Rialto Sports Pty Limited (Admins Apptd) v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited

The reference

1. The parties agreed that Ms Janet Grey be appointed as the referee; that appointment was made on 30 September 2022. On 10 February 2023, the Court made orders by consent adding two additional questions to reference. On 17 April 2023, the referee submitted her report to the Court. The report is 127 pages in length. The questions answered in the report can be grouped as follows: 1. Questions 1, 4 and 6(a) concern defective waterproofing on the southern façade of the building, the appropriate rectification method, whether the construction of the southern façade was in breach of Rialto's obligations to each of the lot owners, and the cost of rectification. 2. Questions 2, 3 and 6(b) concern defective cladding on the northern and southern façades, whether the cladding complied with the Building Code of Australia, whether the installation of the cladding was in breach of Rialto's obligations to each of the lot owners, and the replacement cost of the cladding. 3. Questions 5 and 6(c) concern specific defects to Armmam's individual lots. 4. Questions 7 and 8 concern miscellaneous defects in the Scott Schedule annexed to a report of Mr Madden dated 6 November 2020 and the cost of rectification.
2. It is convenient at this point to set out the summary of the referee's answers to the eight questions at [414]-[443] of the report: Question 1: What is the appropriate rectification method for water ingress to the southern façade of the building at 531-533 Kingsway, Miranda? Answer 1: In my opinion, the Karsai rectification method of temporary glass removal and replacement, during which time cavity defects are rectified, is the appropriate and reasonable approach to rectify the established weatherproofing defects. The method is itemised and priced at page 2164 of the Blue Appeal Book. Question 2: Did the cladding installed in the Building comply with the Building Code of Australia at the time of its installation? Answer 2: No. Question 3: If the answer to question 2 is "no", was the installation of cladding on the building in breach of the appellants [sic] obligations under the contract for the sale of land, as pleaded by the respondents? Answer 3: Yes, for Cancer Care, CCA and Davjul. Not pleaded by Armmam. Question 4: Was the construction of the southern façade of the building in breach of the appellant's obligations under the contract for the sale of land, as pleaded by the respondents? Answer 4: Yes. Question 5: Has Armmam Pty Ltd established the existence of defects in the individual lot property for Lots 7, 8, 9 and 10? Answer 5: Yes, for Lot 7, although not as fully claimed. No for Lots 8, 9 and 10. Question 6a: What is the cost of the rectification of water ingress to the southern façade of the building? Answer 6a: $1,527,792.89, inclusive of on-costs but exclusive of GST, at June 2020 prices. Question 6b: What is the replacement cost of the fire cladding on the Building? Answer 6b: $603,779.88, inclusive of GST, at 20 October 2020 prices. Question 6c: What is the cost of the rectification of any defects to the individual property in Lot 7, 8, 9 and/or 10? Answer 6c: 1) $1,492.40 to replace the damaged ceiling tiles in Lot 7 at June 2020 prices, inclusive of on-costs but exclusive of GST. 2) $1,966.70 to repair the damaged sill in Lot 7 at June 2020 prices, inclusive of oncosts but exclusive of GST. 3) the cost of the rectification of water ingress to the southern façade of the building, which is common property, is provided above in answer to Question 6a. Should the Court adopt my view that the defective façade construction was a contractual breach by Rialto to Armmam, Armmam would be entitled to a portion of the rectification cost, according to its Lot share of 6.75%. This equates to $103,126.00 and would need to be adjusted against $1,527,792.89 in any award for damages. Question 7: Have the Plaintiffs established the existence of defects in the common property of Strata Plan 89831, as identified at Items 1.1, 2.1, 3.1, 3.2, 3.3, C1.1, C1.2, C2 .1, C2.2, C .3, C2.4, C2.5, C2.6, C2.7, C3.1, C3.2, C3.3, C3.4, C3 .5, C3 .6, H1, H2, H3, H4, H5, H6, H7, H8, H9, H10, H11, H12, H13, H14, H15, H 16, H17, H18, H19, H20, H21, H22, H23, H24, H25, H26, H27, H28, H29, H30 and H31 of the Scott Schedule At Annexure G to the Third Supplementary Report of David Madden dated 6 November 2020? Answer 7: In part for item 1.1, No for item 2.1 and Yes for all other items. Question 8: What is the cost of the rectification of the defects (if any) identified at 7 [16A]? Answer 8: $581,192.00.

