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: