Plaintiff v Defendant

Supreme Court of Victoria|2006-07-25|Before: BYRNE J

PRACTICE AND PROCEDURE - costs - proportionate liability - offer of compromise - whether offer capable of acceptance.

There was no appearance for ACN 007 015 965 Pty Ltd (in liq) (Fisher Stewart)

INTRODUCTION

1 My judgment in this case was published nearly four months ago, on 31 March 2006. I heard some argument as to the orders that should be made to dispose of the matter but I was persuaded that it would be desirable to make a final order in each of the claims at the one time. This was because those parties which have been found liable seek to pass on the amount of this liability to others down the contractual chain. It was then hoped that the parties might work out the amounts of the various judgments, for there appeared to be little issue between them except as to the interest.

2 Months have passed without result. I have therefore brought the proceeding on for mention on the basis I should deal in turn with each giving judgment in both of the claims until the amounts of all of the judgments have been determined.

3 The first of these is the judgment which should be given in the claim and counterclaim between the plaintiff, Aquatec, and the first defendant, Barwon Water. Notice has been given to all parties on the basis that they might see their interests indirectly affected by this first judgment.

4 Counsel on behalf of Montgomery Watson objects to making any costs order as between Aquatec and Barwon, especially as this will involve the disclosure of offers of compromise. As between Aquatec and Barwon. I see this as no objection.

5 In this proceeding Aquatec, the design and construct contractor of the sewerage tanks, sued the proprietor, Barwon, for about $1.5 million as the balance due under part of certificate number 16. This claim fell away and it is clear that Barwon should have judgment on the Aquatec claim.

6 It was the counterclaim of Barwon which was of greater substance. It soon became apparent that, as design and construct contractor of the failed tanks, Aquatec had no defence to the Barwon claim other than to dispute quantum. This claim has now been settled. For reasons which will become clear, it is regrettably necessary to analyse the counterclaim of Barwon.

7 Barwon sues for about $3.6 million under certificate 16. In the alternative, in case the certificate did not create a liability, it sued Aquatec for damages for breach of contract. In the course of the trial, settlement between these parties was announced, at least as to the amount of the liability of Aquatec other than for interest and costs.

8 A compromise agreement dated 23 November 2005 was entered into between the parties on the following terms.

"Barwon Water and Aquatec Maxcon hereby resolve disputes in the above proceeding as follows:

By agreement made on the 23 November 2005 Barwon and Aquatec Maxcon agree to resolve the disputes referred to in paragraph ...... hereof on the basis that Aquatec Maxcon agree to pay Barwon Water the sum of $2,924,557 being the amount finally due from Aquatec Maxcon to Barwon Water pursuant to the Contract as at 23/1/01.

Particulars

Payment of $2,924,557

Remedial Costs Cl. 44.6

The parties stand by this agreement. It will be seen that the document does not identify the disputes which were compromised and, further the settlement leaves open questions of interest and costs.

9 On 26 May 2006 the parties agreed that interest should run at the contract rate of 9.45% compounding with six monthly rests. This interest to 25 July amounts to $2,041,522.77. There should therefore be judgment for Barwon on the counterclaim in the aggregate sum of $4,996,078.77.

10 As to costs, Aquatec accepts its liability to pay Barwon's costs of the claim and the counterclaim. Counsel for Montgomery Watson, however, submitted that Barwon is not a successful party and it should not have its costs. To my mind it has no standing to advance this submission. At best it might advance such an argument if and when Minson Nacap seeks an order against it which includes, as a component, an amount which Minson Nacap may be ordered to pay to Aquatec, which amount includes the amount of costs which Aquatec will be ordered to pay to Barwon. When this occurs I will deal with it.

11 The debate between Barwon and Aquatec has centred around Barwon's claim against Aquatec for indemnity costs. It puts this claim on two bases: first pursuant to rule 26.08(2) having obtained a result no less favourable than the terms of an offer of compromise served on 17 December 2003; and second, as a matter of discretion having regard to what is described as the high-handed conduct of the litigation by Aquatec.

12 I turn now to the Barwon counterclaim. It is brought against Aquatec alone. In the course of the proceeding Aquatec caused to be joined as defendants Minson Nacap, Montgomery Watson, Wynton Stone, Barrett Fuller, Fisher Stewart, and later, TTW, seeking orders pursuant to section 131 of the Building Act 1993 that any liability which it had to Barwon be apportioned between them.

13 Barwon maintained throughout the trial that it was not concerned with these defendants and that it sought no relief against them. Nevertheless its counterclaim contains the following paragraph:

"29E. Barwon does not claim any relief against Minson, Montgomery Watson, Wynton Stone, JJP, Fisher and/or TTW additional to the relief sought against Minson, Montgomery Watson, Wynton Stone, JJP, Fisher and/or TTW consequent upon the joinder of those parties as Defendants to Barwon's Counterclaim pursuant to the Order made by Mr Justice Byrne on 16 March 2001."

14 It has been observed that a plaintiff suing a single defendant, D1, in a building action can have other defendants foisted upon it following joinder upon the application of D1. This puts the plaintiff in a delicate position. It may maintain a lack of interest in the added defendants, making no claim against them, or it may amend its claim to seek relief against them pursuant to s. 131, or otherwise.

