Plaintiff v Defendant

(b) interest in the sum of $1,014,988.93 calculated pursuant to s 60(1) of the Supreme Court Act 1986 on $2,607,986.20 since the date of commencement of proceedings to the date of judgment; and

(c) $260,798 GST payable on the amount of $2,607,986.20.

The issue remaining for my determination is what, if any, order should be made for the payment of costs in the litigation. BMD had filed written submissions on 29 October 2007 seeking costs. Both parties had also filed (in sealed envelopes) additional submissions supported by affidavits and accompanying exhibits which I saw, as requested by the parties, only after having made the rulings on 8 November on (a) the re-calculation of the delays claims to correct what I accepted was an error in my calculations in the reasons I had given on 19 October 2007 and (b) the statutory basis for the calculation of interest on the judgment sum.

2 VicUrban sought orders that the cost of the proceeding be awarded in its favour on an indemnity basis in reliance on the principles in Calderbank v Calderbank.[1] In that case the Court held that a successful litigant was not entitled to an order for costs where he ought to have accepted an offer which had previously been made greater than the award in the proceedings. Cairns LJ (with whom other members of the Court agreed) said:[2]

I have reached the conclusion that [an offer in an affidavit] was an offer which in the circumstances of this case the husband ought to have accepted and that, as he persisted in these proceedings and recovered a lump sum of a smaller amount than the value of that house, the right order would be that he should have the costs up to August 14 and thereafter the wife should have her costs of the proceedings in the court below.

3 On 24 December 2003 VicUrban wrote to BMD making an offer which it expressly said was being "served pursuant to the principles enunciated in Calderbank v Calderbank". The letter indicated that VicUrban was then prepared to settle BMD's claims by a payment of $4,404,500 being:

The letter went on to say that this represented a payment of $2,721,114 for the settlement of all disputed claims. The offer was made before the proceeding had been commenced and, therefore, before any offer under Order 26 Supreme Court (General Civil Procedure) Rules 2005 could have been made. VicUrban subsequently made an offer of comprise under Order 26 to pay BMD $2,000,000 (exclusive of GST) and to return the bank guarantee. That offer was dated 25 May 2005.

4 VicUrban relies upon its letter dated 24 December 2003 in seeking a special order for costs in its favour notwithstanding that it has had an award of damages against it and failed in its counterclaim. The principles governing the award of costs in light of a Calderbank offer were discussed by the Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[3] where the Court said (omitting footnotes):[4]

1. The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree's rejecting it.

1. It has been argued on occasion that the maker of a Calderbank offer should not be entitled to costs unless the offer sets out, with some reasonable specificity, the basis for the offeror's contention that the offeree should accept the compromise - for example, because the offeree's case was hopeless or because the offeree had no reasonable prospects of doing better in the proceeding than was being offered in advance.
2. Once again, we think it neither necessary nor desirable to lay down any general rule in this regard. We agree with what Redlich, J. said in Aljade, as follows:

'Any attempt to prescribe the reasoning which must accompany [a Calderbank] offer should be resisted. Whether there is a need for the offeror to descend to specificity as to why the offer should be accepted must depend upon a consideration of all of the circumstances existing at the time of the offer. The extent to which the weakness of a party's position is exposed through the pleadings, affidavits and the various communications between the parties during the course of the litigation may bear upon the significance of the absence of specificity in the informal offer'.

The degree of specificity required in an informal offer may depend upon the particular facts of the offer in the context of the facts in which it is made. In Calderbank itself the offer had been contained in an affidavit stating: "I am willing, and have always been willing, to make over to the respondent the house at Alderley Edge".[5] In M.T. Associates Pty Ltd v Aqua-Max Pty Ltd (No. 3)[6] Gillard J described a Calderbank offer as simply an offer "expressed to be without prejudice save to the question of costs and an indication that the letter will be adduced into evidence on the question of costs."[7] His Honour went on to say that there were "no other special features which make it a Calderbank offer."[8]

