Plaintiff v Defendant

2 The first of these two proceedings was commenced in June 2000 ("the 2000 proceeding"), when Protec Pacific Pty Ltd ("Protec") sued WMC (Olympic Dam Corporation) Pty Ltd, now known as BHP Billiton Olympic Dam Corporation Pty Ltd, ("WMC") claiming a sum in excess of $2.1 million for work performed by it in respect of a new copper and uranium solvent extraction plant at the Olympic Dam in South Australia. In September 2000, WMC filed its defence and counterclaim against Protec. In December 2001, WMC joined Steuler Industriewerke GmbH ("Steuler") as the second defendant to its counterclaim. In June 2002, WMC amended its defence and counterclaim, introducing, for the first time, the allegation that the high density polyethylene ("HDPE") lining system supplied by Steuler was unsuitable.

3 In April 2004, Protec issued a proceeding against Steuler claiming damages for negligent misstatement ("the 2004 proceeding"), but it did not serve the writ within time. By a Deed of Settlement dated 3 July 2006, Protec settled with WMC the claim and counterclaim in the 2000 proceeding, conditional upon Protec being successful in an application to serve Steuler out of time with its 2004 proceeding. In April 2007 the Court refused to grant Protec leave[2] and the Deed accordingly lapsed. Nevertheless, WMC and Protec entered into a second Deed of Settlement on 31 May 2007, pursuant to which Protec consented to judgment being entered against it in the sum of $15 million. Part of the settlement terms was that Protec would issue a proceeding against Steuler, such proceeding to be conducted by WMC and by solicitors and counsel nominated by WMC. In consideration of the second Deed, WMC agreed to pay all costs of the proceeding and to indemnify Protec, its director Mr Howard Smith and Protec's employees against any award of costs against them in favour of Steuler. Protec agreed that any amount of damages, costs and interest awarded to it in the new proceeding against Steuler would be applied in satisfaction of the judgment sum of $15 million.

4 Accordingly, on 3 August 2007, consent judgment was entered against Protec in the 2000 proceeding. Thus, the only part of that proceeding remaining unresolved was WMC's counterclaim against Steuler. WMC became, in effect, the plaintiff in the 2000 proceeding and the name of that proceeding was accordingly amended to reflect the changed situation.

5 The second of the two related proceedings was commenced by Protec in July 2007 against Steuler ("the 2007 proceeding") claiming judgment for the amount of its liability to WMC under the second Deed of Settlement, being $15 million.

6 At the start of the hearing of both proceedings, on 31 March 2008, WMC's amended particulars of loss and damage totalled nearly $27.78 million consisting of $8.92 million for the supply and installation of the HDPE lining system and the cost of rectifying and repairing defects in that system and $22.38 million for the costs of removing the HDPE lining system and replacing it with a fibreglass ("FRP") lining system, less $3.52 million for the reasonable cost of the design, supply and installation of a fire retardant (conductive) FRP lining system in 1997 and 1998. Interest to July 2008 was said to be in excess of $21 million.

7 The way in which WMC had formulated the calculation of the loss and damage claim had undergone several changes before then. In WMC's counterclaim dated 28 July 2004, its claim was based upon the difference between the actual cost of the HDPE lining system, including the attempted rectification of that system, and its replacement with a FRP lining system ($22.45 million) and what it should reasonably have cost WMC for the HDPE lining system had it been installed pursuant to the agreements between Protec and WMC ($2.64 million). In WMC's counterclaim dated 5 June 2006, the claim was based upon the difference between what it would have cost in 1997 and 1998 to design, supply and install a FRP lining system ($4.5―$5.5 million) and the actual cost later incurred by WMC in having that done ($22.38 million).

8 On 12 May 2008, I ruled that the trial be split, in effect, between liability and quantum. As I said in the first judgment:

I did so as a result of problems with the state of the evidence about the quantum of WMC's claim and Steuler's readiness to deal with further evidence filed at a late stage by WMC, and as a result of concerns that the trial would last much longer than the estimated three months.[3]

9 Despite the split, the liability hearing went for over four months. In my reasons for judgment published on 7 August 2009 I found that in reliance on misleading and deceptive representations by Steuler, WMC and Protec had entered into the On-Site Service Agreement ("OSS Agreement") with each other concerning the installation of Steuler's HDPE lining system and that those representations were made negligently in breach of Steuler's duty of care to WMC and Protec.

10 This meant that there had to be a quantum hearing in respect of both proceedings. However, in March 2010, WMC's damages claim was substantially reduced by it deleting its claim for the cost of replacing the HDPE lining system with a FRP lining system. In the solicitors' letter dated 30 March 2010 advising of the change it was said that WMC had "reformulated" its claim for loss and damage "to reduce the issues in dispute and thus save court time and costs to all parties". In its submissions on costs, Steuler categorised this explanation as an attempt to divert attention away from the fact that WMC was still "wrestling with how it was going to put its loss and damage claim". WMC's response was that the change was made because it recognised the difficulties associated with proving what it would have cost in 1997 and 1998 to design, supply and install a FRP lining system given that everything done at Olympic Dam seemed to cost considerably more than anticipated. That problem was removed by assuming that the earlier cost would have been the same as what it in fact cost in 2002.

11 The change by WMC meant that its claim at the start of the second hearing was $13.7 million, which had become by the time of final submissions, as a result of some concessions by WMC, $13.2 million. The claim for interest remained significant.

12 Protec's claim remained at $15 million plus interest throughout the second hearing.

13 As previously stated, I held that in each proceeding the plaintiff's claim against Steuler failed. I concluded that for a number of reasons WMC had not made out its claim that it suffered loss or damage by conduct of Steuler done in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the TPA") or as a result of Steuler's negligence because WMC had not established what it would have done had it not been misled by Steuler and because the supervening event of the second fire at the plant meant that any alternative lining would have had to be replaced in any event by a fire retardant and conductive lining.[4] Nevertheless, in case that conclusion was held to be wrong, I went on to consider what the quantum of WMC's claim would be in that event, and concluded that I would have awarded to WMC an amount of about $6.07 million. Interest would have been about 120% of that amount (or $7.28 million), subject to any argument that interest should not be awarded for the whole of the interlocutory period of six and a quarter years.[5]

14 I concluded that Protec's claim against Steuler under the TPA and in negligence failed because it had failed to prove that the sum of $15 million for which it settled with WMC was reasonable because no evidence was led from Protec's legal advisers about the course of negotiations, the reasoning which led to the settlement or the matters that were taken into account in deciding to settle.[6]

15 Steuler submitted that as it was the successful party:

(a) WMC should pay its costs of the 2000 proceeding and that such costs should be on an indemnity (or solicitor and client) basis from the beginning of Steuler's involvement in the proceeding, or alternatively, from various later dates referable to settlement offers made by Steuler; and

(b) WMC and Protec should pay Steuler's costs of the 2007 proceeding and that such costs should be on an indemnity (or solicitor and client) basis from the commencement of the proceeding, or alternatively, from two later dates referable to settlement offers made by Steuler.

16 In their written submissions, WMC and Protec submitted that "the fair and just result in all the circumstances" would be achieved by an order that:

(a) Steuler pay the costs of WMC and Protec of issues relating to liability including the liability hearing from the date of Steuler's joinder on 18 December 2001 on the basis that they were the successful parties in the liability hearing; and

(b) WMC and Protec pay Steuler's costs of issues relating to quantum and the quantum hearing.

In their oral submissions, WMC and Protec submitted that, although the costs relating to liability issues were almost certainly far greater than the costs relating to quantum issues,[7] the appropriate outcome, given that Steuler had been successful, was that there should be no order for costs in either proceeding.

17 This last concession was a sensible one. Apart from the fact that it drew back from a position of attempting to justify an order for costs that would mean that overall the successful party would be paying costs to the unsuccessful party, the initial submission would have involved the very time consuming and difficult task of dividing the costs incurred before the first hearing into the costs of "issues relating to liability" and the costs of "issues relating to quantum".

18 Section 24 of the Supreme Court Act 1986 provides that, in all matters before the Court, the Court has a discretion as to the making of orders for costs, including "full power to determine by whom and to what extent the costs are to be paid", unless otherwise "expressly provided by this or any other Act or by the Rules". Whilst the discretion is "absolute and unfettered" it must be exercised judicially, not arbitrarily or capriciously.[8]

19 Rule 63.28 of the Supreme Court (General Civil Procedure) Rules 2005 ("the Rules") provides that the Court has the power to order that costs be taxed on one or more different bases. Rule 63.31 states that except as provided by the Rules or any order of the Court "costs shall be taxed on a party and party basis".

