Nemeth v Prynew Piling v Prynew

Ferdinand Nemeth v Prynew Pty Limited & Ors PARTIES : Piling Contractors (Qld) Pty Limited v Prynew Pty Ltimited

Mr SM Kettle for Piling COUNSEL : Mr D Robertson for Nemeth Mr J Simpkins QC for Prynew and Tsu Mr PL Dodson for QBE

Thompson Cooper Lawyers for Piling SOLICITORS : Avendra Singh & Co for Prynew and Tsu Gadens for Nemeth Curwood & Partners for QBE

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CONSTRUCTION AND TECHNOLOGY LIST

55037/2003 Ferdinand Nemeth v Prynew Pty Limited, Peter Tsu and Piling Contractors (Qld) Pty Ltd and Virginia Nemeth

55019/2003 Piling Contractors (Qld) Pty Limited v Prynew Pty Limited JUDGMENT ON COSTS 1 His Honour: I have heard argument on the costs' orders to be made in this mater. The matters remaining to be considered appear to be the following.

Whether GST should be included in the amounts for judgment for the plaintiffs against the first three defendants.

Costs as between the plaintiffs (Mr and Mrs Nemeth, including Mrs Nemeth up until she changed from being a plaintiff to a defendant) and the first and second defendants. The following sub issues arise:

(a) The first and second defendants concede they should be ordered to pay the plaintiffs costs up to 10 August 2005. The question is whether they should be on an indemnity basis. (b) The cost consequences of offers of compromise served by the first and second defendants on the plaintiff on 10 and 16 August 2005, and (c) Whether a Bullock or Sanderson order should be made against the plaintiffs in respect of the cost order already made that the first and second defendants pay the cost of QBE of the second cross claim. (d) Whether the costs' orders against the first and second defendant should be joint and several or should be apportioned.

Costs as between the third defendant and the first defendant in their separate District Court proceedings, which are now proceedings 55019/03, which were also the subject of the reference.

Costs as between the third defendant and the plaintiffs in proceedings 550737/03.

Interest on costs. 2 I turn consider these matters. I will not set out the history of the matter as it is adequately dealt with in my earlier substantive decisions in the matters which are reported as Piling v Prynew Nemeth v Prynew [2008] NSWSC 118 and Piling v Prynew Nemeth v Prynew [2008] NSWSC 327.

1. Whether GST should be included in the amounts for judgment for the plaintiff against the first three defendants? 3 The subject property was Mr and Mrs Nemeth's residence and as it is not a business property. The plaintiffs' submission is that they would not have any input credits in respect of any GST paid on rectification costs. In the ordinary course, the cost of rectification of the property will include GST charged by suppliers and thus their damages should include GST. 4 They also point out that the measure of damages assessed by the referee and adopted by the court is the reasonable cost of rectification which was measured by the expert evidence, not the sums actually expended. 5 The evidence suggests that one of Mr Nemeth's companies paid for the rectification. In oral submissions it was indicated that further evidence might be tendered to say that part of the premises were used for business purposes. However, that matter was not subsequently addressed in written submissions. 6 The premises had been rectified by the time of the hearing and the award was based upon the referee's assessment of what was the reasonable cost of rectification in the circumstances. In my view the judgment should include GST 2 (a) Whether costs as between the plaintiffs (including Mrs Nemeth up until she changed from being a plaintiff to a defendant) and the first and second defendants up to 10 August 2005 should be on an indemnity basis? 7 The claim made by the plaintiffs is on the basis that the first and second defendants had no real prospects of success on the question of liability or, alternatively, they unreasonably declined to admit liability. In support of the first submission the plaintiffs point to the findings that:

1. Each of the defendants contravened s 177 (2) of the Conveyancing Act 1919 ; and

2. The first and second defendants were strictly liable to the plaintiffs for breach of statutory duty for breaching the terms of the development consent. 8 The defendants' submissions on this aspect were as follows: "The second is the question of indemnity costs. The assertion in B [in the plaintiff's original submissions on costs dated 15 May 2008] is vice versa the first and second defendants that their defences have no real prospects of success and there is a reference in para 7 to the fact they were found liable under s177(2) of the Conveyancing Act and liable for breach of statutory duty. It will be obvious from a reading of the referee's report there were a number of complicated factual matters in dispute in the hearing before the referee. It is obvious in relation to the contravention of the Conveyancing Act, which was found that in order to reach a conclusion there was a breach of a duty of care the referee had to resolve a number of controversial factual matters. It can't be said that prior to the referee determining those matters he ought to have concluded by the first and second defendants they had no prospects of success in relation to that claim. So far as breach of a statutory duty there were issues not only of the underlying factual matters but an issue about the construction of the consent and what it meant in terms of the design and supervising engineer for example. This is not a case where there has been any exceptional circumstances but where they had arguable defences. They were advanced before the referee and those advances we know in certain respects failed but they were not failures that were inevitable and there is no reason to depart from your Honour's principles and order indemnity costs." 9 In my view the questions of liability were complex. Facts had to be found and the legal principles required 28 pages of reasoning in my principal judgment. There is no reason for the costs to be on an indemnity basis. 2 (b) The cost consequences of offers of compromise served by the first and second defendants on the plaintiff on 10 and 16 August 2005. 10 The first offer was that the first and second defendant would settle the proceedings by paying the plaintiffs $250,000 (inclusive of interest and GST) plus costs, as agreed or assessed. It was dated 10 August 2005 and the offer was open for acceptance until 15 August 2005. 11 The second offer was that the first and second defendant would settle the proceedings by paying the plaintiffs $350,000 (inclusive of interest and GST) plus costs as agreed or assessed. It was a condition of the offer that, if accepted, the plaintiffs would indemnify the first and second defendants from any claim made by the third defendant in respect of the claims of contribution, or indemnity, or damages by the third defendant, arising from any claim made by the plaintiffs upon the third defendant in the proceedings, including costs. The offer was open for acceptance until 12 noon on Thursday 18 August 2005. 12 The substantive hearing before the referee began on 17 August 2005. 13 The referee's findings were as follows: " 971 On the plaintiff's claim, the defendants will pay the plaintiff the sum of $239,674.89, exclusive of GST. If GST is applicable on damages of this kind, a further 10% should be added. Simple interest at the Supreme Court rate should run on the principal from 1 January 2003. 972 Of the total figure payable to the plaintiff, Prynew and Tsu should pay 75% and Piling should pay 25%. Of the total figure payable by Prynew and Tsu, Prynew should pay 70% and Tsu should pay 30%. " 14 I have found that GST must be added which makes the sum $263,642.37 plus interest. The plaintiffs' calculation of the result on different scenarios was as follows:

Nature of Award Up to and including 11 August 2005 Up to and including 16 August 2005 GST included GST excluded GST included GST excluded Judgment against first and second defendants $244,196.04 (incl. interest of $46,464.26) $221,996.40 (incl. interest of $42,240.24) $244,439.78 (incl. interest of $46,708.00) $222,218.02 (incl. interest of $42,461.86) Judgment against Third defendants $81,398.68 (incl. interest of $15,488.08) $73,998.81 (incl. interest of 14,080.08) $81,479.93 (incl. interest of $15,569.33) $74,072.68 (incl. interest of $14,153.95) Whole Judgment sum in favour of plaintiffs $325,594.72 (incl. interest of $61,952.34) $295,995.21 (incl. interest of $56,320.32) $325,919.71 (incl. interest of $62,277.33) $296,290.70 (incl. interest of $56,615.81)

15 When GST is included, the total award in favour of the plaintiffs, taking into account interest only up to the dates of the offers, is in excess of the first offer and lower than the second offer. However, if one has regard to the apportioned result the award is less than both offers. It is of some importance to consider which approach is correct, particularly as there are arguments about the form of the second offer. 16 The first time the first and second defendants indicated (either formally or informally) that they intended to rely on the statutory provisions regarding proportionate liability was by the service of their draft Defence to Amended Summons on 19 August 2005 which is after both the first offer and the second offer had expired. The first time the third defendant indicated (either formally or informally) it intended relying on the statutory provisions regarding proportionate liability was by the service of its draft amended defence on 26 August 2005. This was after both the first offer and the second offer had expired. 17 It was the first and second defendants' contention that the court was bound by the legislation and had to apply it regardless of any pleaded reliance on it. The plaintiffs' response was as follows: "The first and second defendants' Supplementary Submissions also contain in paragraph 17(q) an erroneous submission of law, insofar as it is submitted "the Court was bound to apply the statute [s109ZJ Environmental Planning and Assessment Act ] regardless of the state of the pleading". This proposition is contradicted by the judgment of Barrett J in Reinhold v NSW Lotteries Corporation [2008] NSWSC 187 at [32]: "A case no doubt needs to be pleaded and proved by one or more defendants so as to engage the statutory provisions." His Honour was in that case dealing with Part 4 of the Civil Liability Act, but in the plaintiff's submission the provisions of the Environmental Planning and Assessment Act were not relevantly different." 18 The comments of Barrett J to which reference was made are as follows: 28 It is pertinent to note that the words in s 34(1)(a) ("an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care") do not follow the pattern found in the modified Part 3 of the Law Reform (Miscellaneous Provisions) Act 1965 adopted in 2000 and dealing with contributory negligence. Following Astley v Austrust Ltd (above), that Part 3 made a plaintiff's contributory negligence relevant to the assessment of damages for "a breach of a contractual duty of care that is concurrent or co-extensive with a duty of care in tort": s 8, definition of "wrong". The description in s 34(1)(a) of the Civil Liability Act , by contrast, shows a legislative intention going beyond contractual duties existing, as it were, in parallel with duties of care in tort. 29 Again, support for the approach I consider to be correct is found in the observations of Middleton J in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (above). His Honour said (at [30]): 'Where a claim brought by an applicant does not have as one of its necessary elements any allegation of failing to take reasonable care, an additional enquiry into the failure to take reasonable care may become relevant in the course of a trial to determine the application of Pt IVAA. Even though the claims in this proceeding themselves do not rely upon any plea of negligence or a "failure to take reasonable care" in a strict sense, a failure to take reasonable care may form part of the allegations or the evidence that is tendered in the proceedings. At the end of the trial, after hearing all the evidence, it may be found that Pt IVAA applies.' 30 I respectfully agree that a claim may properly be regarded as one "arising from a failure to take reasonable care" if, "at the end of the trial", the evidence warrants a finding to that effect and regardless of the absence of "any plea of negligence or a 'failure to take reasonable care'". The nature of the claim, for the purposes of Part 4, is to be judged in the light of the findings made and is not determined by the words in which it is framed. 31 There is good reason in policy to take this approach. The clear objective of Part 3 is to abolish "solidary liability" under which all defendants found guilty of relevant breach are jointly and severally required to meet an undissected verdict. The provisions reflect legislative views about allocation of risk as between plaintiffs and defendants. The New South Wales Attorney-General in office at the time of the enactment of Part 3 made this clear when he said of the new provisions: "[I]n cases of negligence not involving personal injury, considerations of prejudice to plaintiffs weigh less strongly than the value of limiting liability of defendants according to their share of responsibility, and as a consequence the CLA(PR) Bill proposes in Part 4 the introduction of proportionate liability in the context of economic loss and property damage."

