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[2009] NSWSC 908
procedural. The plaintiff was granted leave to discontinue, with the notice of discontinuance to be filed and served within seven days. Vero was ordered to pay 80 per cent of the plaintiff's costs and...
The substantive building-defect insurance claim was settled, so the Court did not decide it at trial. The Court nevertheless considered the likely strength of the claim and the parties' conduct to determine costs, without trying a hypothetical version of the case. It found the Owners Corporation likely to have succeeded in principle and considered that starting proceedings had substantially prompted progress towards settlement. However, the Owners Corporation had maintained two issues that may have slowed resolution, and the likely indemnity was less than the total claim estimate. The Court therefore ordered Vero to pay 80 per cent, rather than all, of the Owners Corporation's costs, with interest calculated on the allowed percentage of costs actually paid.
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The Owners Corporation for a strata development at Narrabeen claimed that residential building work had left the development with many defects. The builder, Consolidated Constructions Pty Ltd, was insolvent, and the Owners Corporation therefore made a claim against Vero under an insurance policy Vero had issued for the building work [1]-[2].
The defect claim was notified to Vero on 12 September 2002. That notification enclosed a draft building consultant's report describing defects [15]. The Owners Corporation later provided a detailed engineering report, dated 29 August 2003, to Vero on 5 November 2003. McDougall J considered that this was when Vero should be taken to have been aware of the real magnitude of the problems [17]. Further expert reports followed, including reports about acoustic compliance and fire safety, and the Owners Corporation had also raised concerns about defects that might endanger occupants [18]-[19].
The parties disagreed about the extent of Vero's liability for emergency works. Two issues became prominent: whether Vero was liable for only the residential portion of costs, described as the “88 per cent issue”, and whether Vero could apply 40 policy excesses of $500 each, totalling $20,000 [21]-[22]. The proceedings began on 10 February 2005 [21]. The parties formalised their agreement about emergency works in a deed dated 6 April 2005, which preserved their ability to argue about the proceedings and Vero's liability [23].
On 15 April 2005, Vero issued a document accepting liability for most of the remaining defects, subject to its terms [25]. The Owners Corporation continued negotiating and amended its summons and list statement as matters were resolved [26]. The Court noted that Vero's amended defence continued to deny liability absolutely, despite the earlier unqualified acceptance of liability. In McDougall J's view, that defence did not identify the real issues and was inconsistent with the position Vero was taking in negotiations [27].
The parties eventually resolved the substantive dispute. The Owners Corporation gave up the 88 per cent and excess issues, after which the remaining matters were agreed [29]. The agreed or provided indemnities totalled about $2.7 million. This was compared with a claim at one point estimated at about $3.7 million, although the Judge stressed that the comparison was inexact: the actual costs of rectification were not yet known, and about $300,000 of the claim estimate appeared to relate to expert and legal expenses [30].
The remaining dispute was about costs. The Owners Corporation sought leave to discontinue, and the parties took different positions on what costs order should be made. The Court granted leave to discontinue and ordered Vero to pay 80 per cent of the Owners Corporation's costs. It also ordered interest on the allowed percentage of costs and disbursements actually paid, using the rates in Schedule 5 to the Uniform Civil Procedure Rules [41].
The starting point was UCPR r 42.19. Under that rule, unless the Court otherwise orders, a plaintiff seeking leave to discontinue should pay the defendant's costs [5]. The Owners Corporation accepted that it had to show why the Court should depart from that prima facie position [6]. Vero, however, also submitted that there should be no order as to costs, so both parties accepted that the ordinary rule should not simply determine the result [6].
McDougall J relied on the principles discussed in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin. As the judgment recounts, when there has been no hearing on the merits, the court lacks the factor that usually determines costs. A court cannot resolve the costs question by staging a hypothetical trial. But it may consider whether a party acted so unreasonably that the other party should receive costs, and, in rare cases, may be confident that one party was almost certain to have succeeded [7]-[10]. The judgment also refers to Chapman v Luminis Pty Ltd and Vis Visitor Investments Services Pty Ltd v Hawkesbury Riverside Retreat Ltd as recognising those possible approaches [11]. It notes that proceedings may themselves have substantially prompted settlement, as considered in Owners Strata Plan 63094 v Council of the City of Sydney [12].