The lot owners' motions

1. On 15 May 2023, the lot owners each filed a motion in the respective appeals seeking orders that (i) the whole of the report be adopted pursuant to UCPR, r 20.24 (order 1), (ii) judgment be entered for the lot owners in specified amounts (order 2), (iii) a special costs order be made in relation to the District Court proceedings and in this Court (orders 3 and 4), (iv) interest on costs and disbursements on appeal and the proceedings below (order 5), and (v) such further or other orders as the Court sees fit (order 6).
2. Specifically, the lot owners sought judgments in the following amounts, including pre-judgment interest up to 15 May 2023 on the amounts representing the levy contributions paid by three lot owners (Cancer Care, CCA and Davjul) with respect to the special levy by the owners' corporation to fund the removal and replacement of the cladding on the building:

• Cancer Care - $563,676.55;
• CCA - $525,209.50;
• Davjul - $67,303.40; and
• Armmam - $106,585.60.

1. Written submissions on the motions were directed and received in July 2023. Rialto opposed the adoption of the report and the other relief sought by the lot owners. Further written submissions were directed on 31 August 2023 in relation to whether the miscellaneous defects in the Scott Schedule constituted a breach by Rialto of its obligations under the contracts with the lot owners, being an issue outside the scope of the reference. Those submissions were received from the lot owners, but not Rialto.
2. On 2 October 2023, Rialto was placed in administration by resolution of the company's sole director. On 16 October 2023, leave was granted to the respondent lot owners in each appeal under s 440D of the Corporations Act 2001 (Cth) to proceed with the respective notices of motion filed 15 May 2023 against Rialto on condition that the respondent not take any steps to enforce any judgment that may be obtained in respect of appeals against Rialto without leave of the Court: Rialto Sports Pty Ltd v Cancer Care Associates Pty Ltd; CCA Estates Pty Ltd; Davjul Holdings Pty Ltd; Armmam Pty Ltd (No 2) [2023] NSWCA 246.
3. Shortly prior to the hearing of the present motions, senior counsel for Rialto informed the Court and other parties by email that the issues in dispute had narrowed significantly. Relevantly, the only matters in dispute were:

• orders 3 and 4 in the motions filed by Cancer Care, CCA and Davjul concerning costs; and
• with respect to orders 1 and 2 of Armmam's motion, the single issue raised in Rialto's written submissions objecting to Armmam's claim for its share of the rectification costs of the southern façade of the building, and also orders 3 and 4 in Armmam's motion concerning costs.

1. It is convenient to address the issues raised by the lot owners' applications in the following order: (1) the unopposed orders in the motions of Cancer Care, CCA and Davjul, (2) the opposed orders in the motion of Armman, (3) interest on costs and disbursements, and (4) the costs orders in the District Court and this Court.
2. One preliminary matter should be noted. Since the hearing of the appeal, Macfarlan JA has retired from the Court. The parties consented to the notices of motion being dealt with by the remaining members of the Court pursuant to s 45AA(1) of the Supreme Court Act 1970 (NSW).

