On 26 September 2014, I delivered judgment in Robinson v Kenny [2014] FCA 988 (Reasons). Terms defined in the Reasons have the same meaning in these reasons unless otherwise indicated.
Robinson v Kenny [2015] FCA 2 | Case summary | Zoe
I determined that Mr Robinson was successful in the Building Cost Representation and Tender Representations claims made against Mr Kenny and ABK under ss 42 and 68 of the Fair Trading Act 1987 (NSW) (FTA) and ss 52 and 82 of the Trade Practices Act 1974 (Cth) (TPA) in connection with conduct leading up to the execution of the Building Contract between Simcorp and Mr Robinson for the construction of works on the Property owned by Mr Robinson. Mr Robinson was not successful on the Builder Communication Representations claim made under the same provisions.
In accordance with [301] of the Reasons, the following components must be taken into account in calculating the amount of the judgment in Mr Robinson's favour:
the amount of $2,471,821.99, being the sum Mr Robinson paid to Simcorp and others to build the works on the Property, as listed in annexure A to the letter dated 23 September 2013 from Mr Kozub of Mr Kenny's lawyers, Gilchrist Connell; plus
interest on $2,471,821.99 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) (FCA Act); plus
the sum of foregone rent for the then existing house on the Property from May 2007 to the present, being $280 per week adjusted for inflation (without account for any periods of vacancy); minus
a sum equal to any change in the improved value of the Property since May 2007 due to the construction of the works as determined by an expert valuer to be appointed by the Court pursuant to r 23.01 of the Federal Court Rules 2011 (Cth) (Rules).
Mr Sheller, Counsel for Mr Kenny, indicated that Mr Kenny agrees the following for the purpose of determining the judgment amount in accordance with the Reasons:
the amount of $2,471,821.99 in accordance with [301a] of the Reasons;
the improved value of the Property in the period from 10 May 2007 due to the demolition of the then existing dwelling and the construction of the home for Mr Robinson is $530,000, as determined by Mr James Eden of Herron Todd White, the expert valuer who delivered his report on 25 November 2014;
the total amount of foregone rent is $124,949.57.
Although [301] does not refer to the costs to complete the works following the cessation of construction by Simcorp in 2009, the parties accept that costs to complete should be taken into account. In May 2013, the parties accepted that the midpoint of estimates by their respective experts of the cost to complete was $299,833; Mr Kenny says this amount should be used in the calculation of the judgment amount. In late 2014, Mr Robinson completed the works and his lawyers advised that the aggregate cost of work done was $562,971.81; Mr Robinson says this amount should be used in the calculation. No evidence has been submitted by Mr Robinson of those costs or of whether the quality of the materials used was consistent with the expectation of the experts in May 2013. On that basis, I will use $299,833 in the calculation.
[2]
Interest
Section 51A(1) of FCA Act provides:
(1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:
(a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or
(b) without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.
Mr Robinson suggests that interest should be calculated on the amount of expenditure by Mr Robinson on building the works from the time construction of the works commenced in June 2007 until Simcorp ceased work in December 2009 (in total $2,471,821.99), aggregating on a monthly basis, until 23 December 2014. He does not seek interest in relation to recent expenditure to complete the works. He takes no account of the improved value of the Property. As a result he claims an amount of $1,208,936.84.
Although at [301a] of the Reasons I suggested that interest should be calculated on the figure of $2,471,821.99, Mr Kenny says that interest should be based on a principal amount of $2,241,654.99, calculated by adding $299,833 (the midpoint of the expert estimates to complete the works) to $2,471,821.99, then deducting $530,000 (the improved value). He suggests that interest should be calculated from 7 August 2008 (the midpoint of construction of the home on the Property) to 30 November 2014.