Applying those principles, the Judge considered the likely strength of the Owners Corporation's claim without deciding the merits. The building appeared to have a vast number of defects. Vero was the insurer under a relevant policy, and the Owners Corporation appeared to be a beneficiary entitled to indemnity at least for common property. Vero had not put forward material indicating that limitations, notification or similar issues were likely to defeat the claim [31]-[32]. The Court did not assess the amount that would have been awarded after trial, expressly stating that it could not form a view on quantum [33].
The Judge also considered the effect of the proceedings on the parties' dealings. The evidence supported an inference that Vero had not acted promptly in assessing the claim, and that commencing proceedings led to the decision on 15 April 2005 to accept liability for most remaining defects [34]. The Court was “satisfied that the commencement of litigation provided a substantial spur” to what followed [35]. It also found no basis to criticise the Owners Corporation for commencing the proceedings or for its later conduct in withdrawing resolved matters from the dispute [34]-[35].
There were countervailing considerations. The Owners Corporation maintained the 88 per cent and excess issues until late in the proceedings. Although those issues were not substantial in monetary terms, the Judge considered they may have irritated or delayed the resolution [36]. The disparity between the total claim estimate and the likely indemnity also mattered. Balancing those points against the likely success and the role of the proceedings, the Judge selected 80 per cent rather than the whole of the Owners Corporation's costs [36]-[37]. He described the percentage assessment as a “broad brush matter” requiring an impressionistic balancing of the relevant considerations [37].
Interest was addressed separately. The judgment adopts the explanation in Lahoud v Lahoud that interest on costs compensates for the fact that one party has been out of pocket while the other has had use of the money [38]. Although Vero argued that the parties' conduct mattered, the Judge considered that conduct might only affect interest if the party otherwise entitled to it had prolonged the proceedings. He did not consider the Owners Corporation's conduct to fit that description [39]. He inferred that the Owners Corporation had likely paid costs over a number of years and that the proprietors behind it were likely to be individuals using the residential lots as dwellings [40]. Because the costs award was limited to 80 per cent, the interest calculation was correspondingly limited to the allowed percentage [41].
The judgment presents itself as an application of existing principles, not as a new general rule. Before this decision, the starting point identified for costs following discontinuance was UCPR r 42.19, subject to the Court's power to make a different order [5]. For proceedings resolved without a hearing on the merits, the judgment draws on Lai Qin for the proposition that a court cannot decide costs by conducting a hypothetical trial, while recognising limited ways to make a costs order despite the absence of a merits decision [7]-[10].
Those ways, as stated in this judgment, include assessing whether a party behaved unreasonably, and being confident, in a rare case, that one party was almost certain to succeed if the matter had been tried [8]-[11]. The judgment also recognises the relevance of whether commencing proceedings substantially prompted settlement [12], [34]-[35]. It does not suggest that the court should make a full merits determination or quantify a hypothetical judgment to resolve costs.
The “after” state is the result in this particular case: the Owners Corporation's likely success in principle, the effect of litigation on the settlement process, and its own conduct were weighed together with the issues it maintained and the claim-to-indemnity disparity. The outcome was a percentage order, rather than all-or-nothing costs [36]-[37]. On interest, the judgment applies a compensatory rationale and adjusts interest to the portion of costs allowed [38]-[41].
The judgment does not state that these considerations form a closed or exhaustive list. It also does not change the text of UCPR r 42.19. Its contribution, on the material provided, is an example of applying the established discretion to a complex, settled insurance claim.
At [31], the Judge says: “I reached that view not by undertaking some sort of hypothetical trial, but by looking at the nature of the claim and the way that it has been dealt with.” In plain English, the Court did not decide what would have happened at a full trial. It looked at the broad features of the claim and its history to assess whether the Owners Corporation was likely to succeed in principle.
At [32], the Judge identifies the relevant considerations: the apparent defects, the existence of a policy, the Owners Corporation's status as a beneficiary for common property, and the lack of material suggesting likely failure on notification or limitation grounds. This was not a final ruling on policy coverage or those possible defences. It was a costs assessment based on the material before the Court.
At [35], the Judge says that commencing litigation “provided a substantial spur” to what followed. The plain-English point is that the Court considered the proceedings materially contributed to the later progress towards resolution. That finding supported making a costs order in the Owners Corporation's favour, even though it was the party seeking to discontinue.
At [36]-[37], the Court balances that conclusion against the Owners Corporation's persistence with the 88 per cent and excess issues and the gap between the claim estimate and the likely indemnity. The phrase “broad brush matter” at [37] indicates that the 80 per cent figure was an evaluative assessment, not the product of a precise mathematical allocation among individual claims.
At [41], the operative orders specify how interest was to be calculated. The order tied interest to costs and disbursements actually paid, starting from the date of each payment, but only on the allowed percentage. It also set endpoints for the calculation and reserved further consideration of whether interest should continue.
On the reasoning in this judgment, the costs principles are engaged where a proceeding ends without a hearing on the merits and a party seeks a costs order different from the prima facie position under the applicable procedural rule [5]-[10]. The relevant facts may include whether one party's conduct was unreasonable, whether the available material makes one party's likely success unusually clear, and whether litigation materially prompted settlement [8]-[12].
This case illustrates a setting in which the plaintiff discontinued after a substantial negotiated outcome, but the Court still considered the likely strength of the underlying claim and the parties' conduct. Relevant circumstances included detailed defect reports provided before proceedings, an insurer's later acceptance of liability for most remaining defects, settlement of the substantive dispute, and an unresolved costs dispute [17]-[19], [25]-[30].
The judgment also illustrates why the costs outcome need not be all or nothing. The Owners Corporation had achieved substantial success, but pursued two issues the Court considered may have delayed resolution, and the claim estimate exceeded the likely indemnity [30], [36]. These facts supported a percentage award rather than either no order or full costs [37].
The decision's reasoning should not be treated as a checklist that automatically determines costs in another matter. Its analysis depended on the procedural rule, the record before the Court, the parties' conduct, and the Judge's assessment of the settlement history. The judgment itself stresses that the assessment of a percentage is impressionistic [37].
The supplied judgment does not contain later decisions treating Owners Strata Plan 62327 v Vero, and no later legal sources have been provided. It is therefore not possible, on this source material, to state whether later courts followed, distinguished, limited, or developed the decision.
The cases that McDougall J discusses are authorities preceding this judgment, not later treatment of it. The judgment describes Lai Qin as the frequent starting point for costs where proceedings end without a hearing on the merits [7]-[10]. It says the Full Court in Chapman v Luminis picked up the same theme, and notes that Vis Visitor Investments Services referred to Chapman with apparent approval [11]. It also refers to Owners Strata Plan 63094 v Council of the City of Sydney for an example in which the commencement of proceedings was inferred to have impelled settlement [12].
For interest, the judgment discusses Lahoud v Lahoud and Idoport Pty Ltd v National Australia Bank Limited [38]-[39]. Those references explain the reasoning adopted in this costs decision; they do not establish how later courts treated Vero. Any assessment of subsequent citation history or precedential status would require later decisions not included in the supplied material.
The judgment does not decide the substantive insurance claim. It makes a costs assessment and states that the Owners Corporation was likely to succeed “at least in principle” [32]. It expressly declines to express a view on quantum [33]. The decision therefore does not determine the precise value of defects, the full scope of policy cover, or the outcome of the 88 per cent and excess issues.
The order does not establish a universal method for selecting a percentage of costs. The Judge characterises the assessment as a broad impression requiring balance [37]. The judgment does not provide a formula for allocating costs between settled claims, abandoned issues, or individual stages of proceedings.
The judgment also leaves the interest question open to further consideration. The Court ordered interest on the allowed percentage from the dates costs and disbursements were paid, subject to specified endpoints, but reserved further consideration of whether interest should continue [41]. The supplied text does not report a later order deciding that reserved question.
Finally, the judgment does not provide a later-court history. It cannot, by itself, answer how subsequent decisions have interpreted its approach to likely success without a hypothetical trial, litigation as a spur to settlement, percentage costs awards, or interest on costs.
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CITATION : Owners Strata Plan 62327 v Vero [2009] NSWSC 908
HEARING DATE(S) : 17 August 2009 JURISDICTION : Equity Division Technology & Construction List
DECISION : See paragraph [41] of the judgment.
CATCHWORDS : COSTS - whether to make an order for costs where matter discontinued - whether parties acted reasonably - whether possible to predict outcome without conducting a 'hypothetical trial' - whether proceedings a factor leading to settlement - whether interest payable on costs.