(The Honourable Robert Debus MP, "Tort Law Reform in New South Wales: State and Federal Interactions" (2002) 8 UNSW L Rev 13). 32 The provisions of Part 4 are compulsory. They change substantive rights, so that a plaintiff's ability to obtain an adjudication of joint and several liability is removed where the circumstances are of the type to which the alternative regime of proportionate liability is applied. A case no doubt needs to be pleaded and proved by one or more defendants so as to engage the statutory provisions. But it will be the findings ultimately made that determine whether the statutory conditions compelling the court to adopt the proportionate approach are satisfied." 19 The relevant provision which applied was a predecessor to s 35 of the Civil Liability Act and was in these terms: "109ZJ Apportionment of liability (1) After determining an award of damages in a building action or subdivision action, a court must give judgment against each contributing party for such proportion of the total amount of damages as the court considers to be just and equitable, having regard to the extent of that party's responsibility for the loss or damage in respect of which the award is made. (2) (Despite any Act or law to the contrary, the liability for damages of a contributing party is limited to the amount for which judgment is given against that party by the court. (3) A contributing party cannot be required: (a) to contribute to the damages apportioned to any other person in the same building action or subdivision action, or (b) to indemnify any such other person in respect of those damages. (4) In this section contributing party, in relation to a building action or subdivision action, means a defendant or other party to the action found by the court to be jointly or severally liable for the damages awarded, or to be awarded, in the action." 20 The first three defendants were all parties to the action at the time of the offers. The legislation is just as emphatic and directs the court to the judgment which it must give. It will be bound to do so once it has determined a party's responsibility for the loss or damage. In my view the fact that at the time of the offer there was no pleaded defence is immaterial as the parties must have been aware of the law. The terms of the offer made it plain that it was the first and second defendant making the offer. They could not settle the proceedings for the third defendant and did not purport to do so. For all they knew the third defendant may have wished to proceed with a successful defence of the proceedings and obtain a costs' order against the plaintiffs. The third defendant's submission to the contrary is rejected. 21 His Honour's comments are no doubt directed to procedural requirements to ensure that the matter is dealt with in an orderly manner at trial. His Honour's comments at [30] support this view. 22 Having regard to the apportioned amount the first and second offers were both more than the result. The following matters need to be addressed to consider the matter further:

i. The plaintiff did not have enough information to assess the offers; ii. The time given to accept was not reasonable; iii. The condition attached to the second offer was unreasonable; iv. Whether the offer was reasonable and a genuine offer to settle and whether the rejection was unreasonable; and v. The costs of the adoption motions should be treated as costs in the proceedings. 23 I have had the assistance of detailed submissions on the law to be applied to Calderbank offers. The plaintiffs helpfully summarised the authorities in the following propositions which I adopt.