20 Steuler submitted that, in accordance with the usual principles, it was entitled to the costs of the two proceedings, at least on a party and party basis, because it was the successful party in each case.[9] Steuler submitted that it was a fundamental requirement of the plaintiffs' causes of action under the TPA or in negligence that they establish that they suffered loss or damage. This the plaintiffs failed to do. Therefore, it submitted that there was no reason why the usual rule, that costs followed the event, should not apply. This was particularly the case where the failure or deficiency in proof was an issue within the specific knowledge and control of the plaintiffs.

21 Whilst acknowledging that as a general rule costs should follow the event, WMC and Protec submitted that the Court had a wide discretion to award costs so as to produce a "fair and just" result in all the circumstances, particularly in cases where there were multiple issues and "a particular issue or group of issues is clearly dominant or separable".[10] They submitted that the Court was entitled to examine the "realities of the case" to do "substantial justice" as between the parties on matters of costs.[11] The plaintiffs also drew attention to r 63.04 which empowers the Court to make costs order "in relation to a particular question in or a particular part of a proceeding", and to s 49(3)(k) of the Civil Procedure Act 2010 which empowers a court to make any order for costs "including the proportions in which the parties are to bear any costs".

22 WMC and Protec submitted that as they were successful in establishing liability on the part of Steuler at the first hearing, they were entitled to judgment or declarations to the effect that Steuler had engaged in misleading and deceptive conduct with respect to the suitability of the Steuler product, despite the fact that the Court found that WMC and Protec did not establish an entitlement to damages. Therefore, they submitted, the first hearing should thus be treated as an "event" for the purpose of determining costs because liability was a separate and discrete "issue" determined in a separate hearing resulting in separate reasons for judgment.

23 WMC and Protec submitted that it was well established that a court may take a pragmatic approach to the apportioning of costs in multiple issue cases. In Chen v Chan, Maxwell P, Redlich JA and Forrest AJA said:

Where there is a multiplicity of issues and mixed success has been enjoyed by the parties, a Court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount.[12]

The plaintiffs submitted that the application of the same principle provided a basis for an order that a successful party who had failed on certain issues should pay the other party's costs of those issues.

24 It was further submitted by WMC and Protec that this established principle of apportioning costs had only been further entrenched by the modern approach of the courts, which had been to move away from the traditional costs orders (that is, the successful party is routinely awarded costs), to the approach where orders were fashioned to take into account the success of a party on a particular issue. This modern approach was said to be found in the decision of Woolf LJ in 1998 in R v Secretary of State for Transport: Ex p Factorframe Ltd:

... the practice of the courts does evolve and in recent times there has been a greater emphasis on recognising that the raising of issues in the course of complex litigation ... can increase the costs of that litigation. It is therefore important that the parties should pay careful attention to the merits, not only of the whole case but to the issues which arise in the course of a case. In complex litigation, where issues are raised on which a party is unsuccessful, the court should, when appropriate, make orders for costs which reflect the fact that, where as a party may generally be successful, in regard to some of those issues that party has been unsuccessful. Furthermore, if the way in which an issue is conducted or argued has the result of increasing the costs of the litigation, and the court finds it was unnecessary for the party to develop the issue in that way, that again can be reflected in a special order for costs.[13]

It was submitted that this decision was consistent with the statement of Lord Woolf, in his Access to Justice report, about the rule that costs normally follow the result:

The rule could, however, be more effective than it is at present. Normally the court uses the rule as a blunt instrument. The general approach is one which involves the winner taking all. This does not necessarily produce a fair result. My approach to case management involves breaking down the issues which make up the litigation. The court has to be prepared to make different orders for costs in relation to different issues to support the new approach to case management.[14]

25 Reference was also made to the decision of the Full Court of the Federal Court of Australia in Bowen Investments Pty Ld v Tabcorp Holdings Ltd (No 2),[15] where Finkelstein and Gordon JJ said:

We think there is force in the argument that the appellant should not benefit from the usual rule that costs follow the event. For many years the traditional rule has been that the winner (once the winner is properly identified) is entitled to recover his costs of the trial. It sometimes happens that there is a departure from the traditional rule and the costs order takes account of the success of the parties on particular issues. But to date the award of costs on an issue by issue basis has only been accepted in limited cases and then only when the circumstances are exceptional.

This approach is, if we may be permitted to say so, quite unfair. Its effect is that a winner is entitled to all of his costs even if he raises a plethora of issues on which he is unsuccessful. ...

We do not believe there is any need to wait for a change in the Federal Court Rules to adopt an issue by issue approach here. Costs are in the court's discretion. Fairness should dictate how that discretion is to be exercised. So, if an issue by issue approach will produce a result that is fairer than the traditional rule, it should be applied. It is not suggested that such an approach requires a precise arithmetical apportionment of the costs as between the winner and loser of discrete issues. No doubt the assessment will often be rough and ready. But it will have the virtues of both fairness and reasonableness, which are often lacking in the application of the traditional rule.[16]

26 The plaintiffs also referred to GT Corporation Pty Ltd v Amare Safety Pty Ltd (No 3), where Robson J concluded that the relevant principles with respect to issue by issue costs were as follows:

The court may, in its discretion, decline to order costs in favour of a successful party, or may order the successful party to pay the costs of the unsuccessful party, where the plaintiff failed to establish discrete heads of claim or failed to establish issues which it pursued in its claim, although ultimately succeeding on the basis of another discrete head of claim. ...

It is not necessary that the issue concerned was raised unreasonably by the party. ... Although, a relevant consideration may include whether the issue was raised unreasonably. ...[17]

27 WMC and Protec submitted that the issues determined on the first hearing were substantially raised by Steuler. They listed the following 12 issues in respect of which Steuler had been unsuccessful in the first hearing:

(a) Steuler pleaded that the problems with the liner arose because of WMC's use of Shellsol, which contained BTX aromatics.

(b) Steuler alleged that it did not prepare or assist Protec in the preparation of the bid proposal. Steuler alleged it was a supplier only and not engaged in any design role.

(c) Steuler alleged that WMC did not rely on its representations, having made the decision to use HDPE prior to tender, but relied on the advice of Mr Weir and Mr Matheson (of Fluor Daniel).

(d) Steuler maintained that a slight swelling of the surface by absorption was reversible and to the extent there were any defects or failures in the Bekaplast it could have been repaired and its replacement was not justified.

(e) Steuler pleaded that it supplied a list of reference projects (which included 3 USX plants) which supported the suitability of HDPE.

(f) Steuler pleaded the provisions of s 72 of the Development Act 1993 (SA) to enliven proportionate liability.

(g) Steuler alleged WMC failed to operate the plant using chemicals specified in the bid request.

(h) Steuler alleged that WMC exposed the lining system to temperatures well in excess of the temperatures set out in clause 1.5.4 of the bid request.

(i) Steuler alleged that defects were the result of construction related problems and using non-Bekaplast or inferior lining material.

(j) Steuler alleged the TPA claims were statute barred.

(k) Steuler maintained that the OSS Agreement of June 1998 was entered into with Protec NSW, and not Protec.

(l) Steuler raised a plea of estoppel claiming that Protec was estopped from denying that it was bound by the terms of the Co-operation Agreement.

28 Despite dealing briefly with some of the issues in their written submissions, in oral submissions counsel for WMC and Protec specifically disclaimed any attempt to descend into any degree of particularity with respect to their issue by issue argument. Instead of developing an argument based on an examination of each of the issues, issue by issue, which would have involved what senior counsel described as an inappropriate "finicky detailed issue analysis", the plaintiffs were content to base their submission on the contention that the first hearing provided an obvious and practical demarcation by which to apportion costs. They submitted that the liability issue was clearly dominant or separable and as they had successfully established in respect of that issue (which was vigorously contested by Steuler) that Steuler had engaged in misleading and deceptive conduct in contravention of the TPA and that they were induced by the conduct to enter into the agreement to install the unsuitable lining system, Steuler should pay the costs of the dispute about its wrongful conduct.

29 Steuler disputed the submissions by WMC and Protec in support of their issue by issue approach to costs. It submitted that the plaintiffs did not establish liability on the part of Steuler at the first hearing and that the first hearing was neither an "event" for the purpose of determining costs nor was it a clearly dominant or separable "issue".

30 Steuler submitted that the plaintiffs' submission that they were entitled to judgment or declarations to the effect that it had engaged in contravening conduct was disingenuous in two respects. First, both plaintiffs had always claimed damages and had never sought a declaration. Secondly, WMC refused to countenance any settlement of the proceedings which did not involve it receiving millions of dollars from Steuler. It never offered to settle for a declaration of contravention against Steuler.