5 The desirability of encouraging litigating parties to settle proceedings (see Mutual Community Limited v Lorden Holdings Pty Ltd[9]) makes it undesirable that informal offers attracting the Calderbank principles be burdened with technicality. In this case, however, a question has arisen about what the offer was. VicUrban's written submissions, in paragraph 2, described its own offer dated 24 December 2003 as constituting an offer "to settle all of the plaintiff's disputed claims for the sum of $2,721,114 exclusive of GST". Putting to one side whether or not the amount was inclusive or exclusive of GST, VicUrban's own description of its offer in its written submissions was repeated in paragraph 7 as "[t]he defendant's Calderbank offer of 24 December 2003 was for the sum of $2,721,114.00 exclusive of GST." In oral argument, however, counsel for VicUrban moved away from that description of the offer and said that the amount of $2,721,114 was "irrelevant". In oral argument the offer was described by VicUrban's counsel as an offer to pay $4,404,500 on top of what BMD had received to date. VicUrban's offer, if read in the way contended by its counsel in oral argument, has the consequence that the total payable as at 24 December 2003 would have been $18,100,000 whereas, as events have turned out, the total BMD may receive after judgment is $114,314 less because the contract sum on the final certificate was $15,377,700 and the judgment in the proceeding (excluding interest and GST) was $2,607,986.20 (a total of $17,985,686,20). VicUrban contends, therefore, that its offer was more than BMD obtained as a result of the litigation.

6 BMD contends, in contrast, that the offer made by the letter of 24 December 2003 was, at best, an offer to pay only $2,393,290 which is $214,696.20 less than the amount secured by the judgment (excluding interest and GST). BMD's basis for that is found in the terms of the letter which identified only two amounts as referable to matters in dispute: namely, $343,000 for liquidated damages and $2,050,290 expressed to be offered in settlement of all outstanding claims. The other items which went up to make the $18,100,000 were, on the face of the letter, not for amounts in dispute and, predominantly, for amounts "previously paid".

7 I do not think it appropriate to consider the offer by reference to the total amount which would have been received, or might have been received, by BMD; that is, which included amounts previously paid plus amounts which the letter of offer did not purport to regard as being in dispute. Nor do I think it appropriate to regard the offer as being one to pay $2,721,114 because it is not at all clear how that figure may fairly be said to be the quantum of a payment for the settlement of the disputed claims. Counsel for VicUrban said in oral argument that I should treat that amount as irrelevant and, as far as I can see, it has never been shown how that figure was arrived at or could fairly be regarded as the amount which BMD should focus upon as offered in settlement of the disputed claims. On the contrary, the letter of 24 December 2003 identified two sums which in aggregate were less than $2,721,114 as identifiably referable to amounts in dispute. It is my view, therefore, that the letter of offer dated 24 December 2003 offered BMD the lesser amount of $2,393,290 to settle its claims against VicUrban. It was that sum which the letter put before BMD as the focus of its consideration to dispose of the matters then in dispute. That sum is less than that obtained by the judgment and, accordingly, I do not think a special order for costs should be made in favour of VicUrban.

8 BMD then contended that it should have an order for costs in its favour notwithstanding that it failed on very many issues. The principle relied upon is that set out in Hudson's Building and Engineering Contracts (10th edition)[10] at 870:

It should be remembered that in building and engineering cases the issue between the parties is almost invariably financial, and that the machinery of the sealed offer is available to protect the position on costs. Though there may be many issues, in legal pleading terms, of claim, set-off, and counterclaim, the parties' eyes will always have been fixed on the final balance owing one way or another. Whoever secures or avoids paying that balance in effect has won. Only in the case of wildly exaggerated claims, or separate and costly issues on which the successful party has failed and which it was wholly unreasonable for him to raise, can there be, it is submitted, any justification for departing from the rule that the party ultimately successful on a final balance of claim and counterclaim should be paid his costs. There are cases in other situations where separate orders for costs on claim and counterclaim are appropriate, but counterclaims on building and engineering contracts arise out of the same transaction and are equitable set-offs, and the basic commercial realities, in the vast majority of cases argue very strongly, it is submitted, for a single award of costs in favour of the party ultimately successful on balance, unless the balance is so small as to justify the view that a party responsible for initiating the litigation and obtaining such a balance can be regarded as having been effectively unsuccessful.