(a) The usual order is that costs follow the event unless the court considers that some other order ought to be made (see Commonwealth v Gretton [2008] NSWCA 117 per Beazley JA at [38]-[40]); (b) The making of a Calderbank offer does not automatically result in a favourable costs order, notwithstanding that the judgment is more favourable to the party making the offer than the terms of the offer (see SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]; Jones v Bradley (No 2) [2003] NSWCA 258 at [9]; Commonwealth v Gretton [2008] NSWCA 117 per Beazley JA at [43] and the authorities referred to therein); (c) The issues as to: (i) whether the offer was reasonable; (ii) whether the offer represents a genuine compromise; and (iii) whether the rejection of the offer was unreasonable, are relevant in the court's consideration as to how the discretion might appropriately be exercised (see Commonwealth v Gretton [2008] NSWCA 117 per Beazley JA at [44]); (d) The relevant circumstances of the case will include, in particular, whether it was unreasonable for the offeree to reject the offer and in determining that issue and in considering the circumstances generally (see Elite Protective Personnel v Salmon [2007] NSWCA at [99], referring to Donnelly v Edelsten (1994) 49 FCR 384 AT 396), consideration will be given to whether: i. There was sufficient time to consider the offer (See Elite Protective Personnel v Salmon [2007] NSWCA at [99]); ii. Adequate information was provided for the offeree to be able to reasonably consider the offer (ie the proceedings did not change significantly after the offer expired) ( See South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [85] per Hunt AJA (Mason P and McColl JA agreeing); Vale v Eggins (No 2) [2007] NSWCA 12 per Beazley JA at [22]; Rolls Royce Industrial Power (Pacific) Ltd v James Hardie and Co Pty Ltd [2001] NSWCA 461); and iii. There were any conditions to the offer and if so, whether the conditions were reasonable (see Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 583 at [73]-[74]). (e) The primary question for the court is whether the circumstances of making the offer and the failure to accept it, in all the circumstances, warrants departure from the ordinary rule as to costs ( SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [8]; Commonwealth v Gretton [2008] NSWCA 117 at [43]); (f) The onus is on the party making a Calderbank offer to satisfy the court: i. That it should depart from the usual order as to costs; ii. That the circumstances of making the offer and the failure to accept it warrants departure from the ordinary rule as to costs; and iii. That it should exercise the costs discretion in that party's favour ( County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) [2008] NSWCA 273 per McColl JA at [31]; Commonwealth v Gretton [2008] NSWCA 117 per Beazley JA at [46]). (g) Costs should be ordered in a way that is fair having regard to what the court considers to be the responsibility of each party for the incurring of the costs ( Commonwealth v Gretton [2008] NSWCA 117 at per Beazley at [85] and per Hodgson JA at [121]); (h) All of the above principles must be considered and applied having regard to all of the relevant circumstances of the case (see SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (at [37]); Commonwealth v Gretton [2008] NSWCA 117 at [45]).

2 (b)(i) The plaintiffs did not have enough information to assess the offers. 24 In order to consider this matter and some of the other matters dealt with below it is necessary to first consider the timing of the events surrounding the offers. The evidence establishes the following which is substantially taken from the parties' submissions but is evidenced in the documents before me. 25 The matter was originally listed for hearing before the referee on 15-26 August 2005. The referee held a preliminary conference on 12 August and directed that the experts meet in a conclave to discuss their position and if possible narrow the issues in dispute. At that time the relevant experts on the question of what was the scope of reasonable rectification works, were Mr Young (for the plaintiffs), Mr Truswell and Mr Brincatt (for the first and second defendants). The first and second defendants were required to serve any further evidence by 5:00pm on 15 August 2005.