Mr Kenny says interest is designed to compensate a party for the period in which they are held out of their money. He submits that Mr Robinson had the benefit of the improved value of the Property from the point construction by Simcorp ceased in late 2009 so it is inappropriate to calculate interest as suggested by Mr Robinson. He says that calculating interest on the flat sum of $2,241,654.99 for the period from the midpoint of construction (August 2008) takes into account that the interest would be too high in some periods and too low in others, and on balance it is a just compensation. The resulting interest charge would be $1,114,353. In response to a question I asked of the parties, I am told that the amount of interest calculated on this basis to 23 December 2014, the date of the hearing concerning costs, would be $1,123,528.
I accept Mr Kenny's submission. Mr Robinson did have the benefit of the improved value of the Property even if he was not able to live in the incomplete home on the Property and he did not seek to sell the Property. Having said that, the improved value varied throughout the period with market conditions, as acknowledged by Mr Eden's report, so that the improved value was not at all times $530,000. Mr Kenny's methodology mitigates the impact of recognising the improved value of the Property by taking the agreed midpoint of the estimated cost to complete the works and applying interest rates from time to time on the whole of the amount of $2,241,654.99, although he fails to consider the period of 1-23 December 2014, which should be taken into account.
These circumstances do not admit of easy or exact calculation of interest. I will make an order under s 51A(1)(b) that a lump sum of $1,123,528 be included in the judgment sum in lieu of interest, which in my view does constitute just compensation for Mr Robinson.
On this basis, the total amount of the judgment in Mr Robinson's favour is $3,490,132.56, being the sum of $2,471,821.99 plus $299,833 plus $124,949.57 plus $1,123,528 minus $530,000.
[3]
Costs
Mr Robinson also claims costs on an indemnity basis from 2 August 2012, when an offer of compromise was made by Mr Robinson to Mr Kenny and ABK purporting to be on Form 45 under r 25.01(1). Mr Kenny did not challenge the conformity of this offer with the Rules. The offer was to compromise for $600,000 inclusive of interest and in addition to costs (Offer of Compromise). Mr Robinson has plainly obtained a judgment more favourable than the terms of the Offer of Compromise.
Mr Robinson had, on 5 May 2011, made an offer of compromise for $1,200,000 plus costs. Mr Robinson did not rely on this offer in his application for indemnity costs other than to note that Mr Robinson's 2 August 2012 offer was much more favourable to Mr Kenny and ABK than the offer made on 5 May 2011.
Mr Robinson relied on r 25.14(3) which provides as follows:
(3) If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant's costs:
(a) before 11.00 am on the second business day after the offer was served - on a party and party basis; and
(b) after the time mentioned in paragraph (a) - on an indemnity basis.
I accept Mr Robinson's submission that r 25.14(3) creates a rebuttable presumption in favour of an award of indemnity costs where the applicant receives a judgment more favourable than an offer of compromise, whether or not it was reasonable for the respondents to refuse that offer of compromise.
In IFTC Broking Services Limited v Federal Commissioner of Taxation (2010) 268 ALR 1 (IFTC Broking Services v FCT) at [12], the Full Court (Stone, Edmonds and Jagot JJ) described the difference between an offer made under the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 (Calderbank) and an offer of compromise made by a respondent under O 23 r 11(6) of the pre-August 2011 Rules. Where a Calderbank offer is made, it is significant that refusal of the offer was reasonable and it may be determinative. That factor is not sufficient to displace the presumption in favour of indemnity costs for an offer of compromise under the Rules. In Merost Pty Ltd v CPT Custodian (No 2) Pty Ltd [2014] FCA 594 at [10], North J adopted these principles in relation to an offer of compromise by an applicant under r 25.14(3).
Note 2 to r 25.14 provides that "[t]he Court may make an order inconsistent with these rules - see rule 1.35". Order 23 r 11(6) also recognised the power of the Court to "otherwise order". The power to make an order inconsistent with r 25.14 should be exercised only for proper reasons, which will generally only arise in exceptional circumstances: see Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281 at [17] per Hely J and Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [10] per Tamberlin, Finn and Sundberg JJ.
The third further amended statement of claim (3FASOC) was the form of the statement of claim at the time the Offer of Compromise was made on 2 August 2012.