31 Next, Steuler submitted that the plaintiffs were wrong in stating that they were "successful in establishing liability on the part of Steuler at the first hearing". Steuler submitted that there could be no liability in a defendant unless all the elements of the cause of action, whether it was under the TPA or in negligence, were proved. It was not liable in either proceeding because the respective plaintiff did not prove damage.

32 Steuler then submitted that the first hearing was neither an "event" nor an "issue", for the purpose of determining costs. Steuler referred to Dal Pont's Law of Costs[18] where these terms are discussed:

... So when referring to 'costs follow the event', the 'event' is not limited to the final result of the proceedings, but includes the fate of the individual issues litigated in the course of the proceedings. ... 'issue' has been defined as 'that which, if decided in favour of the plaintiff, will in itself give a right to relief, or would, but for some other consideration, in itself give a right to relief; and if decided in favour of the defendant will in itself be a defence'.[19]

Thus, Steuler submitted, the first hearing was not an "event" or an "issue" because my first decision did not of itself give either plaintiff any right to relief. No such right arose unless and until each plaintiff had established loss or damage.

33 However, the learned author of the Law of Costs went on to say that the definition of "issue" should not be treated as assimilating an "issue" to a "cause of action", for a cause of action could involve more than one issue. It has long been recognised that in this context, "issue" is not used in the technical pleading sense, but refers to any disputed question of fact or law.[20] On that approach, there were many "issues" in the first judgment which were decided unfavourably to Steuler.

34 Steuler further submitted that in any event there was no basis for depriving it of its costs of the first hearing or ordering it to pay the plaintiffs' costs of that hearing. It did not follow that because WMC and Protec succeeded at the first hearing in establishing breach by Steuler of s 52 of the TPA and that the second and third representations were made negligently, that they were entitled to the costs of those matters. Steuler submitted that the issue by issue approach had not met with universal acclaim. In Cretazzo v Lombardi, Jacobs J said:

... I would wish to sound a note of cautious disapproval of applications, which are being made with increasing frequency, to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of a trial.

...

But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.[21]

35 Steuler also submitted that the approach of a court differed as between a successful defendant (as was Steuler) and a successful plaintiff. It submitted that what the relevant authorities made plain was that:

(a) the principle that a successful party may be deprived of costs or may be ordered to pay the other party's costs in respect of issues lost by the successful party where the issue was clearly dominant or separable, operates more strongly against a successful plaintiff, than against a successful defendant; and

(b) in the case of a successful defendant, it may be appropriate to order the plaintiff to pay the costs of issues unsuccessfully raised by the defendant even if those issues are dominant and severable, so long as the defendant acted reasonably in raising those issues.

36 In Australian Conservation Foundation v Forestry Commission, Burchett J made the point when he rather dramatically said:

A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earthworks at every reasonable point along the path of assault. At the same time, if he multiplies issues unreasonably, he may suffer in costs.[22]

37 In Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) ("Safeway"), Goldberg J said:

I consider that a court should look more benignly on the question of costs of a respondent who has been compelled to come to court and defend itself on a ground not of its own choosing than on an applicant who chooses to raise issues on a ground of its choosing.[23]

38 A more recent statement in support of this reasoning is to be found in the judgment of Hodgson JA (with whom McClellan CJ at CL and Basten JA agreed) in Griffith v Australian Broadcasting Corporation (No 2). His Honour said that the application of the underlying principles concerning costs:

may not be exactly the same for successful defendants as for successful plaintiffs. In the former case, the defendant has been caused to incur costs in defending a claim which the decision in the case has wholly rejected, and has thus determined should not have brought about the incurring of any costs at all. In those circumstances, it may be considered appropriate that the defendant have costs associated with reasonable defences, even if they ultimately proved to be unsuccessful and severable.[24]

39 On the other hand, WMC and Protec submitted that in Victoria there was no different rule when it was a defendant which had succeeded rather than a plaintiff. They referred to the decision of Gobbo J in Byrns v Davie[25] where the plaintiffs had lost on what was essentially a threshold matter, namely, the construction of the covenant, but had won on two other questions that occupied much of the time of the hearing, namely whether the plaintiffs had consented to the alleged breach of covenant and whether there was any damage by way of depreciation in value of the land owned by the plaintiffs.

40 Gobbo J referred to the Supreme Court Act and the Rules, which he said:

do not, in my view, support an argument that no apportionment according to issues can be made against a defendant that is ultimately successful, even though such defendant fails on particular issues or in respect of particular parts of the proceedings.

...

Further, it has not been the practice to treat successful defendants as in a wholly different position to plaintiffs in deciding on an award of costs in cases where a party has only been partly successful.[26]

41 WMC and Protec submitted that Byrns had been referred to relatively recently with approval by Warren CJ and Nettle and Redlich JJA in McFadzean v Construction, Forestry, Mining and Energy Union.[27] However, as with other approving references to Byrnes in other decisions, the Court of Appeal was, in my opinion, referring more to Gobbo J's statements that the Rules were wide enough to permit an apportionment of costs according to issues or causes of action[28] and that orders might be notionally set off against each other or other adjustments made so as to produce an order for a proportion of one party's costs,[29] rather than to his Honour's views on whether successful defendants were to be treated differently to successful plaintiffs.

42 Nevertheless, it seems to me that the approach to be followed in respect of this question is that the fact that the successful party against whom a costs order is sought is the plaintiff or is the defendant is just one of the many factors that have to be weighed by the judge in exercising his or her discretion on costs.

43 Finally, Steuler disputed that all of the issues listed by WMC and Protec had been unsuccessfully raised by it. For example, it submitted that issue (h), dealing with temperatures, had been brought about by WMC's failure to give proper and timely discovery, which was only cured, and the issue therefore put to rest, during the first hearing. This illustrates the problem of considering how costs should be awarded on an issue by issue basis without proper evidentiary material before the Court rather than simply assertion and counter assertion from the Bar table.

44 I have decided that in all the circumstances it would not be appropriate to make any reduction in the costs otherwise recoverable by Steuler up to the conclusion of the first hearing. First, I agree with Steuler's submission that the first hearing was not dealing with a "dominant" issue or group of issues. In my opinion, establishing breach is not a more "dominant" issue than proving loss or damage where, as here, loss or damage is an essential ingredient to the causes of action relied on. Unless a plaintiff can prove loss or damage it matters not that it may have been able to establish other necessary elements of its cause of action. It is an equally important element.

45 Secondly, in my opinion, one cannot ignore the fact that it was WMC which made the claim against Steuler in the 2000 proceeding and it failed. The same applies to Protec's 2007 proceeding. I do not consider it to be a just result in those circumstances for Steuler to be required to pay the plaintiffs' costs of litigating the extremely complicated factual matters about the cause of the problems with the HDPE lining system, the making of representations, the plaintiffs' reliance on those representations and whether they were misleading or deceptive. Most, if not all, of issues (b), (c), (d), (e), (g), (h), (i) and (k) related to such factual matters and I do not consider that Steuler could be fairly accused of raising irrelevant issues or unduly prolonging the dispute by raising these issues. To make an order that Steuler be deprived of the costs of litigating the issues relating to liability or that it pay the plaintiffs' costs of those issues would be saying, in effect, that it should have admitted all of these matters and defended the claim solely on the basis that neither plaintiff could prove loss or damage. I am not prepared to reach such a conclusion as I consider that it would be unfair and oppressive.

46 Thirdly, although I accept that some of these issues, including the remaining issues listed by WMC and Protec, may have resulted in some wastage of time and therefore costs, they were relatively minor as far as costs are concerned and, in any event, the plaintiffs made no attempt to justify any limited reduction in the costs otherwise recoverable by Steuler but instead really only submitted that all of the costs of issues relating to liability including the liability hearing should be paid by Steuler. That is, the plaintiffs' argument was an all or nothing one and there was no alternative or fall back position put forward.

47 The time spent on issues (f), (j) and (l) prior to and at the first hearing would have been absolutely miniscule. On their own, they would not have been worth worrying about. Issue (a) was, as the plaintiffs acknowledged, abandoned by Steuler around the time of the Experts' Conference in early 2006. At least some of the costs thrown away by the defendant's change of position would be governed by the Court order made at the time or by the provisions of r 63.17 of the Rules. I assume that costs were not simply reserved because if they had been, this should, and I am sure would, have been the subject of a specific submission so that it could be dealt with separately. This was what was done by WMC in respect of the costs of a successful application by it in 2006 to strike out part of Steuler's defence.[30] It said in its written submissions that the costs had been reserved and submitted that it was entitled to those costs regardless of any other orders on costs. WMC subsequently advised in answer to a query from me that an order had been made on 8 June 2006 that Steuler pay those costs.