Adoption of the referee's report

1. There is no dispute as to the approach the Court should take on the motions to adopt the report. The discretion conferred on the Court by UCPR, r 20.24 is a wide one: Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [21] (Leeming JA, Ward JA agreeing). The relevant principles are well-established and are conveniently stated by McDougall J in Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [7] with respect to former Pt 72, r 13 of the Supreme Court Rules 1970 (NSW), the predecessor to UCPR, r 20.24. Relevantly for the present case, those principles include: … (4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh. (5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report. (6) If the referee's report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than "unsafe and unsatisfactory". … (10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report. … (12) The right to be heard does not involve the right to be heard twice. (13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised "by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it". The real question is far more limited: "to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence". …
2. The referee's report is detailed, methodical and comprehensive. In addressing the eight questions for inquiry and report, the report identified the relevant issues raised by the question, referred to relevant evidence, summarised the parties' submissions and gave reasons for the referee's opinion on each question.
3. Since the adoption of the report is largely unopposed, except for a single issue concerning Armmam's claim, it is not necessary to summarise the referee's detailed reasons for finding that (1) the waterproofing on the southern façade was defective, (2) the cladding on the northern and southern façades was defective, and (3) the miscellaneous defects in the common property were established and in each case the proposed method of rectification was necessary and appropriate, and assessing the cost of rectification.
4. However, it is necessary to briefly refer to an anterior issue in relation to (3) above. As the referee noted at [266] of the report, question 7 was directed to whether the lot owners had established the existence of the miscellaneous defects in the common property identified in the Scott Schedule and the question did not extend to whether, if the alleged defects were established, Rialto was in breach of contract in respect of these defects. Although the referee received submissions on that issue and expressed her opinion for the assistance of the Court, it is necessary for the lot owners to establish in this Court that the miscellaneous defects in the Scott Schedule constituted a breach by Rialto of its obligations under the contracts with the lot owners.
5. To establish these breaches of contract, the lot owners relied upon the expert evidence at trial of Mr Bruce Hodson of RHM Consultants, an engineer building consultant, and Mr Hamish McGill of Watermark Services Group Pty Ltd, a plumber with extensive experience in system installation, system design and investigation of plumbing systems. The evidence of Mr Hodson and Mr McGill identified the relevant common property defect, the causes of the defect, and the reason that the defect is either a breach of the BCA or applicable standards or comprises a failure to construct the building in a proper and workmanlike manner.
6. At the hearing, senior counsel for Rialto confirmed that Rialto did not contest that the miscellaneous defects in the Scott Schedule which the parties referred to as the Additional Defects constituted a breach by Rialto of its obligations under the contracts with the lot owners. I am satisfied on the evidence that a finding in those terms should be made.

Conclusion

1. Given that the applications of three lot owners (Cancer Care, CCA and Davjul) are unopposed, the report should be adopted insofar as it concerns their claims. Cancer Care, CCA and Davjul are entitled to judgments in the amounts sought in their motions, which includes pre-judgment interest up to 15 May 2023: see [13] above.
2. The default rule under UCPR, r 36.4 is that a judgment takes effect on the date on which it is given or made: r 36.4(1)(a). However, the Court may order that a judgment order take effect as at a date earlier or later than the date fixed by that rule: r 36.4(3). It is common ground this is an appropriate case to ante-date the judgment to take effect on 15 May 2023, being the date of filing of the lot owners' motions.

Armmam

1. Armmam's motion seeks judgment in the amount of $106,585.60 comprising the following amounts referred to at [429] of the report: 1. $1,492.40 to replace the damaged ceiling tiles in lot 7; 2. $1,966.70 to replace the damaged window-sill in lot 7; 3. $103,126, being Armmam's 6.75 per cent share of the cost of rectifying waterproofing defects in the southern façade. (As noted in the referee's report, 6.75 per cent represents Armmam's share to the total unit entitlement: see the answer to question 6(c) in [11] above.)
2. There is no dispute in relation to items (1) and (2) above. Rialto only objects to the adoption of the report insofar as it concerns item (3). It advances alternative arguments: first, that the finding was not related to or directly relevant to question 4 which was whether the construction of the southern façade was a breach of the Armmam contract. Second, that the rectification method for the defective waterproofing of the southern facade was not necessary or reasonable, referring to the qualification to the prima facie rule for assessing damages in Bellgrove v Eldridge (1954) 90 CLR 613 at 617; [1954] HCA 36.
3. Special condition 15 of the Armmam contract (Blue 3/1390) included: The Vendor and the Builder will, in a proper and workmanlike manner and at its own expense, carry out the following work prior to completion: (a) Replace stained ceiling tiles (b) Re-paint stained wall and window sill linings (c) Re-seal joints and flashings where required (d) Repair and re-paint cracking to window sill in third office at eastern end … (i) Rectify water entry to south window sills, and repaint. …

The referee's findings and conclusions: defective waterproofing of the southern façade

