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COURT OF APPEAL )

ON APPEAL FROM THE MASTER OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN: GRAHAM KEMP

Appellant

AND: MICHAEL J RYAN AND

SARA RYAN

Respondents

Judges: Penfold, Burns and Marshall JJ

Date: 5 March 2012

Place: Canberra

REASONS FOR JUDGMENT

THE COURT:

Introduction

1. The question for determination on the appeal is whether the Master erred in the exercise of his discretion not to award indemnity costs to the appellant, Mr Kemp, on and from the expiry of an offer made by Mr Kemp to the respondents, Michael and Sarah Ryan (the Ryans), to settle the litigation between them. Central to the Master’s judgment to refuse Mr Kemp’s application for indemnity costs was the Master’s view that an intended Calderbank offer made by Mr Kemp to the Ryans was not unambiguously clear and certain and therefore could not constitute a proper Calderbank offer.

2. The Master rejected Mr Kemp’s primary contention that he was entitled to indemnity costs for the action generally. Mr Kemp did not challenge that aspect of the Master’s judgment on appeal. Rather, he contended that the Master should have awarded indemnity costs to him on and from the expiry of an offer to settle the litigation which he made to the respondents on 6 September 2008 (the 6 September offer).

3. Counsel for Mr Kemp, Mr Whybrow, conceded that in order to disturb the Master’s discretionary judgment on costs he would need to persuade us that the Master’s view about the lack of certainty of the 6 September offer was an unreasonable one from which error may be inferred. For the reasons which follow we do not accept that the Master erred in the exercise of his discretion not to award indemnity costs to Mr Kemp on and from 7 October 2008, when the 6 September offer expired. Background

4. Mr Kemp is a builder. He performed work for the Ryans pursuant to a contract signed on 23 July 2007. In February 2008, Mr Kemp commenced a proceeding in the Supreme Court in which he claimed $64,228 said to be payable, but unpaid, under the contract. The sum represented the asserted difference between the value of the work he had performed for the Ryans and the progress payments they had made to him. The statement of claim also sought: Interest calculated at the rate of 20% on late payments under the contract

The respondents subsequently filed a defence and made a counterclaim.

5. The litigation continued during 2008, with Mr Kemp amending his statement of claim to add a quantum meruit claim. This led to the filing of an amended defence and counterclaim. In late May 2008, the Ryans filed a Scott Schedule to which Mr Kemp responded in late August 2008. In 2010, the parties reached an agreement to settle the litigation and agreed on orders to be made by consent, save as to costs.

6. In June 2010, the parties filed consent orders which included a judgment sum for Mr Kemp of $53,330 plus contractual and post-judgment interest. The consent order provided for the listing of a hearing “in relation to costs”. That is how the Master came to deal with the costs issue. Proceedings before the Master

7. The Master acknowledged the desirability of parties approaching the Court to resolve outstanding costs issues if they were otherwise agreed on substantive matters in the litigation. He said this was especially the case in building disputes, and referred to the observations of Higgins CJ to that effect in Zammit v El-Khoury & Anor [2010] ACTSC 6.

8. At [12] of his reasons for judgment, the Master set out the 6 September offer, which was made by Mr Kemp’s solicitor to the Ryans by email to their then solicitor. The email said (omitting formal parts): This offer is made pursuant to the principles of Calderbank v Calderbank and will remain open for acceptance to 7 October 2008, whereupon it will lapse.

9. The plaintiff will accept $53,146.00 in settlement of his claim (this comprises the contract sum due, plus all provisional and prime costs items and variation no 6 for additional roof tiling).

10. Plus interest at 20% in accordance with clause 21 of the contract until that money is paid.

11. Plus costs as agreed or assessed.

We advise that our solicitor-client costs and disbursements are $48,828.00 to date.

9. Clause 21 of the contract was as follows: 21 Progress Payment (a) The Contract Sum must be paid to the Builder as set out in item A7 of Appendix A. (b) The Builder must give the Owner a written claim for each progress claim. (c) The Owner will pay the progress payment claim to the Builder within the period stated in item A11 of Appendix A, or, if not stated, within (7) days of the date the claim is submitted to the Owner. (d) Progress Payment claim will be paid in the preparation and values stated in item B1 of Appendix B. (e) A progress payment to the Builder is not proof or admission that any particular work has been executed in accordance with the Plans and Specification but only as payment on account. (f) If the Builder does not receive a progress payment by the due date, in addition to any other rights it might have, the Builder is entitled to interest on the overdue amount at the rate in item A18 of Appendix A.