26 The first offer (contained in the fax from the first and second defendants' solicitor dated 10 August 2005) was actually received by the plaintiffs' solicitor the following day (11 August 2005) by fax transmission at 5:11pm. It was open for acceptance until 10:00am on Monday 15 August 2005. The offer was therefore open for just over three days (only one business day). 27 At 10 am on Monday 15 August 2005 the first offer expired it not having been accepted. 28 On 16 August 2005, at 12:38pm, the solicitor for the third defendant sent a fax to the referee and the other parties indicating that the first and second defendants had not yet served their evidence and reserving the third defendant's position with respect to the evidence, including its admissibility. 29 On 16 August 2005, at approximately 3:00pm, the plaintiffs' solicitors sent a fax to the referee and the other parties expressing concern about failure of the first and second defendants to serve their evidence and the fact that they had only recently (on 12 August 2005) been informed that the first and second defendants' expert, Mr Truswell would not be available for the expert conclave scheduled to occur on 19 August. Further, the plaintiffs' solicitors noted that the plaintiffs did not at that time know what "new engineering material" would be served by the first and second defendants and that the plaintiffs would not be in a position to proceed with the hearing unless it had a proper opportunity to consider any new material. 30 On 16 August 2005, the solicitors for QBE sent a letter to the referee expressing QBE's position that it intended to make an application to defer the expert conclave until Mr Truswell's return and indicating the difficulties in the experts reaching any meaningful opinion until all of the parties had an opportunity to read and consider the first and second defendant's further evidence (which had not yet been served). 31 On 16 August 2005, at 4:44pm, the plaintiff's solicitor received a fax from the first and second defendant's solicitor attaching by way of service the affidavit of Peter Tsu sworn on 16 August 2005 and a draft affidavit of Nikolai Koloff. It was also indicated that the sworn affidavit of Nikolai Koloff would be worn and served on 17 August 2005 32 On Tuesday 16 August 2005, at 7:27pm, the plaintiffs' solicitor received the second offer from the first and second defendants' solicitor. The second offer was open for acceptance until 12:00pm on 18 August 2005 (that is, it was open for one and a half days). 33 In the evening of 16 August 2005 (the precise time is unknown), the plaintiff's solicitor also received from the first and second defendants' solicitor a copy of the report of Doug McMillan dated 15 August 2005. 34 On 17 August 2005, the hearing commenced before the referee. On that occasion, detailed and extensive submissions were put to the referee in relation to the late service of the McMillan report. The experts' conclave scheduled for 19 August 2005 was also the subject of detailed submissions. 35 On 17 August 2005, at approximately 12:00pm, the solicitors for the plaintiffs sent a fax to the solicitors for the first and second defendants requesting clarification of the first and second defendants' second offer. It noted that the claims by the third defendant against the first and second defendants were not explicitly defined in the proceedings. In the fax, the plaintiffs' solicitor asserted, "In its current form, the offer is not capable of being accepted by our client." The plaintiffs' solicitor did not receive any response to that fax. 36 On 17 August 2005, at 6:03pm, the solicitor for the plaintiff sent by email to the solicitor for the first and second defendants the plaintiff's proposed questions and issues for consideration by the conclave of engineers scheduled to take place on 19 August 2005. 37 At 12 noon on 18 August the second offer expired.

38 On 18 August 2005, at 3:06pm the solicitor for the plaintiff sent a further email to the solicitor for the first and second defendants regarding the proposed questions and issues for consideration by the conclave of engineers. 39 On 18 August 2005, at 4:50pm, the plaintiff's solicitor received a fax from the solicitors for the third defendant attaching further issues for consideration by the conclave. 40 On 18 August 2005, at 4:16pm, the first and second defendants' solicitor sent an email to the plaintiffs' solicitor attaching amended issues for consideration by the expert conclave. 41 On 18 August 2005, at 6:21pm, the solicitors for the plaintiffs received a fax from the solicitors for the first and second defendants attaching a further affidavit of Peter Tsu sworn on 18 August 2005. 42 On 19 August 2005, Mr Young (the plaintiffs' expert) and Mr McMillan (the first and second defendants' expert) met in a conclave in accordance with the referee's directions. 43 The McMillan report served on 16 August was pivotal to the referee's ultimate findings. The referee found (at [663]) that the McMillan proposal was a reasonable option and that the plaintiffs were entitled to the reasonable cost of the work involved in the McMillan proposal. This directly resulted in the valuation of the plaintiffs' entitlement at $239,674.89 as opposed to the plaintiffs' claim for approximately $1,000,000 representing the reasonable cost of works under the proposal put forward by the plaintiffs' expert, Mr Young. 44 The work proposed by Mr McMillan was only demolition of the southwest corner of the house and normal repairs to the rest of the house. In the plaintiffs' submission this was a substantial change in the evidentiary landscape. The first and second defendants for their part suggest that the existing reports had already identified this possibility. 45 Although Mr Truswell did not refer to this aspect in his first report in respect of rectification he did raise it squarely in his second report given on 6 April 2005. Although he clarified this in his report of 24 November 2005 the matter was squarely an issue at the time of the offers. The quality of the evidence does not detract from this fact. 46 The possible absence of Mr Truswell became known on 12 August and Mr McMillan's report was not available until after the first offer expired. All that was known was that further engineering evidence would be filed. A cautious approach would have assumed that it would advance the same propositions. 47 In my view at the time of the first offer the plaintiffs should have appreciated that the first defendant's position on the claim for rectification costs was as foreshadowed in Mr Truswell's second report. 48 Although it is clear that Mr Brincatt misunderstood the first Truswell report he did quantify the costs of rectification at $146,207.16 on the limited basis that became apparent in the second Truswell report. This information had been available since December 2004. The fact that Mr McMillan's December 2005 proposal was costed later does not detract from the clear thrust of the defendants' evidence which was available at the time of the first offer. 49 However, that is not the end of the matter, as at the time of the offers, the plaintiffs submitted that there was no basis to assess the proportion of their loss which was likely to be awarded against each defendant. The plaintiffs, it was submitted, were very much in the same position as the Campbelltown Council as canvassed by Priestley JA in SMEC Testing Services at [26]. "The reasonableness of the Council's response to SMEC's offers can only be considered in light of the facts that in the litigation the Council was standing between the plaintiff on the one side and the three Third Party defendants on the other which meant that the most sensible settlement for the Council with the Third Party defendants was one of the kind involving them all, preferably along the lines first suggested by the Council in March, and then again in April 1998. To have accepted SMEC's Pt 19A offer would have left many outstanding questions which could be troubling for the Council. If either or both the other Third Party defendants did not join in an overall settlement, and if the plaintiff did not join in, then the Council would be faced with being the defendant at a trial in which at least one of the Third Party defendants would be missing. The consequences of this would be hard to see in April 1988. Certainly it raised the spectre of possible unwanted complications at the trial, if the trial were to proceed. Further, and most obviously, the Council would still have been exposed to a claim considerably greater than it had settled for." 50 This is a very real problem as the true position between the defendants is a matter particular to their knowledge and not the plaintiffs' knowledge. Such problems can be avoided by making a combined offer by all defendants but this did not happen in this case. 51 The failure of the solicitor to respond to the request for clarification of the second offer compounded these problems. 2 (b) (ii) The time given to accept was not reasonable 52 The plaintiffs submitted that offers of compromise under the rules are distinguished from and raise different issues to Calderbank offers. Compromise offers have generally been seen as providing some guidance as to what sort of time period should generally be considered as "reasonable" for an offeree to consider an offer.

