On 17 October 2022 I published reasons for my judgment on a building dispute between a subcontractor and contractor in relation to certain works at Sydney International Airport [1] . The parties were directed to confer to see if agreement could be reached as to the orders reflecting the Earlier Reasons. The parties remain in dispute. These reasons assume familiarity with the Earlier Reasons. As occurred in the Earlier Reasons, I will refer to the plaintiff/cross-defendant as Invictus and the defendant/cross-claimant as Versatile.
[2]
Two judgments or one?
The parties differed on this question. Invictus preferred to have two judgments reflecting the parties' respective successes on their respective claims. Versatile argued there should be a single judgment. Invictus had succeeded with its claim in debt on an unpaid invoice. Versatile succeeded on its cross-claim for rectification of a single defect.
Invictus submitted that, leaving aside the question of costs, the monetary judgments in favour of both parties are readily susceptible to calculation. For Invictus' judgment, that should be in the sum of $22,915.05. That sum was derived by adding the amount of the invoice ($17,116), a retention sum held by Versatile ($2,127.83) and pre-judgment interest ($3,671.22). For the judgment for Versatile, the monetary judgment should be $57,548.
Invictus also seeks an order that the security paid into Court remain there until further order or the parties consent to its release.
Versatile implicitly argues that instead of two different monetary judgments being ordered, there should be a single judgment, reflecting the Court's power under s 90(2) of the Civil Procedure Act 2005 (NSW) (the 'CP Act'), in its favour in the sum of $57,548, minus the deductions for the retention sum held by Versatile and the amount of Invictus' invoice (but disregarding interest on that invoice). It submits that judgment should be ordered for the sum of $38,304.17.
Subject to a qualification, I prefer Versatile's order. This is not a case where there is a common law set off under s 21(1) of the CP Act. But it is a case where Versatile's claim of breach, centred on a defect, was closely connected to the invoice giving rise to Invictus' debt claim, which makes it appropriate for an order under s 90(2) of the CP Act. Versatile's Defence to Invictus' amended pleading (in paragraph 24) indicated that it relied upon its own claim of Invictus' breach of contract (among other things, for defective work) to defeat all of Invictus' claims. In practical terms, because of the quantum, Versatile's successful claim in damages extinguished its liability to Invictus on the debt. The qualification is that it strikes me as unprincipled and unfair for Versatile to deny Invictus' right to pre-judgment interest on its debt claim whilst obtaining pre-judgment interest on its own damages claim; which is what would have occurred had there been two monetary judgments awarded.
Further deduction should therefore be made to account for interest which accrued on the debt which, in the absence of challenge by Versatile to Invictus' calculations, is $3,671.22. Taking that deduction into account with the other deductions Versatile accepts, that leaves Versatile with a judgment sum of $34,632.95. Pre-judgment interest should be added to that amount.
[3]
Security
Both parties made payments into the Court by way of security. The parties accept that the security paid by Invictus should remain in place. The orders made below will reflect that agreement. They differ as to whether the security that Versatile provided should be released.
Consistent with the approach I have adopted above, in my view, which facilitates monetary judgments being set off against one another, it is appropriate to make an order that the security provided by Versatile be released forthwith.
[4]
The parties' submissions
Invictus seeks its costs of the proceeding on its claim (on the ordinary basis). It argues that it succeeded in recovering the monies it earned for its work and costs should follow the event. Invictus also resists any order that it pay Versatile's costs on the latter's cross-claim. It acknowledges that Versatile succeeded in part, however, its success was limited: being in relation to establishing a defect that was the subject of an amendment made on the first day of the hearing. All of its other claims were abandoned or failed. For the claim on which it succeeded, it could have been agitated in the Local Court. In this respect, Invictus attempted to have Versatile's claim dealt with in the Local Court but that attempt failed. Eventually Versatile unnecessarily called on the services of an experienced Senior Counsel for a small claim. Invictus also tried to arrange an expert conclave prior to the hearing, but again, that did not succeed. Eventually, as noted in the Earlier Reasons, out of that conclave (conducted during the hearing), there was partial agreement on the existence of bowing (see [58] - [72]). Invictus also took more steps to try to settle the litigation than Versatile - Versatile's only attempt was undertaken two weeks before the hearing.
Versatile submits that, overall, it is the successful party and costs should follow the event. The 'event' is the outcome after the judgments have been seen off against one another. There was no 'disentitling conduct' by Versatile: the circumstance that Versatile succeeded on a claim of breach which was the subject of late amendment would not qualify as a disentitling factor. It did not matter that the proceeding was not transferred to the Local Court when neither party sought such transfer. It did not matter that a joint expert report was delayed until the hearing: although, as it turned out, the effect of the contents of the report was to vindicate Versatile's claim only narrowly of breach to the singular basis of bowing, by the time that Invictus served its expert evidence in reply, it was too late to conduct a conclave. It was not inappropriate for Versatile to brief Senior Counsel.