Chapman v Luminis Pty Ltd [2003] FCAFC162 Idoport Pty Ltd v National Australia Bank Limited [2007] NSWSC 23 CASES CITED : Lahoud v Lahoud [2006] NSWSC 126 Owners Strata Plan 63094 v Council of the City of Sydney [2009] NSWSC 141 Vis Visitor Investments Services Pty Ltd v Hawkesbury Riverside Retreat Ltd [2004] NSWSC 1188
PARTIES : The Owners - Strata Plan No. 62327 (Plaintiff) Vero Insurance Ltd (Formerly known as Royal and Sun Alliance Insurance Australia Ltd) (Defendant)
COUNSEL : HJA Neal (Plaintiff) P J Bambagiotti (Defendant)
SOLICITORS : Andreones Pty Limited (Plaintiff) Mills Oakley Lawyers (Defendant)
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST
17 August 2009 (ex tempore - revised 21 August 2009)
55007/05 THE OWNERS - STRATA PLAN NO. 62327 v VERO INSURANCE LTD (FORMERLY KNOWN AS ROYAL AND SUN ALLIANCE INSURANCE AUSTRALIA LTD) JUDGMENT 1 HIS HONOUR: The plaintiff (the Owners Corporation) is the Owners Corporation of a strata title development at Narrabeen. The defendant (Vero) issued a policy of insurance in respect of the residential building work, the performance of which resulted in the creation of the development in question.
2 The Owners Corporation asserts that the building work contained many defects. The builder (Consolidated Constructions Pty Ltd) is insolvent. The Owners Corporation made a claim against Vero pursuant to the insurance policy. Ultimately, that claim was resolved. The Owners Corporation wishes to discontinue. There is a dispute as to costs. 3 It might seem ironic that a claim involving in excess of $3.5 million can be resolved, but that a dispute as to costs cannot be. It seems more than a little ironic that, in respect of the dispute as to costs, the Court has been favoured with some four volumes of a "joint tender bundle" (at least half of which I was not referred to in any way); two volumes of expert reports (to which no reference was made); a folder of "pleadings"; a folder of authorities; many pages of "outline of submissions"; and a full day's hearing. 4 It is convenient to start a lot further in than the parties submissions did, and to look at the relevant principles. 5 The Owners Corporation seeks leave to discontinue. Accordingly, as UCPR r 42.19 makes clear, unless the Court otherwise orders, the Owners Corporation should pay Vero's costs in accordance with r 42.19(2). 6 Mr Neal of counsel, for the Owners Corporation, accepts that the onus is on him to demonstrate that the Court should exercise its discretion in a way other than that to which, prima facie, the rule points. Mr Bambagiotti of counsel, for Vero, submits that the appropriate order for costs is that there be no order as to costs. Thus, in a sense, it appears to be common ground that the prima facie position to which the rule points should not apply. 7 The question of what (if any) costs order to make, when proceedings have been resolved without a hearing on the merits, has been considered in a number of cases. The starting point is often taken to be the judgment of McHugh J in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622. In that case, as his Honour pointed out at 624, "The power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule (whether under the general law or by statute) the successful party is entitled to his or her costs… . When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order."
8 His Honour said, again at 624, that "[t]he court cannot (assess costs where there has been no hearing on the merits) [by trying] a hypothetical action. However, his Honour said, "in some cases ... the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action."