53 They referred to what was said in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 where McColl JA (at [117]) made the following obiter comments regarding reasonableness of time: " [117] For the foregoing reasons it was open to the appellant to argue that its conduct in not accepting the 11 August offer was not unreasonable. I would add that even if the offer had not been inclusive of costs, my prima facie view would have been that it did not, in the circumstances in which it was made, attract an indemnity costs order. It was open for acceptance for only one week at a time when there was no imminent trial. Further, the respondent's solicitors forwarded under cover of the same letter a quantity of economic loss material which it would have been necessary for the appellant's solicitors to assess. At the time the letter was sent offers of Compromise were required to be open for a minimum of 28 days (Pt 19A r 3(3), District Court Rules 1973), a period no doubt believed to provide a reasonable time for consideration. Prima facie, I see no reason why litigants who choose not to avail themselves of the rules as to offers of Compromise should be in a better position than those who do, if they radically foreshorten the period in which an offer is open for consideration."

54 Courts have on occasion considered far shorter periods to be "reasonable," particularly where there is an imminent trial such as in this case.

55 The plaintiffs referred to County Securities [2008] NSWCA 273 at [35] where the Court considered that a period of four days (two business days) was reasonable in the circumstances because those circumstances included the offeree having received sufficient material from the offeror that it was capable of considering the offer. 56 Both periods were extremely short. In respect of the first offer there was effectively only one business day for its consideration and in respect of the second, only one and a half days. Although the parties were well engaged in the imminent trial and were thus well versed in the issues the workload at this time was very high. To take time to give careful consideration to an offer may detract from necessary preparation. 2 (b) (iii) The condition attached to the second offer was unreasonable. 57 The plaintiffs' submissions on this point drew attention to the indemnity and its uncertain effect in regard to the existing cross claims between the defendants. The indemnity was also expressed to be inclusive of costs and that added a further complication. It is plain there were likely to be substantial costs as the parties were facing a hearing before a referee and a possible hearing before a court for acceptance of the referee's report. This would have an effect on the amount offered. I do not think that the first and second defendants response - that the plaintiff limiting its claim against the first defendant to its apportionable amount could have avoided the problems - was a practical answer for the plaintiffs. How would it know what was the apportionable amount? 58 In my view the condition was not reasonable particularly given the limited time available and the lack of any explanation. 2 (b) (iv) Whether the offer was reasonable and a genuine offer to settle and whether the rejection was unreasonable? 59 It is necessary to consider whether it was reasonable to accept or reject the first offer. The fact that the amount awarded was only $6,000 less than the amount offered is not, in my view, a matter of significance. 60 The fact that the time for acceptance was short is the only matter that goes to whether the offer was genuine. In the absence of any other evidence, I would not conclude that it was not genuine but it is an important factor to consider on the question of whether the rejection was unreasonable. 61 Although I have earlier commented that a cautious approach would have assumed that first and second defendants would advance the same propositions in their new evidence which would be served, this provided a little uncertainty as to where the proceedings were going in the short term. Some had suggested that the reference be postponed to wait for Mr Truswell's return. 62 By far the greatest uncertainty arose from the difficulty the plaintiffs faced as a result of the offer being from only two of three defendants. They faced a hearing where the defendants would not be debating between themselves the appropriate sharing of responsibility. Instead they would be faced with a hearing which would present the best gloss on the remaining defendant's apportioned liability. 63 The plaintiffs would have difficulty forming any concluded view in the short time they had available. In my view it was not unreasonable for them to have refused the offer. The plaintiffs therefore should receive their costs after 10 August 2005. 2 (b) (v) The costs of the adoption motions should be treated as costs in the proceedings. 64 The defendants suggest that these costs should be apportioned by success on particular issues. At the adoption hearing the third defendant sought the adoption of the report without any qualification. The plaintiffs sought adoption of the report with only three qualifications: (a) that damages be calculated by the reasonable value of the rectification of costs actually incurred by the plaintiffs in the sum of $973,944.85; (b) the plaintiffs sought payment of accommodation costs which were not allowed by the referee; (c) the plaintiffs sought a finding against each of the defendants for breach of statutory duty in respect of the alleged breaches of the development consent (the referee did not determine this claim as she had concluded that the claim in negligence had been made out).