In written submissions in reply, Invictus asserted that Versatile's success was only 'nominal': bar its success on 1 of 6 claims (of defective work), its cross-claim was doomed to fail. Although Invictus' position was neutral as to whether the amendment which permitted Versatile to rely upon its case of the bowing defect, upon which Versatile ultimately prevailed, that circumstance did not derogate from Invictus' contention that because of the late amendment there had been 'disentitling' conduct. As to the fact that the proceeding was adjudicated in this Court, rather than the Local Court, Versatile had rejected Invictus' invitation to have it transferred to the Local Court, but persevered with all of its claims. Further, Versatile was to blame for the belated conclave. Invictus maintained its point that Versatile's case could have been prosecuted by Counsel other than a senior counsel.
[5]
Consideration
It is trite that costs orders are in the Court's discretion: CP Act, s 98. Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ('UCPR') stipulates the "usual rule" that a successful party should receive its costs.
As indicated by the approach I have taken of setting off the judgments against one another, I agree with Versatile that it succeeded, overall. The monetary verdict it obtains takes into account, however, the circumstance that Invictus succeeded with its debt claim. It is also notable that the quantum of the monetary judgment Versatile will obtain falls well short of the amount for rectification and delay costs ($278,106 incl GST) claimed in the schedule of damages Versatile put before the Court, which was predicated upon establishing a right to terminate the subcontract upon a raft of other defects affecting the Stage 4 works which went beyond that which it had succeeded which had been pleaded in its cross-claim.
As Versatile's submissions implicitly acknowledge, a typical category (in a non-exhaustive list) where a successful party is deprived of all or part of its costs arises where it engages in what is characterised as 'disentitling conduct' (Ritter v Godfrey [1920] 2 KB 47).
Case law indicates multiple examples of disentitling conduct by a successful party. One typical category is where a successful party has done something connected with the conduct of a suit which is either calculated to occasion unnecessary litigation and expense or which has otherwise placed upon the unsuccessful party an unjustified costs burden (G E Dal Pont, Law of Costs (4th ed, LexisNexis, electronic edition) at [8.48].
In Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137, Stuart-Smith LJ said (at 154) that:
"As a general rule, where a plaintiff makes a late amendment as here, which substantially alters the case the defendant has to meet and without which the action will fail, the defendant is entitled to the costs of the action down to the date of the amendment."
This passage was approvingly cited, although not applied to the particular facts in a way that assisted the unsuccessful party, by White J (as his Honour then was) in Faraday v Rappaport [2007] NSWSC 253 at [28]-[30].
I accept Invictus' submission that Versatile only succeeded on its claim for breach upon the singular basis that there was bowing on one of the stairs in the Stage 4 works and that this was a case which it was only permitted to run, by amendment sought from the Court, on the day of the hearing. All of the other defects of Invictus identified, in particular, in paragraph 10 of Versatile's cross-claim, were abandoned as a result of the belated conclave that took place between the parties' experts during the hearing. In my view, it would be unfair to visit upon Invictus all of the costs that Versatile incurred in pleading and seeking to prove a broad claim based upon an array of defects (and other conduct by Invictus upon which Versatile asserted justified its termination of the subcontract) that was substantially abandoned and where Versatile succeeded only with a claim concerning a single defect giving rise to a right to damages; which was the subject of a late amendment.
That it is not to say, however, that Versatile was the only party which brought what, with the benefit of hindsight, was an inflated claim; or unnecessary claims. Invictus also brought claims for substantial damages in contract, restitution and statutory relief which also failed. It only succeeded on a debt claim about which there was little real dispute, beyond minor matters such as whether it was entitled to recover a retention sum. Invictus' aggregate claim was just over $148,000.It was unsurprising that, in light of the quantum of Versatile's pleaded claim, Invictus would respond with its own claim with a broad ambit: Versatile essentially invited it to do so and it was not until late in the piece, after the experts conferred, that the strength of the claim had substantially dissipated. The circumstances indicated that the cross-claim was partly defensive in nature. In that objective, Versatile succeeded. Contrary to Invictus' argument, Versatile's success was much more than merely 'nominal'. It effectively extinguished its liability to Invictus and also obtained a judgment for damages, even if the quantum of that award was relatively small.