9 That statement of principle is often taken as being exhaustive. But it is important to note that his Honour continued at 625 to indicate another situation in which costs may be ordered even when there had been no trial on the merits. His Honour said that "In some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried." His Honour then noted, by way of caution, that "such cases are likely to be rare." 10 Nonetheless, as his Honour said, again at 625, if the parties had both acted reasonably in commencing and defending the proceedings, and in conducting them until resolution, "the proper exercise of the cost discretion [would] usually mean that the court will make no order as to the cost of the proceedings". 11 The Full Court of the Federal Court of Australia picked up his Honour's theme in Chapman v Luminis Pty Ltd [2003] FCAFC162. Their Honours repeated the proposition that there shall not be something in the nature of a hypothetical trial. However, there they said, "sometimes the court can make an order for costs without engaging in that exercise". They instanced two ways in which this could happen. One involved, "an examination of the reasonableness of the conduct of the parties". The other involved the court's being "confident that one party was almost certain to have succeeded if a matter had been fully tried". What their Honours said was referred to, with apparent approval, by Barrett J in Vis Visitor Investments Services Pty Ltd v Hawkesbury Riverside Retreat Ltd [2004] NSWSC 1188. 12 Again, in the Owners Strata Plan 63094 v Council of the City of Sydney [2009] NSWSC 141, Einstein J pointed out that the Court could order costs in favour of a discontinuing party in circumstances where (as his Honour there inferred) the party on the other side had been impelled to settlement by the commencement of the proceedings. In that case, as between the plaintiff and one of the defendants, his Honour drew that inference and ordered that defendant to pay a proportion of the plaintiff's costs. 13 In this case, Mr Neal put his client's case on both bases, that is to say first that the Court could conclude that his client was almost certain to have succeeded; and alternatively, that the Court could conclude that the behaviour of Vero had been relevantly unreasonable. 14 As I have said, on what would appear to be a relatively simple dispute, the Court was treated to a very large volume of material. I am giving these reasons ex parte in order to save further delay and expenses; and taking into account as well the time of the day, I hope I will be forgiven if I do not refer to every piece of evidence and every submission put in respect of it (in many cases, put more than once). 15 The history of the matter is long and unhappy. The claim was first notified by letter on 12 September 2002. That letter enclosed a draft report of a building consultant which laid out details of many defects. Mr Bambagiotti pointed out that the expert in question had not been retained for any other purpose in the proceedings and his report had not been finalised. I do not think that anything turns on this. 16 Thereafter, there occurred what could be politely described as ships passing in the night, or more accurately as a comedy of errors, with the consultant appointed by Vero and the solicitors for the Owners Corporation apparently failing to communicate with each other despite their attempts to do so. That led to a number of accusations, and to submissions about the attitude of Vero, to which it is unnecessary to go in detail. 17 The next major point appears to me to be a letter of 5 November 2003, from the Owners Corporation's solicitors to Vero. That letter enclosed an engineering report prepared by a Mr Ralph Freestun as at 29 August 2003. The report laid out in very great detail a large number of defects in the common property and lots. I think it is from then that Vero should be taken to have been on notice of the real magnitude of the problems affecting the building. One of the matters that had been raised in the letter of 12 September 2002, was the question of appointment of consultants. As I have said, it appears that Vero acted on this advice. Some later correspondence appears to have overlooked the fact that this was done. 18 Also, the Owners Corporation became concerned that some of the defects might endanger the lives of occupants of the building if they were not rectified. It had requested Vero to address these as a matter of urgency in a letter of 3 February 2003. That request was renewed and apparently not addressed - at least explicitly - over several months thereafter. 19 Matters continued, with correspondence passing between the Owners Corporation (or its solicitors) and Vero until about May 2004. On 24 May 2004, the Owners Corporation's solicitors wrote to Vero attaching a number of additional reports obtained from various experts in particular disciplines (for example, acoustic compliance and fire safety). Although further reports were served later (including one in relation to defective tiles in August 2004) it is plain that Vero was appraised not only of the details of the defects but also of the views of individual experts on particular, and major, aspects of the defects. The letter of 24 May 2004 did note that there might be a problem with additional defects emerging. However, no one suggested that this should have stopped Vero from assessing, or continuing to assess, the works. 20 Mr Bambagiotti submitted that the claim was a very substantial one and that Vero's reactions in response to the various notifications were reasonable. He submitted that his client had not been unduly slow in processing the claim. He put a number of other submissions, which might have been entitled to greater consideration had they been supported by any evidence from the relevant officers of his client. To the extent that his submissions require the drawing of inferences, in circumstances where his client could have (but did not) illuminate the matter by evidence, I see no reason to draw inferences in its favour. 