65 The plaintiffs were unsuccessful in relation to matters (a) and (b). However, in relation to matter (c), I found that the first and second defendants were liable for breach of statutory duty.

66 The first and second defendants sought a rejection of a large part of the report on the legal and factual issues and sought that the Court determine the basic matters of liability which had been found against them by the referee. They also challenged the apportionment of liability as between the first and second defendants on the one hand and the third defendant on the other hand. The first and second defendants were unsuccessful on all issues.

67 The substantial time on the hearing was taken up with issues that the first and second defendants lost. The two issues which the plaintiffs lost were matters that required no factual investigation of substance and occupied a minor part in the proceedings. 68 The third defendant, given its position on the adoption hearing, sought an order that the plaintiffs pay its costs of the adoption hearing but that the third defendant pay the plaintiffs' costs of the reference. This is quite reasonable given that the plaintiffs sought to substantially increase their verdict as against the third defendant and lost on that issue. The fact that they raised that matter certainly kept the third defendant in the adoption proceedings as an active defendant in respect of the plaintiffs' claims in contrast to just playing some other limited role in respect of apportionment. 69 In my view the plaintiffs should have the costs of the adoption proceedings as against the first and second defendants but that the plaintiffs should pay the third defendant's costs of the adoption hearing. 2 (c) Whether a Bullock or Sanderson order should be made against the plaintiffs in respect of the cost order already made that the first and second defendants pay the cost of QBE of the second cross claim? 70 On my findings this does not arise. 2 (d) Whether the costs orders against the defendants should be joint and several or should be apportioned? 71 It was suggested that costs should be apportioned in accordance with the result on liability in accordance with s 109ZJ of the Environmental Planning and Assessment Act 1979. The third defendant submitted that this would be a fair result which would reflect the intent of the legislation. 72 The plaintiffs' submissions on this aspect were as follows: "The general rule which the plaintiff's Outline of Submissions have assumed, but not stated directly, is that costs are not generally apportioned between parties, but rather, unsuccessful parties are liable for costs on a joint and several basis (see Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660 at 663; Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201 at 210; 42 FLR 213; Rushcutters Bay Smash Repairs Pty Ltd v H McKenna Netmakers Pty Ltd [2003] NSWSC 670) (unless and to the extent that, the proceedings against them involved separate and discrete issues) (see Mt Gambier Co-op Milling Society Ltd v Williams [1921] SASR 185; Thiess Watkins White Construction Ltd (in liq) v Witan Nominees (1985) Pty Ltd [1992] 2 Qd R 452 at 454) Having a different outcome on costs in comparison to damages is not "unfair" as suggested by the third defendant. Rather, such an outcome is appropriate in that it recognises that, although a party should only be liable for damages in the proportion that it was at fault, the proportion of the Court's time spent in considering arguments (and therefore the amount of costs incurred) may not be divided in the same proportion as liability is divided. The plaintiff's submit that this is such a case. Generally, costs are compensatory rather than punitive, and the joint and several liability for costs is an important principle ensuring that a successful plaintiff is compensated for its costs incurred. This protection and vindication could be compromised if costs are apportioned and one party is unable or unwilling to pay. This issue, and the relevant authorities, was considered in some detail by Gzell J in Rushcutters Bay Smash Repairs Pty Ltd v Mckenna Netmakers Pty Ltd & Ors [2003] NSWSC 670 at [2]" '[2] Ordinarily, costs will follow the event and, ordinarily, an order for costs made against two or more defendants is joint and several as between them ( Ryan v South Sydney Junior Rugby League Club Ltd [1955] 2 NSWLR 660 at 663). The justification for the joint and several liability is that a plaintiff as the successful party is, prima facie, entitled to its costs of the action and if one of the unsuccessful defendants is unable or unwilling to meet its share of the obligation, the misfortune should be that of the "partners in crime" and not that of the plaintiff ( Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201 at 210). " (at [16] His Honour also noted that "partners in crime" was used in a metaphorical sense and did not require any element of criminality in a literal sense.)' His Honour went on to consider authorities supporting a departure from the above rule and considered that it would only be appropriate in situations where the evidence is not interconnected and the arguments by the plaintiff as against the defendants were disengaged from one another ( Rushcutters Bay Smash Repairs Pty Ltd v Mckenna Netmakers Pty Ltd & Ors [2003] NSWSC 670 at [9] to [10]). There is no such justification for a departure from the general rule in the present case. " 73 It is notable that the legislation is silent on the topic. It would have been easy to incorporate different cost consequences if it was appropriate to displace the usual well-established rule. In my view, the appropriate order is that the usual rule should apply with the defendants being jointly and severally liable. 3. Costs as between the third defendant and the first defendant in their separate District court proceedings which are now proceedings 55019/03 which were also the subject of the reference. 74 It is agreed that given there will be judgment for the plaintiffs in these proceedings against the defendant in the sum of $171,025.67 and it is agreed that the defendant in these proceedings should pay the plaintiffs' costs on the ordinary basis. 4. Costs as between the third defendant and the plaintiffs in proceedings 550737/03 75 The costs of the adoption proceedings are dealt with above and it is appropriate that the third defendant pay the plaintiffs' costs of the reference and the rest of the proceedings. Interest on costs. 76 The plaintiffs sought interest on costs and this was opposed by only the third defendant. 77 The plaintiffs referred to Joseph Lahoud & Anor v Victor Lahoud & Ors v Victor Lahoud & Ors [2006] NSWSC 126, Campbell J set out the principles to be applied when considering interest on costs under section 101 of the Civil Procedure Act 2005. Campbell J stated (at [82] - [83]) as follows: " [82] … There 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: Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 at [10] per Barr J; Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liq) & Ors [2002] NSWSC 280 at [23]-[25] per Einstein J; Puntoriero & Anor v Water Administration Ministerial Corporation [2002] NSWSC 217 at [10] per Grove J; Davies v Ku-ring-Gai Municipal Council [2003] NSWSC 1010 at [7] per Austin J. [83] To the extent to which the plaintiffs have been out of pocket as a result of having to pay their lawyers' costs and disbursements, it is appropriate that the compensation which is recognised in the Court's order for costs take into account the fact that the plaintiffs have been out of pocket in that way: Hughes Bros v The Trustees of the Roman Catholic Church [1999] NSWSC 1051 at [60 ]; Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 at [12]; Woods v Woods [2001] NSWSC 1108 at [29]; Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liq) & Ors [2002] NSWSC 280 at [17]; Puntoriero & Anor v Water Administration Ministerial Corporation [2002] NSWSC 217 at [10]; Optus Networks Pty Ltd & Ors v Leighton Contractors Pty Ltd & Ors [2005] NSWSC 156 at [9]; Roads and Traffic Authority v Cremona (No 3) [2005] NSWCA 13 at [34]. Given the length of time the proceedings have been on foot and the extensive preparation, the amount by which the plaintiffs have been out of pocket could be large. It is relevant that the plaintiffs, and the defendants, each conduct businesses and so the amounts which the plaintiffs have had to pay to finance the litigation is likely to be money which otherwise could have been put to a productive use. Conversely, the defendants, by not being required to pay costs until some time in the future when the costs are agreed or assessed, are likely to have been able to retain, for their own productive use, the amount of those costs." 78 As was pointed out by the plaintiffs, those principles enunciated by Campbell J have subsequently been applied by the Court of Appeal in Leda Pty Ltd v Weerden (No. 2) [2007] NSWCA 283 at paragraphs [7] - [8]. 79 This action dates back to 2003 and the events occurred some years earlier. It is a suitable case for interest on costs. In Lahoud v Lahoud, Campbell J canvassed the issues surrounding the formulation of an appropriate order for the payment of interest on costs and made the following orders: "3. In this order: X - equals the total amount of costs and disbursements which the plaintiffs have paid or are liable to pay to their legal advisers in connection with these proceedings. Y - equals the total amount of costs and disbursements allowed on assessment to the plaintiffs in connection with these proceedings. The Allowed Percentage equals ((y/x ) x 100)% Order the defendants to pay to the plaintiffs interest on costs and disbursements, at the rates set out in Schedule 5 Uniform Civil Procedure Rules, on the Allowed Percentage of each amount of costs and disbursements actually paid by the plaintiffs, from the date of payment by the plaintiffs of each such amount of costs and disbursements until the first to occur of: (a) such time as the defendants have paid the costs due to the plaintiffs under any order made in these proceedings, or (b) any further order relating to interest on costs in these proceedings. 4. Reserve further consideration of whether interest on costs should continue to run." 80 An order in similar terms should be made in this case.

81 I direct the parties to bring in short minutes to reflect my judgment. **************************

11/06/2009 - Change solicitor from Deacons to Gadens for Mr Nemeth - Paragraph(s) Not applicable

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