The respondents submitted that the presumption in favour of indemnity costs after 2 August 2012 should be departed from because:
the Court did not find in favour of Mr Robinson in relation to the Builder Communication Representations claim which was first included in the 3FASOC;
the breach of retainer/breach of duty of care as architect, "power lines" and construction delay claims which were made in the 3FASOC (and prior forms of the pleading) were abandoned on the first day of the trial;
the Building Cost Representation and the Tender Representations claims on which Mr Robinson was successful at trial were not claims made in the 3FASOC;
the Building Cost Representation claim was introduced in the fourth further amended statement of claim (4FASOC), filed on 26 February 2013, after the Offer of Compromise had expired. Mr Robinson's primary case became that he would have abandoned the plan for the works had he not been able to enter into a fixed price contract with a builder for $1.35 million (including GST) or less; it is this claim that exposed the respondents for the first time to the award of damages for all of Mr Robinson's expenditure on the building works; and
the Tender Representations claim was introduced in the sixth further amended statement of claim (6FASOC) for the first time on day three of the trial when leave was granted to further amend the statement of claim.
Mr Robinson submitted that amendments to the 3FASOC resulted from the evidence of Messrs Kenny and Simpson in their affidavits sworn and filed in October 2011. The 3FASOC raised the substance of the misleading or deceptive conduct case on which Mr Robinson was ultimately successful.
I accept Mr Robinson's submission. Although the Building Cost Representation was pleaded in the 4FASOC after the Offer of Compromise had expired, I consider that Mr Robinson's written submissions supporting the application for leave to file the 4FASOC at [9]-[11] correctly characterised the differences between the 3FASOC and the 4FASOC:
… In any case, in respect of the 'Building Cost Representation' the proposed amendment represents a refinement and simplification of the extant pleading in relation to misleading and deceptive conduct.
At paragraph 23B, the extant pleading claims that because Mr Simpson had allegedly told Mr Kenny in about December 2006 that "it would be difficult to do the Works for a total cost of $1.4 million" and that "the Works could not be completed for 1.4 million without specification and design changes" (that evidence is already particularised in paragraphs 8B-8J), certain conduct of Mr Kenny (in (sub) paragraphs 9(c1), 9(g), 9A(b), 9A and 9D) was misleading and deceptive. Mr Simpson's alleged statements (if indeed they were made at all) meant that it was misleading or deceptive of Mr Kenny to, inter alia and as pleaded at paragraph 9B, email to Mr Robinson on 27 April 2007 a draft lump-sum contract on which he had handwritten that the fixed price for the works would be $1.35 million.
The proposed amendments involve no radical surgery to that case but rather focus it more closely on Kenny's representation that the works would cost at most around $1.35 million. In particular, they (1) plead that the representation regarding the $1.35 million fixed price was a representation implied by the conduct of Mr Kenny; and (2) expand somewhat the list of those instances of Kenny's conduct that were contravening because of what Mr Simpson had told Mr Kenny. However, as Ms Edwards [sic] affidavit demonstrates, those few newly pleaded items of conduct are matters deposed to in affidavits already the subject of the respondents' replies or, alternatively, they involve the text or transmission of emails between the parties. In the case of those emails, the proposed pleading merely requires the Court to assess whether the fact of these otherwise uncontroversial documents gives rise to a finding of contravening conduct.
The submissions as to the nature of the Building Cost Representation case were not contradicted by the respondents in submissions on the interlocutory application to amend the 3FASOC.