This principle was cited with approval in Badge Constructions Pty Ltd v Penbury Coast Pty Ltd[11] and Miles v Palm Bridge Pty Ltd.[12]

9 In Kane Constructions Pty Ltd v Sopov (No. 2)[13] Warren CJ considered these issues and said (omitting footnotes):

1. It is necessary to address the matter of the defendants succeeding on the counterclaim, in part, and how that is to be treated for the purposes of the judgment. Rule 10.09 contemplates that where a plaintiff succeeds on a claim and the defendant succeeds on the counterclaim and a balance favouring one results, the Court may give judgment for the balance. It was suggested in argument for the plaintiff that it should have judgment for its amount of the successful claim - it following that there be a separate order for judgment on the counterclaim. Apparently, the outcome would affect costs.
2. In this respect, with regard to costs, the plaintiff submits that it is the successful party and that therefore the defendants should pay the costs of the proceeding. The plaintiff highlighted the following passage from the 10_th_ edition of Hudson's Building and Engineering Contracts:

Only in the case of wildly exaggerated claims, or separate and costly issues on which the successful party has failed and which it was wholly unreasonable for him to raise, can there be, it is submitted, any justification for departing from the rule that the party ultimately successful on a final balance of claim and counterclaim should be paid his costs".

1. The plaintiff further noted that the above passage had been cited with approval by Crockett J in the Full Court of this Court in Rival Nominees Pty Ltd v Craig Davis Constructions.
2. In the passage in Hudson's, the learned author continues (although not cited by the plaintiff):

There are cases in other situations where separate orders for costs on claim and counterclaim are appropriate, but counterclaims on building and engineering contracts arise out of the same transaction and are equitable set-offs, and the basic commercial realities, in the vast majority of cases argue very strongly, it is submitted, for a single award of costs in favour of the party ultimately successful on balance, unless the balance is so small as to justify the view that a party responsible for initiating the litigation and obtaining such a balance can be regarded as having been effectively unsuccessful.

1. I note that there is some irony in the plaintiff's reliance on this passage which clearly recognises the difficulty of maintaining a strict separation between contractual obligations and what the author terms "equitable set-offs".
2. It seems to me that the position in Hudson's is the correct one. Furthermore, no compelling reason has been put to me by the parties as to why Rule 10.09 ought not apply. I will apply the rule and make final orders with respect to the balance owed to the plaintiff.

Subsequently the Chief Justice said in Kane Constructions Pty Ltd v Sopov (No. 3) (omitting footnotes):[14]

1. The remaining matter is the question of costs. The defendants submitted that costs ought not follow the event in the usual way but, rather, that there should be a reduction to take account of the way the plaintiff conducted its case. It was also suggested that I should take account of the extent of the success of the defendants in the final judgment sum and apportion costs accordingly. There are two matters to be said about this. Firstly, there was nothing out of the ordinary in the way the plaintiff conducted its case. It was a complex and detailed matter and one in which the plaintiff, necessarily, had to set some areas out in considerable detail to assist the Court in understanding the issues. There is no basis to punish the plaintiff by deprivation of the usual costs order in this respect. Secondly, so far as the defendants succeeded, that matter was considered in the quantum judgment, pursuant to Rule 10.09 of the Supreme Court (General Civil Procedure) Rules 2005 and the authorities.

10 What emerges from these observations is that an order may be made on the final balance owing basis where it is appropriate to do so. The question for me is whether it is appropriate in this case. A potential problem with the approach is its tendency to encourage claims of relatively little value or importance to be added to more substantial claims. The often quoted passage from Hudson, however, contemplates, as exceptions, claims which are either wildly exaggerated or "separate and costly issues on which the successful party has failed". It is the latter which I think has occurred here and which would be rewarded if the plaintiff were to succeed in its costs on the final balance owing basis.

11 In my view there were many claims maintained by BMD which were separate from those upon which it succeeded and which it ought not to be rewarded by a favourable costs order. I have in mind BMD's claims relating to the oversized rock latent condition, the Trade Practices Act claims, the certificates and payments claims, the contractual warranties claim, the unjust enrichment claims and a number of its claims in respect for contract variations.

12 It is also my view that the proceeding was "over burdened" by much unnecessary material and argument which added to the time and cost of the proceeding. The Court Book contained very many documents to which I was never referred and was never likely to be referred. In some respects the Court Book seems to have been compiled as a sharing with the Court of the discovery each party had given to each other without a careful evaluation of what was needed by the trial judge to decide the case. In addition there were sometimes several copies of the same document without an evaluation of whether each should have been included in the Court Book. The evidence presented in the witness statements was long, repetitive, and often in a form which, although perhaps thought to be helpful, was likely to provoke (as it did) extensive objections. Neither party, however, submitted that I should reduce any costs award by taking into account these matters and, in the absence of such submissions I will not do so.

