Lend Lease Retail Projects Pty Ltd v Construction Engineering

7. I agree with Callaway, J.A., for the reasons he gives, that the trial judge's discretion miscarried as to costs, and that, subject to anything counsel might say, orders should be made as proposed by his Honour.

12. On Tuesday 25th August 1998 a trial began in the County Court in which Christopher McLean was plaintiff, suing by his litigation guardian, and there were four named defendants. The plaintiff's claim was for personal injuries when he fell from a travellator in a shopping centre on to the floor below. The four named defendants were the occupier of the premises, the builder, the construction manager and the architect. The plaintiff had already discontinued against the second defendant. The first, third and fourth defendants are the present appellant and the first and second respondents respectively. There were contribution proceedings between each of those three parties. At a stage at which it was the sole defendant, the appellant had served a third party notice on the respondents. An order was subsequently made to the effect that that notice stand as a notice of contribution directed to each of the respondents. The first respondent had served notices of contribution on the appellant and the second respondent and the second respondent had served notices of contribution on the appellant and the first respondent. The trial occupied ten days and the plaintiff was successful. Judgment was entered in his favour in a substantial sum[1], which was apportioned among the appellant and the respondents in the proportions 40%, 40% and 20% respectively.

15. Although the trial began on a Tuesday, it was originally listed to begin on the Monday. On the previous Friday the appellant served a document entitled "Offer to Contribute" on the respondents. It was addressed as follows:

"TO: The third defendant AND TO: The third defendant's solicitors Deacons Graham & James DX 445 MELBOURNE TO: The fourth defendant AND TO: The fourth defendant's solicitors Ebsworth & Ebsworth DX 640 MELBOURNE"

It will be observed that there is no conjunction between the name and address of the first respondent's solicitors and the designation of the second respondent.

"TAKE NOTICE that the first defendant offers to resolve contribution between defendants on the following terms.

1. The first defendant contribute 51% of any verdict or settlement obtained by the plaintiff (inclusive of interest) together with 51% of the plaintiff's party/party legal costs.

3. The defendants be represented by one set of counsel (senior and junior) who will be retained to represent all defendants.

AND TAKE NOTICE that this offer is served in accordance with part 2 of order 26 of the County Court Rules of Procedure in Civil Proceedings."

It will be recalled that the plaintiff succeeded and that the appellant's share of the damages was only 40%.

29. In the Court below there was substantial debate as to the costs order that should be made in the light of that document, which I shall call simply "the appellant's offer". Senior counsel for the appellant handed a copy to the learned trial judge, describing the offer as having been made in accordance with Rule 26.10[2], scil. of the County Court Rules of Procedure in Civil Proceedings 1989.[3] Counsel took his Honour directly to the discussion of that Rule in Williams, Civil Procedure - Victoria and to Henderson v. Simon Engineering (Aust.) Pty. Ltd.[4], which he said was the best case on the issue. Counsel continued, "Before Your Honour allows the successful defendant its costs, you have got to be satisfied that, had the other defendants accepted the offer, it would have made a difference." He conceded that it was "no good if it wouldn't have made a difference" and all the defendants argued the question on that footing.

32. Counsel for the respondents resisted an order in favour of the appellant principally on the ground that there were contribution proceedings between them which, in practice, it was impossible to resolve. (The second respondent, in particular, had adopted what was said to be an intransigent attitude. It had written a Calderbank letter[5] which went no further than an offer to bear 25% of its own party/party costs of the contribution proceedings. The second respondent believed that its plans for the building in which the accident occurred had not been followed. It emerged only at a very late stage in the evidence that that was not so.) Counsel for the appellant pointed out, in reply, that either or both of the respondents could have protected its position by making an offer to the other.

