "the amount for which judgment is given", as referred to in s 100(5), would have been the net sum; and the process of comparison directed by s 100(5) would have paid attention to the net judgment sum and the offered sum. 31But that is not this case. Here, there were two separate and independent judgments. Each party suffered judgment at the suit of the other, albeit in circumstances where it was also ordered that there be set-off between the judgment sums. The set-off, however, did not alter or qualify either of the sums properly described as "the amount for which judgment is given". 32In the result, therefore, s 100(4) does not operate and the order below for inclusion of interest in each judgment sum (up to the date of judgment) does not require revision because of that section.

Interest on costs 33Illawarra seeks an order pursuant to s 101(4) of the Civil Procedure Act for interest on the costs and disbursements it has outlaid since commencement of the litigation in 2008. Illawarra thus contends that this Court should order the payment of interest on costs awarded to it in the Equity Division. 34That contention is misconceived and must be rejected. The amended notice of appeal contains no such claim and no ground of appeal raises the matter. Nor (unlike the s 100(4) question just discussed) does the issue arise as a consequence of the outcome on appeal. Illawarra seems to say simply that it should have from the Court of Appeal an order in respect of costs at first instance that, so far as the record shows, was not sought in the court below and does not flow from the decision on appeal. That is a quite unsupportable proposition. 35It is desirable nevertheless to deal briefly with the merits of the matter. Illawarra quotes from the judgment of Campbell JA in Lahoud v Lahoud [2006] NSWSC 126 and the observation (at [82]) that "[t]here is no requirement, before an order for payment of interest on costs is made, for the Court to be satisfied that the circumstances of the case are out of the ordinary". 36Illawarra nevertheless recognises that the power to award interest on costs is discretionary and that some positive case must be made in support of the application. It says, in that regard, that Illawarra has paid out a very large sum since the commencement of the litigation in 2008 and that that money could otherwise have been put to profitable use. Reference is made to an affidavit of Illawarra's solicitor referring to sums paid by Illawarra to his firm. Illawarra further says that Walton has effectively had the benefit of not having paid that money. 37Walton submits that the question of interest on costs cannot be determined without an exhaustive consideration of the circumstances that caused the proceedings to be protracted by the serving of evidence on unsuccessful issues, futile amendments to pleadings, issues not pursued at trial and matters relevant to McDougall J's observation concerning "the evident animosity between the parties and the lengths to which each has gone to buttress its case". 38That submission must be accepted. A party who contends that there should be an order for interest on costs must do more than point to the fact that the proceedings were protracted and that it had to outlay moneys on its own costs over a long period. The reasons for the protracted nature of the proceedings are of obvious relevance. To take a hypothetical example, one can imagine a case in which one party deliberately seeks to prolong proceedings with an eye to some collateral benefit of its own for which it is quite happy to pay the price of being out of the money it progressively outlays for costs. That hypothetical case can be contrasted with another in which a party has made strenuous effort to expedite matters and to avoid all delay with a view to the earliest possible trial but has been frustrated in those efforts by actions of the other party. A middle course is where each party acts with reasonable diligence and dispatch but the nature of the proceedings and their subject matter is such as to prolong them. A court might well take different attitudes to applications for interest on costs in these hypothetical cases. 39This litigation was, of its nature, time-consuming and exacting. Building cases often descend into what, to the outside observer, seems to be tedious analysis of a vast myriad of minutiae. In the absence of some sufficiently clear explanation of the reasons why this litigation proceeded as it did, in a timing sense, there would be no sound basis for exercise of the discretion concerning interest on costs, even if it were now exercisable by this Court in relation to the costs in the court below.

Costs of the appeal 40As has been stated, the outcome on appeal was that Walton's judgment sum was reduced and Illawarra's judgment sum was increased. Illawarra was, in a narrow sense, the successful party. But the sums allowed in its favour on appeal were, in context, trifling: approximately $44,000 and approximately $14,000 (excluding interest). 41The great bulk of the case on appeal concerned claims in relation to which Illawarra was unsuccessful. Those claims involved alleged entitlements to extensions of time. Illawarra considered that it was entitled to five extensions accounting for a total of no fewer than 152 days - something of substantial monetary value greatly in excess of the modest sums in respect of which Illawarra was successful on what were, in the context of the appeal as a whole, minor and incidental claims. Illawarra did not succeed on appeal in relation to any of the five extension claims. Nor has Illawarra been successful on any of the matters dealt with in these reasons. 42Having regard to the outcome as a whole, there should be an order that Illawarra pay Walton's costs of the appeal.

Orders 43It remains to consider the first of the matters referred to at [7] above, that is, the orders appropriate to give effect to the decision of this Court. In view of the conclusions stated on the other issues, that becomes a straightforward matter. The orders are as follows:

1. Appeal allowed in part.
2. Vary Order (4) made by Einstein J on 6 June 2011 by omitting all words after "except for" and inserting in lieu: "her findings in relation to 'V:29 The Courtyard Works' and 'V:184 Margin on Variations', which are to be rejected".
3. Set aside Order 4 made by McDougall J on 4 November 2011 and order in lieu: "Judgment for Walton in the amount of $454,080.13 exclusive of any claim for judgment for GST in respect of those damages".
4. Set aside Order 5 made by McDougall J on 4 November 2011 and order in lieu: "Judgment for Illawarra in the amount of "$177,122.59 exclusive of any claim for judgment for GST in respect of those damages".
5. Order that the appellant pay the respondent's costs of the appeal. 44There is one final matter. This Court made an order by consent on 28 November 2011 that Illawarra pay $355,948.40 into a controlled moneys account in the name of Walton's solicitors on the footing that that sum and accrued interest on it should not be paid out except with the written consent of the parties or by order of the court. Now that the final adjudication has been made, it will be a very simple matter for the parties to agree the appropriate division of those moneys between them. If, despite genuine attempts in good faith to do so, they do not agree, one will no doubt make application in accordance with the following additional order:
6. Grant liberty to apply on seven days' notice in respect of moneys held in a controlled moneys account of Crisp Legal pursuant to Order 4 made by this Court on 28 November 2011.

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. Decision last updated: 12 July 2013