I am satisfied that at the time the Offer of Compromise was made the respondents had the benefit of necessary evidence reflecting the substance of the factual background raised in the misleading or deceptive conduct case ultimately prosecuted by Mr Robinson. In August and December 2011, the expert reports of architects Messrs Poiner and Cooke were filed, although their relevance was to the breach of retainer/breach of duty case. In August and December 2011, Messrs Davies and Makin, quantity surveyors, filed their reports as to cost-plus and fixed price tender sums in December 2006 and May 2007 (when the Building Contract was executed), post-contractual variations, and estimates of costs to complete the works on the Property. In July 2011, Mr Robinson filed his affidavit to which Messrs Kenny and Simpson responded in their affidavits of October 2011, and in January 2012 and April 2012 Mr Robinson filed further affidavits. In April 2012 Ms Edwards (one of Mr Robinson's lawyers) filed a further affidavit. The 3FASOC was filed on 24 April 2012 and the respondents had until 2 August 2012 to consider that evidence before receipt of the Offer of Compromise.
In IFTC Broking Services v FCT at [9(4)], the Full Court explained the rationale for the equivalent of r 25.14 and the need for a Court to have proper reasons to depart from it:
The requirement for "proper reasons" for any departure from the prima facie position of indemnity costs reflects the purpose of the rule. As explained by Mason P in Morgan v Johnson (1998) 44 NSWLR 578 at 581F-2E (Morgan) the rule is intended to encourage the compromise of litigation (such compromise being in both the private and the public interest) and to oblige parties "to give serious thought to the risk involved in non-acceptance" on the basis that "litigation is inescapably chancy": Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725. For these reasons "the ordinary provision is expected to apply in the ordinary case" (referring to New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102-3).
I do not consider that I have a basis for departing from the prima facie position established by r 25.14(3). It is true that the Building Cost Representation is a different formulation of claims made in the 3FASOC, but for the reasons mentioned at [22]-[23] that has little bearing as they are fundamentally a reformulation of some of the claims pleaded in the 3FASOC and arise out of the same factual matrix. Mr Robinson first pleaded that he would have abandoned the plan for the works had he not been able to enter into a fixed price contract with a builder for $1.35 million (including GST) or less in the 4FASOC, after the Offer of Compromise expired, but that was not relevant to the prospects of success of either party, although it was relevant to the likely measure of damages. It is also true that the Tender Representations claim was only made after the trial commenced; it arose out of cross examination of Mr Kenny concerning the provenance of the Simcorp Quote (which had been in evidence since before the Offer of Compromise). Although these factors exposed the respondents to the possibility of a higher award of damages, they are simply examples of the "chancy" nature of litigation. Rule 25.14 is not predicated on parties having a complete state of knowledge of the evidence; it is silent as to the time at which an offer may be made. It is the "ordinary case" that claims may vary and the appreciation of the significance of evidence changes in the course of the prosecution of those claims, as occurred in this case.
No evidence was provided as to the date of service of the Offer of Compromise. The respondents' chronology dates the Offer of Compromise at 2 August 2012, and I will take that as the date of service for the purpose of the order. I will accordingly order that the respondents pay Mr Robinson's costs on a party and party basis up to 11 am on the second business day after 2 August 2012 and on an indemnity basis after that time.
The respondents raised the concern that the order for costs in favour of Mr Robinson should not displace any order for costs previously made in their favour (such as order 8 made by Emmett J on 10 February 2012), and for the avoidance of doubt, I record that I do not intend that consequence from the orders which I will now make.
At [323] of the Reasons, I noted that "as presently advised", the respondents should be entitled to costs thrown away on the claims abandoned by Mr Robinson at the commencement of the trial. Mr Robinson's action in abandoning those claims mitigated the time, cost and complexity of the trial, and it was an appropriate action. Indeed, it would have been appropriate for Mr Robinson to abandon them before the first day of trial so that the respondents had clarity concerning the case they had to answer. Had those claims been abandoned before trial, an order would have been made in the respondents' favour for costs thrown away and an order under r 25.14 in favour of Mr Robinson would not have disturbed it. Some work relating to the abandoned claims had ongoing relevance, since a misleading or deceptive conduct case was pleaded in the alternative on essentially the same facts. However, it is plain that work was wasted, for instance in obtaining expert architects' opinions. The respondents should recover these wasted costs. I therefore consider it appropriate to make an order that Mr Robinson pay the respondents' costs thrown away on the abandoned claims.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.