35. His Honour declined to make an order in favour of the appellant, apportioning the costs in the same proportion as the damages. Speaking of Rule 26.10 and the appellant's offer, he said:

"The Rule is designed to encourage defendants to agree upon issues of contribution. The procedure is straightforward where there are two defendants. Here there was an issue, that remained alive until the conclusion of the proceedings, as to the contribution if any to be made by Construction Engineering and Clarke Hopkins and Clarke. I have been told that in earlier correspondence the latter party refused to make any offer of contribution. I have no precise information as to the attitude of Construction Engineering to the notice although counsel for that company did submit that in the light of Clarke Hopkins and Clarke's attitude his client was not in a position to respond to the offer to contribute. My conclusion is that it is not appropriate for the negotiations between the parties to be further canvassed and counsel have not sought to do so. Murphy, J. in Henderson v. Simon Engineering (Aust.) Pty. Ltd. [1988] VicRp 77; [1988] V.R. 867 at 872 pointed out that in that case costs would not have been saved by acceptance of the offer of contribution. In the present case there remained the issue of contribution between Construction Engineering and Clarke Hopkins and Clarke. Acceptance of the Lend Lease offer of contribution by either defendant would not have resolved the liability issue vis-à-vis the other defendant and as a consequence there could be no saving of costs."

The reference to Construction Engineering is a reference to the first respondent and the reference to Clarke Hopkins and Clarke is a reference to the second respondent.

40. The appeal is limited to the effect of the appellant's offer. There are eight grounds of appeal, but the essential contentions emerge from grounds 6, 7 and 8:

"6. His Honour mis-exercised the discretion in respect of costs, in particular in that:

(a) the mere failure and/or refusal of the first and second respondents to resolve the issue of contribution between themselves was not a proper reason for depriving the appellant of an order in respect of payment of, and/or indemnity for, its costs having regard to the offer to contribute;

(b) the failure and/or refusal by the first and second respondents to resolve contribution between themselves should not inure to the detriment of the appellant;

(c) the failure and/or refusal of the first and second respondents to resolve the issue of contribution between themselves was relevant only to the issue of the extent to which the first and second respondents should each pay and/or indemnify the appellant in respect of costs of the trial;

(d) his Honour failed to take into account the fact that each of the first and/or second respondents could have protected its position in respect of costs by service of an offer of willingness to contribute.

7. His Honour failed to give weight or sufficient weight to the consideration that the purpose of Order 26 rule 10 of the Rules of Court was designed to encourage defendants to agree upon issues of contribution and resolve the proceeding.

8. His Honour gave weight to an irrelevant and wrong consideration, namely that since the issue of contribution between the first and second respondents had not been resolved, the offer to contribute was not effective to have saved costs and on that basis the appellant should not be paid or indemnified in respect of its costs."

When I speak of costs in this judgment, it is to be borne in mind that the reference is not only to the appellant's costs but also to the costs that it must pay to the successful plaintiff. That is why the notice of appeal refers to both payment and indemnity.

51. It is perhaps as well to set out the provisions of Rule 26.10(1) and (2), although in the end nothing turns on them:

(1) Where in any proceeding a defendant makes a claim (in this Rule called 'a contribution claim') to recover contribution or indemnity against any person, whether a defendant to the proceeding or not, in respect of any claim for a debt or damages made by the plaintiff in the proceeding, any party to the contribution claim may serve on any other party to the contribution claim an offer to contribute toward a compromise of the claim made by the plaintiff on the terms specified in the offer.

(2) The Court may take an offer to contribute into account in determining whether it should order that the party on whom the offer to contribute was served should pay the whole or part of -

(b) any costs which that party is liable to pay to the plaintiff."

Paragraph (3) provides that Rules 26.04 and 26.05 apply, with any necessary modification, to an offer to contribute as if it were an offer of compromise.

60. Questions were raised in the course of the argument in this Court concerning the construction both of Rule 26.10 and of the appellant's offer. One question was whether "an offer to contribute" within the meaning of the Rule had to be an offer which, if accepted, would immediately result in a binding contract or whether, by contrast, an invitation to treat would or might be sufficient. Another question was the extent to which the singular includes the plural in Rule 26.10. The principal question of construction with respect to the appellant's offer was whether it was addressed to each of the respondents, so that either of them could accept it irrespective of the position of the other, or addressed to them jointly, so that it could be accepted only by both of them. A purported acceptance by one only would, in the latter case, amount to a counter-offer. Another question was whether, if the offer was addressed to each of the respondents, acceptance by one of them would necessarily entail its agreement to contribute 49% or whether it would be agreeing only to a limitation on the contribution it would seek from the appellant.