10. Item A18 of Appendix A was agreed to provide for an interest rate of 20%.

11. The 6 September offer was not accepted. The Master observed at [14] that: The rejection of a Calderbank offer has been accepted in this Territory as entitling the subsequently successful offeror to a special costs order at least since Quirk v Bawden (1992) 112 ACTR 1. Special orders have been made in many proceedings since. As with all costs orders, the making of an order in a particular matter is within the discretion of the court and such orders may vary from case to case depending on their individual features.

12. The Master then discussed the requirements to be satisfied for an offer to constitute a valid Calderbank offer. His Honour observed at [16] that: the terms of the settlement offered must be unambiguously clear [and the offer] must be capable of being accepted and thereby concluding the proceedings by creating a binding contract.

13. There is no dispute that the Master thereby made a correct statement of law by reference to authorities such as John Goss Projects Pty Ltd v Thiess Watkins White Constructions Ltd (in liq) [1995] 2 Qd R 591 at 595, Grbavac v Hart [1997] 1 VR 154 at 160 and M T Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163 at [56]. See also Perry v Comcare [2006] 150 FCR 319 (Perry) at 55-57, cited in Facton Ltd (formerly G-Star Raw Denim KFT) v Seo [2011] FCA 344 and G M Holden Ltd v Paine (No 3) [2011] FCA 693 as authority for the principle that the “central requirements” of a Calderbank offer are that it is “clear, precise and certain”.

14. At [20], the Master stated the crucial question which is again agitated on this appeal, and gave his answer. He said: The question is whether the Calderbank offer of 6 September 2008 was unambiguously clear, and whether it was capable of being accepted and thereby concluding the proceedings by creating a binding contract. I am not persuaded that it was.

Interpretation of paragraph 2 of the 6 September offer

15. The Master considered that paragraph 2 of the offer – “Plus interest at 20% in accordance with clause 21 of the contract until that money is paid” – was unclear. His Honour said at [21] that it was susceptible to “a number of possible interpretations”, and noted at [30] that for paragraph 2 to be capable of acceptance, “it must be objectively clear when, in relation to the principal, interest was to start running”.

16. The first possible interpretation noted by the Master was (at [21]): That interest from the entry of judgment until payment was to be calculated at 20% rather than the rate prescribed by the Court Procedures Rules (presently 11% ...)

17. An alternative interpretation, mentioned by the Master at [22] and urged upon us by Mr Whybrow at the hearing of the appeal as the clear meaning of the paragraph, was that: the defendants [were] to pay interest at 20% on some or all of the settlement amount up to judgment.

18. The Master observed at [30] that the reference in paragraph 2 to clause 21 of the contract suggested a calculation of interest from the due date of each progress payment (it seems that more than one progress payment had remained unpaid).

19. At [32] the Master went on: It was open to the plaintiff’s solicitor to spell out clearly what the plaintiff was offering in relation to the interest claim. It is not obvious to me and cannot have been obvious to the solicitor for the defendants.

20. That is, the Master remained unsure about how much of the settlement amount mentioned in paragraph 1 of the 6 September offer was covered by paragraph 2 and about the period for which interest was payable on whatever amount or amounts were covered by paragraph 2 of the offer. Interpretation of paragraph 3 of the 6 September offer

21. As to paragraph 3 of the offer, the Master said at [33] that the reference after that paragraph to the statement of Mr Kemp’s then current solicitor-client costs and disbursements also gave rise to ambiguity. The Master said: I would have had no difficulty in reading paragraph 3 of the offer as limited to party-and-party costs, but the addition of the final paragraph adds some confusion to that interpretation.

22. That is, although there was nothing in paragraph 3 itself to suggest this meaning, the Master considered that paragraph 3 could have been read as referring to solicitor-client costs because of the immediately following indication of the current solicitor-client costs. The Master’s conclusions

23. At [34] and [35] the Master concluded that as paragraphs 2 and 3 of the offer were “not unambiguously clear”, the offer “did not meet the requirements of a valid Calderbank offer”. Consideration

24. The judgment subject to appeal is a discretionary judgment. To interfere with the exercise of the Master’s discretion, “it must appear that some error has been made in exercising the discretion”. See House v The King (1936) 55 CLR 499 (House) at 505 (per Dixon CJ, Evatt and McTiernan JJ). In House, their Honours also said at 505: It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.

25. Mr Whybrow conceded that it was a difficult task for him to show a specific error of the House type, but submitted that the Master’s failure to properly exercise his discretion (as required by House) could be inferred from the fact that the Master’s construction of the offer was unreasonable. Specifically he submitted that the Master had misconstrued the ordinary language of the 6 September offer in concluding that it was ambiguous, and pointed to the fact that the alleged ambiguity had not been raised while the offer was still open or in fact until much later.