48 As I have said, no attempt was made by the plaintiffs to explain what costs were incurred by them in respect of each of the 12 issues, but in particular issues (a), (f), (j) and (l). Thus, there was no analysis of the costs incurred by WMC in exploring issue (a) prior to the Experts' Conference, which were totally thrown away by Steuler's change of position and which were not otherwise recoverable. There was no attempt to estimate the costs incurred by WMC in dealing with issues (f), (j) and (l) by, for example, calculating the time spent in the first hearing on evidence and submissions relating to these issues (virtually nil) or by calculating the proportion of time devoted to such issues in my first decision (2 out of 690 paragraphs in the first decision dealt with the South Australian Development Act; 3 out of 238 paragraphs in the second decision dealt with limitation defences, which confirmed that Steuler had expressly abandoned reliance upon any limitation defence during the first hearing; no paragraphs in either decision dealt with the plea of estoppel because that issue also disappeared during the first hearing).

49 In my opinion, as I have rejected the plaintiffs' submission that the costs should be split into costs relating to liability and costs of issues relating to quantum, which was the only way in which the plaintiffs sought to have the Court deal with the costs on an issue by issue basis, I do not consider that I should attempt to make any assessment of the time spent on individual issues unsuccessfully raised by the defendant when that is not how the plaintiffs put their submission. Apart from anything else, given the plaintiffs' approach, Steuler has had no opportunity to make submissions on what, if any, reductions should be made in respect of each of these issues.

50 One final matter should be mentioned in respect of the issue by issue approach. Although I have concluded for the above reasons that it would not be appropriate in this case, some comfort for that decision comes from the fact that, as will be seen in due course below, I have found that WMC and Protec's rejection of Steuler's offer of 27 March 2008, made four days before the start of that hearing, was unreasonable. In those circumstances, it seems to me to be incongruous that Steuler would be ordered to pay the costs of the first hearing when, ex hypothesi, such hearing should not have lasted more than nine sitting days. Instead it went for 54 sitting days.

51 I have, therefore, concluded that Steuler should be awarded its costs of both proceedings, at least on a party and party basis.

WMC's Responsibility for Costs in the 2007 Proceeding

52 Steuler submitted that as WMC was managing, controlling, financing and potentially benefiting from the 2007 proceeding by Protec, there should be a costs order against it as well as Protec in the 2007 proceeding, even though WMC was not a party to that proceeding. Not surprisingly, given the terms of the May 2007 Terms of Settlement, WMC did not oppose the making of such an order.

53 I turn then to consider the submissions concerning Steuler's claim that it should be awarded its costs of both proceedings on an indemnity (or solicitor and client) basis. Steuler referred to the accepted principle that it is appropriate to award indemnity costs in special circumstances such as where the opposing party commences or continues a proceeding in wilful disregard of known facts or clearly established law.[31] With respect to the 2007 proceeding, Steuler submitted that this principle applied because WMC should not have commenced or continued with that proceeding knowing that there was a fundamental flaw in WMC's case in that it could not prove the damages it claimed. It was on this ground that Steuler sought an order that all of its costs of this proceeding should be on an indemnity basis.

54 I do not agree that indemnity (or solicitor and client) costs should be awarded on this basis in the 2000 proceeding. As is discussed later, whilst WMC did have difficulties with being able to prove its damages, this flaw was not that obvious or insuperable, in my opinion, that WMC should, on this ground alone, be subjected to a special costs order.

55 With respect to the 2007 proceeding, Steuler submitted the same principle applied because Protec should not have commenced or continued with that proceeding when it was not proposing to lead any evidence from its legal advisors regarding the reasonableness of the settlement reached with WMC in May 2007. It was on this ground that Steuler sought an order that all of its costs of this proceeding should be on an indemnity basis.

56 I do not agree that, on its own, this omission should result in a special costs order in the 2007 proceeding. Why such evidence was not called was not explained, but for all I know the fact that such evidence was not going to be led may not have been decided by WMC and Protec until the time witness statements had to be filed. Even then, those parties more than likely considered that the existing evidence from Mr Howard Smith was sufficient.

57 Steuler also referred in their submissions on costs to the fact that it was "conciliatory" in its conduct of the proceedings. It referred to the affidavit of Michael Steuler, the Managing Director of the defendant, sworn on 2 March 2012 in support of its application for costs. In that affidavit Mr Steuler deposed that he attended a mediation in August 2001, even before his company had been formally joined as a defendant to the 2000 proceeding, and that he subsequently unsuccessfully made numerous direct approaches to WMC between 2002 and 2005, including writing to the Chief Executive Officer of WMC Resources Limited, the then parent company of WMC, in April 2004, and to the Chief Executive Officer of BHP Billiton Limited, the new parent company of WMC, in October 2005, trying to arrange a meeting to discuss resolution of the litigation. I do not consider that this evidence is of assistance in the exercise of my discretion on costs.

58 Steuler next based its claim for indemnity costs in respect of part of the proceedings on the existence of seven separate offers of settlement, some of which were made in accordance with the decision in Calderbank v Calderbank.[32] There are a number of relevant principles regarding Calderbank offers of settlement which it is appropriate to note before examining each of the offers made by Steuler. The standard starting point for such an examination is the joint judgment of Warren CJ, Maxwell P and Harper AJA in Hazeldene's Chicken Farm Pty Ld v Victorian Workcover Authority (No 2) ("Hazeldene").[33]

59 First, the fact that a less favourable result is achieved does not give rise to a presumption of a special costs order.[34] The making of an offer and its rejection are "but two albeit important circumstances" to which the Court will have regard in the exercise of its costs discretion.[35]

60 Secondly, the competing policy objectives relevant to the exercise of the costs discretion are principally the desirability of promoting settlement and reducing litigation costs as against the undesirability of discouraging potential litigants from bringing their dispute to the courts.[36]

61 Thirdly, the critical question is whether the rejection of the offer was unreasonable in the circumstances. As the Court of Appeal said in Hazeldene:

In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as "manifestly" or "plainly" unreasonable.[37]

62 Fourthly, a court considering submissions 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 for 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; and

(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.[38]

63 Fifthly, as the determination of whether it was unreasonable for the offeree to have rejected the offer is made "as at the time, or within a reasonably short time after, the offer" was made,[39] the Court should not too readily embrace submissions that it was inevitable that the proceedings would fail.[40] As Hamilton J put it in Grynberg v Muller:

These submissions focus the bright light of hindsight. Hindsight sings a siren song of which Judges must be cautious ...[41]

64 Sixthly, the onus lies on the offeror to demonstrate the unreasonableness of the offeree's rejection of the offer.[42] This means that it is necessary to analyse what was proposed.[43]

65 Seventhly, there is no general rule that the Calderbank offer must set out with specificity the basis for the offeror's contention that the offeree should accept the compromise. Whether there is a need to do so depends upon a consideration of all of the circumstances existing at the time of the offer.[44]

66 Eighthly, it is not necessary for the applicant for an indemnity costs order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Such conduct is not a pre-requisite for a finding that the rejection of the Calderbank offer was unreasonable.[45]

67 Ninthly, an "all in" offer is permitted in a Calderbank offer.[46]

68 By a letter dated 4 February 2004 from the solicitors then acting for Steuler ("Steuler's then solicitors") to WMC's solicitors, Protec and Steuler made a Calderbank offer to settle the 2000 proceeding by paying WMC $1.06 million "all in". The offer was to remain open for acceptance until 4.00 pm on 18 February 2004. Reference was made to Calderbank and subsequent authorities and to producing the letter in support of an application for costs on a solicitor/client basis in the event that WMC obtained a less favourable result at trial. WMC rejected the offer on 5 February 2004, the day after it was made.

69 In my opinion, Steuler cannot rely on this offer because it was made by both Protec and Steuler and WMC has obtained a more favourable result than the offer in that Protec consented to judgment in favour of WMC for $15 million. I do not consider it relevant that this judgment was most unlikely to be enforced by WMC. An alternative approach which leads to the same result was WMC's submission that Steuler could not rely on an offer made jointly by Protec and Steuler because those parties were not jointly successful on any basis.

70 I reject the submission by Steuler that this offer should be considered as though all three parties were aware that WMC was approaching the 2000 proceeding on the basis that it was not looking to Protec to contribute any money towards a settlement but instead was negotiating with Protec with a view to indemnifying it against damages and costs on condition that Protec assist WMC in pursuing WMC's claim against Steuler. As Steuler conceded, the relevant emails from Mr Smith to Mr Steuler were dated 23 March and 7 April 2004 and Mr Smith was unable to say when his discussions with WMC took place. Whatever stage the settlement negotiations between WMC and Protec had reached by the time of this offer, it was expressed to be made by both Protec and Steuler.