63. In my opinion none of those questions need be decided. Except for the last, none of them was the subject of submissions below. The issue of costs was sensibly argued as a question of substance, for Rule 26.10 is only one way in which a trial judge's discretion may be enlivened. It should similarly be decided on appeal as a question of substance.[6] The appellant's offer was an intimation to the respondents that it was willing to admit liability, to contribute 51% and to be jointly represented by one set of counsel. The question is whether it was open to his Honour, in his discretion, to decline to give it any effect in his order for costs.

66. Let it be assumed in favour of the respondents that, by reason of the position adopted by one or other or both of them, there was no prospect of their agreeing on the three points in the appellant's offer. To my mind, that was no concern of the appellant's. It was contended below and before us that the offer was made in the knowledge that the respondents would not accept it, but that was their problem, not the appellant's. Each respondent could have protected itself by an offer to the other.[7]

69. There is less difference than at first appears between an offer made by one defendant to the other in a proceeding where there are only two defendants and an offer made by one defendant to all the others in a proceeding where there are three or more defendants. There is still an offer by A to B. The difference is that B consists of a group. If significant costs[8] would have been saved by acceptance of the offer, it is by no means a conclusive answer to say that the other defendants could not agree among themselves. The intransigence of a particular defendant may mean that the burden of costs falls more heavily on that defendant, as between the other defendants, but in a case such as the present they should be jointly liable to compensate the defendant who made the offer.

72. I hasten to say that the foregoing is not a rule. There are too many possible factors in a case with three or more defendants and, in any event, the discretion should not be fettered. It is simply an indication of the way in which the discretion is likely to be exercised in most cases where one defendant makes a comprehensive offer to the others. The offers made in Henderson's Case were far from comprehensive. There may be cases where the group or one or more of its members have legitimate reasons for refusing such an offer that would not have been available to a single defendant, but they will not ordinarily include inability to agree among themselves.

75. In the present case there are two steps that have to be undertaken. The first is to make an estimate of the costs that would have been saved if the respondents had accepted the appellant's offer. In order to do so the respondents would have had to agree on contribution as between themselves, for otherwise the defendants could not have been represented by one set of counsel. (Moreover the purpose of the offer was expressed to be "to resolve contribution between defendants".) The saving of costs therefore falls to be assessed on the footing that neither liability nor contribution would thereafter have been in issue, but only the quantum of damages, in respect of which all three defendants would have been represented by one set of counsel.

78. The second step, or more correctly second and third steps, are to make an order giving the appellant the benefit of the costs saved and an order apportioning the burden between the respondents. Nothing in these reasons should be taken to imply a view as to the proper apportionment of the burden as between the respondents. The first respondent's fall-back position in the court below was that, if effect were to be given to the appellant's offer, the burden should fall in full on the second respondent; but only the appellant has appealed against his Honour's order, which was that the plaintiff's costs be paid by the appellant as to 40%, the first respondent as to 40% and the second respondent as to 20% and that each defendant be responsible for its own costs. There is no proceeding or notice of any kind by either of the respondents.

81. For these reasons, in my respectful opinion, the trial judge's discretion miscarried. I would hear counsel on the question of the orders that should be made, but it would appear that they should be along the following lines:

1. Set aside paragraphs 4 and 5 of the order made by the County Court on 22nd September 1998.

2. Remit the question of costs to that Court to be determined in accordance with the reasons of the Court of Appeal.

3. Direct, pursuant to s.74(3) of the County Court Act 1958, that the Court may be constituted by the judge before whom the proceeding was originally heard.

[1] Damages of $801,750 together with interest agreed at $15,120 and costs.

[2] The transcript says "order 26 rule 2", but it is apparent that counsel was intending to refer to Rule 26.10.

[3] Those Rules have since been revoked. The present Rules are the County Court Rules of Procedure in Civil Proceedings 1999. I shall nevertheless refer to Rule 26.10 in the present tense. See also Rule 26.11 of the new Rules.

[4] [1988] VicRp 77; [1988] V.R. 867.

[5] Calderbank v. Calderbank [1976] Fam. 93 at 105-107.

[6] Compare Henderson's Case at 872 lines 3-15.

[7] Compare Amadio Pty. Ltd. v. Henderson [1998] FCA 823; (1998) 81 F.C.R. 149 at 265.

[8] If the saving would not be significant, a group of defendants might be justified in not making the effort to agree among themselves.