1. At [212], the referee found Rialto to be in breach of its contract with Armmam giving the following reasons.
2. First, it was uncontroversial that lot 7 had a boundary on the southern façade of the building: at [208].
3. Second, the waterproofing defects in the southern façade were across the whole of the southern façade and not simply limited to particular locations where internal damage from water penetration appeared. Further, the manifestation of water damage at any particular point was not necessarily an indication of water ingress occurring locally, meaning that the point of entry could be some distance from the point of damage: at [209].
4. Third, addressing Rialto's submission that the subject matter of the Armmam contract can only be lot 7, and did not extend to rectification other than lot 7, the referee said at [210]-[211]: … I consider two subclauses to be relevant. The first is Special Condition clause 15, sub-clause (i): Rectify water entry to south window sills and repaint. Counsel for Armmam submitted that, as a consequence of this sub-clause, the contractual promise to it was that the cause as well as the manifestation of the water entry and the damage caused by it would be rectified. Rialto, on the other hand, submitted that the clause did not incorporate this obligation, or if it did, it was only a local rectification and did not extend across the whole facade. In my view, the words rectify the water entry to south window sills did incorporate a promise to rectify the cause of the damage, that is, the water entry, which was coming into lot property through common property. Further, as indicated, the initial water source location(s) could not be pinpointed to a local area but was widespread, and water was likely to travel some distance before it manifested itself internally and this was likely to increase over time. The second relevant sub-clause is Special Condition 15 (c): re-seal joints and flashings where required which, in my view, also promised rectification of water entry from common property into lot property. This is: 1) because in glazed cavity wall construction flashings are exclusively located within external wall cavities and not within lot interiors; and 2) because the sole purpose of flashings in glazed cavity wall construction is to prevent water entering a building's interior, that is, entering through common property into lot property. Rectifying water entry to the southern window sills and re-sealing joints and flashings (clause 15, sub-conditions c and i) were obligations involving the weatherproofing of the southern facade. As set out above in answer to Question 1, the evidence indicated that the only waterproofing work Rialto's builder carried out was some ineffective sealing of the façade where water ingress was thought to be prevented. Re-sealing of joints and flashings had not been undertaken. Further, in my view, the work of repairing and re-painting areas damaged by water ingress could only be successfully/reliably achieved once this weatherproofing work was complete. (Emphasis added.)
5. Addressing question 5 concerning Armmam's claim for the cost of rectifying the defect in Scott Schedule item 1.2 (the deterioration of set joints in lot 7 MDF window-sill on the southern wall, with isolated swelling caused by water penetration through the southern wall) plus 6.75 per cent share of the cost of rectifying the southern façade waterproofing defects, the referee accepted at [226] Mr Hodson's unchallenged evidence concerning the existence of this defect and considered his recommended rectification to be necessary and reasonable.
6. After referring at [228] to special condition 15(b), (c), (d) and (e) of the Armmam contract, the referee found at [230]: As indicated above, waterproofing defects in the southern façade were established in answer to Question 1 of this Report. In my view, these defects were in whole or in part the cause of the damaged sill. In addition to rectifying the defective sill, relying on clause 15(i), Armmam claimed a 6.75% share (its Lot entitlement) of the cost of the southern facade waterproofing rectification. Its entitlement to this will be considered below in answer to Question 6c.
7. Further, when addressing question 6(c) concerning the cost of the rectification of any defects to Armmam's individual property lots 7, 8, 9 and/or 10, the referee made the following findings at [253]-[255]: The southern façade of the building is common property. In relation to the claim for 6.75% of the cost of the southern façade rectification, in answer to Question 1 of this report, relying on evidence of widespread water penetration through the southern façade, I found that weatherproofing defects in it were established, the rectification of which required all southern façade glazing to be disassembled and re-assembled during which, façade cavity weatherproofing defects were to be rectified. In answer to Question 4, I found that the construction of the southern façade of the Building was in breach of Rialto's obligations to Armmam under the contract for the sale of land. Question 6(c) was specifically limited to the cost of rectifying defects in the individual lot property for Lots 7, 8, 9 and 10 and to the extent that I understand the distinction between common and lot property, the southern facade defects described in answer to Question 1 of this report were present in the common property, and not in the Lot 7 property. If, however, the Court adopts my opinion that Rialto was in breach of its contractual obligations to Armmam in relation to the construction of the southern façade, Armmam would be entitled to 6.75% of $1,527,792.90, which is $103,126.00, inclusive of trade and on-costs but exclusive of GST, at June 2020 prices. (Emphasis in original.)