71 Given my conclusion that Steuler cannot rely on this offer, it is unnecessary to consider whether WMC's rejection of it was unreasonable.

72 By a letter dated 1 July 2004 from Mr Steuler to Mr Andrew Michelmore, the Chief Executive Officer of WMC, Steuler offered to pay $1.8 million "in full and final settlement of the alleged claims" against Steuler, Michael Steuler, Protec and Howard Smith. There was no specification of the time by which the offer must be accepted, nor any period for which the offer would remain open. Nor was there any reference to using the letter later on the question of costs should WMC not obtain a more favourable result than the "all in" offer. However, Mr Steuler did set out some arguments in support of his stated views that:

To our firm opinion WMC does not have a strong claim against Steuler neither directly, nor through Protec.

...

Therefore we strongly believe to [sic] have excellent prospects, that a judgement [sic] will confirm that Steuler is not responsible for the losses and damages WMC might have suffered.

73 The offer was made in response to WMC's offer on 7 May 2004 to accept $7 million in full and final settlement of its claim against Steuler and Protec. The offer of $7 million (calculated as being: claim $6 million, interest $250,000 and costs $750,000) was said to be a 40% discount of WMC's then claim of $11.8 million against Steuler and a 65% discount of its then claim of $19.6 million against Protec. It would appear that Mr Michelmore did not reply to Mr Steuler.

74 Steuler acknowledged that this letter was not a Calderbank form of offer. However, it submitted that it was admissible under s 131(2)(h) of the Evidence Act 2008 and could be considered as part of the Court's general discretion on costs.

75 In my opinion, Steuler cannot rely on this offer because, although it was made by Steuler alone, it was an offer to settle the claims against both Protec and Steuler, as well as those foreshadowed against Mr Steuler and Mr Smith, and WMC obtained a more favourable result than the offer because of its $15 million judgment against Protec. This conclusion makes it unnecessary to consider whether WMC's failure to accept the offer was unreasonable or to consider whether it would be appropriate to take into account this "informal" offer of settlement.

76 By a letter dated 2 August 2004 Steuler's then solicitors made a Calderbank offer on behalf of Protec and Steuler of $1.8 million "all in". The letter made the usual reference to its later production on the question of costs. The letter began:

Steuler and Protec have little doubt that they will successfully defend WMC's claim. We are therefore instructed by them to reject the counter-offer set out in your letter of 7 May 2004.

As has previously been pointed out, Steuler is not a party to any contract with WMC nor did it make any direct representations to it.

Importantly, design obligations for the project rested with Fluor Daniel and HDPE had already been chosen prior to Steuler's involvement.

Although the offer was made by both Protec and Steuler, there was a reference in the letter to WMC having "flagged an intention to be subrogated to a potential contribution claim by Protec against Steuler".

77 By a letter dated 1 September 2004, from WMC's solicitors to Steuler's solicitors, WMC rejected the offer of $1.8 million "all in". The letter stated in part that:

Whilst our client appreciates the genuine efforts made by your client to settle the dispute, in view of the vastly different settlement positions adopted by our respective clients, our client cannot see how discussions can meaningfully continue. They are simply not in the same ball park. Accordingly we are instructed that unless your client substantially increases its offer to approach something like the figure offered by our client there seems no point in continued further negotiations at this time.

78 In my opinion, this repetition of the offer of $1.8 million, whilst now properly formalised, still suffered from the defect that it was made on behalf of Protec and Steuler, and as regards both of those defendants, WMC obtained a more favourable result than the offer. Although the settlement negotiations between WMC and Protec were obviously more advanced than before, the fact remains that this offer was made by both Protec and Steuler.

79 Given my conclusion that Steuler cannot rely on this offer, it is strictly unnecessary to consider whether WMC's rejection of it was unreasonable. Nevertheless, I do want to make two comments on WMC's submissions in respect of this offer.

80 First, WMC submitted that Steuler's offer of 2 August 2004 "involved the payment of a relatively small amount of money in the context of the claims being made by WMC" and that to have accepted it "would have effectively amounted to a capitulation by WMC". It said that its May 2004 $7 million offer contained a detailed breakdown of the components of its quantum claim against both Steuler and Protec. WMC pointed out that the lowest penalty interest rate in the period since December 2001, when Steuler was joined as a defendant to WMC's claim, was 11%. Interest at that rate on the $6 million allowed in WMC's offer for its claim was $660,000 per year. WMC also pointed out that the amount of $750,000 for party and party costs was allowed in its offer, although the actual amount of costs incurred to that date was greater. WMC therefore submitted that Steuler's offer of $1.8 million "all in" was barely enough to cover costs and interest and "inferentially contained no element of genuine offer of compromise of WMC's claim".

81 In my opinion, this approach by WMC to assessing the reasonableness of its rejection of Steuler's offer was not correct in that it reversed the steps in the analysis. Instead of estimating a figure for interest and costs and then calculating what if anything was left over by way of compromise of the claim itself, I consider that WMC should have decided whether the amount offered was a genuine and fair compromise by taking into account the likely amount recoverable, including interest and costs, if successful; the likely amount of costs to be paid if totally unsuccessful; and the likely prospects of success; and comparing the outcome of that calculation with the amount of the offer.

82 Secondly, I want to say something further about the quantum of costs referred to in WMC's submission. According to the exhibit to the affidavit of Anthony Brooke Watson, a partner in the firm of solicitors acting for the plaintiff, sworn on 5 April 2012, the actual costs incurred by WMC in the 2000 proceeding as at 30 July 2004 was $1,018,359. Part of these costs were incurred before Steuler was a party to the 2000 proceeding and were therefore never recoverable from Steuler. The earliest total for WMC's costs was $893,185 as at 30 January 2004, roughly two years after Steuler had been joined. The proceeding had commenced some eighteen months earlier. Assuming that these costs had been incurred approximately evenly throughout this three and a half year period, only four-sevenths related to Steuler's time as a defendant. Thus, even if Steuler was liable for all costs thereafter, even though Protec remained as a defendant for more than two years, some $383,000 (three-sevenths of $893,185) at least, has to be deducted from WMC's costs figures. This would reduce WMC's relevant actual costs as at 30 July 2004 to about $635,000. However, WMC's party and party costs would be even less, generally somewhere between one-half and three-quarters of the actual costs. A common rule of thumb is two-thirds of the actual costs, or about $424,000 in this case as at 30 July 2004. This is not to say, however, that a party cannot take into account its actual costs when considering whether or not to accept an offer.

83 By an Offer of Compromise dated 8 March 2006 and purportedly served in accordance with Order 26 of the Rules, Steuler offered to compromise the claims made against it by paying WMC $2 million. The offer was stated to be open to be accepted for 14 days after service.

84 Steuler acknowledged that the offer did not comply with r 26.09(b)(i) because it was an offer to compromise only the claims against it, rather than both defendants. Nevertheless, Steuler submitted that the offer was admissible and relevant to the Court's exercise of discretion on costs.

85 The rationale for r 26.09(b) is explained in Williams: Civil Procedure Victoria, as follows:

The reason the offer must relate to the liability of all defendants is that if a defendant makes an offer to satisfy only his share of the total damages, thus leaving the plaintiff to continue against the other defendant or defendants to recover the balance, the defendant making the offer has acknowledged that the offer is not sufficient to compensate the plaintiff for the loss, and it would not be reasonable to expect the plaintiff to forego the opportunity to make not only the defendant but also the other defendant or defendants liable for the total damages.[47]

86 Steuler submitted that its offer did not leave WMC in the unreasonable position described in the above passage, because by now WMC was clearly not intending to continue its proceeding against Protec. It pointed out that on 10 March 2006, two days after the offer was made, WMC entered into a Deed of Settlement with Protec under which Protec consented to the entry of judgment in favour of WMC for $15 million inclusive of interest and costs. WMC's solicitors advised Steuler's solicitors of the conditional settlement by a letter dated 22 March 2006. There was no mention of the Offer of Compromise.

87 Steuler submitted that, whilst technically speaking, WMC had not during the 14 day period that Steuler's offer was open for acceptance, reached a final and binding settlement with Protec, the reality was that after 10 March 2006 WMC was not intending to proceed with its counterclaim against Protec. It submitted that this position was evidenced by the fact that during the period between the two Deeds of Settlement WMC took no, or virtually no, steps to progress its counterclaim claim against Protec.