26. As noted, the interpretation of paragraph 2 of the offer that Mr Whybrow said should have been plain to all concerned was that interest on the amount said to have been owed would run “under the contract” from 7 days after the time “those payments were due” (that is, from a date or dates in 2007, possibly as much as 12 months before the offer was made). He conceded that this involved relatively little compromise on Mr Kemp’s part, but said that the offer would have been “a sensational offer” if it had meant that interest was only to run from the time the settlement payment became due after the offer was accepted.

27. A further interpretation of paragraph 2 emerged during argument, namely that the offer was that Mr Kemp would accept the specified sum, with interest at 20% (the interest rate provided for in the contract), to accrue from 7 days (being the period for payment specified in clause 21) after the offer was accepted.

28. We reject Mr Whybrow’s submission that the offer was unambiguous. Paragraph 2 of the offer is ambiguous and confusing. It provides an end time for the payment of interest but does not provide a commencement time. It is also unclear whether the principal on which the interest is to be paid is the total of the judgment sum or only the amounts subject to interest under clause 21 (that is, unpaid progress payments). The paragraph is capable of at least the two possible interpretations set out by the Master at [21] and [22] of his reasons and referred to at [16] and [17] above. The confusion is only increased by the fact that, as Mr Whybrow conceded, one of those interpretations would have been “sensational” from the Ryans’ point of view but the other one (the one that Mr Whybrow claimed was indisputably the meaning) involved very little compromise by Mr Kemp. That is, neither interpretation seemed to reflect a real compromise.

29. It is clear that reasonable minds might differ on what the proper approach to the interpretation of paragraph 2 of the offer might be. Mr Whybrow effectively acknowledged so much in his reply.

30. In Perry at [55] Greenwood J said that: [A] difference of construction of the letter of offer suggests that the letter is not, in terms, clear and precise and not one, as a matter of principle, “couched in such terms as enable the offeree to make a carefully considered comparison between the offer made and the ultimate relief it is seeking in all aspects;” Dr Martens v Figgins Holdings at [24]

31. We respectfully agree with that approach to this issue. If reasonable minds might differ as to the meaning of paragraph 2 of the offer it is impossible to say, in the House sense, that the Master’s view about paragraph 2 being ambiguous was an unreasonable one.

32. The question was also raised as to whether it was reasonable for the Master to find that paragraph 3 of the letter, and the following words regarding costs, made the Calderbank offer uncertain. Although it may be contended, with some force, that the observation contained in the offer after paragraph 3 was simply an observation about Mr Kemp’s costs to date, rather than being part of the offer, we can readily understand the confusion those words generated in the Master’s mind. As well, a further possible interpretation of paragraph 3 emerged in argument on the appeal, being that it referred generally to whatever costs were agreed or assessed, without purporting to specify or imply the exact nature of those costs at all.

33. The transparency or otherwise of the content of a costs term in a Calderbank letter is central to the question of whether the discretion should be exercised to award indemnity costs; see Perry at [53]. It does not aid in achieving certainty in a proposed Calderbank offer to suggest a term dealing with costs (inferentially as party-party costs) and then immediately make an observation relating to solicitor-client costs.

34. We do not consider the view taken by the Master about the ambiguous nature of paragraph 3, by reference to the concluding words of the offer, to be an unreasonable view. At the least, it is a view as to which reasonable minds might differ.

35. However, even putting aside paragraph 3 of the offer, the uncertainty surrounding paragraph 2 of the offer was sufficient, in itself, to support the conclusion of the Master that the offer did not constitute a valid Calderbank offer.

36. The fact that ambiguity was not raised while the offer was open may have been appropriately considered in the Master’s exercise of his discretion, but we cannot see that this establishes that the offer was sufficiently clear to have created a binding contract if it had been accepted. Contention

37. The respondents filed a notice of contention in which they submitted that if the offer was a proper Calderbank offer it was an offer which, in the circumstances, was not unreasonable for them to reject. It is unnecessary for us to deal with the notice of contention, given that we consider that the Master’s discretion did not miscarry. There was no proper Calderbank offer so it is not necessary for us to consider the position on the basis that one was made. Conclusion and Order

38. For the above reasons, we can discern no error in the discretionary judgment below. It was open to the Master to form the view he did that the terms of the offer were uncertain and ambiguous. It is appropriate to order as follows: 1. The appeal is dismissed. 2. The appellant pay the respondents’ costs of the appeal. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Date: 5 March 2012

Counsel for the Appellant: Mr S Whybrow

Solicitor for the Appellant: S & T Lawyers

Counsel for the Respondents: Mr D Mossop

Solicitor for the Respondents: Colquhoun Murphy

Date of hearing: 10 November 2011

Date of judgment: 5 March 2012

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