Scope of the reference and construction of special condition 15

1. The parties diverged as to two matters: first, whether Armamm's entitlement to damages arising from waterproofing defects to the southern façade was within the scope of the reference; and second, the scope of Rialto's rectification obligations prior to completion of the contract under special condition 15.
2. On the first issue Rialto says that (i) question 4 was limited to structural integrity matters, (ii) the referee dealt with waterproofing issues in [209]-[211] not structural integrity matters, and (iii) the finding at [212] that Rialto is in breach of the Armmam contract is for reasons not related to or directly relevant to question 4. Armmam accepts that the matters dealt with at [208]-[212] are not structural integrity matters but says that question 4 was not so limited; it dealt with defects in the southern façade.
3. Question 4 concerned defects in the construction of the southern façade. The referee identified at [192], by reference to the expert evidence, that there were three areas of concern: (1) the extent and severity of water ingress, (2) the combustibility of the cladding, and (3) the structural stability of the façade. The referee correctly characterised "rectifying water entry into the southern window-sills and resealing joints and flashings (cl 15, sub-conditions (c) and (i)) as obligations involving the weather proofing of the southern façade": at [21]. Contrary to Rialto's submission, the issue of whether Rialto was in breach of the Armmam contract plainly falls within question 4. That is, water ingress is plainly a defect of the southern façade, which is a structure designed to prevent water penetration.
4. On the second issue, Rialto contends that the scope of its obligations in special condition 15, specifically sub-cll 15(c) and (i), are narrow and limited to rectification work within the lot property, given the temporal limitation attaching to its obligation is to undertake the works identified prior to completion and that this narrow reading of special condition 15 is supported by special condition 16.
5. Special condition 16 provided that Rialto (i) undertakes that the property is covered by a three-year defects warranty from the builder, (ii) warrants that it has notified the builder of "the defects listed in clause 15 above" and undertakes to ensure that the builder "rectifies accordingly", and (iii) would prior to completion provide certain documents to Armmam, including "a written report from the builder on how the water leak to the windows was rectified". Importantly, special condition 17 provided that cll 15 and 16 shall not merge on completion.
6. Contrary to Rialto's submission, special condition 16 does not suggest that a narrow view should be taken of the scope of Rialto's obligations in special condition 15, specifically sub-cll 15(c) and (i). The undertaking by Rialto in sub-cl 16(b) to ensure that the builder "rectifies accordingly" "the defects listed in clause 15 above", read together with the non-merger provision in special condition 17, makes plain the importance the parties attached to Rialto's obligation in special condition 15 that Rialto and the builder carry out the specified rectification work prior to completion in a proper and workmanlike manner.
7. As the referee observed at [210], Rialto submitted on the reference that if special condition 15 incorporated an obligation to rectify the cause of the manifestation of water entry, it was only local rectification and did not extend across the whole façade. The referee rejected that construction finding at [210] that (a) the promise in sub-cl 15(i) to "rectify water entry to south window sills, and repaint" was a promise to rectify the cause of the damage, (b) the promise in sub-cl 15(c) to "reseal joints and flashings where required" was a promise of rectification of water entry, and (c), the cause of the water damage was water entry from common property into lot property.
8. As the referee found, the language of "rectify water damage" and "reseal joints and flashings" directs attention to the cause of the damage. To rectify water damage and to reseal joints and flashings requires "to set right, remedy or correct" the cause of the damage. On the referee's unchallenged factual findings, those obligations necessarily required correcting water entry from the common property to the lot property. There was no error in the referee's construction of the nature of Rialto's obligation.
9. It was well-open to the referee to find that Rialto did not comply with its promise in special condition 15 to carry out the specified work in a proper and workmanlike manner prior to completion. The referee found that (i) the evidence indicated that the only waterproofing work Rialto's builder carried out was some ineffective sealing of the façade where the water ingress was thought to be prevented, (ii) resealing of the joints and flashings had not been undertaken, and (iii) the work of repairing and repainting the areas damaged by water ingress could only be successfully/reliably achieved once this weather-proofing work was complete.
10. The argument advanced by Rialto against adoption of this part of the report is essentially the same argument which the referee carefully considered and rejected in the report. I am not persuaded that the referee's construction of special condition 15 of the Armmam contract involved an error of law.