13 However, VicUrban's further argument on costs (in the event that the Calderbank offer was held not to be effective) was that I should order costs for the plaintiff by an apportionment that would reflect the true nature of the proceeding and the plaintiff's actual success. Two methods for achieving this were canvassed with counsel for VicUrban during oral argument: an apportionment by reference to issues or an apportionment by reference to time. An apportionment by reference to issues would, I think, be the preferable basis upon which to award costs but I do not think that is practically feasible in this case and, even if theoretically possible, would only give rise to further disputes between the parties about whether items were referable to an issue upon which the plaintiff succeeded or failed.

14 An award of costs by reference to the percentage of time taken by an issue in the proceeding as a whole is also difficult to undertake with certainty. VicUrban contended that the counterclaim represented about 25% of the claims in the proceeding and that, of the remaining 75%, the plaintiff should be regarded as having succeeded on less than one-third. On that basis it would be appropriate to award BMD with 50% of its costs in the proceeding. BMD, in contrast, made no attempt to estimate the time taken by the issues by reference to proportions to the whole proceeding but did not challenge the percentages estimated by VicUrban. In the end an award of costs based upon an estimate of the proportion of time taken by an issue in a proceeding will depend upon impressions. BMD has not assisted me to make an evaluation despite my request at the hearing on costs and notwithstanding its knowledge that VicUrban would contend (albeit as an unwanted final submission) that I should only award 50% of the cost of the proceeding in favour of BMD. In those circumstances I think it appropriate to adopt VicUrban's percentages as a limit at one end of a spectrum being an estimate proffered by responsible counsel who had the carriage of the proceeding and, to a large extent, of its preparation. I also take as a starting point that I am not disposed to award costs in favour of BMD on a net balance basis in this case because in my view there were separate issues which it maintained and lost. However, the percentages submitted by VicUrban do not accord with my own impression and estimates of the proportions of the proceeding occupying the claims upon which BMD failed. Furthermore, I think it appropriate that any doubt about the matter should be resolved in favour of the successful plaintiff. I have reviewed the submissions previously filed, my reasons for decision previously handed down, and have scanned generally the transcripts, witness statements and exhibits. My general impression is that between 20% and 25% might be said fairly to be referrable to the issues maintained by BMD upon which it has failed. I have, therefore, decided to award to BMD 80% of its costs of the proceeding.

1. The defendant pay to the plaintiff the sum of $3,883,773.13 (inclusive of GST), being an amount comprised of the following sums:

(i) $1,935,986.20 on the net claims under the contract, plus repayment of the sum of $672,000 which had been deducted as liquidated damages, a total of $2,607,986.20.

(ii) Plus interest in the sum of $1,014,988.93 calculated pursuant to s 60(1) of the Supreme Court Act on the amount of $2,607.986.20 in (i) since the date of commencement of proceeding to the date of judgment (as per the Schedule Attached); plus

(iii) The amount of $260,798 being the GST payable on the amount of $2,607,986.20 referred to in (i);

1. The defendant deliver to the plaintiff the bank guarantee it continues to hold in the sum of $762,615.80.

1. The defendant's counterclaim is dismissed.
2. The defendant pay to the plaintiff 80% of the plaintiff's costs of the proceeding.

[1] (1975) 3 WLR 586.

[3] [2005] VSCA 298; [2005] 13 VR 435.

[4] Ibid 442 (Warren CJ, Maxwell P and Harper AJA).

[5] (1975) 3 WLR 586, 596 (Cairns LJ).

[6] [2000] VSC 163 (unreported, Gillard J, 3 May 2000).

[9] (unreported, SCV, Byrne J, 28 April 1993), 12-14.

[10] LN Duncan Wallace, Hudson's Building and Engineering Contracts (10th ed, 1970)

[11] [1999] SASC 6 (unreported, Debelle J, 14 January 1999) [12].

[12] [2001] WASC 42 (unreported, Hasluck J, 20 February 2001) [39]. See also LNC Harper Davidson Pty Ltd v Keywest Building Co Pty Ltd (unreported, WASC, Kennedy J, 13 July 1988); Keywest Construction Group Pty Ltd v Footscray Holdings Pty Ltd (unreported, WASC, Anderson J, 23 February 1983); Rival Nominees Pty Ltd v Craig Davis Constructions Pty Ltd (unreported, SCV, Starke ACJ, Crockett and McGarvie JJ, 26 June 1981) 21-22 (Crockett J with whom McGarvie J agreed).

[13] [2005] VSC 492 (unreported, Warren CJ, 16 December 2005).

[14] [2006] VSC 32 (unreported, Warren CJ, 7 February 2006).