88 However that may be, the fact is that the Offer of Compromise did not comply with the Rules. Nevertheless, I agree with Steuler's submission that a purported but defective offer of compromise may be treated as a Calderbank offer.[48]

89 In terms of the relevant matters to be taken into account when considering whether the refusal of a Calderbank offer, was unreasonable, Steuler submitted that:

(a) the stage at which the offer was received was appropriate given that the counterclaim against Steuler had been on foot since 18 December 2001, a period of nearly four years and three months; there had been two mediations, each of two days' duration, in August 2001 and December 2003, pleadings, discovery and inspection had been substantially completed by all parties and a Joint Report of Experts had been prepared following their conference;

(b) the period of 14 days after service for consideration of the offer was reasonable;

(c) the offer of $2 million was a significant one and represented a genuine and fair compromise, compared to WMC's offer in May 2004 to accept $7 million (inclusive of costs and interest) given that, if the offer had been accepted, it would have carried with it an entitlement to costs under r 26.03(7), and the offer was even more attractive when compared to the possible final outcome;

(d) WMC knew or should have known that its prospects of success as at the date of the offer were nil;

(e) the terms of the offer were clear and no objection was raised by WMC to the offer being made by Steuler alone; and

(f) as a purported offer of compromise WMC would have understood that rejection of the offer followed by failure to obtain a more favourable result might have costs consequences for it.

90 Even though the offer did not comply with r 26.09(b)(i), Steuler's submission that if the offeree had decided to accept the offer there would also have been an entitlement to costs must be correct, in my opinion. It would not lie in the mouth of the offeror to then say that there was no obligation to pay costs.

91 I do not consider that it was unreasonable for WMC to reject this offer because I am not persuaded that it knew, or should have known, at this stage of this proceeding that its claim had a fatal flaw. Pleadings were still being amended as the parties grappled with defining and formulating the issues. At the Experts' Conference in January and February 2006 it had been revealed that kerosene caused swelling in HDPE irrespective of the presence of aromatics. As WMC submitted, from its perspective, this development reasonably increased its expectations of a successful outcome at trial. Moreover, it seems to me that, as with the preparation of many cases, insufficient attention may well have been given to the question of proof of damages. Support for this view is to be found in the fact that on 10 March 2006 WMC issued a summons seeking an order that the question of liability be determined before quantum. WMC's difficulties in this regard may, therefore, have not been appreciated until it came to prepare its witness statements.

92 A second reason why, in my opinion, it was not unreasonable for WMC to reject this offer was that during the 14 day period that Steuler's offer was open for acceptance WMC did not know for certain that it had reached a final and binding settlement with Protec. Without that, WMC remained in the unreasonable position that it could not safely settle with Steuler until it knew what its position was as far as Protec was concerned.

93 Accordingly, I find that Steuler cannot rely on the offer made on 8 March 2006 in support of its application for indemnity costs.

94 On 15 May 2006 Steuler's then solicitors made a Calderbank offer jointly to both WMC and Protec offering on behalf of Steuler to settle the 2000 proceeding and the 2004 proceeding by Steuler paying WMC $2 million within 14 days after acceptance of the offer by both WMC and Protec and by Steuler paying WMC's party and party costs of the 2004 proceeding. The offer was to remain open for acceptance for 14 days. Reference was made to Calderbank and subsequent authorities and to producing the letter on the question of costs and seeking an order for indemnity costs.

95 As I have decided that it was not unreasonable for WMC to have rejected the 8 March 2006 offer, it must follow that the same outcome applies to this offer because there had been no relevant development in the intervening period of two months and this offer was much less favourable than the preceding offer, given that this offer included only an offer to pay WMC's party and party costs of the 2004 proceeding (which would have been minimal at that stage) but not WMC's costs of the 2000 proceeding.[49]

96 Accordingly, I find that Steuler cannot rely on the offer made on 15 May 2006 in support of its application for indemnity costs.

97 By a facsimile letter dated 27 March 2008 from Steuler's then solicitors to the solicitors for WMC and Protec, Steuler made a Calderbank offer to settle both the 2000 proceeding and the 2007 proceeding by paying WMC and Protec $2 million inclusive of interest within 14 days after acceptance of the offer, plus WMC's party and party costs of the 2000 proceeding and Protec's party and party costs of the 2007 proceeding, including in each case any reserved costs. The offer was open for acceptance for 14 days after receipt of the letter. Reference was made to Calderbank and a subsequent authority and to producing the letter on the question of costs and seeking an order for indemnity costs from the date of the letter if the offer was not accepted and WMC and Protec did not achieve a better result at the hearing. There also was an explanation of why Steuler maintained that WMC's prospects of success were poor. Reference was made to "the detailed information" about Steuler's defence to the plaintiffs' claims set out in Steuler's pleadings and witness statements. It was said that this information showed that the plaintiffs' claims had either "no value, or alternatively a value substantially less than the Settlement Amount".

98 It should be noted that on 21 December 2007, WMC and Protec had made the following raft of offers of settlement:

(a) an Offer of Compromise by WMC to accept $15 million (inclusive of interest only);

(b) an Offer of Compromise of Quantum by WMC to accept approximately $13.4 million (which amount was calculated from a series of compromise amounts in respect of the various parts of WMC's claim which was said to total in excess of $19.4 million). Acceptance of this Offer or of one or more parts of it was not to determine "any issue of liability" or to limit any right of WMC to interest pursuant to statute;

(c) an offer of Compromise by Protec to accept $12 million (inclusive of interest only); and

(d) a Calderbank offer by WMC and Protec to accept $15 million (inclusive of interest) plus the costs of the 2000 proceeding and the 2007 proceeding, in full and final settlement of both WMC's claim, which was said to total $27.75 million plus interest of $20.15 million and estimated party and party costs of $1.2 million, and Protec's claim which was said to total $15 million plus interest of about $780,000 and estimated party and party costs of $60,000.

99 In terms of the relevant matters to be taken into account when considering whether the refusal of a Calderbank offer was unreasonable, Steuler submitted that:

(a) the stage at which the offer was received was appropriate given that the counterclaim against Steuler had been on foot for a period of seven years and three months; Protec's 2007 proceeding had been on foot since 16 July 2007, a period of eight months, there had been the two mediations; pleadings, discovery and inspection had been completed; a Joint Report of Experts had been prepared in February 2006 following their conference; and witness statements had been filed and served in readiness for the trial due to commence in four days' time;

(b) the period of 14 days after service for consideration of the offer was reasonable;

(c) the offer of $2 million plus the costs of both proceedings was a significant one and represented a genuine and fair compromise, compared to WMC's latest offer, and the offer was even more attractive when compared to the possible final outcome;

(d) WMC knew or should have known that its prospects of success as at the date of the offer were nil and that the same applied to Protec unless it could prove the reasonableness of its settlement with WMC by calling its legal advisers;

(f) the costs consequences of not accepting the offer were foreshadowed.

100 WMC and Protec opposed any special costs order being made in respect of this offer on the ground that their rejection of the offer was not unreasonable. They submitted that "objectively judged against the circumstances at the time", their prospects of success were good. They also submitted that the timing of the offer "provided little opportunity for consideration". Next, they submitted that given all of the interlocutory steps that had taken place in the preceding six or so years, the compromise "effectively was no more than an offer to pay costs". Finally, they submitted that this offer was not "relevant" because Steuler had failed on the issue of liability at the first hearing.

101 I do not accept these submissions by WMC and Protec. Unless and until the judgment against WMC in favour of Steuler is set aside, the fact is that by this stage WMC should have appreciated the difficulty it faced in proving its damages. This offer was made four days before the full trial of both proceedings was due to commence. All of its witness statements should have been filed and served some time before. It was only later, over a month into the hearing, that I ordered that the hearing proceed on liability issues and that the issue of damages be split off. WMC therefore knew what Steuler's arguments were about its inability to prove that it had suffered any loss or damage as a result of Steuler's wrongful conduct and knew what evidence it did or did not have to meet those arguments. Protec knew that it had to satisfy the Court that its settlement with WMC was reasonable and had clearly decided that it would not call evidence from its legal advisers about this topic. Saying this is not looking at the plaintiffs' conduct through the prism of hindsight. Whilst they could not foresee with certainty the outcomes of the proceedings, the plaintiffs, and those advising them, were obliged:

to consider realistically, upon the best information available to them, the prospects of success and the likely outcome of the litigation.[50]

102 I also agree with a further argument advanced by Steuler in support of its submission that WMC knew by this time the difficulties it faced in proving its loss and damage. Steuler submitted that it should be inferred that the making of the Deeds of Settlement with Protec and the commencement of the 2007 proceeding by Protec, in effect on behalf of WMC, were "a clever attempt" by WMC to seek a valid pathway to recovery of damages in circumstances where it had realised that it probably could not do so in its own proceeding. The response by WMC and Protec was that the only reason for commencing the 2007 proceeding was that Protec had a fundamental advantage over WMC in seeking to recover against Steuler, which was that Protec had a contractual relationship with Steuler and WMC did not. Nevertheless, it seems to me that the fact that WMC procured Protec to issue the 2007 proceeding when no additional damages were sought to be recovered against Steuler was a recognition by WMC that it faced difficulties in successfully recovering damages from Steuler.