Bellgrove v Eldridge

1. The alternative argument advanced by Rialto goes to quantum. It is said that the referee erred in finding that the method of rectification proposed by the lot owners for the southern façade was necessary and reasonable. The qualification in Bellgrove v Eldridge to prima facie rule for assessing damages as the cost of reinstatement is discussed in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13]-[19]. The issue is also discussed in Owners SP92450 v JKN Para 1 Pty Ltd [2023] NSWCA 114 at [69]-[70] (Gleeson JA, Leeming and White JJA agreeing), which is convenient to reproduce in full: Bellgrove v Eldridge recognised a qualification to the rule it stated in regard to damages recoverable by a building owner for the breach of a building contract. "The qualification … is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt" (at 618). The joint judgment gave as an example of unreasonableness, demolishing the walls of a house which were to be cement rendered with second-hand bricks, to replace second-hand bricks with new bricks, which was said to be "quite unreasonable", whilst indicating that the expression "economic waste" goes too far in stating the test (at 618-619). Importantly, the test of "unreasonableness" is only to be satisfied "by fairly exceptional circumstances": Bellgrove v Eldridge at 617, cited in Tabcorp at [17]. Tabcorp at [16] referred by way of an example of unreasonableness to the situation where the innocent party was "merely using a technical breach to secure an uncovenanted profit", citing Oliver J in Radford v De Froberville [1977] 1 WLR 1262. Other examples include where the cost of the "proposed rectification is out of all proportion to the benefit to be obtained": Brewarrina Shire Council v Beckhouse Civil Pty Ltd [2006] NSWCA 361 at [87]-[88], citing South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd [2004] SASC 81 at 90 (Debelle J); and Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462 at [120] (Ipp JA); see also Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 at [81] (Macfarlan JA, McColl and Basten JJA agreeing). For a recent application of this principle in this Court, see Renown Corporation Pty Ltd v SEMF Pty Ltd [2022] NSWCA 233.
2. In considering Rialto's submission on unreasonableness, it is necessary to keep in mind that the referee found at [210] that sub-cll 15(c) and (i) promised to rectify the cause of the damage, which the referee found was water entry from common property into lot property. It is also necessary to take into account the referee's finding at [210] that the purpose of the glazed cavity wall construction flashings, which required rectification, was to prevent water entering a building's interior, and that includes entering through common property into lot property.
3. The rectification method accepted by the referee as necessary and reasonable was for all southern façade glazing to be disassembled and reassembled during which façade cavity defects were to be rectified: at [253]. The damages assessed by the referee with respect to breach of sub-cll 15(c) and (i) included Armmam's 6.75 per cent portion of the costs to the owners' corporation of carrying out the required rectification.
4. As the party in breach, Rialto has the onus of displacing the prima facie rule for assessing damages: JKN Para 1 at [71]f. It has not done so. This is not a case where, in the words of Keane JA in Kirby v Coote [2006] QCA 61 at [52], "[i]t is clear that the expenditure imposed on the defendant is disproportionate to any benefit to the plaintiff in terms of the vindication of the plaintiff's right to recover its actual loss from the defendant".
5. The referee's report in relation to Armmam's claims against Rialto should be adopted. It follows that Armmam is entitled to judgment in the amount sought in its motion. Again, the judgment in favour of Armmam should take effect on 15 May 2023: see [26] above.

Interest on costs and disbursements

1. The default position is that interest runs on a costs order at the prescribed rate from the date of the order, unless stated otherwise in the Court order: Civil Procedure Act 2005 (NSW), s 101(4) and (5). Nevertheless, the Court retains a discretion to order otherwise under s 101(4), including to order that interest run from an earlier date. An order for interest on costs and disbursements from an earlier time than the date of the costs order is essentially compensatory.
2. The orders sought by the lot owners adopt the complex formula set out in order (3) in Lahoud v Lahoud [2006] NSWSC 126 which requires the attribution of payments between the client and the solicitor to particular parts of the party/party costs. As the orders are not opposed, it is appropriate to make such orders.