21 Ultimately, these proceedings were commenced by summons and list statement filed on 10 February 2005. Before that happened, Vero had accepted responsibility in principle, and on terms, for certain emergency works (as they were called). The terms included that Vero would accept liability for less than one hundred per cent (about 88%) of the cost of the works - the 88% issue - and that there would be a total excess of $20,000 - the excess issue. The first term related to the fact that there were 49 lots in the overall development of which (I think) 44 were residential and 5 were commercial. 22 Vero's position was that, under the policy, it was liable only for the residential component of the cost of rectification. As to the excess, Vero took the point that some 40 certificates of insurance had been issued, each of which carried an excess of $500. Thus, it said, it was entitled to 40 excesses or the total of $20,000 to which I have referred. 23 After the proceedings were commenced, the parties' agreement as to the emergency works was formalised in a deed made on 6 April 2005. I do not think that any admission should be inferred from the terms of that deed, because by clause 1.1, the parties stated that nothing in it "shall prejudice any argument that they may wish to make about or in the Proceedings". This was made clearer by cl 2.1, whereby Vero preserved, "its entitlement to contest the allegation in the Summons". 24 There was filed with the summons a notice of motion seeking determination on a separate basis of the 88 per cent issue and the excess issue. It is apparent that that notice of motion continued to be a matter in dispute between the parties. 25 Nonetheless, on 15 April 2005, Vero issued a document whereby, on the terms set out in it, it agreed to accept liability for the great bulk of the remaining defects, apart from those comprised in the emergency works and formalised through the deed of 6 April 2005. That acceptance of liability was not expressed to be on a without prejudice basis. 26 The Owners Corporation continued to negotiate with Vero. At various times, as agreements were reached, the Owners Corporation amended its summons and list statement. It did so, generally, to withdraw from the ambit of the litigious dispute matters that had been finalised by negotiation between the parties. 27 It is notable that, notwithstanding the unqualified terms of the admission of liability on 15 April 2005, Vero's defence to the amended summons (filed in April 2006) continued to deny liability absolutely. It can hardly be said in my view that that document seeks to identify the real issues in dispute and to deal with them. Indeed, in my view, it obfuscates rather than elucidates those issues. I make no finding as to whether that was its intention as well as its effect; the relevance is that the stance taken by Vero in the litigation was not, in my view, consistent with the stance that it was taking in its negotiations with the Owners Corporation. 28 Matters progressed thus until finally the parties were able to reach agreement on all the remaining matters in dispute. Along the way to that, the Owners Corporation included some fresh (although monetarily minor) claims in its pleadings. To my mind, the attention those further claims received in Mr Bambagiotti's submissions was entirely disproportionate to their significance in a monetary or a jurisprudential sense. 29 Of particular importance, very late in the piece, the Owners Corporation in effect gave up on the 88 per cent issue and the excess issue. Once that was done, the parties were able to be deal with everything in dispute save, as I have said, as to costs. 30 It was common ground that the total value of the indemnities that Vero has provided or agreed to provide is of the order of $2.7 million. That is to be compared with a claim at one point estimated at about $3.7 million. The comparison is inexact because until the work is carried out, neither the precise value of the claim nor the precise value of the indemnity will be known. It is inexact also because about $300,000 of the amount of $3.7 million appears to relate to expenses for experts and legal expenses. 31 In my view, when one looks at the matter dispassionately, it is very hard to avoid the conclusion that the Owners Corporation would have been very likely to have succeeded had it conducted the proceedings to a hearing and obtained a decision on the merits. I reached that view not by undertaking some sort of hypothetical trial, but by looking at the nature of the claim and the way that it has been dealt with. As I have said, the claim was for defective work. It appears to be clear almost beyond doubt that the building was affected by a vast number of defects. 32 It is clear also that Vero was the insurer under a relevant policy of insurance. It is clear (although Vero does not admit it) that the Owners Corporation, at least in respect of the common property, was a "beneficiary" and entitled to indemnity under the policy. Although there were disputes as to limitations, times of notification and the like, there has been nothing put which suggests that the Owners Corporation is likely to have failed on those grounds. Thus, I conclude, the Owners Corporation is likely to succeed at least in principle. 33 There is no way that I can express a view on quantum. Had matters gone to a hearing, that issue at least (and I suspect many others) would have been referred out, but on any view, having regard to the agreed magnitude of the outcome, it is clear that the Owners Corporation has enjoyed through negotiation a substantial degree of success. I see no reason to conclude that it would not have enjoyed a comparable measure of success had it litigated its claims to a conclusion. 