None of the other bases identified by Invictus, in my view, indicate any disentitling conduct by Versatile. The parties were jointly responsible for the situation whereby the proceeding was determined in this Court and the expert conclave did not occur earlier than it did. If, as Invictus now seeks to portray the position, Versatile was intransigent, or unreasonable about basic aspects of case management, it was open to Invictus to make application to the Court in order to overcome that opposition. Had it done so, either Versatile might have altered its position or, alternatively, depending on the evidence then before it, this Court could have made the orders (as indicated in the Earlier Reasons, I doubt that any Judge hearing an application for an expert conclave prior to the hearing would have evinced hostility to it). It is not open to Invictus, who apparently acquiesced to Versatile's position in these respects, to cry foul after litigation has been decided in a way which, overall, was adverse to its interests. The circumstance, also, that Versatile briefed an experienced senior counsel was immaterial to the issue of liability for costs (although it may be relevant on a costs assessment).
A final point raised by Invictus that if, as I have indicated, it is appropriate, there should be a single judgment after set-off, the end result would see Versatile obtain a monetary judgment less than the amount ($40,000). By r 42.35 of the UCPR, ordinarily, it was submitted that this result would suggest that Versatile should not be entitled to its costs.
I reject this submission. It neglects the circumstance that the amount obtained fell below the $40,000 threshold as a result of the Court's set off of two judgments; not one; which appears to me to take this case out of the realm of the usual, or paradigm situation to which r 42.35 is addressed. At any rate, as indicated, if nothing else, by the length of the Earlier Reasons and, more generally, the extensive disputation between the parties that has marked this litigation, I am well satisfied that Versatile's commencement of its cross-claim (partly defensive as it was) and its continuation in this Court, instead of the Local Court, was warranted.
In my view, the appropriate exercise of the discretion on costs in the circumstances is that Invictus should pay 33% of Versatile's costs.
[6]
Partial order for indemnity costs
In its submissions, Versatile referred to two Calderbank offers it had served prior to the trial. The first, dated 1 September 2022, offered to settle on the basis of Invictus paying Versatile the sum of $50,000, with the parties bearing their own costs. But no claim for indemnity costs was made in relation to that particular offer.
The second offer, in respect to which an order for indemnity costs is made, was a Calderbank offer dated 7 September 2022 (a Wednesday). This offer was made less than a week before the hearing commenced (12 September 2022, a Monday). It was open for acceptance for no more than 2 days.
This offer proposed that the plaintiff pay the defendant $25,000 with the parties bearing their own costs.
Unlike rules offers, the circumstance that a successful party ultimately obtains a result that exceeds what it had offered to the ultimately unsuccessful party does not give rise to a presumptive entitlement to indemnity costs. But a Calderbank offer can lay the groundwork for such a claim in the exercise of the Court's discretion where the offeror obtains a better result.
I accept that Versatile received a more favourable outcome than the terms of the Calderbank offer of 7 September 2022. Nevertheless, I am not persuaded that it was unreasonable for Invictus to reject the offer in the circumstances in which it was made. First, the time for acceptance was very short, in close proximity to a hearing in which Invictus, and its lawyers were preoccupied in intense pre-hearing preparation. Indeed, it is arguable that although the offer of settlement was not derisory, it was made for the purpose of generating an entitlement to a special costs order.
More significantly, the offer was made in circumstances where Versatile did not, to that point, have permission to run a single case on defective work upon which it eventually succeeded - the bowing on the stairs. Put another way, at that late point, the status of its pleading was fluid. Had Versatile applied for and obtained leave to amend earlier than it did - the date the hearing commenced - perhaps soon after its expert evidence had identified the defect, the position might have been different, but that did not occur.
Versatile's application for a partial indemnity costs order is rejected.
In the result, the proper exercise of discretion for costs is that the proportion of costs the Court has ordered Invictus to pay to Versatile is payable on the ordinary basis.
[7]
Orders
The orders of the Court, for the reasons indicated above are:
1. Judgment for the defendant/cross-claimant for the sum of $34,632.95.
2. The plaintiff is to also pay the defendant/cross-claimant pre-judgment interest on the above sum.
3. The sum of $50,000 paid into Court by the cross-claimant as security for the cross-defendant's costs (pursuant to an order of the Court made on 3 June 2021) is released to the cross-claimant forthwith.
4. The sum of $50,000 paid into Court by the plaintiff as security for the defendant's costs (pursuant to an order of the Court made on 3 June 2021) is retained by the Court as security for the defendant's costs until the parties consent to its release or the Court makes further order.
5. The plaintiff/cross-defendant is to pay 33% of the defendant/cross-claimant's costs of the proceedings, as agreed or assessed.
[8]
Endnote
Invictus Development Group Pty Ltd v Versatile Fitout Pty Ltd [2022] NSWDC 477 (the 'Earlier Reasons')
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Decision last updated: 31 October 2022