Costs - the competing contentions

1. In the principal judgment, the Court reserved the costs of the proceedings in this Court and the District Court for further consideration (order 10).
2. The lot owners also seek costs orders against Rialto, both at first instance and on appeal. It is said there is no reason that costs should not follow the event: UCPR, r 42.1.
3. In addition, the lot owners seek a special costs order in relation to the proceedings below and in this Court relying upon a Calderbank offer contained in a letter dated 12 January 2021 from Grace Lawyers on behalf of the lot owners to Rialto's solicitors offering to resolve the proceedings for $750,000 inclusive of costs. That offer was rejected on 13 January 2021 when the solicitors for Rialto made a counter-offer that the proceedings be dismissed by consent with no order as to costs.
4. In written submissions dated 15 November 2023, Rialto indicated that it consented to the following orders being made: 1. there be no order as to costs of the trial with the effect that the parties bear their own costs of those proceedings; and 2. the appellant pay the three respondents' (Cancer Care, CCA and Davjul) costs of the appeal on an ordinary basis.
5. Rialto submitted that it would visit an injustice on it if it was ordered to pay the costs of the aborted District Court hearing, as well as the costs of this appeal (which it acknowledged it must pay as well) and the costs of the reference. It is said to do otherwise would punish the appellant for the trial judge not properly executing his duties and there is nothing that Rialto did to create this situation. It is also said that this injustice would be compounded by an order for indemnity costs.
6. With respect to Armmam's appeal, Rialto submitted that if Armman's motion succeeds, the following orders should be made: 1. there be no order for costs of the District Court proceedings; and 2. Rialto pay the costs of the appeal on the ordinary basis.

Costs in the District Court

1. The default rule in UCPR r 42.1 is that costs follow the event, unless the Court considers some other order should be made. Generally, the "event", as referred to in r 42.1, refers to the event of a claim or counter-claim, as the case may be. It may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15], referring to Windsurfing International Inc v Petit [1987] AIPC 90-441 at 37.861-37,862 (Waddell J).
2. Where a new trial is ordered, the general rule is that costs of the first trial will follow the event of the new trial: Brittain v Commonwealth of Australia (No 2) [2004] NSWCA 427 at [30] where McColl JA (Handley and Tobias JJA agreeing) said: The logic of the general rule is manifest. While the Court has a plenary discretion concerning costs (s 76 Supreme Court Act), the ordinary principle is that costs follow the event: Part 52A r 11. Where a new trial is ordered the parties' rights have not been finally determined. The identity of the successful party has not been established. The general rule is clearly intended to ensure that the ultimate costs order reflects the ordinary principle when the parties' rights are finally determined. Departures from the general rule are intended to deal with situations where its application would lead to injustice.
3. In the present case, the general rule where a new trial is ordered provides a useful analogy where the undetermined issues at trial were referred by this Court to a referee for inquiry and report. If one looks at the District Court proceedings, taking into account the result on appeal, the lot owners have been successful on both liability and in respect of damages.
4. Contrary to Rialto's submissions, an award of costs in favour of the successful party is not to punish the losing party, but to compensate the party which succeeds. No reason has been shown to depart from the usual rule that costs follow the event. The costs of the first trial should follow the event of the adoption of the referee's report. The appropriate order is that Rialto pay the lot owners' costs of the District Court proceedings.

Whether a special costs order should be made?