15 Each course carries its own risks. If the plaintiff's claim against D1 is an apportionable one and an order for apportionment is made against, say, D1, D2, D3 and D4 in equal shares, the plaintiff who declines to seek relief against D2, D3 and D4 will obtain a judgment for only 25% of its loss against its solitary adversary, D1.

16 If the plaintiff seeks relief against all defendants, judgments in its favour will go against each defendant so that, in aggregate, the plaintiff will have judgment for all of its loss.

17 Difficult questions as to costs arise if D4 is found not to be responsible. The costs of D4 as successful party might be expected to be awarded against the plaintiff if the plaintiff has sought relief against D4. The position would, in all probability, be otherwise if the plaintiff maintained no claim for relief against D4. In that event, it could not to be said that D4 has been successful against the plaintiff. A more realistic analysis may be that D4 has been successful against D1, the party which joined it. I refrain of pursuing the scenario further into the areas of Bullock orders and Sanderson orders.

18 It is sufficient for my purposes that it is important, for costs purposes at least, to determine whether the plaintiff has or has not made a claim against the added defendants. In the present case it seems that, by including paragraph 29E in its counterclaim, Barwon has made a claim against the added defendants, notwithstanding its protestations to the contrary.

19 I interpret its primary position as pleaded as being that it is entitled to recover all of its loss against Aquatec as a claim for a sum due under a building contract. This is not a building action so that no question of apportionment arises. Its alternative claim for damages for defective work is a building action so that it is entitled to judgment against Aquatec only for its share of the responsibility for this loss. In such an event it seeks judgment against each of the added defendants for their share.

20 The offer of compromise dated 17 December 2003 was directed to all defendants as directed by Rule 26.09. It is in these terms:

"This offer of compromise is served in accordance with the subject to Order 26 of the Supreme Court (General Civil Procedure) Rules 1996.

Take Notice that the Defendant (Plaintiff by Counterclaim), Barwon Region Water Authority ('Barwon Water'), offers to compromise its counterclaim (including all claims and/or counterclaims made in the name of Barwon Water against the Second to Seventh Defendants to counterclaim in the proceeding, which claims have been pleaded by Aquatec in Barwon Water's name) ('Barwon Water's counterclaim'), Aquatec's claims against Barwon Water ('Aquatec's claims'), and all claims against Barwon Water by the Second to Seventh Defendants to counterclaim or any of them ('the Second to Seventh Defendants' claims'), on the following terms:

1. Barwon Water will accept the net sum of $2,300,000 plus costs in accordance with Rule 26.03 in full settlement of Barwon Water's Counterclaim, Aquatec's claims and the Second to Seventh Defendants' claims.

2. Payment of the sum of $2,300,000 must be made to Barwon Water within 30 days after acceptance of this offer.

3. This offer will remain open for acceptance within 14 days after service of this offer."

21 I leave to one side the question as to the applicability of Rule 26.09 generally to a claim for proportionate liability under the Building Act.[1] The terms of the offer here make it clear that it is an offer to compromise Barwon's own claims against all defendants, the claims made, presumably by Aquatec, in Barwon's name against all the added defendants, any claims that they and Aquatec might have against Barwon. It is not clear what claims the defendants other than Aquatec have against Barwon except for a Trade Practices Act claim brought by Wynton Stone against it. It may be that the drafter of the offer apprehended that the defendants, other than Aquatec, might seek or were seeking apportionment against Barwon. What is clear is that it was not possible for Aquatec alone to accept the offer in accordance with its terms. Rule 26.08(2) has no application.

22 The alternative basis for indemnity costs was by the application of the discretion of the court in accordance with the well-known principles set out by Shepherd J in Colgate Palmolive v Cussons Pty Ltd[2]. What is put that Aquatec acted in a high-handed way by joining the added defendants to the proceeding and then, having done so, abandoning the claims against them. It was said that the claims against the added defendants which were implied by Aquatec to Barwon were hopeless. This unnecessarily increased Barwon's costs of conducting the proceeding.

23 Then it was said that Aquatec never had a defence to Barwon's counterclaim and it refused to pay any amount because it simply had not been paid by the downstream parties. These are not, in my view, sufficient reasons to warrant what is an extraordinary and essentially punitive order for costs. To some extent Barwon brought upon itself the prospect of joinder of the added defendants by way it pleaded its counterclaim.

24 It cannot be doubted this proceeding was very much complicated and the trial greatly extended by the large number of defendants. It may be, however, that these complications and the extra costs which litigants are now to be expected to bear should be seen as the price for the advantages of the proportionate liability regime which the legislature has provided for them.

25 There will therefore be a conventional order that Barwon's costs of the proceeding, including reserved costs, to be assessed on a party and party basis be paid by Aquatec.

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[1] It is difficult to see such defendants as being jointly or jointly and severally liable to the plaintiff. Furthermore, their rights of contribution have been removed.

[2] [1993] FCA 536; (1993) 46 FCR 225 at 232-4.

At a glance

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Judgment (14 paragraphs)

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Cases Cited (1)