34 Thus, it seems to me, the Owners Corporation should have at least some of its costs unless its conduct in commencing the proceedings could be regarded as unreasonable. In my view that conduct could not be regarded as unreasonable. I have referred above to some aspects of the chronology. It seems to me to be open to infer that Vero was not acting promptly on the assessment of the claim and that it was the commencement of the proceedings that led to the decision of 15 April 2005. In drawing this inference, I take comfort from the fact that, as I have noted, Vero has not sought to call any of its relevant decision-makers. 35 It is, I suppose, possible that the matter might have been resolved without litigation. Nonetheless, I am satisfied that the commencement of litigation provided a substantial spur to ensure that what occurred thereafter did in fact come to pass. Nor do I think that the Owners Corporation's conduct of the proceedings after the events of 15 April 2005 can be criticised. As I have said, it sought to withdraw from the ambit of the dispute matters that had been resolved between the parties. It did introduce a fresh claim. However, that claim (the bulk of which was for supervision expenses) does not appear to have been unreasonable; and at least a substantial proportion of it has been conceded. 36 It is of course necessary to take into account that throughout the proceedings until the end, the Owners Corporation insisted on the two issues to which I have referred as the 88 per cent issue and the excess issue. Although not of themselves substantial, (in monetary terms) it is, I think, relatively clear that they were an irritant that may have prevented the proceedings from resolving as quickly as they could have done. Taking that into account, and taking into account also the apparent disparity between the total of the claims submitted and the likely value of indemnity, it is my view that the Owners Corporation should receive not all, but a percentage, of its costs. 37 The assessment of the percentage is necessarily a broad brush matter, a matter of impression. It is not something that is susceptible of detailed and logical analysis. It requires some sort of semi-intuitive analysis and balancing of the various considerations to which I have referred. Doing that, I think, the appropriate order is that the Owners Corporation should have 80 per cent of its costs. 38 That leaves the question of interest on costs. Again, the relevant principles are in my view relatively clear. They were explained by Campbell J in Lahoud v Lahoud [2006] NSWSC 126 at [81] to [86]. His Honour pointed out that the fundamental reason for allowing interest (on costs as on damages) was to recognise and compensate for the fact that one party has been out-of-pocket for the amount of costs and the other has had the use of the money. That does not require some value judgment as to the conduct of the parties in the proceedings. 39 Mr Bambagiotti submitted that the conduct of the parties was a relevant matter. He referred to the decision of Einstein J in Idoport Pty Ltd v National Australia Bank Limited [2007] NSWSC 23 at [177]. At most, I think, his Honour was saying that if the party prima facie entitled to interest had so conducted itself as to prolong the proceedings, then perhaps interest should not be allowed, or allowed in full. But in this case, I do not think that the Owners Corporation's conduct can be so characterised. 40 Although there is no evidence, I think that I can infer, as Campbell J inferred in Lahoud at [81], that the work for the Owners Corporation is unlikely to have been undertaken on a speculative basis, and that the Owners Corporation is likely to have been paying out costs over many years since 2002. In particular, where the proprietors who stand behind the Owners Corporation are likely to be individuals who use the residential lots as their dwellings, I think it appropriate that they be compensated for the loss of the use of their money. 41 Since costs are to be limited to 80 per cent, it would follow that the formula for interest should be modified appropriately. I make the following orders:
(1) I order the defendant to pay 80 per cent of the plaintiff's costs of the proceedings.
(2) I order the defendant to pay to the plaintiff interest on costs and disbursements at the rates set out in Schedule 5 to the Uniform Civil Procedure Rules on the "allowed percentage" on each amount of costs and disbursements actually paid by the plaintiff from the date of payment by the plaintiff 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 plaintiff under any order made in these proceedings, or (b) any further order relating to interest on costs in these proceedings. Where: (i) the allowed percentage equals 80 ((Y/X) x 100) /100 per cent; (ii) X equals the total amount of costs and disbursements which the plaintiffs have paid or are liable to pay to their legal advisors in connection with these proceedings. (iii) Y equals the total amount of costs and disbursements agreed or allowed on assessment to the plaintiffs in connection with these proceedings. (3) Reserve further consideration of whether interest on costs should continue to run.
(4) I order that the exhibits remain with the file for 28 days and that thereafter they be dealt with in accordance with the rules.
(5) I grant the plaintiff leave to discontinue. I direct the notice of discontinuance be filed and served within 7 days.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Owners Strata Plan 62327
Vero
The plaintiff was granted leave to discontinue, with the notice of discontinuance to be filed and served within seven days. Vero was ordered to pay 80 per cent of the plaintiff's costs and interest on the allowed percentage of costs and disbursements actually paid, calculated at the Schedule 5 UCPR rates from the dates of payment, subject to the order's stated limits. Further consideration of whether interest should continue was reserved. The exhibits were to remain with the file for 28 days and then be dealt with under the rules: [41].