1. The lot owners say that the Calderbank offer constituted an offer of settlement in unequivocal terms and, assuming the report is adopted and judgment is entered in the amounts sought in the motions, the lot owners have obtained judgment for an amount substantially higher than $750,000. It is also said, without contradiction by Rialto, that at the date of the offer, the lot owners had served their lay and expert evidence, the offer was expressed to be open for 14 days from 12 January 2021, and Rialto had ample time to consider the offer with the benefit of the lot owners' evidence.
2. In opposing a special costs order Rialto submits that it was reasonable not to accept the offer given that it was a "rolled up offer" to resolve all of the claims in each of the proceedings". It is said that it was not possible for Rialto to determine therefore how much each of the lot owners sought in the division of any settlement amount.
3. The difficulty with this submission is that it ignores that the question is whether the offer is made in terms that enable the offeree to give proper consideration to it: Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [13] (Beazley JA, Mason P agreeing). In Monie at [28], Beazley JA said of a joint offer made by three plaintiffs in a single proceeding: … the fact that the offer failed to distinguish between the three appellants does not disentitle them from relying upon it for the purposes of seeking an order for indemnity costs. The recognition of such an offer as a 'valid' Calderbank offer is consistent with the flexibility that attends the making of such offers.
4. Thus, where multiple claimants make a single offer of compromise, a failure to distinguish between the claimants in an offer of compromise is not a reason in itself for refusing an order for indemnity costs.
5. In this case, the offer of joint settlement of four proceedings did not deprive Rialto of the ability to properly assess the claims. As mentioned, the lot owners had served their lay and expert evidence and each of their claims had been fully particularised in the Scott Schedule and the supplementary report of Mr Madden dated 6 November 2020, as referred to in the Calderbank offer. Like the position in Monie at [30], it was unreasonable for Rialto not to accept the offer of compromise because, as the judgments in this appeal demonstrate, the combined value of the claims is in excess of the offer, in an amount that is not de minimis.
6. There is no dispute that the offer of compromise was a "genuine offer of compromise". The lot owners should each have a special order for costs in the District Court proceedings from 12 January 2021.

Costs in this Court

1. It is not in dispute that Rialto should pay the lot owners' costs of the appeal. The parties diverged as to whether a special costs order should be made.
2. Insofar as the lot owners relied upon the Calderbank offer made in the proceedings below, that offer had lapsed (prior to the conclusion of the trial) and it was not possible for Rialto to accept it thereafter. As the offer was not renewed, it cannot be relied upon on appeal as a basis for a special costs order: Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) [2007] NSWCA 194 at [9] (Ipp JA, Mason P and McColl JA agreeing); Monie at [4].
3. Insofar as the lot owners relied on the late concessions by Rialto in not contesting significant parts of the motions, the Court must be careful not to discourage the resolution of proceedings by making costs orders which might otherwise appear to operate as a disincentive for making concessions.
4. Nor is it appropriate in a case like the present, where the adoption of the report was largely uncontested, to spend time attempting to assess whether the concessions reflect a capitulation because Rialto's opposition to the motions was unreasonable, as the lot owners characterise the position, or a contraction of the issues and should not result in a special costs order, as Rialto characterises its concessions.
5. The appropriate order is that Rialto pay the lot owners' costs of each appeal, including the costs of the reference, on the ordinary basis.

Orders

1. I propose the following orders: CA2022/3420, 3426, 3432, 3439 1. In each appeal, pursuant to r 20.24 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), the whole of the report of Ms Janet Grey dated 17 April 2023 be adopted. 2. Judgment be entered for each respondent in the separate appeals in the following amount inclusive of interest up to 15 May 2023: 1. CA2022/3420 (Cancer Care) - judgment for the respondent in the amount of $563,676.55; 2. CA2022/3439 (Armmam) - judgment for the respondent in the amount of $106,585.60; 3. CA2022/3426 (CCA) - judgment for the respondent in the amount of $525,209.50; 4. CA2022/3432 (Davjul) - judgment for the respondent in the amount of $67,303.40; 1. The judgments referred to in (2) above shall take effect on 15 May 2023. 2. In each proceeding in the District Court (2018/115009, 114952, 115043, 2019/91017), the defendant to pay the plaintiff's costs of the proceedings on the ordinary basis up to 11 January 2021, and thereafter on an indemnity basis. 3. In each appeal, the appellant to pay the respondent's costs in this Court, including of the reference, on the ordinary basis. 4. In each appeal, and the proceedings below in the District Court referred to at (4) above, the appellant is to pay the respondent interest on costs and disbursements on appeal and in the proceeding below, at the rates set out in r 36.7 of the UCPR on the Allowed Percentage of each amount of costs and disbursements actually paid by the respondent, from the date of payment by the respondent of each such amount of costs and disbursements until such time as the appellant has paid the costs due to the respondent under any order made in these proceedings where: 1. X - equals the total amount of costs and disbursements which the respondent has paid or is liable to pay in connection with these proceedings; 2. Y - equals the total amount of costs and disbursements agreed or allowed on assessment to the plaintiff in connection with these proceedings; 3. the Allowed Percentage equals (Y/X x 100)%.

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