103 Next, I consider that WMC and Protec and their lawyers would not have been in a better position to assess the risks of litigation and the advantages of accepting a settlement offer than right at the start of the hearing. I cannot accept that WMC and its legal advisers did not have the opportunity in the ensuing 14 days to consider whether the offer should be accepted. It was not as if all concerned were not familiar with the issues. WMC's counterclaim against Steuler was now over seven years old and WMC had settled with Protec and made Offers of Compromise and Calderbank offers to Steuler, some as recently as three months before.

104 Further, as previously discussed, in my opinion the comparison is not just between what WMC thought its claim was worth and what was being offered. The correct analysis is to consider the likely amount recoverable, including interest and costs, if successful; the likely prospects of success; the amount of the offer and the likely amount of costs to be paid if totally unsuccessful. Given that Steuler was a German company its costs of litigating in Australia were likely to be substantial. In any event, even if one regards the $2 million plus costs as only covering all of the costs incurred by WMC, it still was in my opinion a substantial offer. Another way of viewing the matter is that the offer meant WMC would receive $2 million towards its claim, which was at significant risk of not succeeding at all, plus its party and party costs which was possibly as good a costs order as it might expect to receive. The fact that those two amounts might have only covered the total actual costs incurred by WMC does not mean that the offer was not a serious one involving a genuine and fair compromise.

105 Furthermore, I do not consider that it is correct to say that the offer was "effectively ... no more than an offer to pay costs". As at 25 March 2008, WMC and Protec's costs and disbursements were said to be $3.57 million. As discussed above, at least $383,000 has to be deducted from this figure for the costs incurred by WMC before Steuler became a party in the 2000 proceeding, thereby reducing the figure to about $3.18 million. An offer to pay $2 million plus WMC and Protec's party and party costs would have meant that the plaintiffs would have probably received the amount of $2 million plus between $1.59 million and $2.39 million for costs (based on recovering between one half and three-quarters of their actual costs). Either way, there was something over and above the total actual costs, albeit a relatively small amount.

106 In oral submissions, senior counsel for WMC and Protec submitted that this offer represented only between 10 and 20% of what I assessed would have been WMC's claim had I not concluded that it had failed to prove that it suffered loss or damage by conduct of Steuler done in contravention of the TPA or as a result of Steuler's negligence. I do not agree with WMC's calculation. Using very rounded figures I come to a total amount payable to WMC of about $12.9 million ($6.1 million for the claim, a maximum of $4.7 million for interest to March 2008, and a maximum of $2.1 million for party and party costs to that date, being roughly two-thirds of $3.18 million). The offer of $2 million plus $2.1 million for costs represents by my calculations nearly 32% of $12.9 million. The rejection of such an offer is not, in my opinion, correctly described as not being "within a bull's roar" of being unreasonable.

107 Looked at another way, an offer of $4.1 million put WMC's chances of success at about 27% on the range between $12.9 million, being the best result for WMC, and negative $2.1 million, being the worst result for WMC and assuming that Steuler's party and party costs were much the same as WMC's. In my opinion, this would be a more than fair assessment of the risks as at the commencement of the first hearing. It does nothing to encourage the making of settlement offers and thereby reduce the costs of litigation to society as a whole to conclude that, in these circumstances, the rejection of this offer was not unreasonable.

108 Finally, I have already considered and rejected the plaintiffs' submission that because Steuler lost on the issue of liability at the first hearing the plaintiffs should be awarded the costs of that hearing. I see nothing perverse in allowing Steuler to rely on its offer of 27 March 2008 in support of its claim for indemnity costs of at least part of the first hearing when, ex hypothesi, if the plaintiffs were unreasonable in not accepting this offer the costs of most of the first hearing could have been avoided.

109 In my opinion, for all of the above reasons, WMC and Protec acted unreasonably in not accepting this offer. Therefore, I find that Steuler can rely on the offer made on 27 March 2008 in support of its application for indemnity costs.

110 I have reached this conclusion notwithstanding that the offer of 27 March 2008 was less favourable for WMC than the offer of 8 March 2006. Whilst the later offer included the costs of the 2007 proceeding, there were no such costs in March 2006 and in any event receiving $2 million plus costs two years earlier than March 2008 would have been more beneficial for WMC. There is no reason why offers have to keep narrowing the gap between the parties in order for the offeror to be able to rely on them when it comes to the question of costs. Certainly, WMC did not follow that course, having increased the amount it would accept from $7 million "all in" in May 2004 to $15 million plus the costs of the two proceedings in December 2007. The critical reason for concluding that WMC and Protec's rejection of the offer of 27 March 2008 was unreasonable even though WMC's rejection of the earlier and better offer of 8 March 2006 was reasonable is that by the time of the later of these two offers, WMC and Protec should have appreciated the problems they faced in proving they suffered loss and damage in the trial due to commence in four days' time.

111 By a letter dated 23 December 2009 from Steuler's new solicitors to the solicitors for WMC and Protec, Steuler made a Calderbank offer to settle both the 2000 proceeding and the 2007 proceeding by paying WMC and Protec $6 million "all in". The offer was open for acceptance until 20 January 2010. Reference was made to Calderbank and a subsequent authority. The letter also noted that Steuler's legal advisers concluded that my first judgment was "wrong in a number of respects" and that it intended to appeal.

112 Again, I note what offers were made by the plaintiffs in the intervening period of some 21 months. First, on 12 September 2008, a couple of months after the first hearing concluded, WMC and Protec made a Calderbank offer to accept $15 million (inclusive of interest) plus the costs of both proceedings, in full and final settlement of both WMC's claim which was said to total $28.37 million plus interest of $22.21 million and estimated party and party costs of $2.5 million, and Protec's claim which was said to total $15 million plus interest of nearly $2.09 million and estimated party and party costs of $100,000.

113 Then, following the third mediation, this time before an Associate Judge, in October 2009, WMC and Protec made a Calderbank offer to accept $18.5 million "all in" in full and final settlement of both proceedings. Alternatively, WMC offered "to settle the quantum of its claims against ... [Steuler] at a figure of $20,000,000 (inclusive of interest) plus party/party costs". This partial settlement was proposed on the basis that it would enable Steuler to proceed with its appeal against my first judgment.

114 In terms of the relevant matters to be taken into account when considering whether the refusal of a Calderbank offer was unreasonable, Steuler submitted that:

(a) the stage at which the offer was received was appropriate given that the first trial had taken place, judgment had been handed down, a third mediation, before an Associate Judge, had taken place in October 2009, and preparation for the second trial was about to get underway;

(b) the period of time for acceptance of the offer (28 days) was reasonable notwithstanding the time of the year;

(c) the offer of $6 million "all in" was a substantial one and represented a genuine and fair compromise, compared to WMC and Protec's latest offer, and the offer was even more attractive when compared to the possible final outcome;

(d) WMC knew or should have known that its prospects of success as at the date of the offer were nil;

(f) the costs consequences of not accepting the offer would have been well understood by WMC and Protec.

115 WMC and Protec also opposed any special costs order being made in respect of this offer on the ground that their rejection of the offer was not unreasonable. They submitted that the circumstances prevailing at the date of this offer were that Steuler had failed on liability after a lengthy trial and therefore that they were "objectively entitled to believe that their prospects of success at the quantum hearing were reasonable". They also submitted that taking into account the significant party and party costs of both proceedings incurred in the eight years to December 2009 and "allowing for notional interest on the claim", the inclusive offer of $6 million could not be considered "a very extensive one". The plaintiffs pointed out, for example, that eight years of interest at 11% on a claim of $1 million was $880,000 and on a claim of $2 million was $1.76 million. Finally, WMC and Protec submitted that this offer was not a "serious" offer and contained little or no component of genuine compromise of the claim or allowance for interest.

116 I do not accept these submissions by WMC and Protec. First, in my opinion, for all of the above reasons WMC should have appreciated by the date of this offer that it faced a real difficulty in proving it suffered loss and damage as a result of Steuler's contravening conduct. Protec should have appreciated that, despite some comments by me in the first judgment,[51] it ran the risk of not proving the reasonableness of its settlement with WMC if it did not propose to call its legal advisers, given that Steuler was vigorously disputing the legitimacy of relying on the $15 million judgment.

117 Secondly, I repeat my view that the WMC and Protec analysis approaches consideration of the reasonableness of the offer in the wrong way. Thus, to argue that the offer was not "very extensive" after taking into account the party and party costs incurred and after allowing for notional interest of $1.76 million on a claim of say $2 million is misconceived. I do not propose to repeat what I have said above concerning my view of the correct approach. Whilst the amount of $6 million was well short of WMC's own view of what its claim was worth, it was still a substantial sum and was far better than the possible final outcome if WMC could not overcome the basic problem affecting its damages claim.

118 Finally, in my opinion, it was not correct to argue that the offer of $6 million contained little or no component of genuine compromise. Based on recovering between one-half and three-quarters of the plaintiffs' actual costs of $5.61 million (less $383,000) as at 22 December 2009, probably between $2.61 million and $3.92 million of the $6 million would have met the likely party and party costs. This still left between $2.08 million and $3.39 million for their claim and interest. This is not an insignificant amount. Even if one regards the $6 million offer as only covering all of the plaintiffs' costs incurred by them in both proceedings, this was still a substantial offer. In my opinion, an offer to pay all of the opposing party's costs but nothing more may very well be a genuine and fair compromise.

119 In my opinion, for all of the above reasons, WMC and Protec acted unreasonably in not accepting this offer. Therefore, I find that Steuler can rely on the offer made on 23 December 2009 in support of its application for indemnity costs. Of course, it is not necessary for Steuler to rely on this offer unless I am wrong in deciding that Steuler can rely on its offer made on 27 March 2008.

120 In my opinion, Steuler should have an order that the plaintiff in each proceeding should pay its costs on a party and party basis up to and including the last day for acceptance of the offer of 27 March 2008 and thereafter on an indemnity basis. I have previously noted that in making that offer Steuler indicated that if WMC and Protec did not achieve a better result at the hearing, it would seek an order for indemnity costs from the date of the letter. As the offer was expressed to be open for 14 days and as, during most of that time, the trial would be continuing with significant costs being incurred each day, I consider that it is appropriate that the plaintiffs only pay indemnity costs from the day after the expiry of the offer, which was 11 April 2008.[52] If Steuler had wanted to have the possibility that all of the costs of the trial would be awarded to it on an indemnity basis, then it could have made this offer eleven or so days earlier.

121 The orders I propose making are as follows. In the 2000 proceeding I will order that:

1. There be judgment for the defendant against the plaintiff.

1. The plaintiff pay the defendant's costs of the proceeding, including any reserved costs, such costs to be taxed, in default of agreement, on a party and party basis up to and including 10 April 2008 and thereafter on an indemnity basis.

1. There be judgment for the defendant against the plaintiff.

1. The plaintiff and BHP Billiton Olympic Dam Corporation Pty Ltd pay the defendant's costs of the proceeding, including any reserved costs, such costs to be taxed, in default of agreement, on a party and party basis up to and including 10 April 2008 and thereafter on an indemnity basis.

[1] BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH (No 2) [2011] VSC 659.

[2] Protec Pacific Pty Ltd v Steuler Industriewerke GmbH [2007] VSC 93 (Hansen J).

[3] BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH [2009] VSC 322, [23].

[4] [2011] VSC 659 [50], [215].

[5] [2011] VSC 659, [213]-[215].

[6] [2011] VSC 659 [233].

[7] The first hearing occupied 54 days and the second hearing 16 days.

[8] Donald Campbell & Co Ltd v Pollak [1927] AC 732, 811-812 (Viscount Cave LC).

[9] Ritter v Godfrey [1920] 2 KB 47, 52 (Lord Sterndale MR); Donald Campbell & Co Ltd v Pollak [1927] AC 732, 811 (Viscount Cave LC); Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, [67] (McHugh J); Chen v Chan [2009] VSCA 233, [10] (Maxwell P, Redlich JA and Forrest AJA).

[10] Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 [6] (Beazley, McColl and Basten JJA).

[11] Spotless Group Ltd v Premier Building and Consulting Pty Ltd [2008] VSCA 115 [14] (Redlich JA); Chen v Chan [2009] VSCA 233 [10].

[12] [2009] VSCA 233, [10], footnotes omitted.

[13] R v Secretary of State for Transport; Ex p Factorframe Ltd [1998] WWCA Civ 1155 (Schiemann and Robert Walker LJJ agreed with Woolf LJ).

[15] [2008] FCAFC 107, [3]-[5].

[16] In Bowen the appellant was deprived of 30% of its trial costs.

[17] [2008] VSC 296, [59]. Footnotes omitted. See also PGA Group Pty Ltd v Idameneo (No 789) Limited (No 2) [2011] VSC 420, [15] where Davies J referred to the decision of Robson J with approval.

[18] Dal Pont: Law of Costs, 2003, [8.2]-[8.3], p 237. Footnotes omitted.

[19] Howell v Dering [1915] 1KB 54, 62-63 (Buckley LJ).

[20] Forster v Farquhar [1893] 1 QB 564, 570 (Bowen LJ); Cretazzo v Lombardi (1975) 13 SASR 4, 12 (Bray CJ); Hughes v Western Australia Cricket Association Inc [1986] FCA 382; (1986) ATPR 40-748, 48,136 (Toohey J); McFadzean v Construction, Forestry, Mining and Energy Union [2007] VSCA 289; (2007) 20 VR 250, [156] (Warren CJ, Nettle and Redlich JJA).

[21] (1975) 13 SASR 4, 16.

[22] (1988) 81 ALR 166, 169.

[23] [2002] FCA 1294, [55].

[24] [2011] NSWCA 145, [19]. Hodgson JA repeated this view, this time with the agreement of Allsop P and Macfarlan JA in Macquarie International Health Clinic Pty Ltd v Sydney South-West Area Health Service (No 2) [2011] NSWCA 171, [9]-[10].

[25] [1991] VicRp 93; [1991] 2 VR 568.

[26] [1991] VicRp 93; [1991] 2 VR 568, 569.

[27] [2007] VSCA 289; (2007) 20 VR 250, [153] and [158].

[28] [2007] VSCA 289; (2007) 20 VR 250, [153].

[29] [2007] VSCA 289; (2007) 20 VR 250, [158].

[30] Protec Pacific Pty Ltd v WMC (Olympic Dam Corporation) Pty Ltd [2006] VSC 2008.

[31] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397, 401 (Woodward J); Colgate-Palmolive Company v Cussens Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 233 (Sheppard J); Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189, [7] (Harper J).

[32] [1976] Fam 93.

[33] [2005] VSCA 298; (2005) 13 VR 435.

[34] Hazeldene [2005] VSCA 298; (2005) 13 VR 435, [19].

[35] Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65, [33] (Nettle JA).

[36] Hazeldene [2005] VSCA 298; (2005) 13 VR 435, [21]-[22].

[37] [2005] VSCA 298; (2005) 13 VR 435, [23]. Footnotes omitted.

[38] Hazeldene [2005] VSCA 298; (2005) 13 VR 435, [25].

[39] Safeway [2002] FCA 1294, [21] (Goldberg J).

[40] Aljade and MKIC v OCBC [2004] VSC 351, [36] (Redlich J).

[41] [2002] NSWSC 350, [48].

[42] Foster v Galea (No 2) [2008] VSC 331, [9].

[43] Safeway [2002] FCA 1294, [25] (Goldberg J).

[44] Hazeldene [2005] VSCA 298; (2005) 13 VR 435, [26]-[27].

[45] Hazeldene [2005] VSCA 298; (2005) 13 VR 435, [28].

[46] Dover Beach Pty Ltd v Geftine Pty Ltd [2008] VSCA 248; (2008) 21 VR 442, [120] (Ashley JA, with whom Redlich JA and Coghlan AJA agreed) But compare Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602, [24] and [32] (Goldberg J).

[48] Mideco Manufacturing Pty Ltd v Tait [1989] VicRp 6; [1989] VR 50, 57 (Gobbo J); Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154, 165 (Hayne JA); Aljade and MKIC v OCBC [2004] VSC 351, [52] (Redlich J); Foster v Galea (No 2) [2008] VSC 331, [7] (Byrne J).

[49] It seems possible that the offer was intended to be WMC's costs of the 2000 proceeding.

[50] Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721, 725 (Kirby P, Mahoney JA and Samuels AJA).

[51] [2009] VSC 322, [675]-[676].

[52] Auswest Timbers Pty Ltd v Secretary to the Department of Sustainability and Environment (No 2) [2010] VSC 513, [14]-[16] (Croft J).